California has frequently led with policies that other states follow. On Monday, August 17th, they led again by agreeing with several giants in auto-making on a deal regarding car emissions standards. This deal undermines the Trump administration’s rollback of Obama-era emission standards, which were established in 2012. What does this mean for auto-manufacturing and the future of vehicles in the U.S.?
In late March of this year, the Trump administration finalized its rollback of the previous administration’s climate policy. The new policy requires vehicles to achieve an average of 40 mpg by 2025. This is a decrease from the previous target of 54 mpg by 2025. The rationale for this decision was to help make cars cheaper to buy and make. California took a different approach and set new targets.
On July 25th of 2019, California reached agreement with automakers regarding a plan for their own emissions standard. Like most agreements, there were tradeoffs. The state will grant extensions and be flexible on greenhouse gas reduction targets. The automakers would recognize California’s emission standards throughout the country. While the automakers—BMW, Ford, Honda, Volkswagen and Volvo—agreed to this deal a year ago, it wasn’t until August 17th of 2020 that the agreement was finalized by the California Air Resources Board.
The automakers participating in this agreement will raise the average fuel economy from the current 38 mpg level to 51 mpg by 2026. This does not reach the 2025 mark set by the previous administration, or its average fuel economy. Yet it is 11 mpg higher than the federal standard recently made policy. Selling zero emission cars will also benefit the companies in the eyes of California’s government.
While reaching agreement with 30% of the country’s automakers is a big victory for California, there’s still a good deal of litigation at play. California has challenged the Trump Administration’s climate policy rollbacks. They’ve also challenged the administration for removing the state’s authority to set its own greenhouse emission standards. How courts will decide these lawsuits remains to be seen. Regardless, five automakers agreed to implement California’s emissions standard across the nation.
It’s worth noting that several other large automakers—General Motors, Fiat Chrysler and Toyota—have not agreed to the deal. This may end up costing them because starting last November, California state agencies will no longer purchase from these manufacturers. Then again, depending on how the courts decide these lawsuits, they may have more time to work on their vehicles’ fuel economy average.
2020 has been far from ordinary. With the pandemic, business mileage activity buckled and has yet to return to a pre-COVID normal. Given the amount of companies enabling their workers to continue working remotely for the next year and even indefinitely, it may take considerable time to see mileage return to previous levels. Vehicle sales are likely to be impacted for some time with the influx of rental vehicles into the used car market. The pandemic has also accelerated online vehicle purchases, through apps like Rodo. The only certainty in all of this: it is unlikely companies are looking for additional fleet vehicles.
No matter how fast, fuel efficient or fetching the top of the line look, vehicles are an expense companies are looking to offload, not buy into. Another company vehicle is another potential idle asset, costing your company hundreds of dollars each month it sits unused. If your company is currently looking for alternatives to its fleet vehicles, check out our guide, Fleeting Costs: Transitioning Your Idle Fleet to a FAVR Program.