Campaign Promises for the Automotive Industry

Yesterday, Senator John McCain and Governor Sarah Palin made a campaign stop at the Ford Fieldhouse at Grand Rapids Community College in Grand Rapids, Michigan.  Among the reported promises that were made were:

…the GOP ticket won’t raise taxes, will keep America safe, and will restore Detroit to a pre-eminent place as the hub of the global auto industry.

The last promise is interesting because of the $25 Billion Federal loan package for the automotive industry currently being debated in Congress.  One of the statements that was made during that campaign stop is particularly interesting:

We’re not going to leave the workers here in Michigan hung out to dry while we give billions of taxpayer dollars to Wall Street.

Nice thoughts, but are they really going to happen?  Let’s look at the last part first…

As far as what the pundits say, there’s a pretty good chance that the loan package will go through.  The automaker lobbyists are pushing hard, and in this election year, a Democratic controlled Congress will pass the loan, hoping that it will boost Obama’s ratings among Michigan Union members.  And considering that the Government has essentially taken over Fannie May, Freddie Mack, and AIG with billions of taxpayer dollars, what’s a few more dollars to help out an ailing industry in an ailing state that has seen over 315,000 jobs disappear?

The scary part is that some of the banks on Wall Street are backing this loan – JP Morgan Chase and Goldman Sachs own quite a bit of Ford and GM’s debt.  If Ford and GM cannot turn things around and fall flat on their butts, then Chase & Sachs will follow Lehman Brothers down the financial tubes unless the Feds take them over with massive bailouts a la AIG.

Now for the first part – Returning Detroit to “a pre-eminent place as the hub of the global auto industry.”  I’m sorry to say, but no Presidential candidate, Democratic or Republican, can make that promise.

The recovery of the automakers (and of Detroit) depends on nothing less than sound management of the automakers.  While I believe that the automakers have more than a decent chance of turning themselves around, I’m not so sure that it would spill over into Detroit.

The automakers all have decent product either on the design boards or in the process of becoming reality.  Whether any of these products will become hits & saviors of their respective companies is anyone’s guess.  Then there’s the other “dirty” but open secret – all the companies are looking at foreign produced cars wearing their nameplates to help with the current gas-mileage deficient lineup (at least, so they say, until the domestic product catches up).  But while they are catching up, what happens in the meantime?

That is going to be anyone’s guess.  We’ve seen the price of gasoline bounce around on both sides of $4.00/gal, and who knows where it will be in a couple of years when the anticipated $25 Billion Federal loan comes due.  GM is supposed to have its Volt on the showroom floors by 2010, but the pricing is still up in the air.  Ford isn’t quite floundering, but it’s not exactly healthy and exciting either.  And Chrysler’s master may lose patience and cut the company up in pieces to sell off.

Then there’s the other shoe that could drop – Who said that the product that is on the drawing boards is going to pass the corporate laugh test?  I’m sure that GM doesn’t want another Aztec, Ford doesn’t need an Edsel, and Chrysler needs to upgrade its offerings to include better fuel economy.  But who is mandating that any of this product has to come from Detroit and not continue flooding in from elsewhere?  The answer is nobody.

Here’s the bottom line – It all depends on who has what to sell, and how the public reacts with their disposable income.

The amount of available disposable income to the average American is going to be interesting.  The financial markets have been going crazy over the past year as various financial institutions find themselves failing, selling out, or just closing their doors.  And then we have the Democratic candidate for President all but promising higher taxes.  All of this leads to how comfortable does the average consumer feel about their future.  In the age of cutbacks and reorganizations, it is a rare person (outside of those with golden parachutes) that is confident in their long-term future.

In essence, it will be the consumer that will cast their vote on who stays in business and who walks the plank to insolvency.  All the promises of the candidates will not change that fact.


About Tom Roland

EE for 25 Years, Two Patents - now a certified PMP. Married twice, burned once. One son with Asperger's Syndrome. Two cats. Conservative leaning to the Right. NRA Life Member.
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