The Art of [Breaking] the Deal

by John Lawrence

The Trump Administration’s decision to roll back national auto efficiency and emissions standards and challenge California’s right to set tougher criteria will not only make Americans sicker and increase dependency on foreign oil. Trump’s unilateral action will violate an understanding that taxpayers would not finance the revitalization of a non-competitive and inefficient auto industry.

Only a decade ago, Congress agreed to allow tens of billions of taxpayer dollars to be spent out of the financial rescue package in order to save the prostrate desperate U.S. auto industry. Late in 2008, U.S. carmakers begged Congress and the Bush Administration to stave off the collapse of their businesses and the associated loss of millions of jobs in related wholesale and retail enterprises. They were enormously fortunate that congressional leaders were feeling more positively towards auto manufacturers because, a year earlier, a new law had imposed the improved fuel efficiency and emissions standards that would promote competitiveness with Japanese and European rivals.

The negotiations over that legislation had been bitter and protracted. Senators and representatives from Michigan, home of the U.S. industry, had long resisted demands  to modernize their standards. In the midst of the legislative battle on energy policy in November 2007, House Speaker Nancy Pelosi told House freshmen that she would not be bullied as Congress had been for decades. Public officials would set the efficiency criteria, Pelosi declared, not the manufacturers, who would be compelled to implement Congress’ decision. “What were you thinking,” Pelosi reported she had told the auto manufacturers, “to fight [tougher standards] for 30 years?”

Within Congress, reformers like Henry Waxman (D-CA) had long battled the industry’s apologist, Commerce Committee chairman John D. Dingell (D-MI). Sensing that Pelosi and Waxman had the votes, Dingell pleaded to give the auto manufacturers a reasonable time to recalibrate the efficiency of their fleet. Dingell told Pelosi he was prepared to “stuff down the throats of industry” a five-year time frame for industry compliance. “You hate the bill, but you can live with it if you work with me,” Dingell recalled telling Detroit’s big shots. “Otherwise, you’ll get a bill you can’tlive with.”

The resulting Energy Independence and Security Act required auto manufacturers to increase their passenger vehicle and light truck fleet average efficiency to 35 miles per gallon by 2020 – not a 5, but a 13 year glide path — and allowed the Environmental Protection Agency to increase standards when technologically feasible. With growing evidence about the impact of carbon concentration on climate change, President Barack Obama used that authorization to order a fleet average of 50 miles per gallon by 2025.

Only one year later, the manufacturers were at Congress’ door pleading for billions of taxpayer dollars to forestall bankruptcy. Despite their protests that efficiency standards made cars more expensive, they knew it would be futile to seek a relaxation of the mandates while appealing for their bailout. As the financial markets teetered on collapse and jobless claims soared, the Bush Administration and Congress knew that allowing the Big Three auto companies to fail would cause downstream bankruptcies for thousands of auto parts manufacturers, distributors and dealerships with a resulting loss of over a million jobs.

Still, securing the federal aid was far from a certainty, even with the industry pledges to modernize their fleets. Indeed, the new Treasury Secretary, Timothy Geithner, warned congressional leaders that the companies’ recovery plan, due in February 2009, would probably be prohibitively expensive, and that it was “very hard to imagine a sufficiently strong plan outside bankruptcy.” Pelosi, having asked her members to vote for hundreds of billions of dollars for both the Bush and the Obama stimulus plans, plus the TARP financial services bailout, as well as a trillion dollar Omnibus spending bill, was wary of going to the well yet again.  The companies, she advised, would have “to be realistic.” A planned bankruptcy might well be the “best of bad alternatives.”

The earlier legislation setting tough standards for fuel efficiency and emissions reductions helped persuade many reluctant legislators that the auto manufacturers were worth the public risk. Ultimately, the companies received an $80 billion loan using taxpayer funds, with a requirement that they repay it all. To date, unlike other TARP beneficiaries, the auto manufacturers still owe taxpayers billions of dollars.

Now the manufacturers, restructured, back on their feet and competitive again, are cheering on Trump’s decision to weaken the standards that earned them the public’s trust just a decade ago.  Trump’s relaxation of emission and mileage efficiency improvement was “the right decision,” intoned Gloria Bergquist on behalf of the Alliance of Automobile Manufacturers. But Trump’s proposal has drawn angry responses from congressional Democrats. Pelosi dismissed Trump’s rollbacks as part of the “GOP’s dirty energy agenda.”

To many on Capitol Hill, Trump’s announcements looks exactly like a used car salesman’s bait and switch operation, and it is the taxpayer who is getting used. Manufacturers that secured taxpayer subsidies based on compliance with efficiency upgrades are now walking away from their obligations. Car executives should not be surprised if the next time they plead with taxpayers for assistance, they get, as John Dingell had warned, something less salutary “crammed down their throats.”

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