January 27, 2009 at 6:22 pm

Fuel rule struggle looms for Big Three

Obama orders EPA review of Calif. tailpipe standards, putting carmakers in tough spot.

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WASHINGTON -- Automakers face an uphill climb in convincing the Obama administration not to grant California and 13 other states the right to impose their own tailpipe emissions standards, but those tougher regulations could come with more federal loans.

President Barack Obama ordered the Environmental Protection Agency to review the request from California and the other states to impose a 30 percent reduction in tailpipe emissions by 2016. He vowed during the campaign to grant California permission after the Bush administration blocked the rules in December 2007.

"Our goal is not to further burden an already struggling industry. It is to help America's automakers prepare for the future," Obama said during an announcement in the White House's East Room on Monday, stressing his aim was to ensure "that the fuel-efficient cars of tomorrow are built right here in America."

Automakers have repeatedly sued to block the California requirements -- first proposed in 2002 -- arguing they would create an untenable set of rules that would require them to stop selling certain vehicles in some states and add billions of dollars in costs to an already struggling industry.

General Motors Corp. and Chrysler LLC last month won a total of $17.4 billion -- and their financing arms have won a combined $7.5 billion to date -- to help them stay afloat amid a weakening sales market. They -- and Ford Motor Co. -- may need additional emergency government loans if auto sales remain sharply lower this year. Even auto suppliers -- many of whom are in serious financial straits -- are weighing a request for as much as $10 billion in loans from the U.S. Treasury.

Obama faces a series of critical decisions regarding the auto industry's future in the coming months.

He must approve restructuring plans to be filed by GM and Chrysler by Feb. 17 and the release of the remaining $4 billion in loans for GM and $3 billion for Chrysler. He must also decide whether to approve a Fiat-Chrysler tie-up and how to distribute $25 billion in low-cost government loans sought by more than 70 automakers and auto parts producers.

A White House spokesman who declined to be named said "additional tools to support the auto industry will be considered within the broader restructuring negotiations" in light of potential additional regulatory burdens.

Rebecca Lindland, an analyst at IHS Global Insight, said the California rules put "in jeopardy the long-time viability of automakers and their ability to pay back the loans."

Granting the waiver, Lindland said, "is opening up a can of worms that allow any state to set any standard."

Most automakers declined to comment on the Obama announcement. GM, however, said it's "ready to engage the Obama administration and the Congress on policies that support meaningful and workable solutions and targets that benefit consumers from coast to coast."

NHTSA to set '11 standards

Obama on Monday also directed the National Highway Traffic Safety Administration to set only the model year 2011 fuel efficiency standards by March 31, in accordance with a 2007 energy law.

Obama doesn't intend to set 2011-2015 model year standards all at once, as the Bush administration had proposed in April. The Bush administration this month abandoned its proposal to increase fuel efficiency by 4.5 percent annually to a fleetwide average of at least 31.6 miles per gallon by 2016 after White House officials raised concerns about the $30 billion price tag of the regulation.

Under a 2007 energy law, NHTSA must set fuel efficiency standards at a fleetwide average of at least 35 mpg by 2020.

The California standards would go far beyond federal rules, according to an analysis by the California Air Resources Board. That board said the fleetwide fuel efficiency in California would climb to 35.7 mpg by 2016 and 42.5 mpg by 2020.

California Gov. Arnold Schwarzenegger said "it is clear that California and the environment now have a strong ally in the White House."

Automakers have lost a string of lawsuits to block the California rules from taking effect.

Groups pledge cooperation

On Monday, Chrysler and Ford referred questions about the Obama announcement to the Alliance of Automobile Manufacturers, the trade group representing Detroit's Big Three, Toyota Motor Corp., Daimler AG and five other automakers.

"The Alliance supports a nationwide program that bridges state and federal concerns and moves all stakeholders forward, and we are ready to work with the administration on developing a national approach," the group said.

The Association of International Automobile Manufacturers, the trade group representing Honda, Nissan, Toyota and other major foreign automakers, pledged to work with the Obama administration.

"We welcome the Obama administration's quick attention to the important issue of climate change and recognize the need to take immediate steps to reduce, as feasibly as possible, greenhouse gas emissions from motor vehicles," said Mike Stanton, the group's president.

Waiver concerns dealers

Proponents contend the California rules will spark massive reductions in emissions.

"It's his sixth day in office. He's got a huge economic stimulus plan he's trying to pass and here he saying he is committed to fuel efficiency increases," said Phyllis Cuttino, director of the Pew Charitable Trusts' U.S. Global Warming Campaign.

Sen. Carl Levin, D-Detroit, said on a conference call with reporters that it was a "possibility" that the EPA would reject the waiver request and that he had been assured that the administration would carefully review the proposal with no preconceived judgments.

Dealers warned that California's rules could speed dealership closures.

"We hope that Obama and the EPA administrator will realize that a single national fuel-economy standard is smarter than a patchwork of state regulations that will only further endanger our industry," said John McEleney, incoming chairman of the National Automobile Dealers Association.

House Speaker Nancy Pelosi, D-Calif., said California's rules will "steer American automakers to retool their fleets. Only through innovation will automakers be able to create the greener cars of the future and regain their global competitiveness."

You can reach David Shepardson at (202) 662-8735.