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Issue: Jul 2004


President Kerry?



How would a Kerry victory affect the auto industry?

by Gary Witzenburg

Twenty years ago, President Ronald Reagan ran for re-election following a mixed-results first term. On one hand, his tax cuts and a major military buildup combined with few government cuts had accumulated an enormous budget deficit. On the other, the depressed national spirit and economic malais following four years of Carter were clearly on the mend.

“As a self-made man,” wrote one auto (not political) columnist at the time, “Reagan understands that productivity generates paychecks. He knows that an economy without profits is like an engine without oil … it will grind to a halt as sure as the sun shines on Texas. He also knows that those same profits and paychecks are where tax revenue comes from. This is a concept that the Democrats have never been able to grasp. They create an environment where ‘profit’ is a dirty word, where doing a good job and making money become somehow immoral, and then they expect full employment and unlimited tax money to give away.”

As we know, Reagan earned four more years in an unprecedented landslide, and the U.S. economy boomed. This year’s race seems eerily similar in many ways: conservative Republican incumbent vs. liberal Democrat challenger; tax cuts and economic recovery vs. huge military costs and exploding deficit; exploration and production vs. conservation as key to energy independence; pro-business vs. proworker and CAFE vs ... well, much more CAFE. Presidential elections, it is said, turn on peace and prosperity. Reagan was determined to defeat the “Evil Empire” of Soviet Communism and willing to spend what it took.

Bush is equally determined to defeat global terrorism. Reagan believed that reducing tax rates to enable individuals and businesses to keep, spend and invest more of their hard-earned money would stimulate the economy and actually increase tax revenue. Bush is equally convinced. It worked for Kennedy in the ’50s and Reagan in the ’80s, and it appears to be working again. Kerry’s ideas on both fiscal and foreign policy are polar opposites.

We consulted industry experts David Cole, chairman of the Ann Arbor, Mich.-based Center for Automotive Research (CAR) and Fred Webber, president and CEO of the Washington, DC-based Alliance of Automobile Manufacturers (AAM), which represents BMW, GM, Ford, DCX, Mazda, Mitsubishi, Porsche, Toyota and Volkswagen. Both agreed that differences between the candidates and their parties would significantly affect the industry and its employees.

Taxes

Cole: “Historically, the Democrats have tended to push higher taxes, particularly higher taxes on business. This is a key issue in terms of off-shoring or outsourcing. We often blame wages, but it’s not just labor cost but the total cost of doing business, which is greater here because of both regulation and tax policy, that determines what a company does internationally. The Democrats tend to be more in favor of regulation and higher taxes. Corporations are viewed as inanimate objects that don’t vote, so there’s a tendency to put more burden on them. Our corporate taxes are high and out of step with the rest of the world.”

Regulation

Webber: “In the Bush administration, they have tried to strike a balance and strive for cost effectiveness. They try to focus on the big issues and on what they call ‘sound science.’ A brilliant fellow by the name of John Graham in the Office of Management and Budget is trying to bring reason to the whole regulatory scheme. In a Kerry administration, I think the heavy hand of regulation would reign and there might be more emphasis on being punitive to carry out regulations as opposed to pressing for voluntary efforts and commitments.”

Environment

Webber: “I think Bush gets a bum rap on the environment. He’s as concerned as anyone about it, including Kerry. Kerry would lean toward the Kyoto protocol. Bush thinks that’s unrealistic, and we agree. Let’s go forward with voluntary efforts as opposed to the mandated efforts that Kerry would favor. I think the Environmental Protection Agency has struck a balance and is trying to press for voluntary action and less regulation. Out of a Kerry administration, I think we’d get the hammer.”

Cole: “The Republicans tend to favor economic- based regulation, while the Democrats tend to favor command and control. Economic would be: ‘We want to reduce emissions by so much; what is the most efficient way to do that?’ Command and control is putting a standard on every car: ‘You must exceed this; you can’t exceed that.’ My concern is that I’m not sure that [further auto emissions reductions] are justified. When you’re 99 percent clean on hydrocarbons and carbon monoxide and 97-plus on NOx, the auto contribution is pretty small.

“The other issue is global warming, which is absolutely tied to fuel economy, and there are sharply different views on this. In my judgment as a scientist, there is still a lack of definitive proof of what’s going on. Some people argue that the normal cyclic behavior of atmospheric change is greater than what we’re supposing with global warming. The Democrats tend to be more aggressive on global warming, and therefore fuel economy, and economic impact is a secondary factor. Republicans tend to look more at the economic impact.”

