Fuel Economy Dispute Looms Auto Industry

Anthony Fontanelle
May 9, 2007

Automakers face their biggest challenge in 16 years as the Senate taps efficiency rules. As the dispute between automakers and lawmakers continues, the industry becomes increasingly gloomy. Vagueness and rage loom like dark clouds trying to blur the entire system.

The dispute… The drive to hike fuel efficiency standards obtained a dramatic step forward likened to the performance of EBC Redstuff last Tuesday when a Senate committee approved a 40 percent raise over the next decade. Democrats vowed to hold a full Senate vote sometime next month on the bill. The latter mandates all auto manufacturers to increase the average fuel economy of their vehicle fleets to 35 miles per gallon by 2020 and this is a move that the automakers denounced as unrealistic.

The bill was unanimously approved by the Senate Commerce Committee, making it the first fuel economy bill to pass that hurdle since 1991. The move prepares the stage for a major dispute over new rules that could cost automakers tens of billions of dollars.

In the past six months, automakers have seen the ground shift beneath them on fuel economy because of fluctuating gas prices, the war in Iraq, calls for energy independence, and increasing concerns about climate change. These factors dragged away supporters who have long helped Detroit automakers fight for tougher standards.

Dave McCurdy, the head of the Alliance of Automobile Manufacturers, a trade group that represents the General Motors Corp., Ford Motor Co., DaimlerChrysler AG, the Toyota Motor Corp. and other automakers, called the bill unrealistic and unattainable. "They really are more interested in political statements and posturing at this stage of the game," said McCurdy, a former congressman. "I don't see serious legislating going on. This is not the end game. This is the first inning and there's a lot left to be played."

How serious is it? To gauge how serious the fuel economy dispute has become, the credit ratings service Standard & Poor's said that automakers face a long term threat to their balance sheets as the European Union, Japan and the United States consider proposals to reduce emissions and boost fuel efficiency. In a report, S&P said regulations “pose a real risk to global automakers financial performance, particularly as some are already under pressure from razor-thin margins.”

Senators from rural states like Alaska, Idaho and North Dakota have upturned course in recent months and signed on to mandatory fuel economy raise, notwithstanding the fact that Detroit automakers say those requirements could threaten their ability to produce large vehicles, including pickups popular in rural states.

All at once, Detroit automakers' political clout has declined as they focus on their restructure plans that involve plant closures, job cuts, while the United Auto Workers' (UAW) sway among Democrats softens with its waning ranks.

The best hope of both foreign and domestic auto manufacturers may be in unity. This is the advice delivered in private by Rep. John Dingell, D-Dearborn, the powerful chairman of the House Energy and Commerce Committee. Dingell is sure to come under more pressure to act on fuel economy, albeit his intention to propose a broader bill that would require other industries to do their part to limit the emission of greenhouse gasses.

House Speaker Nancy Pelosi said last Tuesday that the lower chamber would vote on a fuel economy proposal before the end of the year. A number of senators have laid the blame for Detroit's troubles on the companies' successful lobbying efforts to obstruct fuel efficiency raise.

Reducing greenhouse gas emissions Meanwhile, automakers are struggling to bolster their environmental credentials. GM said Tuesday that it had become the first automaker to join the U.S. Climate Action Partnership - a coalition of businesses and environmental groups calling for more action to reduce greenhouse gas emissions. Ford and DaimlerChrysler said that they may also join.

Automobiles account for 20 percent of U.S. greenhouse gas emissions, which have been linked to global warming. Improving fuel economy is considered one of the best ways to reduce emissions. Automakers warn it will be very expensive, however, if not impossible, to meet the proposed fuel economy mandates. They say it could add as much as $6,000 to the cost of every vehicle and force them to abandon some market segments, especially big vehicles, the most profitable for Detroit.

Environmentalists and lawmakers reject that argument. Joan Claybrook, the head of Public Citizen, which supports higher fuel economy standards, mocked the approved bill for not requiring "any real or significant improvement in fuel economy. It is also much lower than what manufacturers could easily achieve with the wide variety of technologies available to them."

On improving the bill… The committee also reinstated the fuel economy credit automakers get for manufacturing flexible fuel vehicles that run on E85 or other alternative fuels. "We're trying to make the bill better," said Mike Stanton, the chief lobbyist for the Association of International Automobile Manufacturers. If Congress wants to set an arbitrary number, it should set an "off ramp" that lets regulators waive increases if they prove infeasible, he said.

U.S. Sen. Carl Levin, D-Detroit, has been aggressively lobbying his colleagues, but expressed dissatisfaction with the final bill. "It's got major problems," Levin said. The committee had made some improvements," which represent a few little steps in the right direction, but there's a long road."

The United Auto Workers and the trade group that represents Detroit automakers sent strongly worded letters to a key Senate committee on Monday urging members to reject a bill that would considerably increase fuel economy standards. Alan Reuther, the UAW's legislative director, told committee Chairman Sen. Daniel Inouye, D-Hawaii, that the compromise bill drafted by the committee's leadership "is much more extreme" than a measure initially proposed by Sen. Dianne Feinstein, D-Calif.

Reuther warned that the compromise bill could force automakers to close plants and slash tens of thousands of jobs, primarily those of union members. "The new proposal that will be considered by the committee contains absolutely no mechanisms to prevent this unacceptable economic and human toll by helping struggling auto manufacturers," Reuther wrote.

In its letter, the Alliance of Automobile Manufacturers, which represents the General Motors Corp., Ford Motor Co., DaimlerChrysler AG and the Toyota Motor Corp., also called the bill "extreme" and said it could force manufacturers to offer vehicles that don't match what consumers want in terms of performance, features and costs. "If higher standards make vehicles less attractive to consumers, vehicle sales will drop, negatively impacting auto dealers, suppliers, automakers, and the U.S. economy," the alliance wrote.

Source:  Amazines.com