Silver lining at the N.Y. Auto Show

The buzz is that the White House wants to adopt a single national fuel economy standard, which would help both automakers and customers.

By Alex Taylor III, senior editor

NEW YORK (Fortune) -- The opening of the New York auto show was a grim affair. Instead of the usual spirited debate about whose new models showed the most promise, there was hushed discussion about activities taking place offstage in Washington, DC.

The consensus of opinion was that General Motors (GM, Fortune 500) stood a good chance of meeting the Obama administration's viability test within 60 days, but that Chrysler would have a more difficult time getting to its own May 1 deadline.

The sight of Chrysler president Jim Press driving a tiny Fiat 500 at the company's news conference did little to dispel worries about the automaker's long-term future. The belief is that any aid that the Italian automaker can provide in the form of new models is at least two years away and will not be arriving in sufficient numbers even then to make a material difference to Chrysler's survival.

While the reaction to the administration's efforts on behalf of the two companies is mixed, there is a more positive response to reports of progress on government mileage and emission regulation.

There is a growing belief that the White House is moving towards setting one standard for all 50 states, and not allowing California and a dozen or so others to go their own way. That single act would save the auto companies hundreds of millions of dollars and benefit consumers as well.

California has a long history of going its own way on air-quality standards. Its latest set of proposals would require automakers to achieve fleet fuel economy averages of more than 40 miles per gallon by 2020.

Stringent in their own right, the rules meant that manufacturers would sell a different mix of vehicles in California than in the rest of the country, where the EPA had mandated 35 miles per gallon by 2020.

Under President Bush, the EPA denied California's request to set its own standards, but candidate Obama had signaled his support for it, and the White House this year began the formal process of setting the stage to allow EPA to reverse its decision and allow California to go its own way.

But well-placed Washington and industry sources suggest that work is going on behind the scenes to get California and the other outlier states to agree to a single standard. The sources say the topic was discussed by President Obama when he met with California governor Arnold Schwarzenegger in Washington in March.

The car companies, of course, would like a 50-state standard closer to the EPA's 35 mpg. They fear that the distortions to the customer buying patterns - not to mention their own potential profits - will be enormous in any event. Not one of the Detroit Three produces a small car that makes money for the manufacturer.

But having any standard that applies to 50 states will simplify their lives immensely. No longer will they be faced with the prospect of selling one mix of vehicles - skewed toward small cars and alternative fuels - in one set of states - and a very different mix elsewhere.

That would have required the rationing of vehicles either by price or fiat. Imagine being told that your dealer wasn't being allocated any 2010 V-8 Camaros - or worse, is charging a steep premium for them - because GM was having a hard time meeting its state mileage requirement.

Of course, all this legislative legerdemain could be solved by simply imposing a higher federal gasoline tax that would encourage Americans to buy smaller cars.

As Volkswagen's North American president Stefan Jacoby reminded a breakfast of the International Motor Press Association at the New York show, gasoline in Europe costs three or four times what it costs in the U.S.

Jacoby was making an argument for the adoption of diesel engines but a tax hike could really help solve a whole range of imported oil and climate change issues. Higher gas prices would overnight shrink the size of the typical American car and bring us into harmony with international standards.

But as one Washington insider pointed out, the poisonously partisan atmosphere in Congress makes anything smacking of a tax increase politically impossible. To top of page

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