Who Is Running Detroit? The Obama Administration

The Detroit auto show, which opens to the public Saturday, normally kicks off with a splashy press preview of a new car model surrounded by scantily dressed models and introduced by one of the Big Three CEOs. This year is a bit different. The show, officially named the North American International Auto Show, started with a speech by Transportation Secretary Ray LaHood. And rather than introduce a new car, LaHood applauded the car companies' early efforts to meet new and tougher fuel-economy standards championed by the administration—35.5 miles per gallon overall in their fleets by 2016.

The Motor City's gearheads aren't in the driver's seat anymore; government officials are. True, various congressional and administration representatives have dropped by the show in the past, but 2010 represents one of the largest, and most high profile, delegations. Besides LaHood, Labor Secretary Hilda Solis, House Speaker Nancy Pelosi, and Ed Montgomery, executive director of the White House Council for Automotive Communities and Workers, paid a visit to see what Detroit had to offer—and to justify its $81 billion investment in the industry to taxpayers. LaHood said the "exciting green rollouts wouldn't be possible without the administration's investment," while Pelosi, speaking at a lunch held during the show, said the loans were helping to trigger a "rebirth" in the industry, crucial to the nation's economic turnaround.

The show has a custom-ordered green flavor. An entire floor is devoted to the "Eco Experience," featuring cascading waterfalls amidst a serene scene of daffodils and abundant green trees, all placed on a lush green carpet. Just after Ford's hybrid Fusion was named Motor Trend's Car of the Year, Bill Ford promised his company would be a fuel-efficiency leader in every market. Toyota unveiled its next-generation Prius hybrid, a tiny concept car called the FT-CH, while GM showcased its electric Volt, due to go on sale later this year.

Domestic automakers "have to worry about what the government wants, and the government clearly wants these types of vehicles," says JohnWolkonowicz, automotive analyst for IHS Global Insight. "This is a different kind of show with a different kind of focus," adds Gerald C. Meyers, a professor at the University of Michigan's Stephen M. Ross School of Business. He says there is an indirect influence from both the government and Congress on auto designers and engineers to produce environmentally friendly cars. "Regulators are talking to companies, and companies are responding to regulators," he says. And there is a faction in Congress that believes that since two of the companies are owned by taxpayers, they need to "behave in a way that's favorable to the environmental movement," Meyers says.

Since green cars will cost more, the markets for them will be small—at least for the next 10 years, says John German, a program director at the International Council for Clean Transportation. The production of electric and hybrid vehicles that you can plug in is definitely being driven more by the government than by consumer demand, says Mike Omotoso, senior manager, global powertrain for J.D. Power and Associates. If the costs of these vehicles remain higher than their gasoline-powered counterparts and fuel prices stay relatively low, he says, they'll be slow to catch on. In fact, he predicts that, at least initially, the biggest purchasers will be government fleets, so the government will buy vehicles that they directly or indirectly paid to produce.

"There will be a dichotomy between what the government wants sold in the market to meet emissions and fuel-economy requirements and what the public wants," says Michael Robinet, vice president, global vehicle forecasts, for CSM Worldwide. Fuel-efficient cars, which may be pricier, smaller, and require additional functions like chargers for electric cars, will not be what the majority of Americans wants. Robinet says that could create a situation where dealers are forced to discount smaller cars to get consumers to buy the vehicles that the government wants them to manufacture, rubbing salt in the wounds of an already precarious financial situation for manufacturers. The government, he says, can't just order production of these vehicles and say, "Thou shalt drive a small car because it's good for you." It needs to find incentives to get people in them, namely through a gas tax or a tax rebate.

Still, automakers are bullish on their new rollouts. "We're not just doing this because the U.S. government said it's mandatory," says Kerry Christopher, a GM spokesman, who adds that many of these cars have been in the pipeline for at least eight years. He acknowledges that the company's viability plan included its intent to build vehicles with improved fuel efficiency that will help reduce dependence on foreign oil, but says the goal is in keeping with what consumers now crave. He points to a December 2009 sales figures that showed that Chevrolet car sales grew by 38.7 percent over last year, compared to only a 5 percent increase in trucks, as evidence that "people are looking to buy these fuel-efficient vehicles," and GM intends to provide a broad array of them. Maria Rohrer, GM's director of marketing for the Chevy Volt, says there's great enthusiasm for GM's electric car, even though it will retail for $40,000.

Sue Cischke, Ford's group vice president for sustainability, environment, and safety engineering, says it will take time for the costs of these vehicles to come down to a point where consumers will buy them. But fuel prices are bound to rise again, causing consumers to flock to these cars, she says. When that happens, automakers will be ready, and the administration will be cheering them on.

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