What Big Auto Wants from Obama

Car buffs and political junkies are two separate breeds, with little overlap between the two. But Detroit has never seemed closer to Washington than at this year’s North American International Auto Show.

Most of the reasons are obvious: The federal government now owns a portion of GM and Chrysler, thanks to $14 billion in emergency loans to help them avert bankruptcy. A federal “car czar” will soon be appointed to oversee those loans and the two companies’ turnaround plans.

[See 4 myths from this year's Detroit auto show.]

Beyond that, the manic rise and fall of gas prices has left car buyers feeling whipsawed, and carmakers wondering if the government shouldn’t do something to make pump prices more stable. Perhaps most of all, auto executives sense that the incoming Barack Obama administration represents a chance to help retool energy and environmental policies in ways that might help their companies gain an edge – and reassert American leadership in the auto industry.

If you’re doing a doubletake – yes, this is unusual. Like most of their corporate brethren, auto executives typically dread federal scrutiny, and want government out of their business. But with a devastating recession and the near-collapse of the Detroit automakers, the times, they are a-changin’. Here are some of the surprising things Big Auto is hoping for from the Obama administration:

An increase in the gas tax. You heard this right. Energy experts have long insisted that it’s virtually impossible to develop alternatives to petroleum as long as gas is less than $2 per gallon. Raising the 18.4-cent federal tax on gas, they say, is one way to encourage conservation and make gasoline alternatives more appealing. And now that the automakers are sinking big bucks into new technology like electric propulsion systems and hydrogen fuel cells, their CEOs tend to agree.

[See the 12 most important cars of 2009.]

Bill Ford, executive chairman of Ford Motor Co. (F), points out that ordinary R&D won’t be enough to gain widespread acceptance from consumers. “We’re going to need some help in the marketplace to generate demand for these new types of vehicles,” he says. GM CEO Rick Wagoner won’t come right out and endorse a gas tax, but he’s clear about the need for new ways to interest consumers in the electric-vehicle technology GM is pursuing.

He says:

The gas tax is highly political. But almost every other country in the world has a fleet with higher fuel economy than in the United States, and almost none have done it with [gas-mileage] regulations. We really want to drive this technology, whether through a gas tax or other incentives.

[See the cars that drove Detroit's customers away.]

Executives from Europe, where fuel taxes are much higher and pump prices are three to four times the levels here, are less shy about stating the virtues they see in higher gas taxes.

Stefan Jacoby, CEO of Volkswagen of America, says:

I would prefer if the government would offer support for environmentally friendly cars. The best way you can do that is a tax on fuel. When gas prices went down, all these sales of hybrids went down. I would encourage a tax credit [for hybrids] but also put a tax on fuel.

A sympathetic car czar. One unstated fear of GM and Chrysler executives is that the soon-to-be-announced car czar will meddle deeply in their businesses and impose unrealistic demands. Which could happen. But a car czar could also be a boon for these troubled companies, especially if he or she helps build shared priorities between Detroit and Washington.

While GM Vice Chairman Bob Lutz was walking the floor at the Detroit auto show, he ran into a Ford Motor Co. executive who asked him sardonically if he was looking forward to dealing with the car czar.

Lutz answered:

Actually, I am. We might actually have somebody in Washington we can talk to. We go to NHTSA* and they say, ‘we only write the rules.’ Then you go to this agency and that agency and then you go home and it’s like a Chinese dinner: You’re still hungry. Maybe the car czar will be a disaster. But if their job is really to make our industry sustainable, it could work to our advantage.

What Lutz didn’t say is that for decades, the Detroit automakers have had a tight relationship with the Michigan Congressional delegation, which has long tailored fuel-economy standards and other regulations to their advantage. But that influence is waning, one reason a sympathetic car czar could end up being a friend to Detroit.

(*NHTSA is the National Highway Traffic Safety Administration, which oversees safety and fuel-economy standards.)

[See how the feds will govern GM and Chrysler.]

A coherent energy policy. Up till now, there’s been nothing out of Washington that even vaguely resembles a national energy plan – and that was just fine with the automakers when they were minting money on big cars and SUVs. But many industry experts now believe that gas prices will rise again, perhaps well above $4 per gallon, and stay there – especially once the global economy rebounds.

