Fuel-efficiency standards put the economy’s foot on the gas
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Successful investment professionals use a rational approach to make money for their clients. We craft a strategy, thoroughly research market and technical realities, and make the best decisions we can based on all the information available.

That’s the same kind of approach taken to craft miles-per-gallon standards for passenger cars and trucks. Automakers agreed to the current standards back in 2011, which have the corporate average fuel economy topping 40 miles per gallon on the road by 2025. The Environmental Protection Agency reconfirmed that goal after a multi-year review found that the standards are good for the auto industry, the economy and the nation. 

President Trump’s decision to attempt a U-turn on miles-per-gallon standards doesn’t change the EPA’s findings or the underlying facts. And now attempts from Congress to further stall savings for consumers and investments in technology are creating uncertainty for the auto industry and investors alike, when we just need a long-term plan. 

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At Impax Asset Management, we — like many other market observers — see a clear long-term energy trend: The world is moving away from guzzling fossil fuels and toward more efficient and cleaner energy options. In an increasingly global market — one in which U.S. automakers export $65 billion worth of cars and $81 billion in parts each year — the Trump administration’s decision to cave-in to automakers’ change of heart on fuel efficiency takes us in exactly the wrong direction.  

 

In 2016, about 80 percent of all passenger cars and trucks are now sold outside the United States. International markets are growing faster than our domestic market, and they consistently demand higher fuel efficiency than is acceptable in the U.S. Only by building cars with the most advanced fuel-efficiency capabilities can American automakers secure long-term market advantages overseas.

International competitiveness is one reason the auto industry was an advocate for the standards before it was against them. For the last couple of years, automakers have enjoyed record profits even as they have developed increasingly fuel-efficient passenger cars and trucks. 

However, since election day, car companies have decided to pursue short-term gains over long-term growth. The latest efforts by automaker lobbyists has resulted in a bill that would give them “extra credit” toward their fuel-economy goals, allowing them to roll back consumer benefits — especially for SUV and truck buyers — and stall investment in game-changing technologies.

When one undermines America’s fuel- and money-saving clean vehicle standards, one undermines American economic growth. The auto equipment supply industry, for example, employs roughly two-and-a-half times the number of Americans that auto manufacturers themselves do. These suppliers make the technologies that make cars more fuel-efficient.

To help vehicle manufacturers meet current fuel-efficiency targets, top-tier suppliers have been investing heavily in R&D and production capacity to manufacture innovative new products. Changing the rules now will put this important American economic sector at a disadvantage, and drastically slow the pace of investment and innovation. Instead, we need strong standards to ensure that U.S. companies are positioned to compete effectively, and to win.

When you look at the cost of ownership — buying a passenger car or truck, driving it, paying for gas and maintenance — fuel-efficient vehicles are much less expensive. Over the life of a car, the savings that come with greater fuel efficiency dwarf any initial increase in sticker price. Consumers understand this. Helping consumers save money at the gas pump matters to Americans, whether or not the president, EPA Administrator Scott Pruitt, Congress or auto executives agree.

What’s more, the savings from more fuel-efficient vehicles have broad economic benefits because they lead to increased consumer spending in other areas that create local jobs and boost American economic growth. After all, consumer spending remains our economy’s biggest driver.

If we really want to “make America great again,” we must encourage American ingenuity and know-how, and build exemplary cars featuring the latest technology. Rolling back standards, stalling innovation and encouraging production of gas-guzzling dinosaurs are not winning strategies. 

David Richardson is executive director and global head of marketing and client service for Impax Investment Management, which manages approximately $7 billion in assets for institutional investors around the world. 


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