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Automakers in the Crosshairs as Democrats Head for Congress

Automakers in the Crosshairs as Democrats Head for Congress

Source: CNBC

Sometime in the coming weeks, the Trump Administration will announce final plans for rolling back the Corporate Average Fuel Economy, or CAFE, standards considered one of the signature accomplishments of the preceding Obama White House.

The planned rollback, part of the current administration's overall push for deregulation, has won wide criticism among consumer and environmental groups, as well as Democrats in Washington.

With the GOP soon to cede control of the House of Representatives, the fuel economy rollback, as well as the Trump administration's trade war, are among the many things likely to come under a Democratic spotlight. But the real question is what, if anything, that party will be able to accomplish when they regain some amount of control in Washington.

"From a standpoint of the auto industry there are a number of issues that will come under debate," said David Cole, director-emeritus of the Center for Automotive Research, in Ann Arbor, Michigan.

Few recent administrations have taken as many steps as Trump's that directly impact automotive manufacturers and suppliers, autoworkers and auto buyers.

On some matters, such as the tariffs on imported aluminum and steel that will cost Ford alone a billion dollars this year, Cole said, the industry would clearly like to see Democrats find a way to get the Trump administration to back down. The same is true for both the China trade war, as well as the so-called "232" tariffs that the Commerce Department is studying and which could impose hefty new duties on virtually all automotive imports — and likely trigger retaliatory tariffs on American-made vehicles.

"The 232 tariffs pose a real risk," said Michael O'Brien, head of product planning for Hyundai Motor America, and could cause a massive disruption of the global automotive production system, including the assembly plant the Korean automaker operates in Alabama.

On the other hand, there is strong, though by no means unanimous, support among automakers, for rolling back fuel economy standards. A push to retain the 54.5 mile-per-gallon target for 2025 would likely generate an industry outcry.

One of those who is considered likely to oppose a rollback is Frank Pallone, a New Jersey Democrat who will, come January, take over as chairman of the House Energy and Commerce Committee. Pallone has also been an outspoken critic of the National Highway Traffic Safety Administration under Trump.

But, despite the likelihood that Democrats will speak out, and likely try to counter some of the Trump Administration's moves, there seem to be few expectations that a Democratic House could actually block or even alter the administration's plans and policies.

There will almost certainly be hearings on the tariffs, as well as on the CAFE rollback, industry observers anticipate. And the close industry ties of senior officials, such as EPA chief Andrew Wheeler, a former coal lobbyist, could come in for sharp criticism.

Most of what the administration has done to the auto industry, however, has involved executive orders and other actions that don't require legislative approval, said Eric Winograd, U.S. economist for AllianceBernstein.

"Trade policy he can do all on his own, unless there's a treaty reached that Congress has to authorize," said Winograd, Things that could require new legislation "he won't be able to do without congressional approval," so, the economist added, "If the president gets frustrated with congressional obstruction, he may turn even more to trade issues (and) we will see possibly increased trade tension in the months to come."

On the other hand, some are speculating that "Democrat's taking the House might make trade deals more likely, as prolonged disputes could make an economic downturn more likely and play in the Democrats' favor ahead of 2020," said Sameer Samana, global investment and technical strategist for Wells Fargo Investment Institute.

A Democratic House could try to play to popular support for measures that protect consumers on several fronts, including privacy. They are also likely to try to reinstate measures, like one recently rolled back by the White House that aimed at ensuring minority customers have the same access to affordable credit as whites do. But new legislation would face strong opposition, both in the Senate and the White House.

Bob Schwartz, an auto analyst who also works with AllianceBernstein echoed the likelihood that the Trump administration may "pivot more to using executive powers, rather than trying to go through Congress."

But Schwartz quickly added that opponents will likely amp up their attacks, for one thing relying on the courts to block administrative plans. A number of environmental moves have been halted, a judge blocked the Keystone XL pipeline last week. And 19 states, along with the District of Columbia, have already sued the administration to block any change to the CAFE standards.

Meanwhile, Schwartz anticipates that with more Democratic governors and attorneys-general taking power after the election, "states that are turning more blue" may push through measures of their own "where they feel the government is falling down on consumer protection." California, for one, has already taken such a step by enacting its own net neutrality bill.

Traditionally, there were clear party lines dividing those seen as pro- and anti-auto industry. But the Trump White House has broken many rules, that one included. Republicans who traditionally served as the bastion of trade have largely fallen in line with a protectionist president, for one thing.

The auto industry likely won't mind some of the results from Tuesday's election, especially the defeat of Missouri's Senator Claire McCaskill, a Democrat and frequent critic of industry safety practices. It's still unclear what will happen in Florida where a recount appears likely in the race between incumbent Democratic Senator Bill Nelson, another frequent industry critic, and his challenger, Florida Gov. Rick Scott.

Meanwhile, at least four Congressmen with ties to auto dealerships, both Democrat and Republic, won re-election to the House. Also elected for the first time was Haley Stevens, who led the Obama team that bailed out General Motors and Chrysler when they went bankrupt nearly a decade ago.

"It's simply hard to tell" what all this will mean for the auto industry said Hyundai's O'Brien. But there's little doubt that the auto industry has a lot at stake over the course of the next two years and will be watching to see how things will shake out in Washington.

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