Split Congress could lead to mixed results for industry

WASHINGTON—Democrats regained the U.S. House of Representatives in the November midterm elections, winning 40 seats.

The results of this election will have a definite effect on the issues followed by major tire, aftermarket and auto service associations, according to top officials of those organizations.

How much of an effect, and in what ways, has yet to be seen, they said, although they added that 2019 will not be peaceful.

"We can count on a lot more turmoil in Washington," said Anne Forristall Luke, president and CEO of the U.S. Tire Manufacturers Association.

"Democrats have the gavel in the House, and a lot of new authority. That affects every issue, from the president's personal tax returns, to trade, to the rollback of environmental regulations."

The House Democrats' new subpoena power will keep the White House occupied, according to Luke. "The president has already thrown down the gauntlet," she said.

For Roy Littlefield III, executive vice president of the Tire Industry Association, election results are always a matter of pragmatism.

"You have to deal with what you've got," Littlefield said. "On some issues, we will be in better shape. On others, not as good."

Chris Kersting, president and CEO of the Specialty Equipment Market Association, concurred, as did Bill Hanvey, president and CEO of the Auto Care Association.

"Our government affairs department works to gain support on both sides of the aisle," Kersting said. "Whatever the complexion of Congress, we still have the same job to do."

"This is an opportunity to build our message with new members of Congress," Hanvey said. "I think it's great, continuing our legislative efforts to gain as much support as possible."

Robert L. Redding, Washington representative for the Automotive Service Association, said the election results could have a significant impact on most issues, including those affecting auto service.

"A Democratic House will really take a different look at policy issues," Redding said. This is the biggest election wave since the Republican sweep in 2010, he said, and the Democrats now in power will be more progressive than the Democratic House majority before 2010.

One thing all the executives hoped for in 2019 is passage of a comprehensive infrastructure package to fund massive rehabilitation of the nation's transportation network.

With the failure of President Trump's infrastructure package, however, it is unclear what provisions an infrastructure bill might contain, or even if Congress can reach bipartisan agreement on one, they said.

"I would think it's one of the bills that will pass, but I can't even guess what the content will be," Littlefield said. "The Trump bill fell flat on its face. Whatever the final bill is, it might not be as big as Trump wants or what we need."

Infrastructure will be one of the very few issues that will gain bipartisan support, mostly because of Democratic opposition to President Trump, added Roy Littlefield IV, TIA director of government affairs.

"They aren't going to want to give him a lot of big wins," Littlefield IV said.

Agreement on funding mechanisms will be key to reaching a bipartisan infrastructure accord, according to Luke. But that will be easier said than done, she added.

"(Senate Majority Leader Mitch) McConnell has always said, 'There will never be a gas tax increase as long as I am majority leader,' " she said.

Nevertheless, there is still a lot of opportunity for bipartisan agreement on an infrastructure bill, according to Luke. There also will be an opportunity for a provision promoting the use of rubber-modified asphalt and other recycled rubber products in road projects.

It is also still unclear what will come of the Trump administration's efforts to reach a trade agreement with China, and whether the 90-day postponement of 25 percent tariffs on some $200 billion in goods imported to the U.S. from China will become permanent.

"I don't know if it can be achieved in 90 days," Littlefield III said. "But these are the two largest economies in the world, and it probably will happen eventually. It depends on who's willing to budge."

The 10 percent tariffs on the Chinese goods—including synthetic and natural rubber, rubber chemicals, rubber automotive and industrial goods, and virtually every type of tire—went into effect in September.

There is a major difference of opinion on the tariffs between tire distributors, who need lower-cost truck and bus tires in their inventory, and retreaders, who suffer greatly from the influx of non-retreadable Chinese tires that also offer stiff price competition to retreads.

Bipaver, the European retreading organization, also found its members suffering from Chinese import competition, according to Littlefield III. The association made a concerted and ultimately successful effort to persuade the European Union to place tariffs on Chinese tires, he said.

Nevertheless, tariffs on Chinese tires can never be all-effective, according to Littlefield IV, as a number of tire makers are moving production from China.

Regarding a trade agreement with China, Littlefield III said he wondered if the administration even has a negotiating strategy going into the talks.

"Both sides have an interest in coming up with something—but it won't be quick," he said.

Hanvey was one of many spokespersons for the auto aftermarket industry who testified against tariffs on imported Chinese goods at hearings before the U.S. Trade Representative last August.

"The greatest impact from the action will be on U.S. consumers, who will experience higher repair costs, likely leading to the delay of critical vehicle maintenance procedures," Hanvey said in his testimony.

The ACA continues to fight the tariffs, according to Hanvey.

"We want to make sure the people who approved the tariffs understand that auto care is a global economy," he said.

