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Fact Checking Auto Industry Claims of Job Losses

Roland Hwang

Posted May 17, 2011 in Moving Beyond Oil, Solving Global Warming, U.S. Law and Policy

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The auto industry has a decades-long history of spreading mis-information about the costs of meeting stronger pollution and fuel efficiency standards.  So it should come as no surprise that the auto industry is now claiming a 62 mpg standard by 2025 will lead to a loss of almost a quarter of a million auto jobs. To support their assertion, they cite the results of a recent U.S. Department of Energy (DOE) forecast. But a closer examination of the DOE forecast reveals the exact opposite conclusion: under 62 mpg standard, jobs in the vehicles manufacturing sector will increase –not decrease-- by 280,000 from 2010 to 2025.

Auto Industry Claim: 62 mpg will lead to “loss of almost a quarter of a million jobs”

As reported in the Detroit News, the primary auto industry lobbying association, the Auto Alliance, sent a letter on May 11 to Secretary LaHood and Administrator Jackson claiming that a 62 mpg standard will lead to a “loss of almost a quarter of a million auto jobs.”

The basis of this assertion is an April 2011 forecast by a branch of the DOE, called the Energy Information Agency (EIA). The Auto Alliance letter claims the forecast shows that “setting a CAFE standard at the level of 62 mpg by 2025 would reduce sales by 14 percent.” The letter then simply asserts that “a 14 percent loss in jobs from today’s 1.7 million job base represents a loss of almost a quarter of a million auto jobs.” [Emphasis added. Note that the 1.7 million job estimate comes from this study for the Auto Alliance and includes auto makers, suppliers, and dealers.] 

Fact Check: DOE Study Actually Shows Job Increase of 290,000 with 62 mpg Standard

Fortunately, the DOE has put all their results online for public review here.   A close examination of the DOE forecast results reveals something far different than what the Auto Alliance claims:

  • DOE estimates vehicle sales will increase from about 10.8 million units in 2010 to 14.8 million units by 2025, as the population grows and the economy recovers. This is a 37 percent sales increase between 2010 and 2025.
  • DOE estimates between 2010 and 2025 jobs in the automobile manufacturing and other transportation equipment industries are forecast to increase by 280,000. This is a 21 percent increase in jobs between 2010 and 2025.

Error #1: Auto Industry Uses Wrong Base Year

The 14 percent “loss” in vehicle sales that the Auto Alliance cites is a comparison of two future 2025 cases. In the 62 mpg case, 2025 sales increase to 14.8 million units and increase to 17.2 million units in the case with no new standards (“Reference case”).

But the Auto Alliance claims there will be reduction in auto industry employment from “today’s” jobs levels. As stated above, the DOE study shows exactly the opposite, that with a 62 mpg standard by 2025, there will be more 21 percent more jobs and 37 percent more sales in the automobile manufacturing and other transportation equipment industries. 

Even if comparing the 2025 Reference case to the 62 mpg case, the estimate of the difference in employment in the automobile manufacturing and other transportation equipment industries is 1.5 percent. Given the assumptions that go into these models, there is essentially no difference in jobs between the two scenarios.

Error #2: Auto Industry Ignores Higher Standards Creates More Jobs Per Vehicle

The Auto Alliance simple formulation also ignores the job creation aspect of more technology content per vehicle. The DOE forecast shows  that there is essentially no difference between the 2010 to 2025 jobs growth for the 62 mpg case compared to the case with no new standards--21 percent versus 22 percent.  This is because the loss in sales in their analysis is offset by the higher value of the vehicles sold due to the greater technology content needed, such as batteries, turbochargers and lower rolling resistance tires.

UAW in a March testimony before the Congress recognized the job creation benefits of fuel-efficiency components:

“The simple equation for understanding how this job creation occurs is that the new technology required to meet tailpipe emissions standards represents additional content on each vehicle, and bringing that additional content to market requires more engineers, more managers, and more construction and production workers.” [Testimony of Barbara Somson, UAW, before the Senate, March 17, 2011]

DOE Study Overestimates Impact of 62 mpg on Auto Sales

Even this 14 percent sales difference is too high since DOE relies upon older estimates of the costs of new fuel-efficiency technologies. The DOE estimates the average cost for a new vehicle will go up by $4600 and requires 23 percent electric vehicle sales to meet the 62 mpg standard.

The best, most up-to-date analysis of fuel economy potential is by the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and the California Air Resources Board. These agencies estimate the cost to meet a 62 mpg standard is between $2800 and $3500 and would require between 4 to 14 percent electric vehicle sales.

These newer, lower cost estimates will reduce, or even eliminate, any loss in vehicles sales. Indeed more recent analysis by the University of Michigan for Citi Investment Research suggests that reducing fuel consumption 6 percent per year would boost vehicle sales by 6 percent by 2020 since the fuel savings substantially outweigh the costs.

Previous Auto Industry Cost and Job Loss Claims Discredited

The Auto Alliance appears to be switching gears from relying on a widely criticized study by the Center for Automotive Research (CAR)—an organization heavily sponsored by auto companies. Not surprisingly, the CAR study found a very high price tag, $6,435 per vehicle, to meet a 62 mpg standard that would lead to a 22 percent sales loss and 220,000 less auto sector jobs.

Unfortunately for the Auto Alliance, the independent International Council for Clean Transportation concluded in a strong critique that the CAR study had “so many fundamental technical and scientific errors” and it “cannot…serve as a basis for serious policy discussion.”

Again not surprisingly, the most recent auto industry claim is consistent with their statements over the past four decades:

  • During a 1972 Congressional testimony, General Motors vice president Earnest Starkman declared that if automakers were forced to introduce catalytic converters on 1975 models, “It is conceivable that complete stoppage of the entire production could occur.”
  • In 1972, Ford president Lee Iacocca claimed that if the U.S. Environmental Protection Agency does not suspend the catalytic converter rule, it will cause Ford to shut down and would result in: 1) reduction of gross national product by $17 billion; 2) increased unemployment of 800,000; and 3) decreased tax receipts of $5 billion at all levels of government so that some local governments would become insolvent.
  • During a 1994 review of the California Air Resources Board’s Low Emission Vehicle program, the automakers estimated the cost of meeting key standards to be between $862 and $2,799. Actual costs? Between $120 and $336, depending on the emissions level.
  • In 2007 under testimony in the Vermont trial of the California Clean Car Program, GM’s expert claimed that GM’s cost to meet California’s standard would be greater than $6,000 per vehicle, and they would have to completely stop selling cars and small trucks in states that had California’s standards.

Conclusion: Auto Industry Claims of Job Losses are False

A close examination of the DOE’s analysis leads one to the simple conclusion that the auto sector jobs will substantially increase from 2010 to 2025 with a 62 mpg standard.

The Obama administration begins finalizing new fuel efficiency and auto pollution standards this summer—in preparation for a decision in September.  It’s likely the auto industry will be filing new reports and studies that show how prohibitively expensive it will be to meet the new levels. For the sake of our energy security, economy and environment, let’s hope the auto industry puts aside the rhetoric and instead puts its engineers to work.

 

 

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Comments

AlexMay 17 2011 11:05 PM

I'll just leave this here.

http://www.autoextremist.com

JohnMay 18 2011 12:04 PM

There's barely a handful of cars that get 40 MPG right now, and you're saying a requirement to have all cars at 62 MPG by 2025 won't hurt the auto industry? Of course sales will go up because people like fuel efficient cars, which is why the auto industry is having an arms race to see who can make the most fuel efficient car right now, but mandating them to meet those standards would break the bank. That's so unrealistic...get out of fantasy land

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