The Next Bailout: Handouts or Hybrids?

So another irresponsible industry is in deep trouble and wants a government bailout. This time, it's the auto industry. General Motors is literally worth nothing, according to Deutsche Bank, and needs "external government intervention" to survive. Ford and Chrysler are in sorry shape as well.

The disastrous turn of events follows decades of automakers successfully resisting proposals to strengthen government regulation, raise fuel-efficiency standards and ensure that America would build the cars of the future.

Already this year, Congress has provided $25 billion in loans that U.S. manufacturers can only use to make cars that are at least 25% more efficient than their previous models. That's a nudge, not the transformation we need to rapidly move towards a clean energy economy.

Such irresponsibility shouldn't be rewarded, but exploited. With the auto industry in dire straits, we taxpayers have maximum leverage to demand the cars necessary to help lower energy costs, cut carbon emissions and reduce our dependency on foreign oil.

HybridsCars.com rightly calls for a "New Deal For Green Cars:"

The potential Detroit bailout is a once-in-a-lifetime crisis turned opportunity. A grand bargain is in the works: the federal government provides billions of dollars to the automakers, and in exchange, the automakers must retool to produce high-mpg gasoline cars, gas-electric vehicles, clean diesel cars, plug-in hybrids, and all-electric cars.

Al Gore's recent New York Times op-ed lays out the importance of a green car fleet by linking it to a new energy-efficient "smart electric grid:"

...we should begin the planning and construction of a unified national smart grid for the transport of renewable electricity from the rural places where it is mostly generated to the cities where it is mostly used. New high-voltage, low-loss underground lines can be designed with "smart" features that provide consumers with sophisticated information and easy-to-use tools for conserving electricity, eliminating inefficiency and reducing their energy bills. The cost of this modern grid -- $400 billion over 10 years [or, $40 billion annually] -- pales in comparison with the annual loss to American business of $120 billion due to the cascading failures that are endemic to our current balkanized and antiquated electricity lines.

[Also,] we should help America's automobile industry (not only the Big Three but the innovative new startup companies as well) to convert quickly to plug-in hybrids that can run on the renewable electricity that will be available as the rest of this plan matures. In combination with the unified grid, a nationwide fleet of plug-in hybrids would also help to solve the problem of electricity storage. Think about it: with this sort of grid, cars could be charged during off-peak energy-use hours; during peak hours, when fewer cars are on the road, they could contribute their electricity back into the national grid.

That's huge savings -- not just in energy use and carbon emissions, but in cold hard cash.

President-Elect Barack Obama has tied his support for assisting automakers to our clean energy needs, saying in Friday's press conference: "The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil." But in these early days of presidential transition, he has not yet announced support for a specific plan.

Automobile manufacturers desperately need help to survive. Americans need a rapid transition to a clean energy economy to survive.

Help for one must come with help for us all. That's the only responsible thing to do.

More from The Wonk Room's Pat Garofalo, who writes:

If the auto industry bailout occurs, two things need to happen. First, it needs to have much stronger oversight than the bank bailout did. As CQ noted, "reports continue to circulate about the banks potentially hoarding portions of the $250 billion Treasury has offered to invest in exchange for senior preferred stock, or using the money for purposes other than lending." Sen. Chris Dodd (D-CT) pointed out, "That was never the intent; that's an abusive use of taxpayer money."

More importantly though - as Pelosi and Reid said - "federal aid should come with 'strong conditions,' such as requirements that car makers build more fuel-efficient vehicles."

UPDATE: Joseph Romm at Climate Progress adds:

The Detroit deal has to be not just meeting the new fuel economy standards, but meeting them increasingly with hybrids. The deal has to be multiple plug in hybrids car models. And most important, the deal has to be a new management team that is wholly committed to that green inevitable transition, a team that will not waste a penny of the taxpayer-funded bailout lobbying against the even tougher standards and regulations that will be needed to avoid the harsh consequences of catastrophic global warming and peak oil.

And Huffington Post's Laurie David weighs in:

If Detroit needs more taxpayer bailouts to survive, we ought to demand some serious and real concessions in return, starting with an immediate cease-and-desist order for Detroit to drop its lawsuits against California, Vermont, Rhode Island, New Mexico and any other state that passes clean cars legislation requiring more efficient, less polluting vehicles. Enough already, Detroit. Stop fighting and start building clean cars now.

Congress should set strict guidelines to ensure that Detroit moves as quickly as possible to get clean cars into American driveways where they can help power a new smart grid like the one Al Gore described in Sunday's New York Times. Congress should also open the process beyond the Big 3, offering financial support to smaller entrepreneurial carmakers for large-scale production of their innovative all-electric and plug-in hybrid prototypes which lack financing to move from the concept contests and into dealer showrooms and consumer hands.

