May 9, 2002

I want to thank you for inviting me to be with you this morning. This is a dangerous time for the U.S. auto industry and its suppliers. On the one hand, 2002 looks like vehicle sales will be lower than last year. And on the other hand, companies are having to pay huge incentives to make sales happen at all, especially in light of recent devaluations of the Japanese and Korean currencies. Today, manufacturers face the twin problems of sustaining adequate vehicle sales as well as making money off the sales they have.

Most Members of Congress see the big sales numbers for autos last year and earlier this year and think everything is great. As a result, although the sympathy level for auto companies may not be at an all-time low, it is nevertheless very low. If it were not for the UAW, I have little doubt that the outcome of the two efforts to put a big CAFE increase into the Senate energy bill would have turned out differently.

In short, this is no time for complacency. As most of you know, there is not a single Democratic Senate conferee for the non-tax parts of the energy bill who votes with the industry and the auto workers on CAFE. Majority Leader Daschle may have said recently there won’t be any attempt in conference to put a big CAFE number in the energy bill, but what the conferees he has appointed will do, remains to be seen.

For this reason, I firmly believe vehicle fuel economy will be an issue in the energy conference. Therefore, I propose that the industry consider what can and should be done to promote increased fuel economy without arbitrarily raising CAFE. As we all know, CAFE increases do not necessarily translate into the kind of fuel economy improvements that are both possible and desirable.

The clean-burn, direct-injection diesel engine is one technology with enormous fuel economy potential that I believe has gotten virtually no attention at all. Although hugely popular in Europe, clean-burn diesel engines have not been introduced in the U.S. largely due to the higher sulfur content of diesel fuel in the United States. Refiners both in Europe and in the U.S. have fought efforts to get the sulfur out of diesel fuel. U.S. refiners, however, have had more success with their regulators than European refiners have had with theirs.

We recently had a hearing before the Committee’s Energy and Air Quality Subcommittee, and I asked the Environmental Protection Agency (EPA) why it did not simply do a rule effectively setting the sulfur standard for diesel at zero, just as Europe has done. It appears that zero sulfur diesel fuel is entirely feasible from a technological standpoint, but EPA was concerned about the cost to the industry. So, I will be writing EPA and the Department of Energy, as well, in the very near future to inquire further about just how this Administration strikes the balance between higher cost to refiners versus higher cost to consumers from lost fuel economy benefits.

Let me give you a brief picture of the fuel economy benefits clean-burn diesel offers that American consumers are missing out on. Audi recently introduced its latest clean-burn diesel vehicle in Europe, the Audi A2. This vehicle has a combined city/highway fuel economy rating of 78 miles per gallon. That’s right: 78 miles per gallon. The A2's mileage rating is better than that of the Honda Insight with its hybrid electric engine, and the A2 seats four passengers rather than the Honda’s two passengers. The A2's performance is also established whereas the performance and reliability of hybrid electric engines must still be demonstrated. Hybrid engine technology is also much more expensive than the clean-burn diesel technology that is used in the A2.

In Europe, clean-burn diesel is the clear choice of consumers. Forty-eight percent of the light duty vehicles sold in Europe last year, including 75 percent of all European luxury vehicle sales, had clean-burn direct-injection diesel engines just like the Audi A2. Estimates are that by 2010, 75 percent of all light-duty vehicles sold in Europe will have clean-burn diesel engines.

Why should any technology that has such great potential for reducing our dependence on foreign oil and that is so wildly popular in the world’s second largest vehicle market, not be available in the U.S.? It’s certainly not because U.S. manufacturers don’t want to build and sell clean-burn diesel vehicles. U.S. auto manufacturers believe diesel could be every bit as popular here in the U.S. as it is in Europe.

The simple fact is that Europe has been far more aggressive than the U.S. in forcing refiners to eliminate sulfur from both gasoline and diesel fuel. Sweden has already adopted regulations requiring only "zero sulfur" diesel be sold in that country. Great Britain will soon require the same of its refiners. By 2005, the sulfur content of diesel fuel sold throughout the European Union must be effectively "zero."

