Looking Past The Election

By Jeremy Anwyl October 28, 2010

I am sitting on a flight to New York, thinking about next Tuesday.  I will be very glad when this election cycle is over.  I can’t remember a more distasteful cacophony of vapid, shibbolethic advertising.  And those have been the high points.

Putting this aside, it is clear the Republicans are rebounding—although I suspect the rebound will be less robust than thought earlier.  So we are once again headed for a period of divided government. 

What does this mean for the auto industry? 

Starting with the big picture first, the President has three choices:

The first is to try to reach an accommodation with the Republicans.  Find some common ground from which to govern.  This isn’t entirely the president’s choice, as the Republicans have to play along.  (This would be along the lines reported in today’s WSJ.  Bipartisan tax code simplification might be an example.)

The second is to set the Republicans up as obstructionists.  Ideally by repeatedly sponsoring legislation with popular support that is blocked by the Republicans.

And the third is the traditional refuge of frustrated Presidents:  Focus on foreign policy.   The gambit here is that economy gains traction and the Democrats receive the credit.

The common element with all three scenarios is that nothing big happens for the next two years.  (Even any bipartisan successes are most likely to be minor.)

From a business perspective, this might not be a bad thing.  Businesses have been hording cash and holding down employment because of “policy risk.”  (What are the implications from health reform, what might be the next wave of regulation, etc.)  A dose of certainty could be just the thing to get companies to put some of their excess cash to work.

I would also expect that finding funding for government projects will become increasingly difficult.  Last year any form of spending could be branded as stimulus.  Today any form of stimulus is shunned. 

Practically, this means that programs supporting alternative fuel technologies could see funding dry up.

So there are two changes.  Anything you would care to put out there?  Drop me a note and I will publish in a future post.

You can reach me at janwyl@edmunds.com.

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