Editorial: Obama Prepares GM, Chrysler for C11

President Barack Obama has announced that the EPA should go ahead and review California’s request to set national fuel economy standards. As reported here, California’s waiver would allow the state to legislate CO2 emissions, which would create a de facto fuel economy standard under the guise of keeping the planet cool. While environmentalists and the Pelosi wing of the Democratic Party view the Golden State hat tip as a seminal victory for Mother Earth, it’s actually a set up. It’s all part of the Obama administration’s plan to clean up the U.S. automobile industry by throwing GM and Chrysler into Chapter 11.

Once the EPA grants California’s request, the former republic and the thirteen states that follow its vehicular emissions requirements will dictate the kinds of cars all Americans will drive in the future. Never mind the Old School California-only models; there’s not a chance in Hell that any automobile manufacturer will make separate vehicles for The California 14 and then again for 36 other states. Lest we forget, California alone represents roughly one in every eight cars sold in the US.

Although automakers overwhelmingly oppose the EPA waiver– including Japanese and European manufacturers– their reticence flies in the face of logic.

Since the 70s, when California first confronted its smog problem, the federal government has issued waivers from federal emissions legislation to the California legislature. Of course, other states jumped on the California’s strictler, less gentle clean air bandwagon. And sure enough, all the manufacturers made their vehicles compliant with California regulations. For at least thirty years, California emissions standards have been the de facto standards for any vehicle sold in the U.S.

The MSM and even the Detroit papers have missed this call. All questioned whether the timing of Obama’s announcement couldn’t be worse– given Detroit’s dependence on trucks, which bring down fleet averages. And we know that Detroit doesn’t have a spare dime to develop the technology needed. Washington gives on one hand, and takes away on the other.

Yes and no. On one hand, it’s certainly true that neither GM nor Chrysler have the cash needed to retool to fully comply with California’s higher-than-the-feds fuel efficiency standards (never mind successfully compete with other automakers forced to do the same thing). Even split just three ways, the Department of Energy’s $25b retooling loans are, in automotive terms, a pittance.

The President of the United States knows that GM and Chrysler have to go bankrupt to survive. This is no secret. But his administration doesn’t want to be the author of that scenario– at least not without a “soft landing.” The California waiver is a sign that Obama has found a “hook” that will allow him to do what politicians have wanted to do since they signed the first check for GM and Chrysler: control the companies’ products.

So Washington will provide more money to help GM and Chrysler survive. But the rationale for doing so is undergoing a sea change. The bailouts are no longer about protecting American jobs. They’re about protecting American manufacturing by creating green jobs.

The green bankruptcy angle is also the perfect cover to avoid messy trade disputes with foreign countries. While Detroit has argued for years that Japan underhandedly supports their domestic car companies, little came of it as Japan Inc ate away at Detroit’s share of the pie. Americans bought their cars, subsidized or not, by the Japanese government. And we know that Detroit failed to respond on the product front.

Now the tables are turned on Japan. In bankruptcy, the Federal government can dictate the terms of financing which they will provide to Detroit. That means more fuel efficient cars that meet California’s requirements. It’s open and direct subsidy – but one that has to be given under the guise of rescuing a key industrial economy. So Detroit actually gets a “two fer”: money for reorganization and for new vehicles. Japan can moan and groan, but Detroit will come out ahead, subsidized by taxpayer dollars.

And here’s how it will go down…

For a start, the government’s car czar will dictate the merger (via shotgun) of GM and Chrysler. From there, it’s straight to bankruptcy for American Leyland. That makes for a clean slate in an expedited reorganization. Fewer car models, fewer dealers, little debt, and a competitive union contract. Decades of poor management decisions get wiped clean.

And then new government money – provided as Debtor in Possession – starts the rehabilitation process of the New GM. The money will go for cars which will meet California’s de facto national standard.

So in one swoop, President Obama will fully pacify the far left wing of his party and find the justification for government funds to get Detroit where it needs to be, politically speaking. One major question remains – what happens to Ford?