Biden’s policy agenda and the outlook for automotive manufacturers
US President Joe Biden took office with an ambitious policy agenda that is shifting the tone of the domestic business environment, having swiftly made moves to reimpose regulations and strengthen enforcement that were significantly relaxed by the Trump administration—notably in the areas of energy and climate—and committing to potentially transformative investments in a “green recovery” of the economy and infrastructure.
Meanwhile the Biden administration’s maintenance of a protectionist stance—centered on an assertive, “tough” approach toward China—means that businesses can expect the level and nature of US restrictions on trade, exports, and foreign investments to continue in the near term. The supply chain disruption caused by COVID-19 served to bolster the general bipartisan consensus in Washington that the US must lessen its reliance on China and other external trade partners, and invest in innovation at home.
These two policy priorities—a transition to clean energy and a “building back better” of US domestic industry—are certainly relevant for automotive manufacturers. Although any changes in regulation under President Biden would be unlikely to directly drive recall activity, his policy initiatives suggest significant shifts in the automotive industry and operating environment that will be critical for product risk managers to monitor, analyze, and prepare for.
The impact on the automotive sector
Fuel efficiency & clean technologies
Biden describes climate change as the most urgent issue facing the US and has put in place an experienced team to lead a whole-of-government approach on trying to engineer long term emissions reductions. This includes policies to drive change in the automotive sector in terms of fuel economy and emissions standards. The plan is for stricter regulations for gas-powered vehicles, elimination of fossil fuels, and for all new cars to be emissions-free by 2035.
It is likely that the government will offer incentives to auto manufacturers as well as consumers to encourage the development of new, clean technologies and grow the market for electric vehicles.
Biden’s support for carbon border tariffs also encourages other countries to fast-track emissions reduction as climate will also be a key focus of trade policy. Although development initiatives for electric and autonomous vehicles (E/AV) have slowed down, been delayed or postponed due to COVID-19, E/AV companies continue to leverage their patent portfolios to move forward with innovation to improve safety and serve current needs. As the demand for E/AV technologies increases, there will also be an impact on improvements for advanced battery technology and an increased demand for installing E/AV charging stations nationwide.
Supply chain shifts
This shift in demand to E/AV, along with incentives offered to manufacturers to produce electric vehicles, will have a domino effect in the supply chain for the auto industry especially impacting auto suppliers. Makers of exhaust systems, fuel systems, and transmissions face the most risk of business disruption as demand for E/AVs increase and gas-powered cars decline. OEMs and suppliers will need to adapt to stay solvent during this transition.
The US increasingly perceives national security vulnerabilities in international supply chains for certain goods and technologies with China as its most significant trade risks and trade policy challenge. Biden pledges a “comprehensive strategy” to address purported trade violations, technology issues, and supply chain security. Due to this and other initiatives supported by the Biden administration, foreign-made products, materials, and auto parts will be under increased scrutiny. Biden’s economic recovery plan promotes industrial policies that supports domestic manufacturing trade protectionism and “buy American” procurement requirements. For the auto industry, this means a drive to prioritize American-made cars with American-made components. This will result in foreign trade realignment to reduce dependence on foreign supply chains.
With the incoming of a new political team at the National Highway Traffic Safety Administration (NHTSA), recent auto safety initiatives, activities and policies within NHTSA are likely to be reviewed and potentially overhauled over the next year. While temporary provisions are in force that loosen some regulatory standards during the pandemic, under the Biden administration we can expect a gradual return to stricter enforcement of NHTSA standards. NHTSA has committed to continuing efforts to forcefully police violations and leverage its civil penalty authority to violators into full compliance with the law. Important enforcement areas include timely submission of complete and accurate information for recall-related reports and notifications, Early Warning Reports (EWR), foreign recall reports, and external communications.
NHTSA continues to work to revise the federal motor vehicle safety standards (FMVSSs) to facilitate advanced technologies implementation and alleviate the regulatory barriers especially in NHTSA’s New Care Assessment Program (NCAP) and Advanced Driver Assistance Systems (ADAS). The driving principles to accomplish these goals focus on
- Prioritizing vehicle safety concerning cybersecurity,
- Protecting accessibility to private data,
- Remaining technology neutral to promote innovation and avoid regulatory barriers.
- Protecting U.S. intellectual property, and
- Ensuring consistency in regulatory standards and policies. Including enforcement
Recommendations for product risk managers
To ensure business continuity and avoid potential crises as the operating environment continues to rapidly evolve, product risk managers in the automotive sector should take the following steps:
1. Enhance your intelligence function
It is critical for risk managers to stay on top of the various changes impacting the automotive industry, from political and regulatory developments, to supply chain risk exposure, to cyber threats, to shifting safety requirements. Companies should enhance their capabilities for risk monitoring and analysis by drawing on intelligence from across functions—such as government affairs—or embedding a dedicated risk analyst to take a comprehensive view on the evolving threat landscape. A holistic, predictive intelligence function is a necessary for understanding and mitigating the host of risks and market dynamics that could impact business strategy, operations, and continuity—and enables the organization to adequately prepare for, respond to, and recover from crises.
2. Prioritize cyber security
Close monitoring and analysis of cyber security threats and compliance requirements is key a component in optimizing your intelligence program. Cyber attacks impacting supply chains have increased exponentially in recent months, and Biden’s recent Cybersecurity Executive Order is a move to bolster American supply chain security in critical industries. It will be important for organizations to work with suppliers and customers to ensure they are using state-of-the-art methods and procedures concerning cyber security. Auto manufacturers must also protect data privacy and ensure the safety-relatedness of cyber security issues are implemented and effective in the event of a defect investigation. As automated vehicle technologies evolve, the NHTSA may incorporate new safety standards and organizations will need to stay well-informed to be compliant.
3. Review and update your recall management plans
The quickly changing operating environment requires product risk managers to adapt their recall and crisis management plans accordingly. Organizations should undertake risk assessments on an annual basis, review plans for managing a recall or other crises, and refresh those plans as needed to align with any regulatory developments. Internal safety standards should also be evaluated at least annually to make sure that procedures and reporting requirements are current.
4. Run crisis simulation exercises that are responsive to the new landscape
Once the crisis and recall plans have undergone a refresh, organizations should conduct simulation exercises to address changes in processes and procedures that are responsive to the new risk landscape and regulatory changes. Simulation exercises ensure key personnel are trained to identify and escalate potential safety defects, risks to consumer safety and other potentially reportable events. These exercises are critical to test the acuity of the team, plan, procedures, processes, and systems and build memory muscle to embed desired results.
In the coming few years, the auto industry should be ready to face challenges related to supply chains, overall manufacturing models and increased regulatory oversight. To effectively respond to these changes, automotive companies will need to ensure that appropriate measures are taken to continually monitor risk exposure, stay current with new technologies and cyber security initiatives, review and update plans, and continue to educate and train employees.