Luke said she believed it was "definitely possible" to have an equitable trade agreement between the U.S. and China. During a recent trip to China, she found considerable sentiment among Chinese tire makers for an agreement.

"One person told me she thought tariffs could have a positive impact on Chinese tire manufacturers, in that it would encourage them to improve the quality of their products," she said. "She could see a scenario in which low-quality manufacturers would be weeded out."

The National Highway Traffic Safety Administration recently issued its regulatory agenda for 2019, according to Luke. Although the agenda is not binding, two long-pending tire regulations are on the schedule, she said.

A final rule on minimum performance standards for rolling resistance and wet traction is due in March, according to Luke. In June, the labeling portion of the tire fuel efficiency final rule—left hanging since 2010—is scheduled to be issued, she said.

The minimum performance standards were part of the Fixing America's Surface Transportation Act, which President Obama signed in December 2015.

Also part of the FAST Act was a provision to reinstate mandatory tire registration. This provision was backed by the USTMA, which was concerned over low return rates in tire recalls.

TIA, though it too stressed the need for complete responses to recalls, said the original mandatory registration rule—first promulgated in the 1970s—was punitive toward tire dealers, and also did not allow for electronic collection and transmission of tire identification numbers and purchaser data.

TIA and the USTMA have been in discussions over the content of a mandatory registration rule. Although the two organizations do not claim to have reached agreement on this issue, both Luke and Littlefield III said they were happy that amicable discussions are continuing.

"We are identifying a framework we can work within, and we will talk to NHTSA about that framework," Luke said.

There are still issues to work out on the registration issue, such as where the registration information goes when it is transmitted, according to Littlefield III.

"If you have electronic scans for tire information, where will the information go?" he said.

Tire dealers won't support the information going to manufacturers who might be trying to collect customer addresses for direct online sales, according to Littlefield III.

"But we can't go back to paper and pencils," he said.

According to the latest USTMA Scrap Tire Report, 81 percent of the scrap tires generated in the U.S. in 2017 went to productive end-use markets.

"It's a never-ending job to find sustainable markets," said Luke, who added that the USTMA's first-ever sustainability report was due out soon.

Recently, one of the most endangered end-uses for scrap tires has been crumb rubber athletic turf. News reports identifying crumb rubber-filled athletic fields as possible carcinogens have persisted, despite the preponderance of scientific evidence showing no correlation between cancer and exposure to crumb rubber.

Exposure studies from the U.S. Environmental Protection Agency and California's Office of Environmental Health Hazard Assessment are due out in 2019, according to Luke. These studies should go a long way toward answering any questions regarding the carcinogenicity of crumb rubber athletic turf, she said.

"The USTMA position is that most of the evidence shows no significant risk," Luke said. "But there are still lingering questions, and this is what these studies are supposed to answer."

TIA membership is showing interest in reviving the association's Environmental Advisory Committee, to address issues such as scrap tires and the alleged toxicity of crumb rubber, according to Littlefield IV.

Among other issues important to the auto aftermarket is the AV START Act, which would create a federal framework for regulating the deployment of automated vehicles on public roadways.

Organizations such as the ASA support the AV START Act because it would prevent a patchwork of state laws for autonomous vehicles. But the bill stalled in the Senate this year, despite a similar bill passing the House in 2017 by voice vote.

Another bill that enjoyed support in the aftermarket industry, especially among SEMA and TIA members, is the Recognizing the Protection of Motorsports Act.

The bill asserts the legality of converting a street vehicle to race car use only, forestalling the recent EPA position that a Clean Air Act exemption for race cars applies to purpose-built race cars only.

The RPM Act passed the House Energy and Commerce Committee, but did not advance past that stage.

A Democratic House may be more amenable to passage of a federal law establishing an online sales tax, according to Littlefield III. Such a bill obtained considerable support in a previous Congress, he said, but Tea Party opposition in the House killed it.

However, a Democratic House also means that legislation on tort reform or abolishing the estate tax has little or no chance of passage in the new Congress, according to Littlefield III and Littlefield IV.

The threat of small business owners, including tire dealers, having to sell the businesses they inherited to pay their estate taxes remains great, they said. Some dealers pay insurance premiums as high as $180,000 annually as protection against losing their businesses because of estate tax assessments, they said.

However, the biggest ongoing issue facing TIA members is health care, they said.

Tire dealers and retreaders strive to offer health insurance to their employees, although skyrocketing costs make the task daunting, according to Littlefield III.

"Tire dealers and retreaders really try to take care of their people, unlike some other small businesses," he said.

At the Global Tire Expo in Las Vegas last November, TIA announced an alliance with National General Benefits Solutions to provide TIA members with flexible group health insurance plans designed for businesses ranging from two to 250 employees.