Detroit Big 3 Must Embrace Global Warming Laws

This year, every monthly auto sales report has brought gloomy news for the Detroit Big 3. Unfortunately for the past two decades, the Detroit Big 3 CEOs have been living in a virtual “state of denial” regarding oil prices and global warming. 2008 has literally shattered their alternative reality, as SUV and pickups sales have plummeted, along with their profits. And yes, the Detroit Big 3 could have avoided their calamity if they had listened, not denied, their critics, including myself. But it’s not too late for Detroit’s auto industry but only if they have the foresight to embrace new global warming regulations.

Their situation was predictable. In fact just 3 years ago, I co-wrote a report called In the Tank: How Oil Prices Threaten Automakers’ Profits and Jobs that showed that Detroit Big 3 profits would take the brunt of higher oil prices, if they continued to be in state of denial. Perhaps equally predictable was the reaction of the Detroit Big 3 executives which was to dismiss our results as alarmist. I would like to be able to say that I had profound insight into the world oil markets and regulatory trends that was unavailable to the Big 3, but I didn’t. All the information I used was available to the Detroit Big 3 CEOs, if they chose to look for it and think critically about the world outside of their own industry’s echo chamber. 

In another blog, I will list the eerily accurate predictions we made in 2003. But most importantly at this point, the question is: Are the Detroit Big 3 on the right path to cope with the new reality of the marketplace and global warming regulations?

Rich Wagoner’s triage plan for saving GM does not go far enough because Detroit’s problems run deeper than simple band-aid fix. CEOs for Detroit’s Big 3 must embrace, not fight, new global warming legislation at the federal level and auto global warming pollution standards at the state level.  CEOs must reframe their perspective from viewing regulations as a threat to see what the truly are, an opportunity. Here’s specifically what they must do:

  • First and foremost, Detroit needs to drop its opposition to the California Pavley CO2 tailpipe standards. With both presidential candidates supporting the waiver, it’s clear, Detroit will lose. Every day Detroit spends fighting the standards -- in Illinois, in the courts, in Congress, and with the next presidential administration -- is a precious day their product planners and engineers lose in making plans on how to comply with new standards. To state what is painfully clear today: Detroit’s strategy of fighting higher federal fuel economy standards and state CO2 standard has badly backfired and lulled them into their predicament over the last decade of building Hummers when its hybrids that matter.
  • Second, Detroit must become leaders and champions -- yes, champions -- of new federal global warming legislation, especially the Climate Security Act and similar bills. The Climate Security Act is the only possible stable, long-term source of funding to retool auto factories. It would provide $68 billion dollars over the next four decades for Detroit to retool its factories to build hybrids, clean diesels and fuel cell cars. Detroit will not find a better deal in any other bill.

Retooling incentives along with clear, long-term performance targets for their industry will allow Detroit to do what it should have been doing over the past two decades: planning for, investing in, and building products that recognize the real world, and not based on a state of denial.