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.

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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7 Comments

  1. I just don’t like the guy – too slick, and I don’t trust him. He wants tax dollars to pay for it, of course, like all liberals. Everything’s possible if you just let us raise your taxes. I’m not even convinced there is an oil shortage, and if we drill in ANWAR and build some new refineries, the oil shortage will go away, I bet. But even if there is a oil shortage, then prices will keep going up, right? Then people will buy cars that get better gas mileage. Problem solved.

  2. andrewt, there is no better argument against the politicial prescriptions of people like you than people like you.

    I don’t like CAFE, either, but something needs to be done whether it’s CAFE, or raising the price of gasoline or cap and trade or something else. We cannot keep doing nothing.

    And, BTW, drilling in ANWAR does not count as doing something to reduce gasoline consumption.

  3. The American car companies deserve to go under. They have had lousy cars for decades and lousy management. Just let them die, don’t keep them on life support.

  4. I don’t why making car companies make cars that get good gas mileage is bad. I would even settle for forcing car companies to make a lot less SUV’s.

  5. Americans like pickups and suvs and if that’s what they want to drive, then let them. Last I checked it was still a free country and we shouldn’t make laws that make people drive tiny cars they don’t like aand are not safe. An suv is very safe for your family. My family loves our suv and our kids watch movies if we drive a long ways and we feel safe. If we hit a litle car, yes then we will live and they will die, but too bad, they should have bought an suv, too. I think people that talk about how bad suv’s are all the time are just jealous they can’t afford a new Escalade or a new Lexus LX. I will never own a regular car agian.

  6. Tell them, miken – I want a lot of steel around me and my family. If people that drive those little cars are afraid of what my SUV will do to their car in an accident, that’s their problem. They can buy an SUV, just like I did. My wife and I both own an SUV and she loves feeling safe in hers. We can always get more oil if the greens and eco-freaks would just lest us get at it.

  7. Insecure, selfish, moronic jerks. There are more adjectives for the SUV idiots, but I don’t know why I even bother, none of you seem to have more brains than any other reptile. And Americans are always so puzzled when people in other countries don’t like them. Here’s a hint: it’s because of people like the ones that posted here.

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