Obama’s Legacy Cost/Fuel Economy Proposal
On Monday, Democratic presidential candidate Barack Obama spoke to an audience at a sold-out Detroit Economic Club about the auto industry and its legacy cost (pension and retiree healthcare) problems, as well as fuel economy issues. He told his audience that domestic automakers did not adequately invest in fuel economy technology over the years, and that it’s one of the reasons they are now struggling in the marketplace relative to their Asian competition.
Obama’s plan (which he first proposed in his second book, The Audacity of Hope (2006), calls for helping the industry with its enormous legacy cost burden by paying 10% of it, or about $7 billion. The industry would then be required to invest at least half of those savings (or about $3.5 billion) into technology to produce more fuel efficient cars. He’s still calling for increases in CAFE standards similar to the aggressive ones that the Bush Administration has proposed. However, the Bush Administration’s CAFE proposals have included no incentives or other assistance to the Detroit Three. True, this would increase government spending, but would still be only a fraction of what is spent on the Iraq war. I don’t understand why any supporters of the domestic auto industry would be opposed to this proposal – it’s the same requirement, but at least helping them to meet the goals.
CAFE itself is another topic – it may be one of the most shameful examples of the law of unintended consequences, since its fuel economy mandates were probably the biggest factor in moving American consumers out of their big, thirsty cars into big, thirsty SUVs and pickups instead. Large SUVs like Suburbans and Expeditions get worse fuel economy than large cars such as Lincoln Town Cars and Ford Crown Victorias, even though the SUVs are now equipped with six-speed automatic transmissions and other fuel saving technology, while the cars soldier on with old-fashioned four-speed automatics and old-tech engines. But if CAFE must continue to survive, the government should partner with industry to make it happen rather than just dictating the way it will happen from within the Beltway.
Obama’s idea may not be the answer – but I give him a lot of credit for being the first prominent politician to actually propose a solution – and in the form of a partnership, not a mandate.