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The Alliance View: CAFE PlusThe Aluminum Association / September 2016
What I’ll Cover…
1. Context Massive Change
2. AVs When – Who – How
3. Safety Myths and Facts
4. CAFE / Midterm Our Perspective
5. Election 2016 Implications
SETTING THE CONTEXT• High velocity change• Massive, productive R&D• Key factors for looking at future
“We are at an inflection point in the history of transportation. The usage of automobiles as we know it is going to fundamentally change.
This will have seismic implications to many sectors of our economy and will fundamentally change our way of life.”
Insert Uber
• AV concept firmly part of popular culture –Drudge Lead
• That Uber is at center of the storm speaks volumes
• Pace of change has accelerated dramatically
• It’s not just industry being disrupted; it’s the way we live our lives
• This is a global contest – Game on
• National “rules” will define the competitive landscape
• Three dynamics woven together: Ride sharing vs ownership Introduction via ride sharing Electrification v other powertrains
OEMs R&D Commitment is Massive
• In 2015, an estimated $680 billion was spent on R&D worldwide - 16% of global R&D expenditures coming from the automotive industry
• Autos are third largest spender
• 16% of global R&D spend but only 4% of Fortune Global 500
• 5 of the top 20 R&D spenders are OEMs
• 25% of BCG’s Top 10 Most Innovative Companies over the last 3 years are OEMs
010203040506070
Most Innovative Companies By Industry: 2012 - 2015
Autos
Commitment = Innovation = Progress
Compared to 10 Years ago…QUALITY SAFETY TECH FUEL ECON
Much Better 31 40 62 35
Somewhat Better 30 31 21 33
Slightly Better 18 14 10 20
BETTER 79 85 93 88
SAME 9 9 5 9
Slightly Worse 8 4 1 2
Somewhat Worse 2 1 1 ---
Much Worse 2 2 --- 1
WORSE 12 7 2 3
We (Mostly) Earn Credit for Success
Advancements in fuel economy and safety are the result of...
36% Government regulations42% Automakers responding to consumer demands23% Not Sure
Rep. Dem. Other
Gov. Regulations 24% 45% 33%
Automakers 56% 33% 41%
Not Sure 21% 22% 27%
Big partisan split:Rs + 32 private; Ds +12 govt
“Industry” Favs Strong & Product-Based
Source: Auto Index 2015
0%
10%
20%
30%
40%
50%
60%
70%
Opinion Of The Auto Industry: November 1, 2015-August 28, 2016
Favorable Unfavorable Not Sure
Favorable
Unfavorable
Not Sure
Social Objectives Harmonized by Tech
Safety Environment
The Old Paradigm Crash Avoidance Changes Everything
Fewer crashes = less congestion
Less congestion = less fuel use and loweremissions
Fewer crashes = better safety outcomes
Fewer crashes = more productivity for businesses and more time for individuals
Affordability Key to Virtuous Cycle
-80%-70%-60%-50%-40%-30%-20%-10%
0%10%20%30%40%50%60%70%80%
Car $
Income
Rates
Percent Change Of Median Household Income, New Car Prices, And Interest Rates: 1991 Baseline
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0
2,000,000
4,000,000
6,000,000
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10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
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81
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011
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015
Year-O
ver-Ye
ar Pe
rcen
t Ch
ange
In V
eh
icle Sale
sA
nn
ual
Lig
ht
Du
ty V
eh
icle
Sal
es
Vehicle Sales And Percent Change From Prior Year: 1964 - 2015
Percent Change In Sales From Prior Year Total Vehicle Sales
Sourced and Compiled from Ward’s Automotive
2
1
24
1
3
13
4
2
3
3 4 1
3
52
6
Consecutive Up Years
Consecutive Down Years
Key Question: How much longer?
Economic Realities Will Drive Political Outcomes
AUTONOMY
The Feds Have Spoken!
AVs – Revolution or Evolution
• 99% is pretty easy but that last 1% is pretty challenging
• Weather best example…
• How good does it need to be?
• Limited place & time
• Regulatory approach issues…
• Hand-off issues…
Market Penetration of Self Driving Cars (Moody’s 3/16)
Year Fleet Share
2020 Available
2030 Common
2035 Standard
2045 Majority
2055 Ubiquitous
Reservations About Self-Driving Cars Are Real
How do you feel about the prospect of owning a car with self-drivingtechnology, so you can relax or work as you travel?
