Clinton’s Auto Industry Policies Delight Detroit

Detroit’s Big Three auto makers had plenty of reasons to dread last fall’s election of Bill Clinton.

Not only was Clinton the first Democrat to make it to the White House in 12 years, but he and running mate Al Gore were committed to a strong environmental agenda that called for tougher fuel efficiency and auto pollution regulations.

What’s more, Clinton was the first baby boomer President--and, as such, the first of a generation whose views about Detroit were informed by Ralph Nader and the consumer advocacy movement.

So one of the biggest surprises of the first months of the Clinton Administration is just how well the auto industry and the White House are getting along. In fact, industry executives say they are enjoying a level of cooperation from Washington on a wide range of issues--most notably trade and health care--that they haven’t experienced in years, maybe decades.

After being all but ignored by Republican administrations--especially by the foreign policy-oriented George Bush White House--they have been stunned by the extent of the interest Clinton and his aides have shown in domestic economic affairs generally, and in the fate of the auto industry in particular.

“This really is a new day, a new way for relations between Washington and Detroit,” said Robert Liberatore, Chrysler’s vice president for Washington affairs.

“We have had a much more open dialogue with this Administration than with the previous ones,” added GM spokesman Pat Morrissey.

To be sure, wary Detroit executives bred to confrontation rather than cooperation with Washington aren’t completely convinced by Clinton just yet. Many privately question whether the Administration’s new approach is all talk; they are waiting for concrete action to back up the rhetoric. And they wonder how long Clinton and Gore will resist the urge to impose stiffer fuel-economy and pollution-control rules on the industry.

But some close observers believe that Clinton’s openness in dealing with Detroit--along with the concern he is displaying on issues critical to the industry’s future--could offer a case study in his likely approach to so-called industrial policy.

“For Clinton, the auto industry is the place where trade and industrial policy are converging,” observed Clyde Prestowitz, founder of the Economic Strategy Institute in Washington and a leading thinker on trade and industrial issues. “It will be very hard, for instance, for Clinton to think about how to deal with Japan without thinking about how to deal with auto trade between the two countries.”

Ultimately, the White House’s deep interest in the Big Three boils down to one issue: jobs.

Clinton ran for President promising to pull the economy out of its doldrums and help the middle class find good-paying jobs. What he quickly discovered is that no other industry has the potential to create as many high-wage, blue-collar jobs as quickly as the Rust Belt’s grimy old auto makers.

Despite their long, slow decline in the face of the Japanese auto onslaught, the U.S. car makers--when they are healthy--still can churn out new jobs on a scale that dwarfs anything coming from the high-tech arena. One of every seven jobs in the country is still tied in some way to the auto industry.

Little wonder, then, that Clinton and his senior policy-makers are appearing restrained in their regulatory and environmental zeal when it comes to the auto industry.

“The (liberal) zealotry is still there to some extent among the junior people in the Administration,” said Ford Executive Vice President Peter Pestillo, who handles governmental affairs for the No. 2 auto maker. “But thankfully, the people making policy are taking a view that the country needs jobs, and we are an industry that is about jobs.”

As is his style, Clinton has approached the auto makers as a constituency to charm and win over on a personal basis.

The President has gone out of his way to cultivate relationships with the industry’s leaders, meeting with them repeatedly both during last winter’s transition and in his first months on the job.

The chief executives of the three companies flew to Little Rock in January for a private session with the President-elect, and Ford Chairman Harold (Red) Poling played a starring role at Clinton’s economic summit in Little Rock in December. In May, Clinton put in an appearance with the executives as the guest star at an industry promotional event featuring Big Three cars on Washington’s Mall.

Clinton’s open courting of Detroit’s Big Three through such events--to the exclusion of Japanese companies that employ tens of thousands of Americans at U.S. assembly plants--has clearly irritated foreign car makers.

Meanwhile, Cabinet members have been making regular visits to the Big Three’s offices in Detroit, among them Environmental Protection Agency Administrator Carol Browner, Transportation Secretary Federico Pena, Commerce Secretary Ronald H. Brown and Treasury Secretary Lloyd Bentsen.

So far, the two areas of greatest agreement between the industry and the Administration are trade and health care.

Reagan and Bush Administration officials frequently acknowledged that they felt America’s national security relationship with Tokyo should take precedence over bilateral trade matters--a rationale that also fit neatly with their fervent belief in free trade. But that position only frustrated the auto industry, especially in the Bush years.

“The Bush people had a blind spot when it came to trade,” Pestillo complained.

Auto executives have been ecstatic over Clinton’s demand that the Japanese agree to specific targets for reducing their trade deficit, including targets for bilateral trade in autos and auto parts. In fact, the auto industry is the only industry in which Clinton has so far proposed specific targets for the Japanese to meet; the Administration’s other proposed trade targets are more generic.

The recent announcement in Tokyo that the two countries have agreed to a “results-oriented” framework for future trade negotiations is sure to raise hopes both in Detroit and Washington about the prospects for a more specific deal covering the auto industry.

Of course, the really hard part--getting the Japanese to agree to genuine, binding targets in autos--is yet to come. So far, Japanese officials insist that their agreement to the new framework does not commit them to accept trade treaties including binding numerical targets.

