The Ecology vs. Economy of Hybrid Vehicles

Vehicles with gas-electric hybrid and advanced diesel powertrains could capture nearly 11 percent the U.S. light vehicle market by 2009. But because most of these new drive trains are being built overseas, a consumer shift to hybrids could cost Michigan, Indiana and Ohio more auto manufacturing jobs.

“Japan has a substantial lead in hybrid technology and production and Europe leads in advanced diesels, so most of the supplier and assembly work for these new vehicles will probably take place outside the United States, and that could cost over 200,000 U.S. jobs,” said Patrick Hammett of the University of Michigan Transportation Research Institute’s Office for the Study of Automotive Transportation (OSAT). “Fortunately, there are ways to limit these losses, if not entirely avoid them.” A new report issued by OSAT and the Michigan Manufacturing Technology Center, which was funded by the National Commission on Energy Policy and the Michigan Environmental Council, outlines possible scenarios for U.S. sales of vehicles with these two alternative powertrains, models their costs of production and forecasts the likely job consequences of their increasing market share. The study projects that hybrids and advanced diesels may account for as many as 1.8 million sales in reasonably robust market of 16.6 million light vehicles in 2009. The study, “Fuel Saving Technologies and Facility Conversion: Costs, Benefits and Incentives,” also examines the impact of a tax credit to encourage powertrain component and vehicle producers to locate some production and assembly work in the United States. “These scenarios are just that — pictures of what might happen,” said Hammett, who directed the study. “But the farther out you go, say to 2012 or beyond, the more likely they become. So the real question is probably less whether they will happen than it is when they will happen.” The report considers three different market-growth scenarios in 2009 for vehicles with gas-electric hybrid and advanced diesel powertrains. A normal growth scenario of about 3 percent would result in job losses of 38,000; a growth rate of roughly 7 percent (requiring some shift in consumer preferences) would mean a loss of 131,000 jobs; and growth of nearly 11 percent (requiring a strong shift in consumer sentiment) would result in 207,000 job losses. “These losses include current jobs making vehicles with traditional powertrains that would be displaced by these new vehicles, as well as the failure to secure new jobs making those new vehicles with these alternative powertrains,” Hammett said. One way to limit job losses is to provide an incentive to component and vehicle manufacturers to invest in U.S. production. A tooling and equipment investment tax credit for suppliers that convert capacity to components for these new powertrains, and for manufacturers that convert capacity to assemble these vehicles, could indeed yield powerful results, Hammett said. If even partially effective, a tax credit can lower job losses substantially in each market scenario. Moreover, depending on the scenario, additional government revenues associated with U.S. production over a 10-year period will reach five-to-eight times the cost of the credit. “This tax credit is not only revenue-neutral or even better, but it could save one of every four U.S. jobs put at risk from imports of these newer powertrains and vehicles,” said Daniel Luria of the MMTC. According to Hammett, gas electric hybrid and advanced diesel powertrains present a bit of an “ecology vs. economy” dilemma. “Their enhanced fuel economy and reduced emissions are important positives, but absent any effort, they will probably have adverse economic consequences on the United States,” he said. Luria added there would be particularly adverse economic consequences for Michigan, Indiana and Ohio, which together account for a substantial share of relevant automotive activity, including 45 percent of vehicle assemblies and 88 percent of transmissions and diesel engines.

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