With Businesses on the Brink of Bankruptcy, How Will Automakers Respond to California’s Emission Standards?

futurecarToastForBrekkie.jpgIn January, President Obama signed an executive order asking the courts to review a Bush era ruling that stopped California from limiting carbon emissions from passenger vehicles. When the dust settles after multiple legal hoops, California and 17 other states (called the CARB states) who have signed on to California’s plan will inevitably, it seems, dictate the federal emissions standards for one very simple reason: it will cost more to produce two lines of vehicles than to just upgrade the entire line to California’s higher standards.
Historically, Detroit’s reaction has been consistent to California’s climate protection efforts throughout the years. Without ever having won a court case directly related to the controversy, Detroit has nonetheless succeeded in delaying the inevitable for many years, presumably because their business would have plummeted as a result of the stricter emissions standards. With their businesses on the brink of bankruptcy, one is forced to wonder how effective their delay tactics were, and whether, if they had instead come to the bargaining table and worked out a compromise, they would be in better shape today.
Congressman Henry Waxman (D-CA) led a series of hearings in 2008 that demonstrably showed the Bush White House directly involved in overruling EPA officials, virtually all of whom favored the California standards. Aside from a couple of Michigan Democrats (Governor Granholm and Rep Dingell) and a few rogue Republicans (Governors Schwarzenegger and Utah Governor Huntsman), the issue has largely been decisively along party lines. The 18 states involved in the case include 16 blue states along with Utah (Huntsman’s influence) and Arizona (a swing state even in McCain elections).
And now, with the industry flailing and begging a largely Democratic congress and President for a helping hand, the story’s plot has certainly thickened.

Politics aside, how will the auto industry respond? If history is any guide, the answer is still completely unclear. While small incentives have led to some notably big victories, like the elimination of air-drag producing roof racks that were more for fashion and less for function, other larger incentives and mandates have led to bare minimum compliance efforts, such as the creation of large flex fuel SUV’s, and hybrid SUV’s that only get 20 MPG. GM had to know the party was over several years ago, and yet they invested heavily in hybrid technologies, maybe for the PR, maybe for compliance, for vehicles that still get less than 22 MPG. That’s complying with the letter of the law rather than the intent. Eventually the people are going to want you to comply with the intent, and then what?
Instead, here’s what GM put out in 09:
Cadillac Escalade Hybrid: $80K price tag. 20/21 MPG City/Hwy
Chevy Tahoe Hybrid: $50K. 21/22
GMC Yukon Hybrid: $52K. 21/22
Saturn VUE Hybrid: $27K 25/32
Under a short-sighted Bush era tax incentive program, each of these vehicles comes with a $2200 tax credit, except for the VUE, which only gets $1550.
While it is easy to bash Detroit’s (and Bush’s) short term focus and seemingly constant foot-dragging, the industry really is in trouble, and for more reasons than we can probably list. Surely there have been failures driven by greed and mismanagement from many stakeholders. But part of it is just the economy. Even pioneering companies such as Toyota are suffering (reporting their first loss in 70 years).
However, I have to think that the companies in the industry who have positioned themselves with efficiency and fuel economy in mind and spent the last 8 years laying the groundwork for lower carbon cars instead of lobbying and delay tactics are going to come out on top. Honda’s Ed Cohen, VP of Governmental Affairs, says it best: “Any company that is not assuming a constant rate of improvement in fuel economy and carbon emissions is making a big mistake.” GM and Ford still have a lot of assets, and it may be time to break up those assets and sell them off to the highest bidder. Sure, it will be painful. Sure, there will be job losses. I am recently laid off and I know the pain of the current economic crisis as well as anyone, but somehow, I feel that denying the obvious and the inevitable only makes the final crash ever more painful. Perhaps it will open up avenues for small companies to enter the market that has been so dominated by the Big Three. There are plenty of advantages to the economy as a whole when competition blooms, and with the right incentives, some of these eco-entrepreneurial types will likely begin companies that may someday be referred to as ‘the Big…’
Scott Cooney is the author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur, and looks forward to the day when the green economy is simply referred to as….the economy.
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Photo credit: ToastforBrekkie on Flickr Creative Commons

Scott Cooney, Principal of GreenBusinessOwner.com and author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur (McGraw-Hill, November 2008), is also a serial ecopreneur who has started and grown several green businesses and consulted several other green startups. He co-founded the ReDirect Guide, a green business directory, in Salt Lake City, UT. He greened his home in Salt Lake City, including xeriscaping, an organic orchard, extra natural fiber insulation, a 1.8kW solar PV array, on-demand hot water, energy star appliances, and natural paints. He is a vegetarian, an avid cyclist, ultimate frisbee player, and surfer, and currently lives in the sunny Mission district of San Francisco. Scott is working on his second book, a look at microeconomics in the green sector.In June 2010, Scott launched GreenBusinessOwner.com, a sustainability consulting firm dedicated to providing solutions to common business problems by leveraging the power of the triple bottom line. Focused exclusively on small business, GBO's mission is to facilitate the creation and success of small, green businesses.

2 responses

  1. nice post, but I think there’s a small typo. CARB stands for California Air Resources Board. Are you referring to the Western Climate Initiative? I’ve never heard of the “CARB states”

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