[See the pros and cons of 8 green fuels.]

That’s why the race is on to develop new gasoline alternatives that will be affordable - when gasoline isn’t. But nobody knows what those new technologies will be, and for now, efforts are spread among electric powertrains, diesel, hydrogen, and various kinds of hybrids. Some kind of government policy could help consolidate research and build infrastructure for the most promising technology – as other countries, like Japan, have already done.

Larry Burns, GM’s technology chief, says:

Other nations have played their hands differently, whether it’s industrial policy or the things that set the stage in Japan for hybrids. Now, with the spotlight on the auto industry, people are listening a little bit differently. If that's true, the next step would be for them to act a bit differently.

Disclosure: no positions

Comments

[Paul Killinger:]

What Detroit really wants from the new Administration is a blank check to prop up their failed (they really have, you know) industrial enterprises for the foreseeable future.

As regards the Car Czar, the leading nominee is a Wall Street hedge fund manager with no manufacturing experience. Just what we need. If he can do for GM and Ford what a hedge fund investor did for Chrysler, we won't have long to wait until all three go away. At least he's likely well versed on the rules of bankruptcy.

And, as for an increase in the gas tax, I can't wait. That's when we'll finally find out if our President-elect is truly made of teflon.

Jan 14 11:01 AM

[Thadeus III:]

Ok so let's rehash the past. Early Honda Accords (1979-1982 were rust buckets. They couldn't keep fenders on them. They also had a tendency to start using oil at relatively low mileage and then gas mileage would also suffer. Google it. Nissan (Datsun) engines have always had problems with oil seals failing. Even later model 1998 - 2005. I could go on. But how about this from last week:


Zacks.com
Time to Hit the Car Lots
Thursday January 8, 10:16 am ET
By Paul Raman, CFA

We think it is an excellent time to hit the car lots. Sales are slow, inventories are high, raw materials (steel, chemicals, plastic, rubber) are depressed, and interest rates are near zero. Demand is off due to the credit crunch. Dealers and manufacturers are hurting and are hungry for business.

Despite the bad publicity recently, Chevrolet and Chrysler have some of the BEST products in the market. The non-Chevy part of General Motors (NYSE: GM - News) must be restructured. Also, Honda (NYSE: HMC - News) has emerged to be a Big-4 player in the US. They work and act more domestic than even Chrysler.

We were DISAPPOINTED with Ford , TOYOTA and NISSAN , and feel they have TIRED OLD product lineups. A strengthening Japanese Yen may force Toyota and Nissan to become the Big-5 and Big-6 in the US. Toyota's QUALITY ratings were the LOWEST among all models studied, especially for the pickup/SUV part of the product line.

Jan 14 01:45 PM

[Speedzzter:]

Another thing the "Beg 3" probably wants is passage of the anti-secret ballot union "Card Check" legislation.

Why?

Because the Detroit companies were stuck with unions as a result of FDR's outrageously pro-organized labor policies in the 1930s and early 1940s.

The Japanese invader assembly plants have avoided unions through exploiting the "right to work" loophole in a number of states (most of which who paid dearly in corporate welfare subsidies to land assembly plants). The Japanese invaders' success in fighting off the UAW has also been augmented by decades of Department of Labor policies and administrative law decisions that have helped non-union employers avoid the parasitic costs of unionization (e.g. stupid work rules, featherbedding, solid-gold benefit plans, severance restrictions and payments).

Note that the Detroit 3 couldn't shed their expensive unions in "right-to-work" states because of the threat of strikes in "closed shop" states and the practice of "pattern bargaining" , despite some reasonable balance returning to federal labor policies in the past 30 years.

Moreover, given the concentration of the Detroit 3 plants in "closed shop" states and Obama's huge political debt to organized labor, even shedding the UAW contracts in bankruptcy is probably a short-lived outcome.

But with a "card check" law, the hapless United Auto Workers union will have its best shot at infecting the Japanese invader assembly plants with unionization, ultimately leading to a more level domestic playing field through "pattern bargaining."