Adults Men Women Republican Democrat Other
Excited and Can’t Wait 9% 12% 6% 8% 11% 9%
Excited but Nervous 17% 14% 20% 13% 20% 19%
Open to the Idea 34% 37% 31% 32% 37% 32%
Oppose this Technology 36% 33% 38% 45% 28% 36%
Not Sure 4% 3% 5% 2% 5% 4%
Men somewhat more eager; Dems more eager than GOP
Attitudes About AVs Are Forming Fast…
Who Do You Trust Most To Put Self-Driving Technology In Cars?
June 2014 December 2015
All Adults All Adults
Technology Companies like Google 25% 32%
Traditional Auto Manufacturers 35% 42%
After-Market Product Shops 3% 5%
Not Sure 37% 20%
OEM advantage holding; “Not Sure” diminishing; Cuts by age
We Do Better Predictively…In five years do you expect to buy a car from a traditional automaker or a technology company like Google or Apple?
Adults Men Women Republican Democrat Other
Traditional OEM 68% 70% 67% 74% 66% 67%
Google / Apple 11% 14% 8% 9% 12% 13%
Not Sure 20% 16% 25% 18% 23% 20%
In ten years do you expect to buy a car from a traditional automaker or technology company like Google or Apple?
Adults Men Women Republican Democrat Other
Traditional OEM 66% 68% 64% 72% 64% 63%
Google / Apple 12% 11% 13% 10% 13% 12%
Not Sure 22% 21% 23% 18% 23% 25%
Not a question of trust or preference but expectation of reality…
Concerns About Driving are Revealing…What is your greatest concern about driving….. Traffic congestion, auto safety,
gas mileage, distracted drivers, or hackers attacking your car’s computer?
Adults Men Women Republican Democrat Other
Congestion 19% 25% 14% 21% 21% 17%
Safety 19% 15% 23% 14% 21% 21%
Gas Mileage 10% 9% 10% 8% 10% 11%
Distracted Drivers 48% 46% 49% 54% 43% 47%
Hackers 2% 2% 2% 2% 1% 3%
Not Sure 2% 2% 2% 2% 3% 2%
Distraction pops big; dominant concern – Hacking is not a concern
CAFE
But the car companies are not happy. This week,
they sent their minions to Capitol Hill to plead
with Congress to do something! This would be the same Congress that has failed to do anything at all for the past 7.5 years. Good luck with that, lads.
The Battle Lines Are Forming….
Consumers, Business & Government = Success
• Goals are meaningful & aggressive
• Success requires SHARED commitment
• CAFE already yielding significant progress
• Failure is bad for everyone/society; balance is important
• Yet only OEMs have real skin in the game
CAFE
The Road Ahead Gets Steeper and Tougher
Source: EPA Trends Report
And Very Few Products Now Get There…
Source: 2015 EPA Trends Report
MY 2015 Vehicle Production That Meets Future CO2 Emission Targets with Current Powertrains
Target Year
Here’s How Regular People Reflect on These
Issues…
Climate Low on Perceived Threats…The biggest threat facing the United States today:
Terrorist attacks 31%Race relations 22Weak economy 20
Climate change 11Something else 13
Is climate change = global threat that requires greater governmentregulations even if that raises prices on new cars or is the cost ofgovernment regulations to achieve better FE and lower carbonemissions pricing new cars out of reach of many American families?
DEM GOP Other
Global threat, more regulations 42% 70 18 38Pricing new cars out of reach 41 16 64 42
Source: Auto Alliance Polling 2016
Mobility Essential; Gas Price StableShould mobility be discouraged because cars increase carbon levels andharm the environment or should mobility be encouraged because itprovides people the freedom and flexibility to decide where they live andwork?
DEM GOP OTHER
Discourage mobility 16% 25 9 14
Encourage mobility 69 54 82 71
Thinking about gas prices over the next decade, will they:
Decline 9%Remain roughly the same 28Increase slightly 35Increase a lot 19Source: Auto Alliance Polling 2016
If electric cars cost the same as cars with traditional gas-powered engines,and also could travel 250 miles per charge, would you prefer to purchasean EV or a traditional gas-powered car?
DEM GOP OTHER
EV 48% 64 33 44Gas 43 30 58 43
How much more would you pay for an electric car if you could plug the car
in at home and avoid the cost of buying gas?
