With Washington consumed in the debate about how to revive the U.S. auto industry, it’s worth recalling a policy fix President-elect Obama proposed for Detroit’s Big Three automakers while he was in the Senate.
In 2005, Obama and Rep. Jay Inslee, D-Wash., unveiled a plan called “Health for Hybrids” that would have given U.S. car manufacturers federal aid to pay retiree health costs for a decade if the companies agreed to invest at least half of the savings into manufacturing more fuel-efficient vehicles. The unusual proposal linked two of the nation’s biggest policy conundrums - America’s reliance on foreign oil and the surging cost of health care - but never gained enough traction, partly because it suggested Washington knew more about building cars and satisfying consumer demand than the auto industry.
Given the magnitude of the problems plaguing Ford, General Motors and Chrysler, might the new president revive this idea in some early display of think-outside-the-box governing?
The proposal, which Obama and Inslee offered in the form of bills in the 109th and 110th Congresses and touted in press releases and op-eds, does have some merits. The federal government customarily tries to influence corporate decision-making by awarding tax credits for activities it deems desirable. But tax credits are meaningless to the auto industry, which is posting huge quarterly losses and essentially has little or nothing to tax. Obama’s proposal would offer the companies much-needed cash if they embrace some of the energy initiatives he highlighted in his presidential campaign.
The problem is that proposing a Health for Hybrids, Version 2.0 might be too little, too late. The automakers last year shifted responsibility for billions of dollars in retiree health benefits to the United Auto Workers as part of new collective bargaining agreements. While the companies have had to delay payments into union-run health care trusts because of the current financial crisis, they’re bigger problem is a lack of liquidity. With auto sales at 25-year lows and credit markets effectively closed to high-risk borrowers, GM and Chrysler, in particular, say they need bridge loans from the government just to have enough cash to stay afloat in 2009. Retiree health benefits and new fuel-efficient technologies might have to wait for another day.
“The Big 3 still have higher costs than their rivals, have had slower-selling vehicles this year than their rivals, and are burning cash reserves at an alarming rate,” said Walter McManus, director of the automotive analysis division at the University of Michigan’s Transportation Research Institute. “I doubt that any money spent now to bail them out would be used for hybrids, plug in hybrids, or any other advanced technologies.”
Skeptics nonetheless say Obama’s early moves in response to the crisis will say a lot about his views of government’s role in private commerce.
“What he’s proposed is not unexpected because there are a lot of people who’d like to pursue goals other than building the auto industry,” said Myron Ebell, director of energy and global warming policy at the conservative Competitive Enterprise Institute. “Auto workers want to preserve higher pay, environmental groups would like to force Detroit to build greener, more fuel-efficient vehicles. So everyone’s rushing to create an economy run by a centrally controlled industrial policy.”
— Adriel Bettelheim
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