Issues Driving the Federal Government

Issues:

Treasury Department’s proposed regulations on debt financing

On April 4, 2016, the Department of Treasury issued regulations to Section 385 of the IRS Code that would give the Internal Revenue Service wide authority to unilaterally treat a company’s related-party debt as equity. The proposed rules would create significant challenges for global companies and, ultimately, their ability to invest in the United States and finance new investments and expansions. In addition, a portion of these proposed rules are retroactive, already impacting company investment decisions.

Dedicated Short Range Communications (DSRC).  Automakers, safety advocates and state transportation departments joined forces to support the virtues of vehicle-to-vehicle (V2V) technology and the potential danger of forcing autos using DSRC to share airwaves with Wi-Fi. A letter was signed by Volkswagen Group of America, Ford and dozens of others a week after Google and others asked for the administration’s help in making the 5.9 gigahertz band – which is set aside for connected cars – available for sharing with Wi-Fi.

Automobile Safety Legislation

Volkswagen Group of America and 17 other major automakers and the U.S. Department of Transportation (DOT) unveiled a voluntary set of Proactive Safety Principles on January 15, 2016 in Detroit that set forth the framework for enhancing automotive safety and quality across the industry. The Proactive Safety Principles were developed collaboratively by the member companies of both major automobile trade associations, the Alliance of Automobile Manufacturers and the Association of Global Automakers, along with DOT. The Principles center on the following overarching themes:

  • Enhance and Facilitate Proactive Safety
  • Enhance Analysis and Examination of Early Warning Reporting Data
  • Maximize Safety Recall Participation Rates
  • Enhance Automotive Cybersecurity

 

Toxic Substances Control Act (TSCA) Reform

The  Lautenberg Act  amending the Toxic Substances Control Act of 1976 was signed into law on June 22, 2016.  It creates a single federal policy to regulate chemicals in commerce, rather than an array of inconsistent state laws, and grants EPA the authority to regulate chemicals only if there is a potential risk of exposure to the substance in question.  Reforming the Toxic Substances Control Act (TSCA) is important to the auto industry because the average auto today has tens of thousands of unique components, and each component is comprised of multiple chemicals and mixtures. Automakers support having an effective and efficient single national program for regulating chemicals in commerce that provides a clear roadmap for automakers while ensuring that our customers would be protected from potentially harmful substances.

Fuel Economy
In 2012, the Obama Administration announced a final rule on fuel economy and green house gas (GHG) emissions standards for Model Year 2017-2025 vehicles, which is expected to have a significant impact on our company and our industry.  The regulations called for increasing fleetwide fuel economy (CAFE standards) to a 54.5 mpg average by the 2025 model year. The parties built in a “midterm review” in 2018 to determine whether technology and the green-car market were progressing well enough for the industry to reasonably meet targets for model years 2022 through 2025. However, the EPA issued a  Final Determination on January 12, 2017, announced right before President Obama’s departure, formally setting CAFE standards at 54.5 mpg by 2025.  The regulations would have required:

  • A 5 percent annual increase in passenger car fuel economy from the 2017 model year through the 2025 model year.
  • Pick-up trucks will have to increase fuel economy by 3.5 percent per year in the first phase, although the largest pick-up trucks are only required to improve fuel economy by less than 1 percent.  In the second phase, they will be required to increase fuel economy at an annual rate of 5 percent per year.
  • The plan for 5 percent annual increases could be changed if a midcourse review, planned to begin in 2018, determines that it would adversely affect industry costs and vehicle sales.

EPA Mid-Term Review

In March 2017 the Trump Administration rescinded the EPA’s January 12, 2017 Final Determination.  Trump announced that his EPA would restore the “Mid-term evaluation” of the feasibility of those standards.  EPA Administrator Scott Pruitt announced on April 2, 2018 EPA’s reconsideration of the Obama-era MY 2022-2025 GHG emission standards, opening the door to modifying the original MY 2025 target of 54.5 mpg.  EPA, in partnership with the National Highway Traffic Safety Administration, will initiate a notice and comment rulemaking in a forthcoming Federal Register notice to further consider appropriate standards for model year 2022-2025 light-duty vehicles. House Energy and Commerce Subcommittee Chairman Fred Upton (R-MI) and Representatives John Shimkus (R-IL) and Bob Latta (R-OH) said, “While today’s announcement is far from a final rulemaking and actual changes to the standards, EPA’s determination reflects current realities and better mirrors what the car-buying public wants. If automakers cannot produce the cars people want to buy at prices they can afford, that will quickly have an adverse impact on the auto industry, its workers, and even the environment as older, less-efficient cars will remain on our roadways. That is why we need reasonable and achievable improvements in fuel economy, and this determination is a step in the right direction.”

California state lawmakers stated their opposition to the revisions, and will continue requiring automakers to stick to the stricter standards. Twelve other states including New York, Massachusetts, and Pennsylvania – together representing more than a third of the domestic auto market – have historically followed California’s lead.  Automakers continue to advocate for One National Program.

VWGoA will continue to work with Congress and the Administration to promote ongoing innovation and demand for fuel efficient vehicles, as well as work to ensure the interim review process looks at consumer demand and includes all fuel efficient technologies.

Other Issues:

Cybersecurity and Automotive Information Sharing & Analysis Center (ISAC)

Background

In the vanguard of the “Internet-of-Things,” vehicle connectivity is transforming the automotive industry.  As consumers demand new capabilities that require enhanced connectivity, automotive manufacturers are increasingly vulnerable to a complex set of cybersecurity challenges.  Recent headlines, coupled with the heightened interest in vehicle cybersecurity from regulators and lawmakers, precipitated the need for an auto industry wide approach to vehicle cyber security. Automakers collectively took the first step towards addressing the emerging threat landscape with the recent creation of the Automotive Information Sharing & Analysis Center (ISAC).

Auto-ISAC Purpose and Mission

Volkswagen Group of America has joined the Auto-ISAC to help our brands manage cyber risk across the connected vehicle ecosystem.  The Auto-ISAC serves as a central hub for the sharing and analysis of cyber-related threats and vulnerabilities in motor vehicle electronics or associated in-vehicle networks.  It is intended to augment, not replace, existing cybersecurity and threat intelligence activities at both the individual OEM and industry level.  Automakers announced in October 2015 the Board of Directors for the information sharing and analysis center. VWGoA’s General Counsel, David Geanacopoulos, is on the ISAC Board. The industry’s two trade associations, the Alliance of Automobile Manufacturers and the Association of Global Automakers, have worked to establish ISAC operations by year end 2015. In November 2014, participating members of both associations voluntarily adopted Privacy Principles that will govern data retrieved from vehicles.

Trade Promotion Authority (TPA)
Bipartisan Trade Promotion Authority (TPA) legislation was signed into law on June 29, 2015.  This measure, sometimes referred to as “fast-track authority,” replaces the TPA that expired in 2007 and establishes objectives and rules for negotiating international trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP).  Trade agreements that comply with the criteria outlined in the law can be submitted to Congress for an up or down vote, without any further amendments.

Transatlantic Trade and Investment Partnership

Foreign Direct Investment