Auto Dealer Job Study Strikes Out

The automobile lobbyists and consultant’s job loss claims have been roundly criticized for being flawed. Next up to the plate? No surprise, their closest ally, the National Auto Dealers Association. But their new “study” by auto industry consultant the Defour Group cherry picks data and repeats the same mistakes of the previous automaker studies. The dealer study appears to implicitly assume consumers do not value fuel savings at all in their purchase decisions and strangely asserts that no new jobs will be created by adding more fuel efficiency technology content to cars.

Besides NRDC, who else disputes their assumptions? Surprise, the auto industry’s own consultants on consumer value of fuel savings and the U.S. DOE on job creation who the dealer study cites in support of their sales claims. Confused? Me too. Let me try to explain.

Strike 1: Dealer study claims “beyond dispute” that stronger standards will lead to lower sales

The dealer study claims it is “beyond dispute” that strengthened standards will lead to sales loss. The base their claim on their own sales loss estimates match the US Energy Information Agency’s (a branch of US DOE) sales loss. As I pointed out in an earlier blog, the EIA’s model ignores any consumer value of fuel savings in their sales calculations for CAFE scenarios, something they have acknowledged to me to be incorrect.  

Who disputes EIA and implicitly the dealers’ “study”? Surprise, the auto industry consultant for the auto industry’s job loss claims, The Center for Automobile Research (CAR). CAR says: “CAR believes the first owner will value future fuel savings in a new vehicle for about five years.” [page 29]

Adopting the CAR consumer assumptions will dramatically change, and even increase sales when using corrected assumptions for cost. According to the US EPA, the cost for 56.2 mpg will be about $2375 (average of their four scenarios) but will pay for itself in about three years, well under CAR’s 5 year criteria. In my quick estimate, i find using these corrected cost and fuel savings assumptions leads to considerable job increases for strong standards. Using the regulators estimates for costs and assuming no loss in sales results in substantial job increases for both 56.2 mpg (70,000 jobs) and 62 mpg (94,000 jobs).

Strike 2: Dealer study claims that more fuel efficiency technologies will not create more jobs on a per car basis

Oddly, the dealer study strikes the counter intuitive and incorrect assertion that new fuel efficiency technologies will not create more jobs on a per vehicle basis. Who disagrees with them? Surprise, EIA, the same agency that the dealer study cites for their sales loss numbers.  I’m going to repeat my last blog below, since it’s so important to this current study.

But according to the U.S. EIA, the auto industry has misused its data:

Jonathan Cogan, a spokesman for the Energy Information Administration, said last week that the alliance's employment estimates "do not reflect either EIA's views or the results of its modeling."

Use of more fuel-efficient technology is likely to increase the number of employees needed to manufacture a vehicle, the agency said.

Cogan wrote in an e-mail to Automotive News that the alliance's "implicit assumption that employment per vehicle does not increase as vehicles incorporate additional technology to become more fuel efficient does not seem reasonable." [Automotive News, June 27, 2011]

Who else disagrees with the dealers? Not a surprise to me, but perhaps to others, the United Auto Workers “get it” that stronger standards means more jobs. And of course, they should know. 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]

Strike 3: Failure to learn from past mistakes
I was taught to not be afraid to make mistakes but to learn from them and do everything possible to avoid repeating the same mistakes. NADA appears to not have heeded any of lessons of the past oil shocks, namely that fuel economy matters to their jobs. During the previous oil shocks, their industry has lost jobs and sufferened dealership closings as the Detroit manufacturers bled market share to their more fuel-efficient competitors.  If any industry should support stronger standards to keep the U.S. auto industry competitive, it should be the dealers.

In baseball as in life, there are always opportunities for redemption. Today’s goat can be tomorrow’s hero. Let’s hope the next time the auto dealers step up to the plate on the fuel economy debate, they don’t strike out as badly as this time.