Big Three Bound For Washington

The Big Three finally get to bend President Bush's ear next Tuesday.

After putting off the domestic automakers until after the election, the President will meet with Rick Wagoner, Alan Mulally, and Tom LaSorda, respective CEOs of General Motors, Ford and Chrysler.

The three companies, which, combined, lost over $4 billion last quarter, will seek help dealing with legacy costs, and dollar/yen currency imbalances that helped give Toyota a 34 percent profit boost last quarter, and a break on CAFE (corporate average fuel economy).

The good news for Detroit is that the Democratic rout brings Rep. John Dingell, (D-Mich.), who has been very vocal about Japanese automakers' currency advantage, the likely chairmanship of the House Energy and Commerce committee, with Sander Levin (D-Mich.) also on deck to chair a trade agreement subcommittee. The Big Three will pressure him to gain Federal assistance for R&D on alternative fuels, and on legacy costs, which cost them a combined $11.2 billion last year in health care costs alone.



Wagoner has made it clear since 2005 that GM's legacy costs are insurmountable without changes in national health care policies.

He has also said that he favors Federal help on alternative fuels development, not Federal mandates on CAFE. Now, however, the meeting has new relevance with the President's diminished leverage.

Jim Sanfilippo, analyst with AMCI, Detroit, said the changes are good news for Detroit.

"Michigan is solidly Democratic, and Detroit is a microcosm of the three most important social issues: Social Security, health care, and jobs," he said. "It's an economic ground zero."

Sanfilippo noted that what's likely to be foremost on the minds of Big Three CEOs next week is legacy costs. "They are just sinking the ability of this country to compete internationally on the manufacturing level. One out of nine jobs in this country is touched by the Big Three. If Toyota is bragging about its footprint and you want to compare footprints, you are comparing a baby's and Big Foot."

But the Big Three are also likely to face the first increase in corporate average fuel economy for sedans in more than 20 years, as well as stricter rules on green house gas emissions--the latter because Democrat Nancy Pelosi, the next speaker of the House, championed those efforts in California, backing a September lawsuit against the top six automakers.

Detroit automakers are in a much better position now than they were in the past with regard to fuel economy, and the ability to change the mix of their vehicle output because of flexible manufacturing improvements.

"They are in a better situation ... because of production flexibility and because they are producing much more fuel-efficient sedans," said Sanfilippo. General Motors is also on the cusp of producing several new hybrids, including the second-iteration hybrid power-train for cars next year.

According to the U.S. National Highway Traffic Safety Administration, model-year 2005 domestic cars averaged 30 mpg.

"America's auto industry is of critical importance to the U.S. and global economies. Ford Motor Co. is focused on continuing to improve our competitiveness in the global marketplace," said the company in a statement. "We are hopeful that the new Congress will focus on key issues related to energy security, health care and trade that affect not only the auto industry, but all of America's economy."

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