Nothing 43%
Up to $2,000 28$2,000-$5,000 12$5,000-$10,000 5More than $10,000 2
Source: Auto Alliance Polling 2016
Just 7% would pay more than 5K
Like Idea of EVs But No Appetite to Pay…
Car companies are obligated to reach an average FE standard of54.5 MPG by 2025. OEMs say under the new standard, consumerswill have to pay more for cars and buy more hybrids and EVs. Is the54.5 MPG target:
DEM GOP OTHER
Far too aggressive 22% 12 35 20
Too aggressive 25 19 35 22About right 36 49 21 38Too lenient 7 12 2 7Far too lenient 3 2 1 4Not sure 7 7 6 9
Source: Auto Alliance Polling 2016
5 to 1 see CAFE as too aggressive
CAFE Standards Seen as Too Aggressive…
Do you agree that the U.S. government should continue to increase fuel efficiencystandards and enforce them?
DEM GOP
Agree 61% 80 43
Disagree 26% 11 43
Do you agree that automakers should continue to improve fuel economy?Agree 84%Disagree 10%
How much more would you pay for a new car so it will meet the U.S. government’snew fuel efficiency standards?
Nothing 22%
Under $1000 31$1000-$2500 29$2500-$5000 9
Over $5000 3Source: Auto Alliance Polling 2016
12% would pay more than $2.5K----
53% would pay less than $1k
Like Idea of CAFE But Not the Cost
Thoughts on the Technical Assessment Report –
Part 1 of the Midterm Review
What Type of Engine Will Your Next Vehicle Most Likely Be Powered By?
0%
10%
20%
30%
40%
50%
60%
70%
80%Hybrid Gasoline Electric Diesel Something Else
37% 51% Overall, very stable – almost 5000 samples per month Subtle drift in intent away from alternatives to ICE Drift pre-dates fall in gas prices Consumers operate with “enough is enough” mentality
Source: Alliance Auto Index 2012-2016
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
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4.5%
0
100,000
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Un
its
Sold
Alternative Powertrain Sales And Percentage Of All VolumeHybrids Plug-in Hybrid Electric Hydrogen Percent All Volume
“EV and Hybrid Loyalty Falls to All-Time Low”
Premise that exposure is all it takes is false
Purchases down two years in a row
38.5% 27.5%
Source: Alternative Powertrain Sales Data: Ward’s Automotive
Fuel economy, although important, is not a top purchase reason for new car buyers.
Rank Purchase Reasons Percent
1 Overall Safety of the Vehicle 63%
2 Overall Driving Performance 59%
3 Overall Value for the Money 58%
4 Overall Impression of Durability/Reliability 58%
5 Price/Deal Offered 56%
6 Safety Features 56%
7 Riding Comfort 54%
8 Handling 53%
9 Braking 52%
10 Comfort of Front Seat 52%
11 Affordable to Buy 50%
12 Road Holding Ability 50%
13 Front Visibility 50%
14 Engine Performance 50%
15 Warranty Coverage 50%
16 Overall Seat Comfort 48%
17 Overall Exterior Workmanship 47%
18 Maneuverability 47%
19 Fun To Drive 46%
20 Fuel Economy/Mileage 46%Source: NVES 2015 Survey
In 2015, after reviewing the Strategic Visionsurvey results, the NAS panel concluded that,“…while consumers value fuel economy,they do so in the context of other attributesthey also value… they look for the most fuel-efficient version of a vehicle they alreadywant to purchase… Consumers are buyingfuel efficient versions of vehicles that suittheir wants and needs.”
Fuel Efficiency Not Nearly The Biggest Driver
Source: The Mellman Group 2016
Retail Gasoline Prices: March 2003 - April 2016
$-
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Gas prices significantly below level when rule was issued…
Source: EIA
New Reality of Structurally Lower Gas Prices
Source: EIA
… we are entering an era oflonger term relatively lowgasoline prices. Low gasolineprices will lead to a mismatch,perhaps severe and alreadyunderway, between consumerpreferences and the auto fleetrequirements…
Such a mismatch… representsa substantial risk to the healthof the US auto industry.
