Obama's Auto Standards Marks a Turning Point for the Industry

 I've just returned from Washington after attending President Obama's announcement of new greenhouse gas and fuel economy standards for passenger vehicles. After battling the industry for seven long years since the passage of the groundbreaking California Clean Cars Law (AB1493, Pavley 2002), it's a moment that I never seriously thought I'd ever witness: regulators, automakers and environmentalist all coming together in agreement that emission and fuel economy standards should be made more stringent. (To see photos, visit David Doniger's blog.) To me, the White House event crystallized the new realities for the auto industry: they are living in a volatile world where they cannot control politics, the courts, or oil prices, and the best way they can seize control of their own fate is to build fuel efficient cars and trucks.

There are a handful of key factors that emerged that led to this group of strange bedfellows to converge at the White House Rose Garden last Tuesday. My top three reasons for why the automakers agreed to a standard that they just a two years ago, swore to Congress would cost them tens of thousands of jobs, are listed below.

Perhaps the most important factor was after decades of denial, the Detroit automakers finally came to their own startling conclusion: analysts (including myself) were right who claimed higher fuel economy was critical to their survival. Moreover, their own engineers, once they were asked what could be done, came to another startling conclusion: that the emission levels of the California greenhouse gas standards were achievable.  The automakers eventually quietly unveiled this remarkable turnaround in perspective in December of 2008, when Ford and GM submitted their business plans to Congress which my analysis showed put them into compliance with a national version of California's program.

Second, the financial distress of Chrysler and GM, two of the most recalcitrant companies, played an important role in undercutting the negotiation leverage with an Administration that they simultaneously were asking for tens of billions of dollars in loans. Poor business decisions of their leadership and overreliance on gas guzzlers undermined their credibility with the public and Congress.

Finally, the legal and political handwriting was on the wall starting with the Supreme Court ruling in April of 2007 that the EPA has the authority to regulate carbon dioxide. The automakers grip on Congress, substantially loosened with Speaker Pelosi's successful passage of an energy bill in 2007 with 35 mpg CAFE standards by 2020, was further eroded when Mr. Waxman's wrestled control of the key Energy and Commerce Committee from Mr. Dingell. President Obama's signing of two key memorandums on fuel economy and the California waiver on January 26 made it clear the President was going to forge ahead with strengthened standards, despite the automaker's financial distress.

The one word that kept coming up when I talked with others on the White House lawn was "transformative". After fighting the auto industry for so long, I'm not ready to declare the battle over. But after hearing the President speak, there is no doubt in my mind this agreement marks a defining moment in the history of automotive vehicle regulation.