How the federal shutdown is affecting the auto industry

The effects of the government shutdown extends to many parts of the auto industry, including the NHTSA which oversees crash testing, fielding complaints about potential defects, and recalls.
The effects of the government shutdown extends to many parts of the auto industry, including the NHTSA which oversees crash testing, fielding complaints about potential defects, and recalls.
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The ramifications of the government shutdown are far-reaching and extend to many facets of the auto industry. It is affecting consumer confidence, safety organizations, and those who regulate fuel economy, and its anyone’s guess what the impact will be if the closure drags on.

Paul A. Eisenstein is the publisher and editor of TheDetroitBureau.com. Even for the 30-year veteran of covering the auto industry, this current situation is a first, but few have a grasp on the situation like he does.

“Though there have been a lot of headlines,” Eisenstein said in an interview this week, “there is no clear measurement of its immediate effect on sales. Dealers are concerned, and some sense that customers are worried about the economy.”

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Where the real impact is being felt is in the various government agencies where field workers have been furloughed. For example, the National Highway Transportation Safety Administration (NHTSA) released a statement saying that it has “suspended vehicle safety activities.” That includes crash testing new vehicles, fielding complaints regarding potential defects, and issuing recalls.

The latter became instantly relevant when a brand new Tesla Model S caught fire on Oct. 1, the first day of the shutdown. Typically, the NHTSA would send out a field agent to look into the issue, but no such action was taken. Until safety authorities investigate, we’ll have to take Tesla CEO Elon Musk on his word that the fire was caused by a piece of tractor trailer debris that punctured the battery.

Also affected by the shutdown is the Environmental Protection Agency, where the men and women who verify and approve fuel economy levels for all new vehicles have been sent home.

“That could be a problem if a manufacturer is awaiting official EPA results,” said Eisenstein. Automakers conduct the actual fuel economy testing, but Eisenstein explained that “the EPA has to sign off on those figures. Without the EPA stamp of approval, the automaker cannot print a Monroney sticker.”

The Monroney is the official window sticker found on all new cars, with fuel economy and pricing information. Since 1958, new cars have been required to have this sticker; since the mid-1970s, the sticker has contained EPA fuel economy results.

Depending on how long this political standoff lasts, automakers may face the very real possibility that new cars, ready to ship and sell, will not have their EPA stamp of approval. Simply put: no EPA numbers, no Monroney. No Monroney, no new car to sell.

Then there are the 800,000 furloughed government employees, some of whom may have been in the market for a new car this month.

So can it get worse? Sure. As President Obama noted in his Tuesday press conference, some may feel the effects of the shutdown, but all Americans will feel the impact if the debt ceiling is not lifted. The dealers sense this as well.

“The auto industry thrives on stability,” said Eisenstein. “A car is a big ticket item, and right now there is some consumer doubt. But when you have the US fail to reach an accord on the debt ceiling, the consensus among automakers is that the situation could range from disaster to nightmare.”

One automaker has stepped up while making positive headlines for itself. Hyundai is giving loan breaks to furloughed government employees who own or lease one its vehicles.

“As this goes on,” said Eisenstein, “we might see other manufacturers offer similar flexibility.” He also pointed out that if the market were to show signs of losing momentum, automakers could add on heavy incentives for new vehicles.

At this point, most manufacturers are taking a wait and see approach. That means that automakers are in the same boat as the common American, hoping for the best but preparing for the worst.