Energy Policy Research Foundation - 8/1
$1.75
$2.25
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$3.75
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2013 2014 2015 2016
Hyb
rid
Ve
hic
le S
ale
s (%
of
sale
s)
Hybrid Sales Gas Prices
Yet Buying Habits Very Much Linked to Gas Prices…
Price
Of A
Gallo
n O
f Gas
“Even though you see that the gas price has gone down, I see no indication long term that people are changing
their buying habits.”Gina McCarthy │ EPA Administrator │ January 7, 2015
Source: Ward’s Automotive, EIA
Model Gas Hybrid % Gas MPG
Ford Fusion 253,532 36,845 87%
SE (gas) 22-34SE (hybrid) 43-41
Honda Civic 429,508 4,848 99%
Gas 31-41Hybrid 44-47
Subaru Crosstrek 112,923 6,591 94%
Gas 26-34Hybrid 30-34
Toyota Highlander 213,136 5,580 97%
Limited (gas) 18-24Limited (hybrid) 27-28
Consumers Optimizing? Not Really…
Perceptions / Reality of Payback Drive Behavior
Source: Indiana University School of Public and Environmental Affairs
SIMPLE PAYBACK PERIOD
Gas Price Fall Impacts More Than Just Fleet Mix
Q: Have lower gasoline prices caused the level of fuel economy consumerschoose to fall… below the level manufacturers must attain?
This could happen if consumers shift across vehicles subject to the same standard butwith lower actual fuel economy, for example, if they opt for the version of a vehicle witha six-cylinder engine rather than a four-cylinder engine. The six-cylinder version has lowerfuel economy, but because the two vehicles are the same size, they are subject to thesame fuel economy requirement. If consumers shift to vehicles with lower fuel economybut the same size they would have chosen otherwise, the costs to manufacturers andeventually to consumers of meeting the standards would be higher…
Do Low Oil Prices Undermine US Passenger Vehicle Fuel Economy Standards?Jul 19, 2016 | Benjamin Leard, Joshua Linn, Virginia D. McConnell
Much More Hybridization Necessary To Comply
Source: Novation Analytics, LLC
TECHNOLOGY PENETRATION RATES TO ACHIEVE MY 2025 AGENCY STANDARDS (EXAMPLE)
“A clear and uniform national policy is not only good news for consumers who will save money at the pump, but this policy is also good news for the auto industry which will no longer be subject to a costly patchwork of differing rules and regulations.”
Carol Browner, May 2009
Still subject to costly patchwork
Compliance with more stringent EPA carbon requirements may still not equal NHTSA compliance
ZEV produces no net CAFE benefit but adds significant compliance costs for consumers nationally
Absence of ONP Only Likely To Get Tougher“EPA-NHTSA Tensions Drive CARB Threat To Adopt Stricter Auto GHG Rules”
“The ability to do this as one national program is definitely going to be more of a challenge in the future”
Mary Nichols, CARB Administrator, addressing vehicle GHG standards at a July 21, 2016 (CARB) Meeting
Our concern is both about the here and now and the long term
Lack of harmonization = higher consumer costs
Focus on minimizing regulatory friction critical to affordability and virtuous cycle / fleet turnover
1. Forcing excess costs inhibits fleet turnover(compromising FE, safety, productivity, etc.)
2. People buy fewer cars = less production = lostjobs (MW and South)
3. Vehicle choice conceptually protected byfootprint approach until stretching to complythreatens affordability and availability
Need to Get This Right: Big Implications
SAFETY
0
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Fata
litie
s/
VM
T (x
10
E8)
Fatality Rate
pe
r 10
0 M
illion
Ve
hicle
Mile
s Travele
d
VMT Fatalities Fatality Rate
- Behavior + Crashworthiness facilitated current decline- Future decline will be driven by crash avoidance
We Tell the Longer Story That Looks Forward
• But something going on these past two years
• Increase in fatalities beyond growth in VMT
• Likely has nothing to do with car / defect issues
• Explore: Pedestrians Snap chat / Texting in cars Introduction of bike lanes on asphalt Memory lane – motorcycles
31,479Fatalities without Vehicle Factors
(96.34%)
1,196 (3.66%) Fatalities related to a
vehicle’s possible pre-existing defect ormaintenance condition that may havecontributed to a crash (LDV, trucks,ATVs, motorcycles and others).
836 Fatalities related to possible
light duty vehicle defect or maintenance condition (2.56%)
Tires 571
D/M 147
Other 118
Recall Does Not Equal Safety At All
Figures compiled from 2014 Fatality Analysis
Reporting System (FARS) at www.nhtsa.gov/FARS
ELECTION 2016
How would she approach year 1?
1. Do not offend base on core issues / avoid primary in 20202. Show she is different than Obama / can make things work with
Republicans… but what? (Debate – helped or hurt by GOP Senate?)
