Obama, McCain on Energy

Despite the auto industry's steep decline, Michigan is a key battleground for the Presidential candidatesand the topic of energy policy resonates deeply with voters there

Michigan has gone from hosting Presidential primaries that were not supposed to count because of party rule violations to the state on which many political analysts and the Democratic and Republican campaigns say the November election may turn.

That is leading presumptive nominees John McCain and Barack Obama to increase their investments in Michigan in ad spending and campaign offices, as well as to ratchet up promises and rhetoric about what each will do for a state that has been hemorrhaging jobs and losing entire neighborhoods to mortgage foreclosures. Moreover, the state that's home to what is left of America's auto industry will play a leading role in the energy policy platforms that are climbing in importance with voters as gasoline remains above $4 per gallon in most parts of the country.

On Aug. 5, Senator Obama proposed $4 billion in federal guaranteed loans and tax credits to help retool shuttered factories in Michigan and to build a new generation of fuel-efficient vehicles. "I know how much the auto industry and the autoworkers of this state have struggled over the last decade or so," Obama told more than 1,000 supporters in Lansing, the state capital. "But I also know where I want the fuel-efficient cars of tomorrow to be built— not in Japan, not in China, but right here in the United States of America. Right here in the state of Michigan."

Obama Wants an "Energy Rebate"

Obama also called again for an immediate $1,000 "energy rebate" to U.S. families, paid for with higher taxes on oil company profits, as well as a release of 70 million barrels of light sweet crude oil from the U.S. government's Strategic Petroleum Reserve, 10% of the total reserve. Obama would replace that oil, which is suited for gasoline refining, with other kinds of oil. Obama also said broadly that it would be his goal to help Detroit put 1 million plug-in hybrids on the road by 2015, including offering consumers a $7,000 tax credit toward the purchase of the vehicles to help establish the new models. McCain's plan calls for $5,000 tax credits.

Energy policy can make strange bedfellows. T. Boone Pickens, the energy investor who lately has been championing and solar power, issued a statement boosting Obama's plan. "I'm strongly encouraged by Senator Obama's speech on America's energy future. Foreign oil is killing our economy and putting our nation at risk." Pickens famously backed "Swift Boat Veterans for Truth," the group of Vietnam veterans who smeared 2004 Democratic nominee John Kerry.

The Illinois Senator's approach to Michigan has changed in a year. In 2007, addressing an audience at the Detroit Economic Club, Obama seemed to scold the Big Three automakers for not investing enough in vehicles with greater fuel economy and for opposing tougher federal fuel-economy rules. Such fuel-economy rules are not popular with the United Auto Workers union, which is backing Obama. He then often repeated in speeches how he had talked tough about fuel economy in Detroit, not in front of environmental groups where he was sure to get applause.

No Love for McCain

Senator McCain, during the Republican primary, gave an unpopular speech in which he told a crowd of Michigan workers that the jobs that have left the state "are not coming back." McCain, who won the Michigan primary in 2000 against President George W. Bush, is so keen to win the state that some analysts have said he may choose former Massachusetts Governor Mitt Romney as a running mate. Romney, born in Michigan, and the son of former popular Governor George Romney, won the GOP primary in Michigan. McCain's energy policy, called the Lexington Project, includes investments in solar, wind, and alternative propulsion for transportation, but the campaign has its rhetoric centered on more oil drilling offshore and spurring more nuclear reactors.

A mid-July poll by the Detroit News of 600 likely voters showed that Michiganders favored Obama over McCain for handling high gas prices and energy policy (42% to 35%) and the economy and jobs (44% to 34%), while McCain topped Obama on handling the occupation of Iraq (49% to 41%). A recent Quinnipiac University poll showed McCain leading Obama among male voters and white voters in Michigan, although Obama still had a 46% to 42% edge over his GOP rival statewide.

Half of Michigan voters in that poll said energy solutions are more important in deciding their vote than the war in Iraq, one reason both candidates are in Michigan this week addressing energy issues. When asked who had the best program for helping solve the energy crisis and making America less dependent on foreign oil, 35% of voters picked Obama and 28% chose McCain, with around a third undecided.

Voters Befuddled by Energy Issues

Energy policy is hard to poll because plans as complex as building nuclear plants and oil rigs is beyond the grasp of most voters. Still, candidates are listening to the polls to hone their messages. However, in the Qunnipiac poll, 58% said they would support more nuclear power plants, which McCain is pushing, while 63% said they'd support more offshore drilling. About 86% wanted to see government invest in developing renewable energy sources such as wind and solar power.

Helping the U.S. auto industry has not been an issue that has played well outside the Rust Belt. On both coasts, the market shares of General Motors (GM), Ford (F), and Chrysler have dwindled in metropolitan areas where Asian and European imports top U.S. brands. At a time when energy and fuel efficiency is the story of the year, the Big Three are viewed in states like California, New York, New Jersey, and the New England states as laggards to Honda (HMC) and Toyota (TM).

But even with dramatic layoffs of white-collar and blue-collar jobs at the automakers and suppliers during the past three years, though, auto sales still account for about 4% of gross domestic product. GM alone represents about 1% of the U.S. economy, according to the Center for Automotive Research (CAR) in Ann Arbor. In 2006, the industry accounted for about 3 million jobs, although that figure has dropped. And motor vehicles and auto parts represent the single largest export sector in the U.S., with $96.7 billion worth exported in 2006.

Detroit's Symbolic Role

CAR Chairman David Cole says the U.S. auto industry is symbolically, as well as economically, important to American global competitiveness. "I don't think we would be the world's leading economy without manufacturing, even if the international companies would pick up some of the slack here," says Cole. &quotIn many ways, I believe Michigan is the 'canary in the coal mine' for the rest of U.S. manufacturing."

After the election, Obama says he would form a task force of auto industry executives to devise a plan to strengthen the automakers' financial viability. In a statement, Ford said it welcomed Obama's effort and would welcome direct loans "to facilitate our investments in the development of new, more fuel efficient vehicles."

Energy policy has spurred sharp elbows from both campaigns, especially Senator McCain's. Obama last week called on Americans to check their tire pressure and make sure their cars were properly tuned as a way of saving more money at the pump than McCain's proposed federal gas tax holiday.

Lampooning Obama's Tire Pressure Call

Despite the fact that McCain supporters such as California Governor Arnold Schwarzenegger and Florida Governor Charles Crist, as well as the Environmental Protection Agency Web site have recommended the same thing, the McCain campaign has been lampooning Obama for suggesting that checking tire pressure is somehow a replacement for more off-shore oil drilling.

At the Lansing event, McCain supporters handed out tire gauges with "Obama's Energy Plan" stenciled on the side. Andre Watson, an auto mechanic in Southfield, Mich., who says he is undecided, has some doubts about that particular Obama ridicule. "I don't think that's going to work in Michigan," he says, "because we know a lot about cars here and we know you save a lot of money and gas if your tires and engine are right."

Before it's here, it's on the Bloomberg Terminal. LEARN MORE