With essentially sulfur-free diesel fuel, recent advances in catalyst emission control technology make it possible to reduce nitrous oxide emissions from clean-burn diesel engines by as much as 90 percent. Particulate emissions would also be greatly reduced; and hydro carbon emissions would be far less than would be produced by current state-of-the-art gasoline engines. Clearly, the technology exists to make highly fuel efficient clean-burn diesel engines meet and, in some cases, exceed U.S. standards, but it cannot happen without clean diesel fuel.

On this, the U.S. needs to follow Europe’s example. The new U.S. diesel fuel sulfur rule will require 80 percent of on-road diesel fuel to meet a 15 parts per million sulfur limit by 2007. That rule was recently upheld in court against a petroleum industry challenge. U.S. auto and engine manufacturers have requested the sulfur limit be reduced to only 10 parts per million and phased in earlier to support new U.S. clean air standards. I agree entirely.

The well-being of our economy and our very national security demand we reduce our dependence on foreign oil. And clean-burn diesel technology offers the only opportunity to improve fuel economy by 30 percent or more in the immediate future. Therefore, we must impose stricter sulfur content standards on diesel fuel now.

There is another issue I want to raise with you this morning, and that’s the processing of cargo at the border. Following the horrific events of last September, we got a little taste of how even an inspection slowdown at the borders can disrupt manufacturing operations in a very significant way. About 80 percent of all shipments motor vehicle manufacturers import into the U.S. come across the northern border. Many of these shipments are ordered only a few hours in advance of the time they are needed for assembly into vehicles. Clearly, any delay in processing incoming shipments at the border can make it impossible for assembly plants to continue operating on a "just-in-time" delivery basis.

Since last September, new resources have been allocated to border inspection, at least temporarily. We now need to make sure that Customs gets the resources it needs on an ongoing basis so that it can train and increase the number of inspectors at the border. Additional resources are also needed to finally let Customs implement the modernization program Congress mandated in the Customs Modernization Act eight years ago.

Customs should receive information from importers on an electronic basis well in advance of a shipment’s arrival at the border. Only in this way can Customs prioritize its inspection activities at the border. Quite frankly, Customs should not be wasting its time inspecting cargo from importers, such as the auto manufacturers, whose cargo has been inspected, secured, and sealed when it was loaded.

But without a fully electronic and reliable system for receiving, reviewing, and responding to importer information, Customs will never be in a position to rationally use its inspection resources at the border. It should not take another catastrophic event to make Congress do what is needed here. Customs needs help, and your help is needed to make sure it doesn’t get ignored in the future.

Finally, let me express my continuing disappointment with the Administration’s failure to act on the Yen/Dollar exchange rate problem. Since January 1, 2000, the Japanese yen has been devalued against the dollar by more than 30 percent. Korea’s won has fallen in value by a similar amount.

This devaluation has not occurred by accident. Since September 11th of last year, the Japanese government has instigated at least 11 interventions totaling over $30 billion to reduce the value of the yen. At the same time, the Government of Japan speaks constantly to promote the devaluation of its currency, while the Administration in the U.S. remains silent.

Incentives, new products, or marketing initiatives of U.S. auto manufacturers simply cannot compete against an effective 30 percent windfall reduction in prices and business costs reaped by Japanese and Korean vehicle manufacturers. Largely due to these exchange rate problems, DaimlerChrysler, Ford, and General Motors together lost 5.3 percent of domestic U.S. market share between January 2000 and December 2001. This market share loss equals almost one million lost passenger vehicle sales worth over $20.3 billion to U.S. auto manufacturers.

Losses of this magnitude can only result in layoffs and production cuts that harm our economy and the well-being of tens of thousands working men and women in this country. Indeed, we have all seen major layoffs announced by all three major U.S. auto manufacturers. It is long past the time this Administration needs to make its voice heard. The recent devaluations of the Japanese and Korean currencies are not justified, and they must not continue. I urge you to increase your efforts both in Congress and with the Administration to make this message heard.