3. Economy focused…
53
• Wing Shift from ‘92 to ’16 - DLC to Progressive
• Today’s Democrat Party is becoming fringe left
• Three Challenges:
1. Trust Problem2. Not Agent of Change3. Caught: Too Progressive or Too Centrist
• Meanwhile, Democrats = Carbon Party
• Accidental Nominee Fueled by Anti-Establishment Anger
• Heretical: Isolationist, Anti-Trade, Anti-Entitlement Reform
• Philosophically untethered / erratic / unpredictable
• Splits GOP; Dubious he can offset w/Independents and Dems
• Signals: Governance, Philosophy, Temperament, Personnel
54
How would he approach year 1? (Who the hell knows)
1. Art of the Deal – Ton of compromises / focus on wall, trade, taxes & regs2. Ryan domestic agenda3. Control of Senate will define room to play
2016 Senate Races by 2012 Presidential Performance
Senators Running in 2016 by 2012 Presidential Performance (Obama vs. Romney)
Obama + 15 or Greater
Obama +5 to +14.9
Obama +4.9 to Romney +4.9
Romney +5 to +14.9
Romney +15 or Greater
DEMOCRATS (10)
Boxer (CA) +23Blumenthal (CT) +17Schatz (HI) +43Mikulski (MD) +26Schumer (NY) +28Leahy (VT) +36Murray (WA) +15
Wyden (OR) +5Bennet(CO) +5Reid (NV) +7
REPUBLICANS (24)
Kirk (IL) +17 Grassley (IA) +6Ayotte(NH) +6Toomey (PA) +5Johnson (WI) +7
Rubio (FL) D+1Burr (NC) R+2Portman (OH) D+3
Murkowski (AK) +9McCain (AZ) +9Isakson (GA) +8Coats (IN) +10Blunt (MO) +10Scott (SC) +10
Shelby (AL) +22Boozman(AR) +24Crapo (ID) +32Moran (KS) +22Paul (KY) +23Vitter (LA) +17Hoeven(ND) +20Lankford (OK) +34Thune (SD) +18Lee (UT) +48
Source: Cook Political Report 2016
• Dems have no seats in GOP territory • GOP has seats in Dem territory• And, of course, GOP much more exposure
2018 Senate Races by 2012 Presidential Performance
Senators Running in 2018 by 2012 Presidential Performance (Obama vs. Romney)
Obama + 15 or Greater
Obama +5 to +14.9
Obama +4.9 to Romney +4.9
Romney +5 to +14.9
Romney +15 or Greater
DEMOCRATS (10)
Feinstein (CA) +23Murphy(CT) +17Carper (DE) +19Hirono (HI) +43King (ME)(I) +15Cardin (MD) +26Warren (MA) +23Menendez (NJ) +18Gillibrand (NY) +28Whitehouse (RI) +27Sanders (VT)(I) +36Cantwell (WA) +15
Stabenow(MI) +10Klobuchar (MN) +8Heinrich (NM) +10Casey (PA) +5Baldwin (WI) +7
Nelson (FL) D+1Brown (OH) D+3Kaine (VA) D+4
Donnelly (IN) +10McCaskill(MO) +9Tester (MT) +14
Heitkamp (ND) +20Manchin(WV) +27
REPUBLICANS (24)
Heller(NV) +7 Flake (AZ) +9Wicker (MS) +12
Fischer (NE) +22Corker (TN) +20Cruz(TX) +16Hatch (UT) +48Barrasso (WY) +41Source: Cook Political Report 2016
• Situation dramatically different• Dems highly exposed in stronger GOP turf• Very little GOP risk
On Preserving Spectrum:“It's my view that if you have
something protected for a safety reason, until you have something definitive that gives you a basis
to share it, then we should probably keep protecting it”
On Connected Cars and AVs as Fuel Savers:Says such vehicles will also help manage fuel
“in a more environmentally sound way”
On the Societal Benefit of AVs:“We are on the cusp of a new era in
automotive technology with enormous potential to save lives, reduce greenhouse gas emissions,
and transform mobility for the American people”
Will Next DOT Chief Focus on Tech Upside or Downside?
The Politics of Mobility Could Get Very Interesting…
“When it comes to pollution the evidence there suggests that if you reduce congestion people actually drive further and that more than
offsets the effects of idling.”Sen. Elizabeth Warren (D-MA)
Thanks!
