The nation’s capital had the activity of a three-ring circus last week, with a challenge fired at the Chrysler bankruptcy; a GM bankruptcy in the wings; a cap and trade emissions bill clearing its first legislative hurdle; and the administration announcing a major increase in vehicle fuel standards.
While the administration says it is confident that Chrysler and GM can move through the bankruptcy courts and start returning to health in a few weeks, others are not so sure. On Tuesday a group of 300 disenfranchised Chrysler dealers filed to block the government’s plan for a quick restructuring. As the holders of $27 billion worth of GM bonds rejected a plan that leave them with only a small equity stake in a revived company, the government seems ready to send GM into the bankruptcy courts by the end of this week. The Administration loaned GM another $4 billion to keep it afloat until week’s end, bringing the total loan to $19.4 billion since December. During bankruptcy, GM is slated to receive billions more in government loans until the downsizing and restructuring is completed.
Congress is increasingly skeptical that the GM bankruptcy plan will work and many are concerned that the bondholders are being treated unfairly as compared to the unions. Amidst concerns ranging from the fate of dealerships to that of parts manufacturers is the overriding concern that car sales could collapse leading to cascading bankruptcies and millions being thrown out of work.
On Capitol Hill the House Energy and Commerce Committee passed out the American Clean Energy and Security Act of 2009. This massive bill attempts to reduce carbon emissions from American vehicles, buildings, factories, and power plants by 83 percent within 40 years. Needless to say there are trillions of dollars at stake. Should the bill pass, the supply and consumption of energy in the United States will never again be the same. Hundreds of amendments were proposed and numerous messy compromises were reached as the bill passed through the committee.
While the bill passed the House committee despite vigorous opposition, it may not fare so well in the whole House and Senate where many are concerned about the economic impact in recessionary times.
Should the legislation stall, the Obama administration unveiled a new set of much tougher emissions and mileage standards last week. This time the automakers, realizing the precariousness of their situation, stood by the President to support the new standards. The rules essentially mandate a 40 percent improvement in mileage and emissions standards over the next six years.
These new regulations further complicate the already complex automobile-energy- economic situation. The new standards could increase the costs of cars at a time when manufacturers are struggling to stay viable, with failing business models, and many consumers are struggling to buy much of anything. All available indicators suggest that the global economy will continue to have serious problems for the foreseeable future, that oil supplies will continue to contract, and that oil prices will rise. The net outcome of the actions that took place in Washington this week, when combined with all the global economic forces that are in motion, is simply too complex to foresee.