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Wednesday, September 20, 2006

Car Companies Sued Over Air Pollution

Stocks: (TM)(DCX)(MO)(F)(GM)

In a move reminiscent of the tobacco lawsuits against Philip Morris years ago, the State of California has sued GM, Ford, Toyota, Chrysler, Honda and Nissan. The theory is that the car companies created a "public nuisance" that will cost the state in infrastructure and health expenses. What the state will seek in damages is not clear.

At first blush, it would appear that these claims would eventually be no more successful than the smokers suits were. The state had the power to set emissions standards or even to ban the sales of cars by manufacturers that built cars that did not fit criteria set by the state. Since the California legislature never took these steps, it will probably be difficult to claim monetary awards to offset the state's costs. It is also likely that the issue of whether the cars accounted for all of the health and structural damage would be equally difficult to prove. Factories and other sources can also be tagged for producing toxic gas.

What the suit does do is open a Pandora's box of legal costs for the car companies, especially if other states follow California's lead. As Altria and other tobacco companies discovered, even winning cases can cost hundreds of millions of dollars. There was a time when Altria's legal costs were over $1 million a day.

Even if the car companies win against claims like those that have been brought by California, they could lose. The industry is not in any shape to shoulder that distraction or costs of litigation across a number of states.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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