Big Auto Screwed Itself on the E.V. Transition

As the United Auto Workers union continues to expand its strike against the Big Three—Stellantis, General Motors, and Ford—manufacturers and media outlets have made ominous claims about the threat of skyrocketing car prices, shipping jobs to less union-friendly places, and national economic ruin. At stake, as well, according to several reports, is the future of vehicle electrification. 

According to that narrative, American car companies are already struggling to compete in that market against foreign firms and domestic, nonunion companies like Tesla. “If factory lines fall idle or if labor costs go too high relative to competitors, traditional U.S. automakers could be forced to delay their offerings or raise prices on their EVs,” E&E News reported. 

It’s odd to frame electrification as a trade-off between workers’ well-being and corporate investment decisions. For one, the Big Three are awash in cash—they saw profits explode by 92 percent over the last decade and have delivered $66 billion to shareholders over that time in the form of dividends and share buybacks. If legacy automakers stumble in the transition to electric cars, it won’t be because workers, who’ve seen average real hourly earnings plummet almost 20 percent in the past 15 years, are demanding a bit more of a growing pie. It’ll be because those same companies have fought back for decades against attempts to bring their business model into the future—and because no one has bothered telling them to stop.

As a 2020 investigation from E&E News revealed, Ford and GM knew as early as the 1960s that car emissions caused climate change. They spent the next several decades funding climate denial, attempting to undermine international cooperation on climate change, and lobbying against regulations in the United States that would have hemmed in their emissions. Now transportation is the biggest polluting sector in the U.S., and the majority of those emissions (58 percent) stem from personal vehicles. As the government turns toward the huge task of decarbonizing the country, the auto industry has its full attention. 

Much as they would like the public to believe otherwise, automakers are not somehow being held back from joining the climate fight by greedy union workers. Automakers’ difficulties in switching to electric vehicles are the product of both their own quest for profits and public policy that has helped create an industry dead set on making the biggest, often most polluting cars possible. All companies are in the business of making money. But the centrality of government intervention to the success of the Big Three—and its considerable carbon footprint—should raise bigger questions about what it will take for them to make the switch from fossil fuels to electric. 

You don’t have to reach far back to find an example of the U.S. propping up the car industry. After the Great Recession, the government stepped in with $80 billion to bail out General Motors, Chrysler (now owned by Stellantis), and their respective financing arms. To keep companies from going out of business, the Obama administration eventually set up negotiations between those firms, their creditors, and the UAW over how to restructure them into profitable companies. 

By July 2009, the Treasury Department owned a 60 percent equity stake in General Motors; the Canadian and Ontario governments together owned 10.7 percent. The U.S. offered less equity to Chrysler than debt; for a time, its largest equity owner was the UAW’s voluntary employee benefits association, or VEBA. 

Workers gave up a lot during those negotiations, including the ability to keep receiving most of their pay in the event of layoffs. New hires were separated out into different tiers of employment, made to take home worse benefits and drastically less pay for the same work. In 2009, the Big Three eliminated cost-of-living adjustments for workers that have never been reinstated. The executives who oversaw their companies’ implosion, meanwhile, swallowed a few cuts as part of the government-managed restructuring, like caps on executive pay and a mandate to pay down debts. 

Despite these trade-offs, Chrysler and GM were largely allowed to continue with a slimmed-down business as usual, offering fewer cars, a smaller network of dealerships, and a workforce pared down through closures. The bailout worked wonders for those at the top. Amid record profits over the last 10 years, CEOs at Big Three companies have gotten a 40 percent pay hike. 

If workers got a raw deal out of the bailout, then so did the planet. Environmentalists demanded at the time that lawmakers attach “green strings” to any prospective bailout as car companies floundered. That may have fallen on deaf ears when funds started going out the door during the lame-duck Bush administration, but Obama had campaigned on climate action, going so far as to tell the storied Detroit Economic Club in 2007 that “the age of oil must end in our time.” The government’s equity stake in GM, at least, might have given it the freedom to bring automakers into the future.

That’s not what happened. At the behest of then–National Economic Council adviser Larry Summers, the White House made clear that it would be a “reluctant equity owner” in any company in which it had a stake, pledging to offload shares as quickly as possible and to “not interfere with or exert control over day-to-day company operations.” Neither would it appoint government officials to corporate boards. As Obama “Car Czar” and private equity veteran Steve Rattner would later put it, “We really did not want to set a precedent for government intervening in the private sector. We hated that idea.”

That “hands-off” approach and laser focus on restoring profitability also meant letting carmakers get back to the habits that got them into trouble in the first place. While legacy automakers chalked their financial troubles in the 2000s up to the financial crisis, one major reason they needed help was because of their penchant for making giant gas guzzlers—i.e., minivans, trucks, and SUVs. By 2008, for instance, large cars, minivans, trucks, and SUVs accounted for 75 percent of Chrysler sales. As oil prices climbed in the lead-up to the financial crisis, drivers opted for smaller, more fuel-efficient vehicles, and sales crashed. 

The Big Three’s decision to specialize in big cars wasn’t strictly a matter of consumer preference. Foreign automakers had long avoided those offerings thanks to a 25 percent tariff on imported light trucks imposed in 1964. And while bigger cars can cost slightly more to produce, car companies sell them at a huge markup. In 2017, Automotive News found that automakers are able to charge 40 to 50 percent more for an SUV than for a hatchback or sedan. Oil in the U.S. is heavily subsidized—U.S. gas is some of the most affordable on earth—so manufacturers aren’t under as much pressure to deliver better mileage per gallon.