Originally posted at OurFuture.org.

Read More:

Should the Government Bail Out the Big U.S. Three Automakers? HuffPost Bloggers Weigh In

Comments

[Oakland]

Before the meltdown, GM was profitable everywhere BUT NORTH AMERICA.; and JD Powers gives Ford and GM cars high marks. The problem is unfair trade, no U.S energy policy, and no national health care.
*A global economic meltdown sent auto sales tumbling 32 percent in October, and Toyota's stock nosedived to a 73.6 percent decline over last year.
*G.M. has well over $200 billion of debt, most from its financing arm and is matched by money that buyers of G.M. cars owe the company & can't pay back.
* Because Toyota hasn't been around long enough in the U.S. to generate a large population of retirees, who consume more medical services in greater quantity than younger, healthier workers, Toyota's U.S. manufacturing operations have fewer than 100 retirees. GM has 422,000 retirees and surviving spouses, compared with 170,000 active employees.
* Toyota's US medical plans cover 15,000 mfg. workers and their dependents. GM's US medical plans cover 1.1 million workers, retirees and dependents.
Yes, mgmt. could have done better; but they didn't commit fraud like the financial firms that we are bailing out to the tune of 780 billion stringless taxpayer bucks. Obama and the Democrats sure rammed that one down our throats despite massive opposition. Obama promised MI and Ohio help, so where the hell is he now? Liars.

[CroatianCritter]

I agree with your comments as any government bailout should naturally have conditions and two of them is the reduction of CEO pay (The idiots who can not manage properly and got us into this mess) and a demand that the industry creates more efficient cars. From a moral perspective, I always have had problems with "mandates" due to the tyrannical aspect that can be applied to them. How long before we are forced into national service? But, if the automakers want their MONEY, they need to play by the American people's rules. This is just plain and simple. If you beg for socialism, the people have the POWER to control how you run your business. But I am one of those individuals who actually thinks that the bailout is unnecessary. Just like the 750 billion bailout, the FEAR being propagated on the American people is excessive and criminal. I think the dissolution of these companies may actually be better in the long run. We can eliminate the cancerous executives and maybe give the power of the automakers back to the unions. This may turn out to be the best case scenario in a bankruptcy.

[Joi123]

For the 1st time ever I wrote my congressman. I am so frustrated I don't know what else to do. Not only have we bailed out bad companies making bad decisions, the latest news is that AIG and other banks that did receive money did not use it to loosen credit. More infuriating are the Auto companies with their hands out. If they don't go out of business in 2008 they will go out of business in 2011. Unless there is a major overhaul of management and unions the cycle will continue.

Haven't we been here before. Why cant they make a profit in the US yet they have overseas profits? Can't we use the factories and infrastructure to begin Obama's energy plans? I rather see windmills being built and construction to repair roads than to throw more money to failing companies. The demand is just not there (look at any car lot).

When will the begging end? I work hard and live within my means and for the most I am content but as a taxpayer I should not be footing the bill for big business's making reckless decisions.

If we continue to bailout companies we must place restrictions on the use!

[philosopherkingtomas]

loan to a bankrupt industry???

make the UAW bail them out or convert the big 3 to Employee owned only.

Make a 50mpg car get some money.

[Oakland]

Spoken like somebody who doesn't have a clue.

[dolphy]

Hybrids are not as good as compressed air cars. We now have compressed air powered cars going the equivalent of 100 to 120 miles to the gallon without using hazardous materials in batteries. These cars are almost 100 percent made from recycled and recyclable materials.

[Greg55]

yes hybrids are the worest of both worlds I haven't heard of compressed cars yet,, Have u heard of the EV1? general motors was forced to build an zero emissions cars in CA and they built the EV1 an100% eletric car capable of 100 miles a day and able to go at hyway speeds but Bush helped them kill the bill and then they took back all the leased cars (only leased not sold) and crushed them even after being offerd $2,900,000 for them by the leases,, watch "Who killed the eletric car" on HBO and showtime I'll be looking into caompreed cars sounds pretty good,,,Greg

[flatus]

What pity that this all has to happen during the lame duck season of an otherwise extremely capable president.

Sorry, just kidding.

Well, here we are now after decades of driving our steel-encased living rooms around and the collector persistently camped on our doorstep, hand extended. Who will pay him? The short-sighted fools that bought these energy sucking monsters while living comfortably in the assurance that technology will save the day or the manufacturers who were giving us what we wanted, selling their futures for profit?

