Turbulent decade for automakers in Washington comes to a close
Washington — The 2010s have been a decade of crisis and transformation for automakers in Washington, D.C.
The decade began with General Motors and Chrysler emerging from Chapter 11 bankruptcy and Chrysler in a lifesaving alliance with Italian automaker Fiat that eventually led to a 2014 merger of the two companies now known as Fiat Chrysler Automobiles.
GM and Chrysler, recipients of $51 billion and $12.5 billion respectively in federal bailouts in 2008 and 2009 during the Great Recession, have since become leaner companies and attempted to move on from their legacies of being thrown lifelines by U.S. taxpayers. However, Congress, the president and segments of the public have not forgotten, evidenced by the anger GM faced on Capitol Hill when it announced plans in late 2018 to idle four U.S. plants.
GM found itself in hot water with lawmakers in 2014 over its failure to recall millions of small cars with defective ignition switches. The defect caused the ignition switches to abruptly shut down the engines while being driven, disabling air bags in the process. Some within the company knew of the problem for more than a decade but failed to sound the alarm. The failure to act by GM to ultimately was linked to 124 deaths and hundreds of injuries. GM paid $900 million in fines as part of a settlement with the U.S. Department of Justice in a criminal investigation. The company also was required to establish a $600 million compensation fund for those killed or injured.
Around the same time, the regulatory spotlight moved to Japanese air-bag manufacturer Takata Corp., which produced faulty air bag inflators installed in nearly 13% of the total registered vehicles in the United States. When propellants in the inflators degraded, they could explode with excessive force, throwing shrapnel at drivers and passengers. Exploding Takata air-bag inflators have been linked to at least 16 deaths and more than 250 injuries in the United States; at least 24 have died worldwide. The faulty inflators led to the recall of nearly 70 million air bags, the largest automotive safety recall in U.S. history.
Volkswagen AG became mired in the so-called Dieselgate emissions-cheating scandal in 2015. The automaker rigged hundreds of thousands of diesel vehicles with software that allowed them to meet emissions standards during testing, but allowed them to emit illegal exhaust-pipe pollutants while being driven. The U.S. government eventually indicted six present and former Volkswagen AG executives, and charged the company with three criminal felony counts for what regulators called a “10-year conspiracy.” Volkswagen was forced to pay $2.8 billion in criminal fines and $1.5 billion in civil penalties related to the fraud. CEO Martin Winterkorn was forced to resign.
A similar problem swept up Fiat Chrysler. The automaker in 2019 paid nearly $800 million to settle allegations from federal regulators that the company used software on about 104,000 diesel-powered pickups and SUVs that regulators said was similar to “defeat devices” used by Volkswagen. The settlement required the Italian-American carmaker to pay $280 million to compensate drivers of Jeep Grand Cherokees and Dodge Ram 1500 pickups from the 2014-16 model years with 3-liter V-6 diesel engines. Fiat Chrysler was not required to admit wrongdoing as part of the settlement and the company was not required to buy back any of the affected vehicles.
Detroit's automakers participated in a ceremony in the White House Rose Garden in 2012 with former President Barack Obama that heralded new gas-mileage rules. The rules would have required carmakers to produce fleets averaging 54.5 miles per gallon by 2025. The ceremony was seen at the time of the sign of a new era of cooperation between automakers and regulators. But by the time a 2018 mid-term review came around, Donald Trump was president, and his administration pushed to roll back the mpg rules.
California, which helped craft the Obama-era rules, resisted the proposed rollback and promised a lengthy court fight that is likely to stretch well into the coming decade. Ford Motor Co. sided with California, reaching an agreement with the state and three foreign automakers. GM and Fiat Chrysler sided with the Trump administration, making the battle lines clear for 2020 and beyond.
The years under Trump have been dominated by trade issues that created uncertainty for carmakers. In March 2018, he imposed stiff 25% tariffs on foreign steel and 10% tariffs on foreign aluminum in a move that prompted retaliatory threats from foreign governments and rattled financial markets. Later that year, he launched an investigation into the possibility of imposing tariffs as high as 25% on imported cars and parts in a move that united Detroit and foreign-owned manufacturers in opposition.
The debate about tariffs occurred as the Trump administration negotiated a replacement for the North American Free Trade Agreement with Canada and Mexico. Under the resulting agreement, known as the U.S. Mexico Canada Agreement, automakers will have to produce cars with 75% of parts originating from the U.S., Canada or Mexico to qualify for duty-free treatment. The requirement, referred to as “rules of origin,” would be an increase from 62.5% under current NAFTA rules. In addition, 40-45% of an auto's content must be made by workers earning at least $16 per hour. Vehicles not meeting the requirements would be subject to a 2.5% duty.
Prior to the announcement of the agreement, automakers and groups that lobby for the industry in Washington worried the president would follow through on campaign promises to pull out of NAFTA with no replacement, which would have upended supply chains and production plans for almost every automaker. The decade concluded with the U.S. House passing the USMCA a day after voting to impeach the president. The Senate is expected to take up the measure in the new year.