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Obama Has Vision For Auto Industry (NY Times)

The New York Times
updated 8:09 p.m. PT, Sat., Dec. 20, 2008

DETROIT – President-elect Barack Obama leveled a stern warning at General Motors and Chrysler last week after the federal government promised them billions to help them survive: “The auto companies must not squander this chance to reform bad management practices.”

Once he takes office, the bailout will give him a tool to prod the industry to change, but it will also test his resolve as he pushes it in new directions.

Mr. Obama, after all, has been thinking out loud about the future of the American automobile industry for years, well before his presidential campaign began. He co-sponsored two bills in 2006, during his second year as a United States senator — one to raise fuel economy standards, and the other to encourage the use of alternative fuels.

His writings and speeches on the auto industry suggest a keen interest in finding ways, including new technology, to improve the fuel efficiency of the cars and trucks that Americans drive.

But with Detroit in a fragile financial state, it is unclear how many compromises he will have to make in pursuing his agenda for the auto industry, as he juggles other priorities like providing a stimulus program for the broader economy. The United Automobile Workers union, which backed Mr. Obama, will want a say in the changes he envisions for the automakers.

And the car companies, which have long lead times to develop products, will need sales of big trucks and sport utility vehicles, which may pick up again as gas prices fall, to bring in much-needed revenue.

By all accounts, Mr. Obama’s personal interest in the industry stems from his interest in environmental issues, and he has a ready resource about how the industry operates in Martin Nesbitt, a close friend who worked in financial planning at G.M.

Mr. Obama delivered his clearest prescription to the automobile industry in May 2007, when he appeared at Cobo Convention Center in downtown Detroit before an audience of 2,000 auto industry executives.

In a speech to the Economic Club of Detroit, Mr. Obama said the Big Three had done little to lessen the nation’s dependence on foreign oil and needed to improve their vehicles’ fuel efficiency.

“The auto industry’s refusal to act for so long has left it mired in a predicament for which there is no easy way out,” Mr. Obama said.

He added, “For years, while foreign competitors were investing in more fuel-efficient technology for their vehicles, American automakers were spending their time investing in bigger, faster cars. And whenever an attempt was made to raise our fuel efficiency standards, the auto companies would lobby furiously against it.”

He suggested initiatives similar to the legislation he had introduced in Congress, and which he emphasized in his campaign. They included a 4 percent annual increase in the Corporate Average Fuel Economy standards, equal to about one mile per gallon a year, and incentives for the companies to develop more fuel-efficient cars.

Mr. Obama said he would provide up to $3 billion to Detroit auto companies and their suppliers to retool their factories in order to produce smaller, more fuel-efficient vehicles. Still, with gasoline prices falling again, it is unclear whether consumer demand will shift so dramatically to small cars.

Congress later included up to $25 billion for the companies for the retooling. General Motors and Chrysler initially tried to tap that money for their depleted cash reserves, before receiving assistance from the Bush administration.

Environmentalists say the speech in Detroit was a sign of commitment to prodding the auto companies to build more fuel-efficient vehicles.

“I think he gets it,” said Daniel Becker, director of the Safe Climate Campaign for the Center for Auto Safety, a Washington consumer advocacy group. “The speech at Econ Club was a brave one, but a thoughtful one.”

Mr. Obama, who received standing ovations at the beginning and conclusion of his speech, said he wanted to be blunt with the Detroit companies on their home turf.

“I’m making this proposal here today because I don’t believe in making proposals in California and giving a different speech in Michigan,” he said. His goal was “not to destroy the industry, but to help bring it into the 21st century,” he said.

A year earlier, in his 2006 book, “The Audacity of Hope,” Mr. Obama wrote that “fuel-efficient cars and alternative fuels like E85, a fuel formulated with 85% ethanol, represent the future of the auto industry. It is a future American car companies can attain if we start making some tough choices now.”

He also did not spare the U.A.W. from criticism.

“For years,” Mr. Obama wrote, “U.S. automakers and the U.A.W. have resisted higher fuel-efficiency standards because retooling costs money, and Detroit is already struggling under huge retiree health-care costs and stiff competition.”

With Detroit in crisis, there is little room for hesitation after Mr. Obama reaches office.

His Treasury Department will have to assess whether the union and the companies have met the requirements of the loans given them by the Bush administration, which legal experts say Mr. Obama could easily amend.

But he also has said that he wants to protect American jobs.

Soon after President Bush finished announcing the terms of the $17.4 billion in assistance for the auto companies on Friday, the U.A.W. union was calling on Mr. Obama, for whom they rallied support in important Midwestern states, to revise it.

They wanted him to discard a requirement that auto workers agree to wage and benefit concessions that would bring their compensation in line with that paid nonunion workers.

Mr. Obama was advised in the bailout discussions by a former Federal Reserve chairman, Paul A. Volcker, who was at the Fed when Congress approved assistance to Chrysler in 1979; Austan Goolsbee, a professor of economics at the University of Chicago; and Joshua Steiner, a former Treasury official with a background in restructuring.

Brian Johnson, a veteran industry analyst with Barclays Capital, said the outgoing Treasury secretary, Henry M. Paulson Jr., had “tied up this money with some string.” He added that the “U.A.W. is going to request it to be untied, and the question is whether Obama will untie the string.”

On Friday, Mr. Obama reiterated in a statement that all parties in the industry should have to give up something so the auto companies could revive and change.

“There are going to be some painful steps that have to be taken,” he said later at a news conference.

No matter the steps Mr. Obama takes, he is likely to seek a range of opinions. That is what happened in June 2006, when he invited a group of environmental leaders to meet with him to discuss legislation that would increase fuel economy.

At the time, none at the meeting knew that Mr. Obama planned a presidential bid, said Mr. Becker, who was then representing the Sierra Club.

He said that Mr. Obama told them: “If you guys think this is helpful, then I want to go ahead and push this. But if you don’t think it’s helpful, I’ll drop it. I don’t have to do this.”

Nonetheless, Mr. Becker, a longtime critic of Detroit’s environmental policies, said he did not believe that Mr. Obama would force the car companies to submit to drastic measures.

“I don’t think they need to be afraid of Obama. He’s not going to say ‘by next Tuesday, everything has to be 40 miles per gallon,’ ” Mr. Becker said. “But in 10 years? Maybe.”

Jackie Calmes contributed reporting from Washington

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