By Tom Brown
DETROIT, June 20 (Reuters) - Federal Reserve Chairman Alan Greenspan credited the auto industry Thursday for pulling the U.S. economy through last year's recession, according to Detroit Mayor Kwame Kilpatrick.
Greenspan, who was in Detroit for the unveiling of plans to build a new Federal Reserve branch office in the city, did not discuss the economy in his brief public remarks.
But Kilpatrick said Greenspan underscored the role the automotive industry played in the current economic recovery in a private conversation he had with the Fed chief.
"He talked about the significance this time, in this dip in the economy, of how the manufacturing of autos really carried us through," Kilpatrick told reporters.
He said Greenspan also spoke highly of the cheap loans and cash rebates Detroit's Big Three automakers used to keep auto sales moving at a brisk pace even amid the recession.
Zero percent financing and other incentives eroded automakers' profit margins and General Motors Corp. was alone among the Big Three in booking a profit last year.
But the auto industry accounts for about one-fifth of U.S. retail sales and the offers drove up sales and got customers back on dealer lots after the Sept. 11 attacks in New York and Virginia.
"Autos really stepped up this time. Those incentives they offered really had a boom," said Kilpatrick.
The auto industry also accounts, directly or indirectly, for one of every seven U.S. jobs. And Kilpatrick said Greenspan told him to stress Detroit's historic importance to the industry in any efforts his administration makes to enhance the city's economic position.
Kilpatrick took office in January as head of a city that ranks as the 10th-largest economy in the country, but which has never fully recovered from riots that took nearly 150 lives in 1967.
"When it's known that the auto industry is booming and it's carrying us through, in the dip in the economy, Detroit gets a significant impact," Kilpatrick said.
"He (Greenspan) is saying not to underestimate the impact we get ... Because we're known as the Motor City and because people understand this is where autos come from."
NO QUESTION ABOUT RATES
Noting the importance of Greenspan, Kilpatrick said: "The entire world hangs on his every word."
But he said he did not ask him the question the world would most like to have answered right know, at a time when many economic analysts say the U.S. recovery appears in danger of fizzling.
"I didn't go there. I don't think he wanted to talk about that," Kilpatrick said, when asked whether he had talked to Greenspan about interest rates.
Greenspan and his fellow policymakers will meet next week to decide whether the key federal funds rate, which they have held at 1.75 percent for more than six months after 11 rate cuts last year, should remain where it is.
While economists had earlier in the 2002 expected interest rate rises could begin as early as mid-year, they now believe the Fed will leave rates on hold for months to come since the economy has shown recent signs of deterioration.
Those signs include weakening auto sales, which fell last month to their lowest in 3-1/2 years, despite continuing high incentives.