[saibotchilizm]

There's lots of discussion about making expensive hybrids more available-- allowing the upper-middle class to slightly decrease their carbon footprint. But the most effective gains can be made at the bottom of the pyramid, with cars driven by the lower-middle and lower classes.

Old, "grandfathered" cars, built before any type of air quality control, contribute by far the largest share of pollution to our atmosphere. For some types of air pollution, a single 30-year-old car emits as much as 100 brand-new cars. We could reduce 100-fold the amount of pollution by removing these cars from the road, and providing the people that drive them-- primarily the poor-- with newer vehicles.

Reductions in carbon emissions can be achieved best by focusing on dinosaur cars already on the road. Carbon emissions are proportional to gas MPG-- if someone driving a 5 MPG, decrepit SUV sells it and buys a 30 MPG Toyota, they will emit 1/6 the carbon (5 / 30). But someone who already drives a 30 MPG Toyota sells it to buy a hybrid at 45 MPG, they will emit 4 / 6 (30 / 45) the carbon. It's a diminishing return.

And guess what? Conventional Toyotas are a lot cheaper than hybrids. Before Detroit, bail out the lower classes, and give them the money to buy new cars; achieve larger carbon reductions, for less money.

The environmental movement can't be reserved for the affluent, or it will never succeed.

[Calinative]

Removing old cars isn't a quick fix, and would amount to another tax on the poor. Using gasoline is using sequestered carbon, any way you slice it. And just to set the record straight, nobody ever made an SUV that only gets only 5 MPG.

The real issues are the use of imported oil (for the economy), and the overall use of fossil fuels or sequestered carbon (for the evironment).

[ADVOCATE4ZPG]

Ironically, the LMC clings to the possibility of ownership of a LARGE vehicle (picup, SUV, et al!) more tenaciously than any other econ. cohort; that ownership confers the ILLUSION of equality with higher earners!!! The LMC REFUSES to acknowledge the genuine state of its required UTILITY.....!

[biskitdaddy]

Although this bailout may be necessary to save jobs I still don't agree with. The U.S. automakers made billions of dollars in profits off American consumers selling us an inferior product. It was common knowledge among consumers during the 80's that, if you owned an American car, as the odometer approached 100,000 miles be sure to save your pennies because it would start falling apart after crossing that threshold. Japanese and German automakers build cars with more advanced engine technology (overhead cam vs. American cast iron push rods), better interior fit and finish and in general better overall quality.

U.S. automakers have failed to adapt to change and now want the government to bail them out; I say no way.

[Calinative]

I would agree with you that Japanese cars are well built and designed. But German engineering is a myth. I owned a VW and it was a complete piece of crap. I'd like to pack it full of TNT and return it to the factory through the bomb bay doors of a B-21.

[StellaDuBois]

Japanese builds have issues, too, although the Japanese are much better at hiding things and getting the press to downplay their issues. Toyota acknowledged their quality has been slipping since 2006, evidence by a marked increase in recalls, and blamed it on their growth. They even put a six month delay on development of some of their product due to quality issues.

In 2007 Toyota, Honda, Nissan, and VW all had more vehicles recalled in the US than GM did.

[Greg55]

u can make an eletric car out of it,,,Greg

[Cinderpath]

Part 1: Well I have a little problem with this article. While I do agree, Detroit automakers have made mistakes in the past lets talk about some elephants in the room. If the Big Three fail- your looking at about 3.5 million US jobs lost, and can easily slide our recession into a depression. Think you're safe? Hardly. We're also talking about ripple effects in advertising, engineering, R&D, and health care jobs too. This could push Obama's presidency over the edge in terms of trying to recover the economy. Obama is obviously a smart guy, why do you think he is pressing this issue so much?

GM and Ford and Chrysler are doing a lot of R&D into highly energy-efficient cars (and already have them in Europe), and plug-in electric cars, and are actually well ahead of the Japanese in this area, and want to bring this technology to the US. It cost Billions that they (Detroit) doesn't have. The plug-in Volt will be a game-changer, we as Americans can be very proud of this, it is American technology and innovation. Do we want to short-change ourselves, while these companies are on the verge of launching this? It would be very foolish.

[VernorsGnome]

The US automakers are not asking for a BAILOUT.

It is a LOAN not a bailout.

Therefore this entire article is based on an incorrect assumption.

[StellaDuBois]

it should also be noted that the $25 billion already approved for retooling is not restricted to the American companies. It applies to facilities that are over 20 years old so some foreign owned plants in the US are also eligible. If I recall correctly that includes Honda.

[VikingQuest]

And since banks won't give them the money since it would probably not get paid back . . . they goto the taxpayer.

