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Why the auto industry isn't scared of the 'sequestration' crisis

UPDATED: 3/1/13 4:13 pm ET - adds today's developments

WASHINGTON -- If you have watched even a few minutes of television news in the past few days, you are probably well aware the United States is less than one day away from another fiscal crisis.

The last time this happened, on New Year's Eve, the looming calamity was the "fiscal cliff" of tax increases and spending cuts.

Now it is the $85 billion in spending cuts -- or "sequestration" -- that will hit federal programs this year if Congress and President Obama can't strike a deal by midnight.

That could still happen, but the outlook in Washington, D.C., is bleak -- and there was no sign this afternoon of any last-minute deal. So why isn't the auto industry panicking?

One might expect Gloria Bergquist, the lead spokeswoman for the Alliance of Automobile Manufacturers in Washington, to be calling everyone in town to communicate the dangers of sequestration right now. But she is not. The risks to business and the public lie elsewhere.

"Every time I walk through our front lobby, we have CNN on in there and they have another [Cabinet] secretary on television talking about how it's going to hurt another industry," she said.

Among them is Transportation Secretary Ray LaHood, who recently paid a visit to the White House briefing room. There, he warned journalists that his department -- which oversees the Federal Aviation Administration -- would need to furlough airport workers if sequestration goes into effect, potentially delaying flights.

LaHood used more colorful language Wednesday during a speech to members of the American Association of State Highway and Transportation Officials.

"Sequester is a dumb idea," he said in a video released by the group today. "It's a meat-axe approach. It will not work. It will not work in us reaching our goals to improve America's transportation. It just won't."

However, for the auto industry, there is not much to fear in the cuts. Many of the programs crucial to the auto industry are paid for by the Highway Trust Fund, which is filled by the proceeds of the gasoline tax and is not affected by sequestration. Other programs, like vehicle safety investigations or fuel economy testing, are less vulnerable because they are less cash-intensive than, say, staffing every airport in the country with security guards.

The main concern for an automaker, or one of its suppliers, or one of its dealers, is that sequestration will ding consumer confidence and stop people from buying cars.

"That is the one thing we are concerned about," Bergquist said. "The auto industry is a bright spot in the economy, but we do have a concern that ongoing gridlock in Washington could dampen enthusiasm for a large purchase. Really, that's our only focus on this. We won't know until we see the sales figures."

The National Automobile Dealers Association recently told USA Today that the dealer group is standing by its prediction of 15.4 million vehicles sold in 2013.

"This isn't even that dramatic of a cutback in spending compared to the rise in spending in the last several years," Paul Taylor, the group's chief economist, told the newspaper. "For 85% of the car dealers out there, there will be little or no concern."

Sequestration may harm other industries. It will certainly cut services to the public. But what's the best advice for auto executives and dealers right now?

Until you see your next batch of sales figures, don't believe the hype about sequestration. The real danger, the one that should keep you awake tonight, is that your customers might.

You can reach Gabe Nelson at gnelson@crain.com

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