Tough Test Emerges as Administration Aims to Bolster Automakers, Cut Pollution

In the viability plans General Motors and Chrysler submitted to support their federal aid requests, the companies pledged to try to meet new fuel economy standards.

GM said that within six years its cars would average 38.6 miles per gallon. Chrysler proposed 35.4 mpg.

Yet whether those levels will be enough to meet new federal fuel efficiency standards is unknown because even as the Obama administration is trying to revive the American car industry, it is simultaneously drafting tougher fuel economy standards of the kind that many in the industry had said were bad for business.

If the administration opts for tougher rules, it could make its own auto rescue efforts more expensive and more complex.

Balancing the two goals -- saving the industry and the environment -- has emerged as a test of the administration's aims. And the decisions the president's auto task force must make in the coming weeks give it broad leverage to shape not only the industry's finances but its product lines.

By the end of this month, the Obama administration hopes to finalize its plans for the automakers, which have requested as much as $21.6 billion more in federal aid to stave off bankruptcy.

Separately, the administration has requested new fuel-economy guidelines to go into effect in 2011, the first step in an effort to toughen and streamline federal regulations for fuel efficiency and tailpipe emissions.

Exactly how the administration should handle the automakers' difficulties is up to the president's Task Force on the Auto Industry. That group's designees include financial experts from the Treasury Department. It also includes designees whose focus is largely energy or the environment: Lisa Heinzerling, senior climate policy counsel for the Environmental Protection Agency administrator; Dan Utech, a senior adviser from the Department of Energy; and Heather Zichal, deputy director of the White House Office of Energy and Climate Change.

In a Sunday appearance on CBS talk show "Face the Nation," Obama chief of staff Rahm Emanuel suggested that dealing with the automakers' financial plight was only part of the task force's mandate.

"Here's the other thing, I think, that people should see in both GM as well as the others," Emanuel said. "They never invested in . . . alternative-energy cars, they got dependent on big gas guzzlers. . . . We have a day of reckoning of making sure that we have a policy on energy independence."

At a minimum, the Obama administration is preparing to set yearly fuel-economy standards that will lead to compliance with the Energy Act of 2007, which sets a fuel-economy goal for 2020.

If the Bush administration's approach to complying with that law is followed, it appears that GM's and Chrysler's plans would meet future fuel-economy standards.

But on Jan. 26, just days after the presidential inauguration, Obama signaled that he may be willing to entertain even stricter standards. He ordered federal regulators to consider giving California and 13 other states the ability to regulate tailpipe emissions. The California regulations in essence could allow the states to regulate fuel economy, and environmentalists are pushing to make the tighter California proposal the law nationwide.

Tomorrow, the EPA is scheduled to hold a public hearing on the California rules.

GM and Chrysler officials have said they will meet any new fuel-economy standards. But if California's rules are adopted, it is likely that the companies would fail the environmental tests, narrowly in some cases, based on their current product plans.

"Our analysis suggests that allowing California and other states to regulate CO2 emissions, and thus fuel economy, will further damage companies that are struggling, like GM, Ford and Chrysler and much of their supply base, and potentially destabilize relatively healthy companies like Toyota and Nissan," according to testimony being prepared by Eric Fedewa, vice president at CSM Worldwide, which provides forecasting services to automakers and suppliers.

Allowing the California waiver "imposes massive additional costs on an industry that's exceedingly weak," said Andrew Koblenz, vice president of legal regulatory affairs for the National Automobile Dealers Association.

Others think the requirements would not be as onerous as some have suggested.

"Our analysis shows, when the car and light-truck fleets are considered together, that a national greenhouse gas standard equivalent to California stringency is doable for GM and indeed consistent with their own business plans," said Roland Hwang, vehicles policy director at the Natural Resources Defense Council.

The differing opinions are largely the result of what assumptions people make about an automaker's future lineup and other factors.

Among other things, exactly what kind of cars the companies will sell in the future -- big or small -- is a matter of speculation that depends on the general economy as well as fuel prices. Moreover, the key California rules are set out in terms of emissions levels, not miles per gallon, and some reductions in emissions can be achieved without increasing fuel economy.

Whatever the effects of the California regulations might be, environmentalists and some in Congress have argued that forcing the companies to build more fuel-efficient cars will ultimately help the industry by preparing it for when oil prices rise once again.

"The worst thing you can do to an industry struggling right now is to let them lapse back into making gas-guzzlers," said Ann Mesnikoff, director of the Sierra Club's green transportation campaign. "Oil prices are down now, but in three to five years, they'll be up, and the automakers will be making vehicles the public won't buy."