Detroit sold a relatively insignificant 14,000 cars in Japan last year, after a decade of jawboning by the United States that did little to improve such numbers.

Still, the Administration hopes the figure will double or triple in the near future, once the United States and Japan get down to detailed talks within the new framework.

“We’re not looking at a grand boom market, but some potential for growth over the next several years,” said a senior U.S. trade official. “But it is too early to say what the target will be for 1993. “We haven’t even come close to talking details with the Japanese so far.”

On auto parts, Washington is pushing Tokyo for compliance with an agreement reached by the Bush Administration in January, 1992, that calls for Japanese purchases of $19 billion a year in American-made vehicle components beginning in 1995.

The Japanese claim they already are buying $13.5 billion a year in U.S.-made parts, but domestic manufacturers contend the figure includes billions of dollars worth of components manufactured in the United States by Japanese-owned firms.

Also still at issue is whether the U.S. government will be able to unilaterally impose sanctions against Japan if it fails to meet negotiated targets.

While Clinton’s tough trade strategy has drawn fire from free-trade advocates as well as the Japanese, it is winning plaudits all over Detroit. “What Clinton is doing with Japan is right out of our playbook,” said Chrysler’s Liberatore. “We’ve wanted results-oriented trade negotiations for years.”

The auto companies are equally happy that Clinton is committed to free trade with Mexico.

The North American Free Trade Agreement, if enacted, will allow Detroit to shift production from high-wage plants in the United States to cheaper facilities in Mexico; meanwhile, a carefully crafted provision in the pact will prevent Japanese firms from trying to enter Mexico to do the same thing.

The United Auto Workers union, which represents Big Three auto workers, is adamantly opposed to the free trade pact, fearing it will drain jobs out of the nation’s industrial heartland and send them south of the border.

Meanwhile, the industry could be one of the biggest winners in Clinton’s proposed health care reform package.

With an aging work force, a large pool of retirees--and the legacy of generous health benefit packages they negotiated over the years with the UAW--the auto makers now are burdened with extraordinary health care costs. On average, the industry’s costs of health care represent about 20% of payroll and add $1,100 to the price of a new car.

So out of clear-eyed self-interest, the auto makers have enthusiastically embraced Clinton’s reform plan, which is expected to call for just a 7% contribution by employers. Also, hundreds of thousands of retirees still too young for Medicare would be switched onto taxpayer-financed plans, saving the industry billions of dollars.

But suspicions still linger between Detroit and Washington, especially over regulatory affairs.

As part of its broader initiative to promote government-industry partnerships in fostering technology development and environmental protection, the White House Office of Science and Technology Policy is spearheading an effort to launch cooperative ventures with the industry.

White House science adviser John H. Gibbons, former director of Congress’ Office of Technology Assessment, is trying to identify existing federal research programs that can be applied to development of a non-polluting, energy-efficient car.

The effort, dubbed the “clean- car” initiative, seeks to draw together the R&D; resources of the Pentagon, Energy Department, EPA, NASA and the Department of Transportation to work on technologies that ultimately could replace the internal combustion engine as the bedrock of the American private transportation system. On their own, the car makers have been floundering in efforts to meet California regulators’ demand that they put zero-emission cars in their showrooms by 1998.

White House officials consider their mission not only cleaning up the environment, but boosting the competitiveness of the critical automotive sector. It is all part of an Administration effort to shift federal research funds away from Cold War military uses and toward peaceful commercial applications.

“The question of (automobile) emissions is not only an environmental problem, but a competitive problem,” noted a White House official working on the program. “Companies that come up with clean cars will gain market share in the global industry. There is a real incentive for industry and government to work together to advance this as both a public and a private good.”

Administration officials hope to model the effort after Sematech, the government-industry research cooperative working on advanced computer technology. Although the automotive program is still in its infancy, officials have identified clean-burning fuels and electric cars as critical technologies for early research explorations.

Farther down the road are as-yet-unidentified “breakthrough” technologies that are too risky or too expensive for the Big Three to develop on their own without identifiable short-term payoffs, the official said.

So far, the auto makers have resisted the Administration’s efforts to get them to jump on the consortium bandwagon.

While they are happy to talk to the White House about receiving more federal research funds, they are deeply concerned that the clean-car initiative could leave them vulnerable to political pressure to accelerate their plans to improve the mileage and emissions controls of their existing fleets.

Privately, industry executives have been trying to reach an understanding with the Administration about how their involvement with the clean-car initiative would affect current auto regulations.

They worry that if the Administration announces that the industry has agreed to join in a project that would have as its goal improving auto mileage standards by a certain amount, the pressure would suddenly build in Congress to pass new laws absolutely requiring the industry to meet those targets.

“This initiative has a lot of potential if they are sensible about it, and if they look at it as a long-term research project,” said Pestillo.

“The thing I worry about,” he said, “is whether in the course of agreeing to the clean-car initiative, you would be committed to accepting dramatic increases in fuel economy.” Agreeing to specific mileage targets as a goal for the initiative “is a real stumbling block,” Pestillo added.

In Washington, Pestillo’s comments are a familiar refrain.