News | Specialty Equipment Market Association (SEMA)

Feds Establish New Fuel-Economy Standards for Model Year 2011

Thu, 04/02/2009 - 00:00

The National Highway Transportation Safety Administration (NHTSA) raised the Corporate Average Fuel Economy (CAFE) standards for model year 2011 vehicles by about 2 miles per gallon (mpg) above the 2010 standards. The NHTSA will use an attribute-based system, which sets CAFE standards for individual fleets of vehicles based on size, taking into account the differences between cars and light trucks (SUVs, pickups and vans).

The industry-wide combined car/truck standard will be 27.3 mpg, based on a 30.2-mpg car standard (up from 27.5 mpg) and 24.1-mpg light-truck standard (up from 23.1 mpg).

Individual car companies have flexibility on how to achieve the rules, whether placing more emphasis on hybrids or reducing vehicle size and weight. Nevertheless, a standard based on each vehicle’s footprint should force automakers to increase the efficiency of every vehicle rather than downsizing some vehicles in order to offset the sale of bigger cars.

By establishing an industry-wide standard with proportional targets, the rule takes into account differing vehicle demographics for individual automakers.

The NHTSA estimates that manufacturers will incur more than $2 billion in costs for additional fuel-saving technologies to achieve the standards. The agency estimates that the resulting price increases to buyers of model year 2011 vehicles will be paid back in additional fuel savings in an average of 4.4 years for cars and 7.7 years for light trucks.

Under the rule, the NHTSA reclassified two-wheel-drive sport-utility vehicles to the passenger-car category rather than light truck.

The NHTSA was directed to raise the CAFE standards under a SEMA-supported federal energy law enacted in late 2007. The law mandates an industry car/truck fleet average of 35 mpg by model year 2020.

Future Actions on CAFE & Greenhouse Gases

Setting new CAFE standards is just the first in a series of inter-related actions being undertaken by NHTSA, the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) to address fuel economy and greenhouse gas (GHG) emissions, namely carbon dioxide (CO2). The reason is simple: CO2 is released in the same proportion to the amount of carbon-based fuel that is burned. Less carbon-fuel consumption translates into fewer CO2 emissions.

Only the federal government can establish fuel-economy standards. SEMA and the automakers have opposed California’s efforts to implement its own GHG program for tailpipe emissions, arguing that it is a surrogate fuel-economy standard. The Bush Administration held the same position.

The Obama Administration is now re-examining the federal government’s position, given the fact that policies to address energy use and climate change are interrelated. The NHTSA has also started working on new CAFE standards for model year 2012 and beyond.

In related news, the EPA is reconsidering a 2007 decision to deny California’s waiver request to regulate CO2 emissions from automobiles starting in 2009. At the time, the EPA reasoned that the 2007 federal energy law would be more effective at reducing CO2 emissions while having the benefit of creating a single, national approach to regulating CO2. Simultaneously, the EPA has tentatively recommended that greenhouse gases be considered a threat to the public’s “health” and “welfare.”

If finalized, the finding would help justify moves in Congress to regulate CO2 emissions using tools other than the Clean Air Act—such as limiting CO2 emissions from smokestacks of utilities and large factories, and allowing emissions trading (“cap and trade”).

Finally, there is wide speculation that the EPA may issue a waiver and allow California to regulate CO2 emissions, while simultaneously establishing an identical federal program. NHTSA’s CAFE standards could form the basis for such an approach. This could accomplish two SEMA-supported goals: creating a national program that overrides a state patchwork system and allowing auto companies to target sales to meet specific market demands.

Under the latter issue, fleet sales would be balanced on a national rather than state-by-state basis.

For more information, contact Stuart Gosswein at stuartg@sema.org.

Health Care Reform Takes Center Stage

Thu, 04/02/2009 - 00:00

SEMA joined hundreds of companies and trade associations in sending a letter to President Obama on the critical need for affordable, private health care options within a voluntary employer-based system. Lawmakers in Congress will soon being drafting legislation intended to reform and expand the nation’s health care delivery system.

The letter praised the President’s commitment to comprehensive, bipartisan reform and a shared belief that all Americans should have access to affordable coverage. The letter noted that “as voluntary providers of health care to more than 170 million Americans, employers are leading the way in helping to improve our health care system. While firmly committed to helping workers and their families meet their health care needs, employers are also struggling with health care costs.”

The letter observed that employers have a direct stake in the outcome since they have been relied upon for decades to provide access to coverage.

“Since 1999, however, employment-based health insurance premiums have increased 120%, compared to cumulative inflation of 44% and cumulative wage growth of 29% during the same period. If we fail to improve our health care system, rising health care costs will threaten the viability of U.S. businesses of all sizes and put job security, pay increases and other vital employment benefits at risk for millions of Americans.

“Faced with a severe and continuing economic crisis, employers simply cannot absorb new burdens, such as specific coverage levels or payment requirements, no matter how well intentioned.”

The letter to President Obama stresses that the nation’s economic security, along with its health security can be strengthened if it is easier for employers to provide access to quality coverage for their workers.

Under the current system, nearly 27 million small-business owners, employees and dependents are left uninsured. Skyrocketing premiums have made it especially difficult for specialty automotive companies to offer health care coverage to their employees. In January 2009, SEMA members responded to a comprehensive survey with a clear message that the nation’s health care system is broken.

The survey results underscored the need to make tough, balanced decisions to help solve the problem.

A Congressional Roadmap to Reform

Legislation must be enacted into law in order to achieve any significant health care reform. Previous attempts have failed so success this time is not guaranteed. Here are some contemplated steps on a path to reform:

Step one has been accomplished: gaining widespread agreement that the health care delivery system is broken. Unlike in years past, the major players are all willing to talk: politicians, health care providers, insurance companies, drug companies, big and small businesses, individuals, etc. Reasons vary: the current system is unsustainable, the number of uninsured is increasing, there are profits to be made by providing care to the uninsured, etc.

Step two is reaching agreement on a direction for reform. President Obama wants to expand the current employer-based system and implement other structural reforms to promote market-based competition, reduce costs and simplify paperwork. Under this approach, companies would be required to provide minimum health coverage to their workers or pay a percentage of payroll to fund a nationwide health insurance program for uninsured Americans.

The payroll tax would probably not apply to “small businesses," but that term has not been defined.

If there is to be any consensus for large-scale reform, expanding the current employer-based system is the likely candidate. The other approaches would likely be very disruptive and controversial, whether creating a single-payer government system or switching to individual coverage. Nevertheless, any reform will pose difficult hurdles.

For the employer-based system, sample deal-breakers include: What is the payroll tax? Will small businesses with 25 employees have to pay a tax? Will all individuals be required to secure coverage? Will competition drive down insurance premiums?

Congress will attempt to craft legislation to address these and other questions. Lawmakers in the U.S. Senate and House will hold hearings and discussions this spring. The goal is to draft legislation in Congress during the summer and complete work this year. It is a very ambitious if not impossible schedule, since the issues—taxes, health and commerce—are under the jurisdiction of multiple committees.

Additionally, there will likely be significant political differences on the role and scope of government intervention in the marketplace. Whether these differences can be bridged is unclear. Lawmakers view the current window of opportunity to achieve success as narrow since the momentum created by the 2008 elections will slow and we will soon be caught up in the 2010 election cycle. The nation’s economic woes may further slow progress.

SEMA is actively engaged on Capitol Hill and working closely with the National Federation of Independent Business (NFIB) and as a member of the Small Business Coalition for Affordable Healthcare to represent and address small-business concerns during this critical debate.