Auto industry faced with more uncertainty if government shuts down

WASHINGTON — Though any short-term impact would likely be minimal, the U.S. auto industry still would not be spared from disruption if the federal government shuts down this weekend.

Congress needs to pass a spending bill before Sunday to avoid a shutdown. However, lawmakers remain at odds over the funding, with some House Republicans pushing for deep spending cuts unlikely to survive in the Democratic-controlled Senate.

For the auto industry, any added uncertainty during a revolutionary and costly shift to electric vehicles — and amid a potentially escalating UAW strike at the Detroit 3 — is especially concerning.

"This is a dynamic industry that really relies on certainty," U.S. Transportation Secretary Pete Buttigieg told reporters Wednesday. "The good news is a lot of what we're doing on EV chargers and in other areas was advanced appropriated … although even that work could get gummed up by other administrative functions that are not working the way they should in the context of a shutdown."

A spokesperson for NHTSA, part of the U.S. Transportation Department, also said important safety work at the agency would continue if there were a shutdown.

"Because NHTSA has various funding sources that are not subject to annual appropriations, our mission to ensure safety on our roadways will be minimally affected by the government shutdown," the spokesperson told Automotive News. "NHTSA will continue its important safety measures, which include open investigations, recalls and rule-making."

However, the auto industry could be affected by a shutdown if there are further delays in the issuance of critical guidance on federal tax credits in the Inflation Reduction Act.

Speaking with reporters this month, U.S. Treasury Department officials said they planned to issue more guidance by Dec. 31 that is crucial to the law's EV tax credits and other incentives, including a much anticipated rulebook on the "foreign entity of concern" provision.

Automakers and their battery partners have been especially anxious about how strictly the Treasury will define and enforce the provision, which blocks tax credits for new EVs containing any battery components from producers controlled by countries such as China starting in 2024 and critical minerals from such producers starting in 2025.

Senior White House adviser John Podesta said Tuesday that work could be slowed down if Congress can't pass a spending bill to keep the government open, according to a Bloomberg report.

A Treasury spokesperson did not have a comment Thursday.

“This is an industry regulated or overseen by multiple departments, agencies, commissions and boards — across the entire federal government — so there’s no question it could potentially be disruptive,” said John Bozzella, CEO of the Alliance for Automotive Innovation, which represents most major automakers in the U.S.

“The industry is awaiting some key guidance on critical rules like the Treasury Department’s foreign entities of concern provision for the 30D and 45X tax credits,” he added. “Will a shutdown further delay those matters, or even the vehicle certification testing that EPA requires before a vehicle can be produced or sold to consumers? I sure hope not.”

The last government shutdown — spanning from Dec. 22, 2018, to Jan. 25, 2019, under then-President Donald Trump — disrupted some of the guidance work for the Tax Cuts and Jobs Act, a bill passed in 2017 that significantly altered the U.S. tax code.

"There were tons of regulations and guidance that needed to be put out to help taxpayers plan for this transaction, and the last shutdown really did put a pause on that," said Carina Federico, a partner at Crowell & Moring law firm's Washington office.

As for Treasury's work on pending guidance for the EV tax credits in President Joe Biden's sweeping climate and tax law, Federico said she would expect that, too, to be further delayed.

"I definitely see that not getting done if there's a shutdown," she said.

Ann Wilson, senior vice president of government affairs at MEMA, the Vehicle Suppliers Association, said the prospect of a government shutdown was "deeply concerning," especially given the challenges of the UAW strike at Ford Motor Co., General Motors and Stellantis.

"Through discussions with the White House, MEMA has underscored the importance of working to sustain a supplier industry that is integral to the nation's vehicle production," Wilson said in a statement to Automotive News. "The absence of even a single component from a supplier can halt an entire production line.

"A government shutdown could significantly impede the critical support needed for vehicle suppliers," she continued. "Given the interdependence of [the] vehicle supply chain, long-term disruptions to U.S. vehicle production would persist well beyond the strike's resolution."

In a letter sent Monday, MEMA urged Biden to provide financial assistance to auto suppliers affected by the ongoing UAW strike.

Frank DuBois, an associate professor at American University's Kogod School of Business, said a government shutdown could affect car sales.

"From the economic perspective of the automotive industry, people are not going to be shopping for cars, especially if they're government workers and especially if they're subject to a shutdown," said DuBois, who authors the Kogod Made in America Auto Index.

"The longer the shutdown, the more impact on the U.S. economy and the more impact on the automotive industry," he added. "I would not be surprised at all to see a shutdown. The question is, how long?"