The proliferation of SUVs is thanks, as well, to U.S. environmental laws. Given that passenger vehicles at the time were generally much smaller, lawmakers who drafted the Environmental Protection Act of 1970 exempted heavier vehicles—then used mostly by construction workers, farmers, and other tradespeople—from the more stringent fuel-efficiency rules that would apply to other cars. That so-called “SUV loophole,” Wired’s Adrian Marshall points out, meant that a broad category of “light-duty trucks” were subject to a more lenient set of environmental rules than other vehicles. 

Automakers accordingly started selling bigger cars that, while marketed to soccer moms and weekend warriors, still technically qualified as light-duty trucks in the eyes of regulators. As SUVs began to take hold in the mid-1980s, fuel efficiency gains made over the preceding decade plateaued and then declined slightly. The efficiency of Ford cars improved by just 0.4 miles per gallon between 1985 and 2010; GM vehicles’ efficiency stayed relatively flat. 

Because big cars are still graded on a curve when it comes to federal emissions requirements, some experts estimate they may be permitted to emit as much as 40 percent more than smaller passenger vehicles. By the time oil prices started rising and consumers had less money to spend after the Great Recession, foreign automakers were better suited to meet demands from consumers craving better gas mileage and ways to stop being so reliant on it. 

U.S. automakers did start making some smaller, more efficient cars after sales began to drop, introducing hybrid models like the Chevy Volt. Few of those changes stuck, though, and federal incentives for bigger, heavier cars persisted. In 2011, the Obama administration’s new tailpipe emission rules continued the tradition of preferential treatment for big cars, this time based on the amount of space between wheels, called a “footprint.” 

SUVs have since exploded as a percentage of the overall U.S. car market. They accounted for just a third of new vehicle sales in the U.S. in 2013, according to J.D. Power and Associates. This year, SUVs accounted for 60 percent of new passenger vehicle sales. Sales of regular cars have dropped from 48 percent in 2013 to just 20 percent in 2023. (Truck sales have hovered around 20 percent.) 

Efficiency gains in SUVs and trucks continue to lag behind those made in smaller cars, and the Big Three lag well behind their competitors both in the U.S. (namely Tesla) and overseas. As of a 2021 report from the International Energy Agency, the average new light-duty vehicle sold in the U.S. consumed 20 percent more fuel and was 20 percent heavier than the global average. Vehicles made by the Big Three, moreover, have the highest carbon dioxide emissions of all large car manufacturers operating in the U.S. Between 2016 and 2021, GM and Stellantis both increased their vehicles’ emissions and decreased fuel efficiency as SUVs and trucks came to account for a larger share of those companies’ offerings.

Automakers make big cars for the same reason they want to pay workers less and offer fewer benefits: to make more money. A 2020 study by Morgan Stanley analysts found that just five models—all trucks, SUVs, or minivans—accounted for 80 percent of GM’s worldwide profits. In 2018, Ford announced that it was discontinuing most of its sedans in a bid to eliminate the parts of its business that “destroy value,” per then-CEO Jim Hackett. Ironically, the Big Three’s state-backed embrace of big cars—and longtime attempts to skirt emissions regulations—has left them lagging behind their competitors. Incentives for consumers and manufacturers to embrace E.V.s provided by the Inflation Reduction Act are helping them catch up. 

The Biden administration is now looking to eliminate the “footprint” rules put in place by the Obama administration, which would bring standards for passenger vehicles and light-duty vehicles more in line with one another. EPA spokesperson Shayla Powell, quoted by Wired’s Adrian Marshall, cautioned that the proposed changes were designed “to neither encourage or discourage changes in vehicle size or type.”  

There’s a quasi-optimistic takeaway to draw from the Big Three’s last few decades clinging onto their ability to spew more carbon. Like the energy sector, the auto industry in the U.S. is an elaborate public-private partnership. There would be no Big Three without nearly a century’s worth of business-friendly rulemaking, tax breaks, and periodic bailouts—not to mention the tens of billions of dollars routinely pumped into the interstate highway system. Thanks to car-centric planning and a dearth of reliable buses and trains, just 5 percent of people in the U.S. use public transportation to get to work. 

That presents some obvious problems for the Big Three’s E.V. prospects, not to mention this country’s hopes of decarbonizing. Bigger cars require much larger amounts of lithium and the other critical minerals needed to produce the batteries that power them. A study released this spring by the Climate and Community Project found that an electric Hummer required half the amount of critical minerals demanded by an electric bus. Swapping all those gas-powered cars out with electric vehicles isn’t a solution for electrified transit. 

Businesses crafted by public policies, though, can be unmade by them too. The fact that U.S. consumers are so inordinately fond of big, expensive gas-guzzlers isn’t thanks to some innate American desire to drive their kids around in tanks but decades of decision-making that subsidized them. The Obama administration gave up its chance to rein in the Big Three after the financial crisis. If Biden really does think of climate change as an “existential threat,” then his administration could go searching for many more ways to give electrified transit—including trains and buses—as much of a leg up as souped-up SUVs have gotten.