GM Takes Heat for Backing the Trump's Administration Plan to Revoke California's Ability to Set its Own Emission Standards
When the state of California gained the ability to set its own emission rules in the 1960's, it was seen has a big win for the environment. At the time, cars weren't as clean burning as they are today and the Los Angeles metro area was frequently blanketed in a thick haze of harmful smog.
Now after decades of having the most strict emission standards for motor vehicles, the Trump administration is seeking to revoke California's authority to set its own standards, citing increased costs to automakers who must comply with it.
The Trump administration argues that the increased costs of building more fuel efficient cars will hurt automakers, and the increased costs will be passed down to consumers in the form of higher vehicle prices. Trump also said that fuel efficient vehicles are not as safe, without any data to support his claim.
California wants to push ahead with the Obama era rules to improve average fleet fuel economy to some 47 miles per gallon, the Trump administration is seeking to reduce average fuel efficiency to 37 mpg.
Automakers Ford Motor, Honda Motor, Volkswagen and BMW have already sided with California, however General Motors in a surprise move has decided to side with the Trump administration's proposal. Joining GM is Toyota, Fiat Chrysler Automobiles and Hyundai Motor.
For GM the stakes are high, the automaker's most profitable segment is gas guzzling pickup trucks and SUVs. GM would need to make changes in its vehicle lineup order to raise its fleet fuel economy average to 50 mpg by 2025.
The Clean Air Act
When the Clean Air Act was passed in 1963, it gave the U.S. Environmental Protection Agency the ability to regulate motor vehicle emissions standards at the national level. Since California was already actively developing its own stricter clean air standards, Congress granted California an exception, as long as any state emission plan it came up with complied with federal guidelines.
California did better, it enacted vehicle emissions standards more stringent than the federal government guidelines. Congress also permitted other states to follow California's more stringent emissions requirements, which many did.
Over the years, two dozen states, including New York, New Jersey, Illinois, Colorado and the District of Columbia adopted standards based on California's lead in order to curb greenhouse gasses.
However, the Trump administration's new proposal will allow GM to build and sell more profitable trucks and SUVs at a time when rival automakers are introducing fully-electric models. This probably won't sit well with environmentalists, but its apparently sits well with GM.
Sales of pickups and SUVs helped boost GM's Q3 earnings by 6% compared to the same period last year, despite a month long strike that idled its assembly plants.GM also posted healthy operating margin of 10.2% in North America, something it does not want to mess with going forward.
GM CEO Mary Barra said that the company's future is one of zero emissions, but the automakers decision to side with the Trump administration shows it's not quite ready to do that yet, even as its main U.S. rival Ford Motor Co plans an $11 billion investment to develop 40 new all-electric and hybrid models by 2022.
Meanwhile Tesla continues to gain market share with its strong selling Model 3, its first mass-market electric car. Demand for the electric Model 3 is still rising while GM axed poor selling combustion engine sedans like the Chevy Cruze.
With a market cap of $55 billion, GM is in a position to be a leader in electrification, but by siding with Trump the automaker appears to not want to take the same short term risks that electric automaker Tesla has.
Instead GM risks falling behind in the auto industry's push toward building more fuel efficient and fully-electric models, as it churns out thousands of gas-guzzling pickup trucks and SUVs.
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