Is This Tobacco II?

California has filed a federal lawsuit against the six biggest car companies (GM, Ford, DaimlerChrysler, Toyota, Nissan, and Honda), alleging that the global warming caused by their products has cost the state billions due to resultant water-supply loss, coastal erosion, and damage to air quality. 

Reuters has the story here.

More after the jump! 

Could this spawn a chain-reaction of suits by all the other states, like the tobacco cases of the 90’s did?  Air pollution knows no bounds, and many states depend on now-shrinking mountain snowpack for water (not just CA).  Plus, everybody knows state governments are always thirsty for easy cash, and no cash is easier than a huge negotiated-settlement windfall with a massive industry. 

(Yesterday was a great day to sell some auto stock!)

But don’t assume this will turn out the same as the tobacco litigation.  If this lawsuit survives the first round of motions to dismiss (and it very well could), it could reshape the auto industry more than the tobacco suits affected that industry.  Why?  Because the US automakers, for their part, can’t drive a dump truck full of cash up to the statehouse doors.  They’re too weak right now.  GM, Ford and DCX are already struggling in the US market.  GM and Ford in particular are struggling with a general downsizing of operations, reduced demand for their profit-margin darlings (SUV’s made 10k in profit per unit in their heyday; cars only about 1.5k), and crushing obligations to their labor force. 

So IF this suit becomes onerous, and automakers can’t all respond with cash, they would have to respond with other concessions.  Given the CA government’s recent environmental activism, I doubt it would accept business-as-usual under any settlement. 

The big questions:

  • Why aren’t the major oil companies also named as defendants to this suit?
  • How much is California alleging in damages?  Millions?  Hundreds of Millions?  More?
  • How long until other states join in?  If California survives the first summary-judgment motions, I’m guessing not long

Politically, this will pose a challenge.  Auto makers aren’t the public-opinion orphans that tobacco companies were.  Smoking is bad, but driving is, for a majority of the country, necessary and normal.  How do states who depend on auto plants to stave off the collapse of their skilled labor force respond to the carrot of a large settlement at automaker expense?  Washington, Oregon, New York and Illinois would likely sue.  How would Florida, Wyoming, Colorado, and Montana react, with one huge coastline and three shrinking snowpacks among them?  Smaller midwestern states, who gave huge incentives to automakers to entice them to build plants there, would perhaps decide it was time to renegotiate those deals.  Solidly-red Alaska is certainly seeing the largest impact on climate, but its economy built around oil, and thus around cars.  Further, it’s already paying each state resident an annual cash bonus from the taxes it draws on oil revenue.  Is its legislature politically nimble enough to take from the revenue and the litigation trough? 

This is big; keep your eye on it.


One Response to Is This Tobacco II?

  1. Kay Pye says:

    This seems like one of those “fast food makes me fat” kinds of accusations. I suppose they could very well just put on the burden on the consumer instead rather than the automaker….

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