Carmakers can realistically achieve these targets despite the shift in segments and decreasing price of oil, which can lead consumers to choose less efficient models. Carmakers will need to continue improvements in ICE (Internal Combustion Engine) powertrains, apply mass-saving strategies, and pursue efforts toward electrified powertrains. The California Air Resources Board (CARB), however, and the 22 states that agree with CARB have set 20% more stringent targets for 2026. Ford, Honda, Mercedes, and BMW support the CARB targets. The CARB targets are likely to require a much heavier dose of mass-saving and electrification initiatives than the targets announced by the EPA. GM, FCA, and Toyota support the current administration’s targets.

DuckerFrontier’s automotive and materials experts are closely monitoring the impacts of this new ruling and the impact on vehicle weight reduction. Below are recent insights from our experts:

• The North American auto industry has been preparing for this announcement ever since the EPA proposed changes to drop CO2 advancements post-2021 (in fact, several OEMs have picked sides; some are siding with the more stringent CARB requirements, and others are supporting EPA requirements).
• Many OEMs producing and selling vehicles in the US have vehicles that are produced and sold in markets outside the US; therefore, they have to monitor and develop shared vehicle architectures with powertrains that adapt to the least common denominator, which likely includes Europe and select markets in Asia.
• Given more stringent CO2 goals in the EU, some OEMs have elected to reduce their exposure to those markets, while aligning their production footprints in the US to light trucks (SUVs, CUVs, pickups, etc.), which have lower CO2 goals compared to passenger cars.
• The 1.5% annual CO2 savings goal outlined by the EPA’s SAFE plan also implies a share of BEVs and PHEVs, which is again lower than what CARB has outlined.
• Powertrain improvements will form the basis of improvements expected to yield over 50% of the expected savings; electrification in all its forms will also contribute 20–30%. Mass savings through the use of advanced grades of steel and aluminum could also contribute over 10%.
• CARB has not relinquished its rights to set its own CO2 standards; however, together with 22 other states, CARB sets 20% more stringent standards for OEMs—Ford, Honda, Mercedes (Daimler), and BMW support the CARB-outlined CO2 goals.
• The policy is a great start and will require a very careful mix of powertrain improvements, including engine “right-sizing,” multi-gear transmissions, direct-injection, turbos, start/stop, etc., along with electrification and mass-saving initiatives.
• Today, given what we know about OEM vehicle-model-release cadence, we can certainly expect a steady increase in the use of advanced grades of steel and aluminum in all its product forms (sheet, castings, extrusion, and forgings) to achieve the 1.5% annual CO2 reduction goals.
• The conversion of heavier materials to mass-saving, lighter-weight materials is necessary, especially given how technology enhancements for comfort, convenience, and safety are increasing the mass of vehicles.
• The absence of this policy, along with the sustained low price of fuel, would have likely had a detrimental effect.

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry. How can we help you deliver the best performance for your business in 2020? Contact us to connect with an automotive industry expert.

*Editor’s note – please check back regularly, as our global automotive team will be updating this article with the latest insights on the impact of COVID-19 to the global automotive industry. For questions or to talk directly with an automotive expert, please email info@duckerfrontier.com

We are constantly monitoring rapidly changing developments surrounding COVID-19 to separate signal from noise and provide the most important insights for your business, now with a centralized hub for all of our analysis.

DuckerFrontier’s automotive and materials experts are keeping track of the latest COVID-19 developments and their impacts on the global automotive industry. Below are recent insights from our experts:

• Companies are revising their expectations: Automakers are revising their global production and sales volume expectations amid the continued spread of COVID-19. LMC Automotive revised its 2020 annual North American vehicle production forecast downward by nearly 10% or approximately 1.5 million units. Although a rebound is expected, production volumes are expected to fall short of the 16.7 million forecasted for 2021. While many suppliers have up to 90 days of finished parts on hand, open-ended labor shortages and the burden of identifying alternative materials will continue to impact production. With OEMs officially halting production through the end of March, ripple effects of supplier plant shutdowns are being felt across the industry.
• The extent of the impact depends on consumer behavior and production needs: Does supply chain protection have a significant impact if consumers cannot go out to purchase vehicles? While supply chains may be the first element to suffer amid a labor shortage, the industry can be impacted at any point in the business cycle. Aside from a lack of consumer purchases, the entire supply chain will be disrupted, as plants will shut down for four to eight weeks due to “social distancing” measures in most US states and Canada. The lag between Europe’s, North America’s, and China’s outbreaks will help rebuild the missing inventory of parts resulting from the shutdown in China, which could create better alignment for a clean start when the confinements have ended. OEMs and tier suppliers will hit the ground running once they have the green light to reopen production facilities.
• Unknowns continue to stall planning: New cases of COVID-19 are decreasing in China and South Korea, but cases in Europe and North America continue to rise. Response strategies are constantly changing as we learn more about the contagion’s patterns. Could production parts be carriers of the virus? Are protocols in place across the globe to sanitize shipments? Executives should monitor responses from suppliers and local governments across the globe for potential impacts to their supply chains.
• Looming global recession: Unlike the 2008–2009 automotive recession, the current situation isn’t suffering from high structural issues (such as overcapacities), and—based upon economic recovery capacity—the market will likely resume and ramp back up slowly after confinement measures are lifted. However, secondary effects to the financial markets could impact employment and create uncertainty in demand, resulting in further production adjustments.

Our team of experts is closely monitoring COVID-19’s impact on the global economy and business environment. Subscribe to The Lens, our weekly newsletter covering the latest global events impacting your business and our most up-to-date coverage on COVID-19.

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry. How can we help you deliver the best performance for your business in 2020? Contact us to connect with an industry expert.

The question remains, will the North American automotive industry feel the same impact as those around the world?

DuckerFrontier’s automotive and materials experts are closely monitoring implications for the global automotive industry supply chain. We see a significant share of aftermarket automotive parts sourced from China for a broad spectrum of applications: ware-based parts like brake pads, rotors, wipers, and other replacement parts including trim, electronics, motors, and powertrain.

North America is not heavily dependent on components from China for OEM (original equipment manufacturer) automotive production, though risks still exist with parts that have the potential to disrupt some specific vehicle trim level production. DuckerFrontier’s automotive industry experts outline the risks that could have the largest impact on your business:

• Cast aluminum wheels, with over 80% penetration for North American produced light vehicles, are most directly implicated, especially as over 50% of all cast aluminum wheels are imported from China.
• PCB (printed circuit boards) and LCD (liquid crystal display) – increasingly used for instrument clusters and infotainment screens – are at risk as China has a significant share of the global supply chain.
• Given the large volume of inventory, most carmakers have dual-sourcing possibility for most parts which may ease the pressure for certain OEMs and suppliers but will create bottlenecks for the whole industry.
• The risk of production suspension is dependent on the current inventories. As Chinese factories are expected to start over in a matter of weeks, emergency logistics can take over to avoid any disruption in production.

Our team of experts are closely monitoring the coronavirus’ impact on China’s economy and business environment. Subscribe to The Lens, our weekly newsletter covering the latest global events impacting your business and  our most up-to-date coverage on COVID-19.

DuckerFrontier’s Automotive & Transportation team is at the forefront of key trends impacting the industry. How can we help you deliver the best performance for your business in 2020? Contact us to connect with an industry expert.

• The rules of origin (ROO) will increase from 62.5% under NAFTA to 75.0% under the USMCA. For OEMs producing and selling vehicles in North America, this implies that supplier footprint requires realignment from sourcing parts internationally to North America, and further analysis on share of parts between US, Canada, and Mexico.
• Secondly, 40-45% of the parts produced for consumption in North American produced light vehicles will need to come from workers earning at least $16 USD per hour. For firms with a production footprint in Mexico – where the average wage for automotive parts workers are well below US standard wages – reorganization and renegotiation of parts pricing is required. According to the US International Trade Commission, an average cost increase of 1.6% is estimated for vehicles.

Ultimately, as the dust settles, North American production-based OEMs can begin to finalize planning and allocate products/programs that fit with the USMCA guidelines, especially as it relates to parts that originate from North America or the ROW.

In DuckerFrontier’s whitepaper, What “the new NAFTA” means for North American auto supply chains Analyst, Emilie Newton and Managing Director, Abey Abraham outline the base-case, upside, and downside 2020 scenarios for automotive firms surrounding USMCA legislation.

To build the right plan for your business to navigate changes surrounding USMCA, contact a DuckerFrontier automotive expert today.