THE AILING motor industry in the United States poses an immediate challenge to the incoming Barack Obama presidency's economic and industrial strategy. How it is tackled will reveal a lot about the overall shape of his policies, even if decisions are made by President Bush.
Last week the heads of General Motors, Ford and Chrysler failed to convince the US Congress to release $25 billion in aid to rescue them from possible bankruptcy. Their market capitalisations, profits and sales have collapsed this year. GM says it could run out of the essential cash it needs to keep its business going in the first half of 2009. The banking crisis has starved the industry of liquidity. And the car giants' collective failure to adapt the industry towards more fuel-efficient, energy-saving alternatives has weakened public support for bailing them out. To cap it all the fact that the three bosses flew to Washington in their private jets jarred with the more egalitarian spirit arising from Mr Obama's victory. They have been given until December 5th to come up with a more convincing rescue plan.
Cutting across the immediate financial threat to jobs and industrial survival is a deeper issue of sectoral subsidies and international protectionism. The car industry employs an estimated one in 10 US workers, many of them with relatively favourable terms and conditions compared to other occupations. Mr Obama is under major pressure from trade unions who support the Democratic party to intervene. Many congressional Democrats want to see the $25 billion coming from the $700 billion financial rescue plan; but this is vehemently opposed by President Bush.
Other Republicans argue against a huge bailout, saying some of the car majors should be allowed go bankrupt. Any such a plan risks provoking European and Japanese states to do likewise, setting a bad precedent for freer trade at the beginning of the Obama administration.
Strategically Mr Obama is putting a central emphasis on innovation. For the car industry this would involve creating incentives for major changes in research and development and retooling for a very different energy environment. US manufacturers are well behind their international competitors in these respects. Mr Obama's challenge will be to link short and long term planning. But any imminent collapse of the industry would force his hand and put lasting obstacles in the way of his economic policy.