Carmakers in Washington’s crosshairs

Bloomberg

This is so much more than a parting shot. With a week to go before Donald Trump becomes president, the Obama administration has unleashed a final, multiprong effort on enforcement and regulation in the automotive industry, with Fiat Chrysler Automobiles NV now at the fore.
On Friday alone, the US Environmental Protection Agency rejected automakers’ bid to weaken fuel-efficiency standards, news broke that federal authorities had opened a criminal investigation into Fiat Chrysler over its handling of emissions in 104,000 SUVs and pickup trucks, while embattled supplier Takata Corp. agreed to plead guilty and pay $1 billion to settle a US probe into its exploding airbags linked to at least 17 deaths worldwide.
Together the developments—along with this week’s $4.3 billion in fines and penalties against Volkswagen AG for its diesel-emissions cheating and the indictment of three Takata executives—mark one of the most aggressive industry-related moves since the Obama administration helped General Motors Co. and the former Chrysler LLC through bankruptcy in 2009.
The question now is how Trump, who campaigned on promises to revive the fossil-fuel industry and roll back environmental regulation, will respond to steps the auto industry says will hurt jobs and cost consumers.
Sergio Marchionne, the chief executive officer of Fiat Chrysler, told reporters on Friday the Obama administration has taken a “belligerent view” of the industry. “We don’t belong to a class of criminals,” he said.
The administration’s biggest move was EPA jumping several months ahead of schedule to affirm President Barack Obama’s mandate requiring automakers to cut carbon-dioxide emissions by boosting their fleet-wide fuel economy to an average of 50.8 miles per gallon by 2025 from 35.3 mpg now.
National Automobile Dealers Association President and CEO Peter Welch urged Trump to reverse the EPA decision, saying in a statement the rule would add thousands of dollars to the cost of new cars and trucks.
Welch’s comments echo the auto industry’s broader tone since Nov. 30, when the EPA telegraphed that the regulations would see no major changes. Friday’s announcement marked the conclusion of an EPA review automakers say was unfairly cut short to safeguard a signature Obama administration environmental policy from Trump.
‘Politically Costly’
“Obama is making it more difficult and more politically costly for the new administration to unwind the regulations,” said Brian Johnson, a Barclays Plc analyst in Chicago.
For Trump to do this, he would have to re-start the process that produced the rules in the first place. Dave Cooke, senior vehicles analyst at the Union of Concerned Scientists, says such a move would include reaching a fresh conclusion that the 2025 standards needed to be changed and then a lengthy rulemaking to actually do so. “This is not a hasty decision,” Cooke said. “It’s based on years of data and it’s a lot of work and effort to overturn.”
Washington-based analysts at ClearView Energy Partners LLC issued a note to clients on Friday, saying Congress probably won’t roll back the regulations.
“We think the Trump Administration may be more inclined to consider short-term administrative ‘tailoring’ of the program to give automakers more flexibility as it considers a comprehensive rewrite of the MY2022-2025 standards,” it said.

Possible Amendments
The Republican-controlled Congress also could amend the Clean Air Act to bar the regulation of carbon dioxide as a pollutant, or to prevent California and other states from enacting their own requirements for zero-emission vehicles. As part of a rulemaking slated for later this year, the National Highway Transportation Safety Administration will codify its own fuel-economy targets for 2022-2025. The Trump administration could use this to grant concessions automakers want related to, for example, credits they can earn by installing eco-friendly technologies such as aerodynamic grilles. Relief on these rules is near the top of automakers’ wish lists for what they hope will be a more business-friendly administration under Trump.
In an interview at the Detroit auto show earlier this week, GM North America President Alan Batey expressed concern the current targets force companies to add expensive equipment he said “the customer won’t pay for and, in many cases, doesn’t even value.” A longer timeline would relieve some of the pressure, he added.

Petitioning Trump
Beyond fuel economy, automakers petitioned Trump’s transition team for a broader re-set of relations with the government just days after the election, asking for a new presidential advisory panel to coordinate the panoply of regulatory agencies that oversee pieces of the industry. Yet the impact of even an aggressive move by Trump to de-fang Washington’s auto-regulatory regime may have limits, as counterparts overseas show no signs of backing off their own initiatives.
“There may be an adjustment in the US standards after 2021, but I don’t see them going down in Europe or China,” said Warren Gibbon, who helps manage $370 billion for Standard Life Investments in Boston and sold his holdings in big Detroit car companies in 2012. “To the extent these cars and trucks are all global platforms, that could be an issue.”
Trump’s election has alarmed climate activists who worry the president-elect will make good on his vow to dismantle environmental regulations limiting carbon-dioxide emissions. Trump once described climate change as a hoax, and many of his nominees for key cabinet positions also have been skeptical of humans’ role in the phenomenon.

Stoking Fears
Fears also have been stoked by a questionnaire Trump transition advisers sent to the Energy Department in December, asking for the names of employees and contractors involved in climate policy matters. Given the volume of emissions from America’s 250 million vehicles, Obama’s fuel-efficiency plan is widely considered to be one of the country’s major efforts to combat climate change.
For now, automakers don’t know if Trump is spending much time even thinking about how to regulate their industry.
“I’m not sure if ‘our neck of the woods’ is going to be on top of the list,” said Jim Lentz, CEO of Toyota Motor North America. “The new Secretary of Transportation may be spending more time on infrastructure than on regulating autonomous cars or fuel economy.”“I have no idea.”