Baby Carrots and Twigs

Obama pretends to get tough on the Big Three, and Detroit throws a hissy fit.

Last week, Sen. Barack Obama (D-Ill.) said something that sounded dangerously like blaming the victim, at least to the soi-disant victims in Motor City: "Here in Detroit, three giants of American industry are hemorrhaging jobs and profits as foreign competitors answer the rising global demand for fuel-efficient cars."

Everyone at the Detroit Economic Club speech was probably already grumpy, what with the recent news of Toyota surpassing GM as the world's biggest seller of cars, and gas (maybe) creeping up toward $4 a gallon. Obama's implication that their current distress was their own fault was met with "stunned silence."

In this depressing 18-months-‘til-election-day, interest-group-courting phase of the campaign, this kind of sass from a candidate is always welcome. And what sounded like a smidge of pro-market sass from a Democrat? Even better.

But what at first seemed to be a sharp thwack from a stick turned out to be mostly prelude for carrots. To soften the blow of stricter requirements fuel efficiency, Obama promised that the federal government would take on some of the "legacy" health care costs weighting down the Big Three. He offered to cover up to $7 billion in costs through 2017 if auto makers invest half of the windfall on new technology to improve fuel efficiency in the cars they manufacture.

What started out sounding like an interesting, tough economic outlook from a Midwestern Democrat turned out to be a bailout for a wheezing industry, paired with an expansion of a set out burdensome regulations.

Chrysler responded by pointing out that the goodies Obama was proffering were baby carrots at best. Cleverly slicing the numbers, a spokesman pointed out that car makers would get $29 per car in benefit support, compared with a current burden of $1,500 per car (Think about that for a minute, by the way. $1,500 of the cost of your car goes to pensions and health care for autoworkers.) As the spokesman told Newsweek: "Twenty-nine dollars is really not a lot of help."

No matter how much of a dent it makes, it's a cash grant to companies to keep them from complaining about stricter regulation of their industry. As Ronald Bailey pointed out last week, "Put nicely, this is a subsidy; put more accurately, it's a taxpayer bailout of failed management."

Oddly, Obama's proposal looks likely to pass long before his presidency could begin. Current requirements for fuel efficiency are cumbersomely mandated in terms of average efficiently for the overall production of each car manufacturer. (Economists consistently find the system wildly inefficient.) Obama proposed expanding fuel economy standards by 4 percent each year, to reach an average fuel efficiency of 35 miles per gallon by 2020. (At the moment, the mandatory fleet-wide average for cars is 27.5 miles per gallon, and 22.2 mpg for SUVs, pickup trucks, and vans.)

But a Senate committee is expected to consider a proposal today to raise mandatory fuel efficiency standards on cars and trucks to levels virtually identical to the Obama proposal.

Despite all the hullabaloo, Obama's proposal is practically conciliatory compared to those of his competitors. Christopher Dodd (D-Conn.) and New Mexico governor Bill Richardson are both pushing for 50 mpg, and John Edwards wants 5 miles per gallon more than Obama, four years sooner.

These varying proposals highlight one of the major problems with fleet-wide mileage standards: they're basically numbers pulled out of a hat. They are, as the reaction to Obama's speech so clearly demonstrated, not necessarily crafted with much industry input and they don't necessarily represent anything other than the set of numbers that sound most plausible given the conditions under which they are proposed. 50 mpg by 2017? 40 mpg by 2016? 35 mpg by 2020? Who knows?

Further evidence that the numbers are chosen semi-randomly from a big red, white, and blue Uncle Sam top hat: The tempest in a teacup over Obama's claim in the Detroit speech that, "while our fuel standards haven't moved from 27.5 miles per gallon in two decades, both China and Japan have surpassed us, with Japanese cars now getting an average of 45 miles to the gallon." The 45 mpg figure is contested, as many bloggers have obsessively discussed. The thrust of the blog squabbling is that policymakers (or at the very least, speechwriters) seem to be googling fuel efficiency figures or pulling them from Pew reports on climate change (a non-authoritative source for auto industry data) to form the basis of their claims about the relative backwardness of the United States.

"For years," said Obama, "while foreign competitors were investing in more fuel-efficient technology for their vehicles, American auto makers were spending their time investing in bigger, faster cars." This is, of course, true. One reason this is true—besides the fact that American like bigger, faster cars—is that fuel efficiency standards have been set by the federal government since 1975. Unsurprisingly, the standards have been slow to change in that time, since changes require bureaucratic action on a politically charged topic with heavy lobbying from industry. Basically, the standards haven't changes in a dogs' years, and so neither has the American fleet. Once they make it up over the fleet standard, manufacturers have little incentive to go above and beyond for the whole fleet. Rising demand for hybrids and other fuel efficient cars is being belatedly met, but fleets continue to feature giant gas guzzlers as well, keeping the average right at the mandatory levels.

Republicans—and Sen. Hillary Clinton (D-N.Y.)—have so far resisted the temptation to play the price is right, though Clinton's campaign says she'll be announcing her magic number in the coming weeks.

"Our goal is not to destroy the industry, but to help bring it into the 21st century," Obama said. "So, if the auto industry is prepared to step up to its responsibilities, we should be prepared to help."

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