CAFE

Cole: “No question there would be a greater push [under Kerry]. But I have to believe that, with the industry and the UAW looking at production and the economic impact, things would get more reasonable fairly quickly. A lot of this is talk to get elected and not necessarily talk that would be turned into regulation. So people can talk [about higher CAFE] — and if you’re talking 40 mpg, you might as well say 80 mpg — but when it translates into fact, and you look at the job impact and the economic impact, it would have to be at a very modest level.

“The less people know about the realities of industry and technology, the more glib they tend to be in talking about CAFE numbers. The political community is woefully na?ve in technology and market-based economics. Their idea is that if they don’t like the second law of thermodynamics, they can pass a new one. The reality is that we’re stuck with the old one. The Republicans tend to be less na?ve. There are more Republicans with technical, business or medical backgrounds, so they generally live a little closer to reality, but not totally so.”

Energy

Cole: “Again, there’s a cadre of people who believe in the Tooth Fairy, and this is where they’ve been operating, putting very onerous requirements on refineries for these multiple blends of fuel. But I think they’re going to get real very quickly because of the situation we find ourselves in. That was evident when this tax credit for energy exploration passed almost instantly a few weeks ago.”

Webber: “This is where I worry about Kerry. Bush is for exploration, and he’s production oriented. We know his record and what he wanted out of an energy bill. Kerry is talking renewables, but I don’t see any emphasis on production. I think we would have a major problem with the Democrats because they’re not realistic in terms of what has to be done if we’re going to keep oil flowing, find new resources and have reasonable gasoline prices.”

Advanced Technology

Cole: “I don’t see a whole lot of difference between the two parties. There have been advocates for R&D within both. With the Clinton administration, we saw PNGV, Partnership for a New Generation of Vehicles. Now we have Freedom Car, with federal funding to support development of hydrogen fuel cells. Both parties are very much in support of the national laboratories, and we’re putting increasing emphasis on them.

Webber: “I think both sides are going to push the industry to continue going forward on advanced technologies. I don’t see many differences between what the Bush administration or a potential Kerry administration would like to see, and I find that encouraging. If you look at President Bush’s commitment and Kerry’s statement on Hydrogen, they’re very close. As you know, Hydrogen has infrastructure and storage challenges, but I think both Kerry and Bush would urge us to go forward to see what works.”

Trade

Cole: “Generally, Republicans are free traders, and Kerry has been a free trader. Where things get complicated for the Democrats is with the factions. The reality is that free trade is in and restricted trade is out, which is a real challenge for them because they’re dealing with constituencies that are anti free trade. The unions want to protect their positions, so labor was very much against NAFTA and in favor of trade restraint. But that doesn’t work in the world that’s emerged. And when you get to the UAW, CAFE is going to be a big issue. That’s going to be one of the challenges that Kerry will have to deal with. He’s got powerful forces within his party that are opposed to each other on regulatory and trade issues.”

Litigation







 
John Kerry rides a Palm Beach County Sheriff's motorcycle in Palm Beach, Fla.
Webber: “Our friends overseas look at our legal system, shake their heads and say, ‘Whatever you do, don’t export that system to our part of the world.’ We’re a litigious society, and the quickest way to drive business out of this country is to continue this trend. It is out of control, and we’ve got to come to grips with it. If it doesn’t stop, we’re going to kill the goose that laid the golden egg.

“I think this is on Bush’s agenda for his second term, assuming he gets one. But the trial bar clearly is against Bush. They feel he’s a big threat to their way of doing business, and therein lies a major difference [between the parties] and a major, major challenge. Those who are opposed to any kind of tort reform are in Kerry’s camp, so that does not bode well for those who feel that we’ve got to make some corrections. If Kerry becomes president, it’s going to be very hard for us as a manufacturing industry to see a change in the way we conduct our legal business. That is not good. So we would have to work hard to change Kerry’s mind on this issue and try to come up with some reasonable tort reform before it’s too late.”

Cole: “Lawsuits have a negative impact on GNP because they absorb people out of the productive side, and clearly there is a very sharp difference on this between Democrats and Republicans. The Republicans have been trying to reform, while the Democrats have been fighting it for a long time. The tremendous power of the trial lawyers has supported many Democrats, and they have been resistant to any reform. The trial lawyers are a very, very important lobbying group and an extremely significant factor in financing campaigns. They’re defending their gravy chain, and it’s really distorting our economic system, which is particularly important as we get into competitive positions. If we have a high cost of litigation and competing countries do not, that gives them a competitive advantage.”

