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What Obama's clean-car plan will cost consumers and teetering US automakers

By 2016, a new car will pollute less and get more than 35 miles per gallon, but its sticker price will be at least $600 higher.

By Staff writer / May 19, 2009

President Obama addressed the importance of a cleaner energy supply during a speech in Newton, Iowa, on Earth Day, April 22.

Gerald Herbert/AP

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President Obama’s plan for tighter limits on vehicle emissions promises to be a boon for the environment and for the cause of US energy independence, but it comes at a cost for struggling automakers and consumers.

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It could add $600 or more to the price of a new car at a time when recession-bound shoppers are already reluctant to buy.

It demands new investments from automotive manufacturers that are in or near bankruptcy.

The White House vigorously defends the plan’s virtues, but some auto industry analysts say the plan’s timing and economics are challenging. What Mr. Obama proposes is a historic boost in environmental standards – including the first-ever direct curbs on greenhouse-gas emissions for US cars – during a historically deep recession.

“It’s going to be very expensive for consumers and manufacturers,” says Rebecca Lindland, who tracks the industry for the consulting firm IHS Global Insight in Lexington, Mass. Although surveys show public support for curbing auto emissions, “consumers haven’t shown a willingness to pay for it,” she says.

Obama's own task force cautious

This doesn’t mean the effort can’t work. It just has a hard hill to climb on alternative fuel.

Obama’s own automotive task force, set up to determine whether taxpayers should help Chrysler and General Motors survive, has hinted at the difficulties.

Where Obama has called on the US industry to take the lead in developing a new generation of clean cars, the task force threw cold water on one of GM’s biggest efforts to move in that direction. In assessing the viability of GM’s restructuring plan this spring, the panel said that although the electric-powered Chevrolet Volt “holds promise, it will likely be too expensive to be commercially successful in the short term.”

Why resistance is weaker

Several political forces have combined to build momentum for tighter control of emissions. These include Democratic control of the White House and Congress, the current dependence of GM and Chrysler on federal aid, and growing public support for action to combat the threat of climate change caused by greenhouse gases.

Those factors help explain why, despite the challenges involved, carmakers have lined up to support Obama’s new plan. The auto companies want to be willing participants in what they see as an inevitable transformation for the industry, and they see gains from having a single, clear standard for emissions.

Obama’s plan includes several elements:

•Each company would have to achieve the fleetwide Corporate Average Fuel Economy (CAFE) standard of 35.5 miles per gallon by 2016. That’s 0.5 m.p.g. higher and four years faster than the federal emissions rules currently call for.

•In addition to cutting ground-level pollutants, the goal for the first time is an explicit reduction in the carbon emissions linked to the threat of global warming.

•The system would cover the whole nation, offering manufacturers the benefit of a single standard. The state of California, which has long set up alternative standards that other states can choose to follow, is agreeing to stick with this new federal rule at least through 2016. California would save money by avoiding the need for its own compliance program for the similar greenhouse-gas limits it has been seeking to impose.

•The changes would take effect through a federal rulemaking process, which could be made easier by the up-front support of key stakeholders such as major carmakers, environmental groups, and California. The Environmental Protection Agency and the Department of Transportation, in an unusual move, collaborated to frame the plan.