Ford 2014 Annual Report Download - page 17

Item 1. Business (Continued)
If the agencies seek to impose and enforce fuel economy and GHG standards that are misaligned with market
conditions, we likely would be forced to take various actions that could have substantial adverse effects on our sales
volume and profits. Such actions likely would include restricting offerings of selected engines and popular options;
increasing market support programs for our most fuel-efficient cars and light trucks; and ultimately curtailing the
production and sale of certain vehicles such as high-performance cars, utilities, and/or full-size light trucks, in order to
maintain compliance.
California has asserted the right to regulate motor vehicle GHG emissions, and other states have asserted the right to
adopt the California standards. With the adoption of the federal One National Program standards discussed above,
California and the other states have agreed that compliance with the federal program would satisfy compliance with any
purported state GHG requirements for the 2012-2025 model years. This avoids a patchwork of potentially conflicting
federal and state GHG standards. Should California and other states ever renew their efforts to enforce state-specific
motor vehicle GHG rules, this would impose significant costs on automotive manufacturers.
U.S. Requirements - Heavy Duty Vehicles. EPA and NHTSA have jointly promulgated GHG and fuel economy
standards on heavy duty vehicles (generally, vehicles over 8,500 pounds gross vehicle weight rating). In our case, the
standards primarily affect our heavy duty pickup trucks and vans, plus vocational vehicles such as shuttle buses and
delivery trucks. In 2015, EPA and NHTSA are expected to issue a notice of proposed rulemaking on a new round of
standards for these vehicles, covering model year 2019 and beyond. Ford plans to review and comment on the proposed
standards. As the heavy-duty standards increase in stringency, it may become more difficult to comply while continuing to
offer a full lineup of heavy duty trucks.
European Requirements. In December 2008, the EU approved regulation of passenger car CO2 emissions
beginning in 2012 that limits the industry fleet average to a maximum of 130 grams per kilometer (“g/km”), using a sliding
scale based on vehicle weight. This regulation provides different targets for each manufacturer based on the respective
average vehicle weight for its fleet of vehicles. Limited credits are available for CO2 off-cycle actions (“eco-innovations”),
certain alternative fuels, and vehicles with CO2 emissions below 50 g/km. A penalty system will apply for manufacturers
failing to meet targets, with fees ranging from €5 to €95 per vehicle per g/km shortfall in the years 2012–2018, and €95 per
g/km shortfall beginning in 2019. Manufacturers will be permitted to use a pooling agreement between wholly-owned
brands to share the burden. Further pooling agreements between different manufacturers also are possible, although it is
not clear that these will be of much practical benefit under the regulations. Starting in 2020, an industry target of 95 g/km
has been set. Other non-EU European countries are likely to follow with similar regulations. For example, Switzerland
has introduced similar rules, which began phasing-in starting in July 2012 with the same targets (which likely also will
include a 2020 target of 95 g/km), although the industry average emission target is significantly higher. We face the risk of
advance premium payment requirements if, for example, unexpected market fluctuation within a quarter negatively impact
our average fleet performance.
In separate legislation, “complementary measures” have been mandated, including requirements related to fuel
economy indicators, and more-efficient low-CO2 mobile air conditioning systems. The EU Commission, Council and
Parliament have approved a target for commercial light duty vehicles to be at an industry average of 175 g/km (with
phase-in from 2014–2017), and 147 g/km in 2020; it is likely that other European countries, like Switzerland, will
implement similar rules but under even more difficult conditions. This regulation also provides different targets for each
manufacturer based on its respective average vehicle weight in its fleet of vehicles. The final mass and CO2 requirements
for so-called “multi-stage vehicles” (e.g., our Transit chassis cabs) are fully allocated to the base manufacturer (e.g., Ford)
so that the base manufacturer is fully responsible for the CO2 performance of the final up-fitted vehicles. The EU proposal
also includes a penalty system, “super-credits” for vehicles below 50 g/km, and limited credits for CO2 off-cycle eco-
innovations, pooling, etc., similar to the passenger car CO2 regulation.
The United Nations has a project underway to develop a new technical regulation for passenger car emissions and
CO2. This new world light duty test procedure (“WLTP”) is focused primarily on delivering realistic CO2 and fuel
consumption figures. The introduction of WLTP in Europe is likely to start with updates to CO2 labeling beginning in 2019
and could lower certain consumer label values. Costs associated with new or incremental testing for WLTP could be
significant. The European Commission continues to apply political pressure for mandatory WLTP testing for regulated
emissions and CO2 starting in September 2017. The European Commission has assured equivalent stringency to the
existing fleet average rules for each automobile manufacturer if the 2020 fleet average targets are required to be
measured on WLTP instead of under the current European NEDC requirements.
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