The Latest Auto Bailout Plans – What to Look For

General Motors and Chrysler are expected to submit "restructuring plans" later today under the terms of the multi-billion dollar loans from the outgoing Bush administration under the "troubled asset relief program" (TARP).  

The loans were provided to enable the companies "to develop a viable and competitive business that minimizes adverse effects on the environment" (see p. 1 of the GM loan agreement, for example).  There's been a lot of attention, and rightly so, to the steps they'll take to reduce costs, discontinue certain brands, and adjust their market shares.  But the loan agreements also require the companies to show in their restructuring plans how they will "comply with applicable federal fuel efficiency and emissions requirements" (GM agreement, p. 54).

The handwriting is on the wall that the "applicable federal fuel efficiency and emissions requirements" are likely to become stronger, and soon. 

As I described here, on January 26th President Obama put the nation on a new path towards cleaner, more efficient cars by directing his agencies to review two key Bush administration decisions on auto standards.  As a result, the Environmental Protection Agency is likely to give California the green light - denied under the Bush administration - to enforce its landmark greenhouse gas emission standards for new cars and light trucks.  And the Department of Transportation is expected to strengthen the lax fuel economy standards proposed during the previous administration. 

Expectations for higher emissions and fuel economy standards have been rising in Congress as well.  As Speaker Nancy Pelosi and House Financial Services Committee Chairman Barney Frank wrote in a February 13th letter to GM and Chrysler, their restructuring plans need to include:

A demonstration of your ability to achieve or exceed the fuel efficiency requirements set forth in the Energy Independence and Security Act of 2007, and the emissions standards adopted by California and other states, if they receive Federal approval, and become a long-term global leader in the production of fuel-efficient and advanced technology vehicles.

Meeting the California standards is well within the companies' reach.  An analysis of GM's and Ford's plans submitted to Congress last November, prepared by my colleague Roland Hwang, shows that they are now positioned to comply with California's greenhouse gas standards if they were extended to apply nationwide.

GM's and Chrysler's new reports are likely to complain again about a "patchwork" of environmental standards.  They will say they want uniform national standards. 

A nationally uniform solution is in their hands.  All they have to do is agree to meet federal emission and mileage standards that deliver performance at least equal to applying California's standards nationwide.  Let's see if that is in their reports.