Current Events: Government, Not Consumer, Is North to Auto Industry’s Compass

by William Yeatman on December 30, 2014

in Blog

News this week indicates the extent to which climate policy has assumed the driver’s seat of the auto industry.

gosplan 1111In a story on market “disrupters” in yesterday’s Financial Times ($), Robert Wright highlighted Ford’s decision to use aluminum to render the body of the F-150, the sales of which comprise up to 90 percent of the company’s profits. Aluminum never before has been incorporated into a mass produced vehicle on such a scale; Ford is using it in order to make the trucks lighter, and thereby achieve greater fuel efficiency/lower greenhouse gas emissions. Reports Wright:

“It’s a huge change,” Michelle Krebs, an analyst at says…Ford is hoping to gain first mover advantage. It believes that General Motors and Chrysler will have to redesign their vehicles to meet new fuel efficiency[/GHG] standards—and the first manufacturer to make the transition should retain a long term lead in the market.  

Also yesterday, the Wall Street Journal’s Ulrike Dauer reported that Audi plans to invest $29 billion over the next 5 years, of which 70 percent will go technologies that would “meet CO2 limits worldwide.”

Capital allocation decisions at auto companies are made years in advance, so presumably these businesses factored projected high fuel prices into their budgeting determinations. Nonetheless, government climate change mitigation targets reportedly figured paramount. Due to government policy, moreso than consumer demand, Ford is engineering a risky re-design of its best-selling car, and Audi is spending $20 billion over the next half decade.

Only time will tell whether this government-driven technological shift will work and what will be the market ramifications. It would seem a good time to invest in aluminum, for example. What is certain is that consumer preference has taken a backseat to government policymaking in the auto industry.

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