At the same time that the nation's top automakers are dealing with their worst financial crisis in history, they're also facing possible new environmental and fuel-economy standards, pushed by the Obama administration, that some fear could slow their recovery and cost more jobs.
As General Motors and Chrysler prepare to present Congress and the new Washington administration with comprehensive programs for returning to profitability this week — a requirement attached to the $13.6 billion in bridge loans they received from taxpayers in December — they are also staring at the potential for billions in new expenses tied to the development of more fuel-efficient, less-polluting vehicles.
On one side are environmental activists and many consumers who insist that U.S. carmakers build vehicles that don't harm air quality and that help reduce the nation's dependence on dirty-burning fossil fuels.
On the other are pro-industry groups and many auto analysts who say the clean air push is forcing automakers to manufacture cars that people won't buy and that will only drive the companies further into financial disarray.
"You're telling the car companies that they have to build cars that people don't want to buy," said Jeremy Anwyl, president and chief executive of the consumer Web site Edmunds.com and a longtime auto industry consultant. "It's not exactly a recipe for viability."
Some industry analysts say consumers think green when gas prices rise to dizzying heights above $4 a gallon — as they did last summer — but change their tune when prices drop to less than $2 a gallon.
"None of the automakers can win when we keep having wild fluctuations in the costs of energy," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
Take, for example, the Toyota Prius hybrid — a car that combines a small gasoline engine with an electric motor to reduce air pollution and provide fuel economy approaching 50 miles per gallon.
"You couldn't find a Prius last summer when gasoline topped $4 a gallon," Cole said. "Today, you can't give one away.
"One of the things we do know is that when fuel is cheap, consumers aren't interested in little cars and expensive technology such as hybrid-drive systems. To think you can make people buy 40-mpg cars is a pipe dream."
California rule debatedDespite such pessimism, environmental groups hail an Obama administration directive calling on the Environmental Protection Agency to reconsider its 2008 Bush-era decision to deny a waiver to the California Air Resources Board. The waiver would allow the board to continue forcing smog rules on new vehicles sold in that state that are more restrictive than those required by the federal Clean Air Act.
Those rules already had been embraced by 13 other states, as well — mostly in the Northeast, where air pollution is at its worst.
President Barack Obama also ordered new mileage standards that could force automakers to have a Corporate Average Fuel Economy, or CAFE, of 35 mpg even before a 2018 deadline.
"The new administration understands that higher pollution and mileage standards will help curb global warming, cut our dangerous dependence on oil, save consumers billions at the pump, and help the domestic auto industry recover," wrote David Doniger, policy director of the Natural Resources Defense Council's Climate Center, in a recent blog posting.
Jennifer Rennicks, federal policy director of the Knoxville-based Southern Alliance for Clean Energy, an independent TVA watchdog group, agrees. Her group promotes renewable-energy sources such as solar, wind and geothermal.
"We do think the president's direction to the EPA to reconsider the California waiver request is an important near-term step toward the reduction in greenhouse gases that cause global warming," Rennicks said.
"If the waiver goes through, numerous states are stacked up to follow, and … almost half of the drivers in the country could fall under these stricter rules. We would applaud this direction as absolutely the way we should go."
But forcing such rules on an ailing auto industry in the middle of a massive recession would be foolish, said Tom Borelli, senior fellow with the National Center for Public Policy Research, a conservative Washington, D.C., think tank that promotes free enterprise.
"For the automakers, these proposals are making a bad situation much worse," he said. "In the first place, the auto industry was already challenged because of the existing CAFE rules and other environmental requirements.
"That had put the carmakers in a box, forcing them to sell unprofitable cars in order to meet the existing standards. So, they were managing their business on a very fine line, which meant that they really only made money on their SUVs and pickups, which is what American consumers wanted."
The tougher standards envisioned by the Obama administration would make matters worse and "force people to buy cars they don't want," Borelli said.
Foreign automakers hurtSeveral auto analysts said foreign carmakers are also at risk.
It's a fallacy to believe that only the Big Three U.S. carmakers would be hurt, said Edmunds.com's Anwyl. "No one is in really good shape right now," he said, including Nissan, whose North American operations are based in Franklin.
Toyota, hailed as a leader in the development of fuel-efficient, low-emissions hybrids, is about to post a nearly $5 billion loss for the past year — its first loss in 70 years — because of the unprecedented slowdown in auto sales both in the United States and abroad.
Nissan has said it will post a $2.85 billion loss for its 2008 fiscal year, ending March 31, the first loss for the No. 2 Japanese automaker since 1999.
Of the top six automakers in the U.S. market — GM, Toyota, Ford, Chrysler, Honda and Nissan — only Honda is prepared to weather a combination of higher CAFE and emissions standards, Anwyl predicted.
"Honda is in good shape," he said. "It has no full-size trucks, no V-8 engines. But Toyota would be kind of caught because it is heavily dependent on trucks and bigger cars, just like the domestic automakers. But it's probably in better shape than the domestics."
Nissan probably is somewhere between Toyota and Honda, but in a better position than the domestic carmakers, Anwyl said. He said that's the case even though Nissan has relied heavily on less-efficient trucks and SUVs in the U.S. market, including its Pathfinder, Xterra and Frontier models assembled at a manufacturing plant in Smyrna.
Single standard wantedA Nissan spokesman said the company remains on track, though, to have an electric car by 2010 in the U.S. and Japan and for the mass market by 2012. Spokesman Fred Standish here said the company's "primary focus is on a zero-emissions vehicle."
But Nissan and other automakers have been opposed to a patchwork quilt of differing standards for fuel economy or emissions, such as separate smog rules in place in California. "We backed a bill in the U.S. Senate to set higher fuel-economy standards," Standish said. "But we need one standard nationwide."
"Multiple standards make things very complex. We've already got cars outfitted for California emissions rules and then the rest of the country. To further segment that would be difficult to deal with. We're firmly behind a single standard," Standish said.
Michigan-based auto analyst Erich Merkle doesn't think pure electric vehicles, such as the ones promised by Nissan, are the answer to either the nation's smog problems or the automakers' financial challenges.
"I see the automakers going more down the electric road, but honestly, that's not going to save the industry," Merkle said. "They're expensive, the infrastructure isn't in place, and the battery technology must improve.
"People are intoxicated by electric. But the internal-combustion engine is not all that bad, and it's not going to go away. We will see more electrification of them, with hybrid technology, but we can manage the combustion process much better today than eight or nine years ago."
Merkle agrees with a number of other analysts and the automakers about the dangers of a hodgepodge of state regulations.
"You just can't manufacture a car for each state," he said. "It's not economically viable, and it would cause incredible chaos."
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