The Auto Prez?

Automotive Industries,  Feb, 2001  by James Cole

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George W. Bush will cater to the auto industry as he launches his new administration. He may even be an activist on certain issues.

Auto industry executives supported George W. Bush for president by a nine-to-one margin over Al Gore. Their prayers were answered a few weeks ago when Bush was sworn into office. No longer will the fear of a Gore Presidency, with its environmental heavy hand and nightmares of 80 mpg SUVs, cause them to lose more sleep than they normally would amidst a declining sales year.

Bush's auto industry supporters truly believe they have a new ally in the White House. But now the pressure's on him to deliver on the many promises he made to reduce the regulatory burden on auto manufacturers. He's assembling his team just as domestic economic confidence is beginning to erode, the U.S. trade deficits with Japan and China are at their highest level in recent history and the former Big 3 domestic automakers' last bastions of uncontested profits -- the SUV and fullsize truck segments -- are under assault by strong new competitors.

The new president will face many challenges over the next four years, including a Congress that's almost as equally divided as the nation. The auto industry's watching closely. Based on Bush's election platform, his Cabinet appointments and other recent developments, Automotive Industries offers the following prediction on how he'll drive the nation on auto issues.

Fuel Prices

Bush surprised many by nominating Michigan Senator Spencer Abraham to head the Department of Energy This was a relatively low-profile position in past administrations, but that's no longer the case. Last summer's skyrocketing gasoline costs, the 100 percent jump in home heating oil and natural gas, and the recent power crisis in California have made the energy department and its new boss lightning rods for public criticism.

Abraham will take the lead in expanding oil and gas production. This was one of Bush's platform points. Abraham's background in automotive issues will play an important role in developing U.S. energy policy. Bush needs to build a strong coalition of Midwestern and Eastern legislators to tackle the environmental issues they will raise before they allow drilling in sensitive areas such as Alaska. The price increase will provide a basis for getting their political support.

Look for Bush to expand tax credits for domestic oil exploration and develop a plan to explore a variety of domestic opportunities. Also expect him to increase pressure on America's allies to increase production in order to reduce fuel costs.

OPEC already has discussions under way to set a higher price target in the spring. For U.S. drivers, this will mean a gasoline pump-price of $1.80 to $2.00 per gallon. The higher prices will put pressure on automakers to raise the fuel efficiency of full-size SUVs and expand production of clean-diesel vehicles -- a challenge, given the daunting Federal Tier 2 and California LEV2 emission regulations.

CAFE Standards

Lower fuel consumption has never been a high priority of most Americans. And Bush believes that government should not interfere with consumer choices in the market economy. That includes regulating the size or type of vehicle.

During the last eight years, preventing stiffer Corporate Average Fuel Economy (CAFE) standards was a bi-partisan effort in Congress. Many legislators took a political hit from a vocal minority who want a higher CAFE. As fuel prices creep up, however, there will be tremendous political pressure to increase CAFE standards, particularly on light trucks.

Bush supporters will contend that fuel price increases are a product of environmental restrictions on the type of fuels that can be sold. They'll seek to eliminate these restrictions. It would be very unlikely that he would support large CAFE increases. Bush knows that price increases could be moderated by decreasing consumption. Auto industry executives have promoted the adoption of a tax credit for highly fuel-efficient, mainly hybrid-electric vehicles. Look for Bush to support that measure and attempt to eliminate state-by-state programs that mandate the sale of pure electric vehicles (EVs). The added benefit would be to garner him political support on both the East and West coasts.

Tax Cuts and Interest Rates

One of Bush's main platforms during the election was a tax cut. It would certainly give a boost to the economy but has met with stiff opposition from Federal Reserve Chairman Alan Greenspan, who believes that paying down the national debt will improve the financial position of the U.S. without over-stimulating the economy. In a preemptory move, the Fed lowered rates quickly to stimulate the economy. Greenspan believes that this will minimize the pressure to lower taxes and increase the deficit.

A short-term tax cut will increase the spendable income of all taxpayers, possibly stimulating new-vehicle sales. Bush will take the high road and propose a major tax cut. He will fight for it, but in the end he will accept a lower cut that is both across the board and has special targeted cuts. Automakers will benefit from decreased interest rates and increased consumer spending.