Automotive Armageddon
The next U.S. president could obliterate the auto industry as we know it.
NEW YORK (Fortune) -- As the presidential primary season draws to a close, it is worthwhile to contemplate this:
It is unusual for a single individual to hold the fate of an entire industry in his hand - but that will be the case for the next president of the United States.
He or she will have the power to enact unbearably strict fuel economy standards on the cars and trucks sold in half the country. By so doing, he could render vast swaths of the current car and truck lineup obsolete and doom their manufacturers to the scrapyard.
Here's the story:
Because of its history of intensive car use and dirty air, California for years has been setting its own regulations for tailpipe emissions that are far stricter than the federal standard. Twelve other states, including New York, New Jersey, Massachusetts, and Pennsylvania have enacted similarly strict regulations.
Last year, California decided to extend its rules out to 2020 with new and much tougher standards. The reductions in emissions that it mandates would require that the average new vehicle be able to propel itself on less than one gallon of gas for every 44 miles traveled.
That may sound attractive to those who paying $4 per gallon at the pump but - since it is 60% stiffer than the current regulations - it would restrict drivers to tiny vehicles that today they have only passing familiarity with.
Say goodbye to your SUVs, big pickup trucks, and V-8 powered muscle cars. Say hello to the Mini Cooper, Honda (HMC) Fit and anything that is primarily driven by a battery.
If anybody in the auto industry - either in Detroit or abroad - told you they know how to meet that kind of a standard today with their whole vehicle lineup, they'd be lying. Automakers are already hard pressed trying to meet the federal mileage standard for 2020 that only calls for an average of 35 miles per gallon. The Toyota (TM) Prius and couple of other gas electric hybrids can get that kind of mileage in city driving but nothing else you'd want to drive really comes close.
To enact the tough standards that it wanted, California needed a waiver from the Environmental Protection Agency, which sets auto emission rules on a national basis. The EPA has granted such waivers in the past; indeed, California had never been denied one.
This time, however, the EPA said no: California would have to follow along with the rest of the country. The EPA ruled that, unlike smog and diesel fumes, climate change is a global problem, not a state one, and therefore needs a national solution.
Like everything else in politics, the EPA ruling isn't final. Lawsuits are flying from various interested parties in an effort to get it overturned.
What frightens the auto industry is the question of whether the administration that takes office in January, 2009 will get the EPA to reverse course.
All three presidential candidates have said that they side with California and would order the EPA to extend a waiver. What happens after the inauguration is anybody's guess. But the betting in Detroit is that Democrats Obama and Clinton are the most likely to stick to their guns if elected.
Skirmishing continues on other fronts as well. Automakers have asked the federal courts to declare the action by California and other states to set their own rules is illegal, unrealistic and could create chaos.
As for the states, they are suing to overturn the EPA decision to deny the waiver.
"What you have is a bunch of scofflaws in the White House," California attorney general Jerry Brown was quoted as saying in the Los Angeles Times. "[EPA Administrator Robert] Johnson is becoming a stooge in a really pathetic drama that hopefully will not play out much longer."
The drama may be just beginning. Based on California's current vehicle sales mix, cars and the smallest light trucks will need to achieve more than 50 miles per gallon on 2020 to met the proposed new fleet standard; larger light trucks will have to achieve 35.2 miles per gallon.
They won't be much like today's. They could be made of aluminum, have plastic windows instead of glass, be propelled by a variety of powertrains, and cost perhaps $10,000 more than current models.
Worse, the cost of developing and building them could bankrupt the companies that are supposed to supply them. 
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