The "Beg 3" also probably want some sort of national health insurance plan so that some (not all) of their excessive benefit costs could be off-loaded onto a larger number of taxpayers and the health "tax" costs of the invader plants would be increased.

The Detroiters (and the UAW) probably also secretly dream of a tariff deal of the sort that saved Harley-Davidson in the 1980s -- but that's unlikely in the current environment. Still, the Obama administration could use the strawmen of environmental and labor standards to weasel out of some "free trade" agreements. However, such an approach probably won't be targeted enough to help the Detroit 3.

Jan 14 02:32 PM

[Thadeus III:]

I'm wondering who and what is a "Detroiter"? I have never lived in Michigan, am not in a union, and have never understood how some people think that a union dictates fiscal and R&D policy in an auto company. If some of you commenters were around in the 1930's, '40s, and even '50s, you would know that the reason that unions got a foothold was because companies and CEOs were making larger and larger profits without being very considerate or fair to its workers. Safety on a job was nearly unheard of, let alone concern for an employee and his family's well being. The current problem for the automakers was because of the investment banking "gurus" who had years of stuffing their pockets from profits through irresponsible financial practices. Large industrial businesses such at the Big 3 depend on a line of credit for raw materials, parts, maintaining dealer inventory, etc. Dry up that line of credit and the financial reserves the Big 3 had were being used up in months. Not to mention that now potential customers have an extremely difficult time getting financing.
Yes, the auto companies, consumers, and other businesses got caught up in the free wheeling way of credit to carry on day to day business and purchases. Again , it was the financial sector who was "creative" and provided no end of financial "products" to supply money and hide the risks of it in the retail, financial and real estate markets.
So, you want to blame individuals wanting a safe work environment and a decent standard of living for today's current financial problems? To put it another way. A lot of companies are now wanting to pay only $14 - $18/hr and have an employee both fund his/her own 401k pension plan plus make hefty co-pays for health care. Two people working in a family with this kind of compensation doesn't leave much for discretionary income, let alone purchasing a new car or home. I guess this is ok if you count yourself as one of the chosen few that think you deserve all you can get from opportunism and shrewdness, while saying everyone else deserves what they get for doing the bulk hard work in an economy. This amounts to nothing more than feudalism like in the middle ages and an arrogant aristocratic society calling the shots as long as they can remain on top at the expense of the many. There are very few companies and very few business owners who truly value the employees that make them the money. Some people have to do the work. Some actually choose manual labor, a skilled trade, or craft because it suits them or their families circumstances. So that makes them fair game for an opportunistic employer to exploit them in whatever way they can? Wow. If that's the case then society has come full circle in the last 500 years or so.

Jan 14 04:32 PM

[VintonCounty:]

Rick has mostly bad advice. I'll comment on 5 items.

1. Increased gas tax would be bad for consumers and for auto manufacturers. The reason is told by the economic axiom that "When the price of something rises, people use less of it." If we include operating costs in vehicle prices, raising gas taxes reduces vehicle sales. Auto manufacturers desperately need the opposite.

2. Hydrogen fuel cells are extremely impractical for vehicular applications and always will be. This fact is due to engineering and scientific considerations that are essentially immutable. The extremely condensed explanation is that much energy is needed to separate hydrogen from water, and carrying a useful amount of hydrogen on a vehicle is cumbersome.

3. Car czar. Czars are for Russia. The proper way for the government to protect its "investments" in auto companies is for them to buy voting common stock in those companies. Any czar appointed by politicians would be a politician in fact, even if not nominally. And politicians know nothing of the vehicle business and have no desire to learn.

4. National energy policy. America tried to devise a national energy policy during the 1970s. (Rick looks too young to remember.) It was embarrassing and wasted lots of money. The concept of any group forcing a particular energy plan onto America is tyrannical and foolish. The best energy plan will evolve from technologies and market events that no one can predict.

5. Larry Burns' comment. Burns is annoyed that the public is unenthusiastic about the technologies that Burns favors. So he wants the government to FORCE us to buy products using those technologies.

Jan 14 11:32 PM