Health Care

Cole: “This is a huge burden and much higher to those who have been around for a while. Anyone who has a young labor force has much less exposure to it. I’ve been very much against any kind of national health care, but I’ve talked to a number of people about this in the last few years, and I’ve recognized that those costs are already in the economy. The rationale is that, if uninsured people need health care, they get it by going to an emergency room. And that cost is borne in health insurance, and the government picks up part of it.

“Historically, the Democrats would be in favor of some kind of national health care, and the Republicans would be against it. But if Bush is re-elected, I think we’ll see a national health care program because in today’s globally competitive world, most of our competitors have it. This is a huge penalty for the U.S. makers, and they would vote for national health care in a second because it would pool their costs with the national pool. There are tremendous inequities between the newer [transplant] companies and those that have been here for a long time, and the only way to normalize the playing field is to pool the costs across the economy.

“I think that some form of national health care is almost inevitable, and it could be as soon as in the next four years. My only concern is that government historically has been inefficient in managing things like that. My guess is if we see this emerge under a second Bush term, it would be aimed more at private sector management than government management. The Democrats would want to manage it from the government perspective.”

It seems to us that too many politicians look at business and corporations, large and small, as entities to be taxed and regulated and litigated to prevent them from abusing customers, employees and the economic system. And too few see them as the sources of nearly all wealth, prosperity and jobs that must be treasured, nurtured and protected to keep them profitable and here at home. The question for voters this fall, as always, is which candidate and party will strive to achieve the healthiest balance between those extremes.




































































The Candidates' Positions      
On the environment   Kerry: Proposes creating a “new Manhattan project to make America independent of Middle East oil in 10 years by creating alternative fuels like ethanol and making cars more efficient.”   Bush: “Believes that the federal government has an important role to play in protecting our environment and has introduced new and innovative policies to achieve these goals” and “favors common-sense approaches to improving the environment while protecting the quality of American life.”  
On jobs and the economy   Kerry: Proposes “creating jobs through a new manufacturing jobs credit, investing in new energy industries, restoring technology and stopping layoffs in education.”   Bush: Proposes speeding up future tax cuts “to increase the pace of economic recovery and job creation” and “encouraging job-creating investment in businesses by providing dividend and capital gains tax relief and giving small businesses incentives to grow.”  
On international trade   Kerry: “Will put in place a series of incentives to keep manufacturing jobs in the United States…will ensure that our trading partners play by the rules…and will make sure America has a cutting edge workforce by helping manufacturing workers with grants to upgrade their skills and by making higher education affordable for every American.”   Bush: “Exports are an important part of our economy…and 97 percent of U.S. exporters are small and medium-sized businesses…. Trade means selling product overseas, but it also means welcoming foreign capital here to employ people…. For five decades, Presidents have made the decision that the U.S. market should be open for the good of our consumers…. Other markets haven’t been open to U.S. goods, so the logical thing to do, rather than shutting down our own market, is to spend time opening up other peoples’ markets.”  
On opportunity for small business   Kerry: Would promote growth through a “Small Business Opportunity Fund,” assuring “a fair share in federal contracting,” using the tax code to support small business and providing health care for small business “at one-third the cost.”   Bush: “It makes sense to allow small businesses to have more of their own capital so they can expand and grow and hire more people.” Has provided tax incentives, and advocates an energy bill that “encourages conservation and alternative sources of energy, modernizes the electricity system and makes us less dependent on foreign sources of energy,” tort reform to reduce “junk lawsuits that run up the cost of doing business” and association health care plans to pool risks and give small businesses “the same purchasing power as big businesses.”  
On supporting America’s workers   Kerry: “Has a 90 percent AFL-CIO voting record” and “has fought to raise the minimum wage” and “co-sponsored bills to outlaw striker replacement and provide workers with Family and Medical Leave to spend time with a new child or care for a family member.”   Bush: “The best way to deal with [jobs going overseas]…is to make sure America remains the best place in the world to do business so that our job base will expand. The more vibrant the small business sector, the more likely it is that jobs will stay right here at home.”  
On health care   Kerry: “Will start by expanding health care coverage to nearly 95 percent of Americans, including nearly all children” and is “committed to assuring high quality health care by including a strong enforceable patients’ bill of rights and reducing medical errors.”   Bush: “Believes that everyone should be able to choose a health care plan that meets their needs at a price they can afford;” his plan will “give seniors more health care choices and help them with the high costs of health care and prescription drugs.”  


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