THE BLOG
12/14/2008 05:12 am ET Updated May 25, 2011

Transition Topic IV: Ought To Bail Out on Auto Bailout

A Detroit bailout now seems like a political inevitability. If true, we have planted one foot precariously on the slippery slope of government rescue for failing industries beyond the financial sector, with no end in sight. We continue to ride the free market up and socialize losses on the way down. Failure of major automobile companies would cause deep pain and the loss of perhaps millions of jobs. The impact would be devastating. But bailing out the auto industry is a truly bad idea. As a taxpayer, I resent paying for 20 years of short-sighted and poor business decisions made by incompetent executives at General Motors, Chrysler and Ford who have enriched themselves on the descent. Where do we stop? How many jobs need to be lost before the government steps in to guarantee solvency? What industries qualify? Who set the criteria and on what basis? We are spending a $1 trillion with no guiding policies and no overarching philosophy. We are sliding toward an ad-hoc command and control economy as the final legacy of the failed policies of George Bush. His metastasizing crises have forced government to react rather than lead.

During this perilous time of transition, Obama has a narrow window to do right. He properly has said that the United States has only one president. He is, quite appropriately, keeping a low profile until his inauguration. I imagine, and fervently hope, however, that he is working behind the scenes to minimize the damage of this bailout, to extract whatever good is possible and to establish rational criteria for future handouts. He must reign in a situation that Bush has allowed to careen wildly out of control.

The market has revealed the soft white underbelly of a bloated industry making inferior products relying on outdated technology, employing a workforce no longer competitive in a global economy and clinging to primitive environmental controls. We should not rescue companies that have so badly managed their markets for so long. In fact, no industry is less deserving of a government handout. Since the Clean Air Act was passed in 1970 in the face of fierce auto industry opposition, auto executives have stridently resisted all calls for modernizing the American fleet. Detroit rallied against every effort to institute reasonable Corporate Average Fuel Economy (CAFE) regulations, kicking and screaming every inch of the way. The United States consequently boasts the dubious distinction of having the lowest standards and highest greenhouse gas emissions from cars and trucks compared to Canada, Europe, Australia, Japan and China. That is true even after the 2007 energy bill boosted fuel-economy standards. Even the strictest regulations proposed by California, being fought vigorously today by the auto industry with help from the Bush Administration, would only meet China's current standards in 2016. This is the sad legacy of the industry we now want to bail out.

Foreign companies that embraced green technologies rather than fight them are now the global leaders. In stark contrast, Detroit's arrogant disdain for environmental concerns about fuel efficiency and pollution controls ultimately doomed the industry to second-class status, and now we all pay the price.

If the political winds are too strong to resist an ill advised bailout, Obama should use his enormous clout to extract maximum concessions from Detroit. Now is the time. Obama certainly has a good foundation on which to build. In a speech to automaker executives last year, Obama criticized the industry for doing almost nothing to lessen the country's dependence on foreign oil by improving fuel economy. His plan called for raising standards for both cars and trucks to 40 mpg by 2022, over current standards of 27.5 mp for cars and 24 mpg for light trucks.

That proposal, while tough and gutsy in an election year, particularly in light of the Democratic base, does not go far enough. The bailout is the opportunity to demand more as a quid pro quo for government assistance. The money must come with strings attached, so that funds are used to:

1) Meet world standards for fuel efficiency, with no reason to set a goal below Japan's current level of 45 mpg. Until alternative powerplants become commonplace, this must include efforts to improve the efficiency of internal combustion engines. Cylinder deactivation to match power to demand, flywheels and idle-off operations are some examples of methods for improving the old-style engines.

2) Lead the world in reducing greenhouse gas emissions from cars and trucks. Fuel efficiency is only one part of that equation. Automakers must further reduce emissions from internal combustion engines using advanced pollution control technologies.

3) Commit to the commercialization of advanced electric cars, gas-electric hybrids and fuel cell vehicles. The United States is woefully behind Japan. Toyota set the standard with the first kid on the block, the Prius. Detroit is so far behind the curve that Ford is using Toyota's hybrid technology rather than home-grown ingenuity. How embarrassing. Honda is already producing the FCX Clarity, a zero-emission hydrogen-powered fuel cell sedan. In 2009, Mitsubishi will begin selling the iMiev, with a top speed of 80 mph and a range of 100 miles. A full charge will take only seven hours. We are getting our behinds seriously kicked. Environmental transportation technologies are the forward wedge of the global green economy of the future, and we are being pushed aside as an economic lightweight because Detroit failed to see the green light.

Care will need to be taken to ensure we do not run afoul of unfair trade practice laws as bailout money is used to advance powerplant technology and retool new factories capable of producing the next generation of automobiles. That is a surmountable barrier.

Obama is not yet president, but now is the time to get brutally tough with an industry that has failed the American people. If they want our money, they will need to meet our demands.