The Paris Agreement and the Auto Industry

05 June 2017 Dashboard Insights Blog
Authors: Jeffrey A. Soble

With President Trump announcing that he will withdraw the United States from the Paris Agreement, the Auto Industry is sure to be impacted.  But, how is definitely not known.

One impact may be the development of “green car” technology and production.  Even before the announcement, there were those who believed that China would adopt electric vehicles faster than the United States.  California Governor Jerry Brown is already on his way to China to “spread the gospel of California’s auto policies, including a state rule requiring an increase in annual sales of zero-emission vehicles powered by batteries or hydrogen.”

With major markets, both developed (Europe, Japan, Korea, and California) and developing (China, India, and Africa) committed to the Paris Agreement, U.S. auto manufacturers hoping to compete globally may be compelled to push ahead with green technologies regardless of whether the United States withdraws from the Paris Agreement.  Add in the presence of disruptors like Tesla, and consider just how much flexibility the U.S. Automotive industry has if it wants to stay current and competitive. Further, auto sales generally appear headed down in the United States, meaning that if automakers want to increase sales, revenues and profits, they are going to have to be global players able to compete all over the world – regardless of emissions standards and regardless of whether the United States is in the Paris Agreement.  In fact, the immediate reaction of U.S. OEMs was to reaffirm their commitment to reducing emissions.

Of course, as quoted by CNBC, Kelley Blue Book executive editor Jack Nerad, U.S. OEMs might be happy despite their public statements, “Auto makers might try to mask their joy at the withdrawal from the Paris Accord on climate change,” Nerad said, “but many of them will rejoice that they will be less likely to be forced to sell vehicles that U.S. consumers don’t seem to want.”  Likewise, German automakers fear that they may become less competitive to their American competitors as a result of the U.S. withdrawal from the Paris Agreement.

The simple fact of the matter is that the economy is global.  Selling in only one market for an automotive company is a recipe for becoming a defunct automotive company.  Additionally, auto manufacturers have spent years trying to leverage a single platform into as many markets as possible.  The idea that they will suddenly increase the number of platforms, reduce cost savings and reduce profit margins because the United States withdraws from the Paris Agreement would appear to be against their own interest.

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