[StellaDuBois]

There is no reason to believe it would not be paid back. The only time in the past a Detroit automaker received a government backed loan it was paid back in full, with interest, and ahead of schedule.

[rb336]

There is a stunning amount of ignorance about the auto industry on here.

first - regarding santaklaus' comments - Ford and GM do quite well in Europe. They do have a different product mix over there, but the Mustang does well, and the ford brand does well. Ever see an Opel in Vienna? that's GM.

second - the various wage comments for UAW workers are not accurate, and i'm not sure where the people posting them on various boards get their info.

third - (and this is especially true for Ford) US cars ARE good quality. virtually every group that does quality assessment - from the historically anti-for JD Powers (the founder was axed by Ford years ago and fairly openly held a grudge) to Consumer reports put Ford products on par with Toyota and Honda both in initial AND long-term quality. the differences are less than half a defect per hundred cars.

fourth - the Japanese auto industry is now and always has been heavily supported by the Japanese government, from the government-backed conversion of a textiles company into Toyota to health care and pensions to hybrid development. Lop a minimum of $3000/car off Toyota's profits and see where that leaves them. (yes, some of the costs even for US factories is backed by Tokyo)

[santaklaus]

"first - regarding santaklaus' comments - Ford and GM do quite well in Europe. They do have a different product mix over there, but the Mustang does well, and the ford brand does well. Ever see an Opel in Vienna? that's GM."

That is correct - they offer the wrong product mix in America, but it�s the product mix their customers have asked for. Even European car producers have started to build SUVs, because they thought they�ll sell well in America - and they did.

GM may have a few problems, but these can be sorted out. After all, even FIAT was put back on track in recent years. American producers are in so bad shape because in addition to internal problems, oil prices quadrupled in a few years. You would be stupid to let GM go down the toilet now, along with countless jobs. The government should really do something about them, but with lots of strings attached so they actually start to fix their problems.

[Overd0g]

What would possibly motivate me to send money to some failed private company in Detroit. This discussion is absurd. The companies were mismanaged and now it's over. They didn't retool even after the crisis in the 70s! They continued to sign preposterous labor contracts. I'm certainly not in favor of bailing out either the greedy employees or the stupid managers that caused this, and that remained in the industry during it's obvious decline.

[StellaDuBois]

Expect to lose 3 million jobs in the US if the US auto industry fails. Entire cities that grew up around factories will have no base industry. The ripples will spread far and wide because the industry has presence in every state.

The US manufacturers do offer fuel efficient vehicles. They also offer alternative fuel vehicles. If Bush hadn't been in office these last eight years we would have a much more mixed fuel market. Ten years ago saw the rollout of E85 capable vehicles, well before hybrids. There are millions of E85 capable vehicles on the roads but E85 availability is almost non-existent on the coasts. If not for the delay caused by oil industry lobbying and their friend in the White House we could have by now reduced our oil use for automotive fuel by 75-80% with E85.

Hybrids and higher CAFE standards only drag out the problem more. While both, in theory, are oil saving policies neither really address the oil/fossil fuel dependency issue. Neither show thinking beyond oil. Only fully electric, hydrogen, and ethanol powered vehicles will get us off oil.

[flatus]

The problem is that government did not do it's job on the front end (regulation, demanding higher consumption standards) and must now pay out on the back end. Or more appropriately, "out the rear end".
Millions of jobs are at stake and, as with the financial crisis, we are over a barrel, pants around ankles.

[JuliaS123]

If we bail out Detroit, there need to be some serious strings attached. I bought a Toyota hybrid last weekend. The dealership was so busy, I ended up spending all day there. They were selling cars right and left. Toyota's success isn't all hybrids either -- they make quite a few gas engine cars that get better than average mileage, too. I would rather give a hefty severance package to GM's workers than bail out the bad business decisions the company made. Or take the bailout money and give it to Toyota to build more factories here. When it comes to fuel efficient cars, the handwriting has been on the wall for years now. Detroit chose to ignore it. That was their choice -- and it should be their consequences, too.

[StellaDuBois]

Toyota's sales have fallen in this downturn more than GM's have. FWIW Toyota doesn't make money on it's North American builds. They only make money here when the Japanese built import sales are added in. Toyota is still importing more cars to sell than they build here.

[leftLibertarian]

Any bailout is a bad idea. We should demand all money back from Wall Street with interest. The government's sole task is to provide liberty.

[Overd0g]

You are lonely voice in the land of the looters.

[StellaDuBois]

Thank God we finally have a President-elect from the Rust Belt who actually has some clue about manufacturing and the auto industry in particular.