Mr. Jones

EYES ON THE ROAD
By JOSEPH B. WHITE
What Auto Executives Really Meant
When They Testified to Legislators
March 19, 2007
Leaders of the U.S. auto industry's Big Four auto makers and the head of the United Auto Workers went to Washington, D.C. last week and said some extraordinary things, including declaring -- one after the other -- that they could support a mandatory "cap and trade" system to reduce carbon dioxide emissions linked to climate change.

Not so long ago, it was a big deal when one of Detroit's Big Three, Ford Motor Co., acknowledged that global warming was even a serious issue. But that was in the pre-"AGO" era -- before Al Gore's Oscar.

Even Michigan U.S. Rep. John Dingell, the auto industry's senior and most stalwart protector in Washington, says he is "frustrated" by the lack of progress toward reducing U.S. petroleum consumption, and chides industry leaders, "I have heard from all of you previously what will NOT work. What I have not heard is what WILL work." The question is no longer whether the eleven-year holiday the industry has enjoyed from tougher passenger-car mileage standards will end, but how it will end.

So what does this sea change in the industry's stance on climate change mean for American consumers and motorists? Anyone who's listened to congressional testimony knows that often, translation is in order. (See a video of the testimony.)

Here's a guide to deciphering a few of the points made during last week's unusual joint appearance by the chief executives of General Motors Corp., Ford, DaimlerChrysler AG's Chrysler Group, the head of the United Auto Workers union and the president of No. 3 U.S. auto maker Toyota Motor Corp.'s North American unit, Jim Press:

• "We recognize that reducing CO2 from cars and trucks will be an important element of any energy security and climate-change policy. We also recognize that an effective policy must consider an 'integrated approach' …" – Ford CEO Alan Mulally.


Translation: We have figured out that the old "just say no" strategy on raising mileage standards won't fly. But don't force the auto industry to fix everything by itself.

The Big Four auto makers and the UAW don't agree on every point of the complex climate-change debate, but they share a fear that Congress will do what it has done in the past, and put an outsized share of the burden for curbing America's appetite for petroleum products on their engineering and marketing departments. GM Chairman and Chief Executive Rick Wagoner said estimates of a cost of $40 billion to increase new car fuel economy by 4% a year from the current 27.5 mile per gallon was low. He later pointed out "our credit rating is low." Actually, Wall Street labels GM and Ford as "junk" credit risks.

If consumers are going to pay more for energy and things that consume energy, car makers want that tab to be diced up across as many sectors of the economy as possible -- so that the bite taken out of their potential profits is as small as possible.

• "This is an area where Congress can really help ... by significantly enhancing funding for domestic advanced battery research and development and also expanding funding for development of hydrogen and fuel-cell technology." -- GM CEO Rick Wagoner.


Translation: When we use words such as "help," or "incentives," we mean "money."

The idea that taxpayers should help finance a change in the auto industry's technological status quo popped up repeatedly during the auto industry leaders' testimony last week. Of course, it was rarely put quite that way. Instead, industry executives talked about "incentives" to sell gas-electric hybrids, or to retool factories for advanced technology vehicles. They even endorsed the idea of federally guaranteed loans to finance advanced technology research.

In effect, the car makers are saying that since most consumers won't volunteer to pay them directly for the full costs of advanced technology, fuel-efficient vehicles, they'd like Congress to get the money from consumers, via taxes, and then give it to the auto industry.

• "The European model, while far from perfect, is based on policies that leverage demand and market forces, not on policies that fight them." -- Chrysler Group CEO Tom LaSorda.


Translation: OK, let's be fair to Mr. LaSorda. He translated this point himself. More bluntly than his counterparts, Mr. LaSorda challenged the law makers to tell consumers that if they want to have a national fleet of vehicles that averages 36 miles per gallon, as in Europe, instead of the American average of 24 or 25 mpg, they need to live more like Europeans. That means high fuel taxes, tax policies that discriminate against gas guzzlers, and clean air regulations that allow widespread use of diesel engines. "They've made some tough political choices," Mr. LaSorda said.

• "We need both fully formed technology and lower carbon fuel infrastructure to come to market together." -- Toyota North America President Jim Press.


Translation: Have we mentioned that the oil companies don't want to spend billions on new pumps and pipes to distribute ethanol outside the corn belt? How come you're not beating up on them?

The existing federal fuel-economy regime allows car makers to sell more big SUVs and pickups and low mileage cars if they bank credits by building so-called "flex fuel" vehicles that can run on gasoline or E85 ethanol. Equipping a car to handle that range of fuels costs about $150 -- a sum auto makers definitely prefer to the $2,000-$4,000 or more it costs to make a car a hybrid. But only about 1,000 U.S. gas stations stock E85 fuels, because existing pipelines and pumps aren't set up to handle them. Fears of the corrosive properties of ethanol have stalled Underwriters' Laboratories approval of ethanol pumps, Illinois U.S. Rep. Dennis Hastert complained during last week's hearing.

Who should pay for a new ethanol fueling infrastructure? The car makers aren't putting up their hands.

• "Without measures to level the playing field and help struggling auto manufacturers, the UAW would be deeply concerned about the economic feasibility of any proposals to mandate significantly higher vehicle efficiency standards." -- UAW President Ron Gettelfinger.


Translation: Memo to congressional Democrats: While you are pushing this global warming agenda to build your cred in California, keep in mind that one million people, many in critical presidential battleground states like Michigan and Ohio, are counting on the Detroit Three to keep paying wages, pensions and health-care benefits. The only vehicles these companies build that make any real profit are big ones, and about the only reason they build small cars in the U.S. any more is that the current fuel-economy rules effectively require it. So think long and hard before legislating America out of its SUVs.

* * *
This little guide hardly does justice to the complexity of this debate. But the bottom line message of last week's Washington events is clear enough. In the late 1970s and early 1980s, Americans got religion about reducing the oil consumed by their cars, because wasting energy got expensive. When gas became cheap again, Americans and their big auto makers gorged on big SUVs. A return to the rocky path of virtue is going to cost some coin. The fight will be over how those coins make their way out of consumers' pockets.