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Government giveth, government taketh away

One campaign promise that Detroit’s struggling automakers were hoping that Obama would not keep was his pledge to allow individual states to set their own fuel economy and vehicle emissions standards. Unfortunately for the once-big three, it appears that the president will grant California and at least a dozen other states the authority to put their own restrictions on tailpipe emissions and set individual requirements for fuel economy.

Citing two anonymous Obama administration officials, The New York Times reports that Obama will order the EPA to reconsider the Bush administration’s denial of a waiver to California that would allow the state to set its own standards. But it wouldn’t just be car crazy California setting its own standard. The worst-case scenario would see fifty states, each with its own standard. But many states will simply adopt whatever standard is decreed by California. Even if there were only a few standards among the fifty states, it would spell trouble for the automakers.

The Times calls it “one of the most emphatic actions Mr. Obama could take to quickly put his stamp on environmental policy.” According to Autoblog, industry insiders call it something else:

Critics of state-administrated emissions standards fear that the potential for 50 different requirements will result in a costly quagmire. It will undoubtedly cost automakers more to conform to various and differing requirements, eating up profits (not to mention bailout funds) as well.

The idea of bailout money from the federal government being spent to meet a larger number of tighter state government standards because the federal government reversed a prior administration’s policy is such a twisted irony that it brings to mind Ronald Reagan’s famous words, “Government is not the solution to our problem. Government is the problem.”

Automobile manufacturers will not have much time have to retool to begin building vehicles which meet the regulations, and they will have to quickly phase compliant models into their production schedules. Many of the emissions controls that will be required are outsourced from smaller parts suppliers, so there is a potential for a ripple effect here. The standards will not just affect Detroit’s automakers. Foreign manufacturers, many of them having problems of their own, will feel the pain also.

Audi, which had posted sales of over a million cars in 2008, its best year ever, recently announced plans to reduce hours at two of its plants, affecting 25,000 workers. BMW has cut 26,000 workers for two months at two of its factories, which will reduce production by 38,000 units. The company is also reducing hours at two other plants. Beemer’s stock price is down 49% over the past 12 months. Things are so bad at Nissan’s UK facility that the Japanese automaker has been forced to park unsold cars on its test track. All of the lot space at the factory is already full of cars for which there is more supply than demand.

This is the worst of times for such government-induced mayhem in the auto industry. If the bailout appeared to be a light at the end of the tunnel for car makers, the new regulations will morph it into an oncoming train. Some industry insiders have stated the obvious:

Charles Territo, a spokesman for the Alliance of Automobile Manufacturers, said the car makers would prefer a single national standard and needed time to develop new fuel-sipping models. “Applying California standards to several different states would create a complex, confusing and very difficult situation for manufacturers,” he said last week in anticipation of the Obama administration’s announcement.

Rather than dwell on how his action will kneecap the auto industry, the president wants to present himself as the jolly Green Giant. He will hype the environmental and energy elements of his economic plan today, according to White house aides. The administration’s plan purports to double renewable energy generating capacity over three years, which would be enough to power six million American homes.

I doubt that the many thousands of people in the auto industry, from workers on the production line to those who are employed by local dealerships, will be impressed.

- JP

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