Giving in on CAFE Earlier Could Help Automakers Today

(MoneyWatch)  The auto industry is now cashing in some goodwill in Washington, with regard to $25 billion in federal funding for developing more fuel-efficient cars, and potentially for additional assistance.

Alan Mulally, Ford president and CEO, said indirectly that the industry purchased that goodwill in part by dropping its objections late last year to tougher federal gas-mileage requirements. Ford has also spent a lot of its own resources to develop fuel-efficient vehicles, he said.

"The tone of the conversations (in Washington) is very positive, because of the actions taken by the industry in support of energy independence, and sustainability. We stepped up, and the industry and Ford want to be part of the answer," he said in a Nov. 7 conference call to announce Ford's third-quarter earnings.

Last December, Congress passed a big increase in Corporate Average Fuel Economy standards, to 35 mpg in 2020, from an actual average of about 20 mpg today. The U.S. automakers supported the increase -- at least in part because of the threat of even tougher alternatives if the proposal failed.

On Nov. 7, Ford reported a relatively slim net loss of $129 million for the third quarter, versus a net loss of $380 million in the year-ago quarter. Ford was quick to point out that result was boosted by a $2.2 billion special item for lower retiree healthcare costs, in connection with Ford's newest agreement with the UAW.

Excluding special items, Ford had a pre-tax operating loss from continuing operations of $2.7 billion, versus a net profit of $194 million a year earlier. Also on Nov. 7, GM reported separately a net loss of $2.5 billion for the third quarter, versus a massive year-ago net loss of $42.5 billion, which was distorted by a one-time accounting charge for the loss of potential tax write-offs.

Mulally and the chiefs of General Motors and Chrysler met with the leaders of the U.S. Congress on Nov. 6, asking for support from the federal government to ride out the present sales downturn and the credit freeze that has struck both corporations and consumers.

Meanwhile, Congress in September approved $25 billion in loans to the auto industry to help automakers develop more fuel-efficient cars. Mulally said it looks as if that money could start becoming available as soon as the end of the fourth quarter.

"They are really trying to meet the intent of the legislation, which was to accelerate and bring to market the vehicles that people really want," he said.

In contrast to GM, which has pretty much said that help from the federal government is absolutely essential now, Mulally suggested Ford just wants to know that federal aid is potentially available, in case the business environment gets even worse.

Considering that most forecasters are predicting conditions will probably get worse before they get better, maybe Ford and GM aren't that far apart on government aid.

"Clearly the economic conditions could deteriorate further and put the automobile industry at risk. We want to make sure we have this dialog (with the government), that we have this mechanism to be sure we could access a bridge loan and pay it back, and keep this industry alive," Mulally said.