01/09/2009 05:12 am ET | Updated May 25, 2011

Saving the Auto Industry by Pre-Paying for Plug-Ins

Here's the dilemma: Detroit needs to sell cars to survive, and they need to sell them now. But every fuel-inefficient car they produce and put on the road creates an additional lien on our common future, by increasing our oil dependence and producing tons of greenhouse gases over its ten-to-twenty year lifetime. It's the same problem as building new coal plants -- once you've invested the money to build them, they're hard to scrap even if they're propelling global climate change. Yet if the Big Three don't keep selling cars, they go under, which would be a disaster for America's already hollowed-out industrial base, and for the millions of Americans who once had decent middle class livelihoods manufacturing products the world was eager to buy.

In an election day oped in my Seattle paper, Earth Day founding organizer Denis Hayes and transportation analysis Steve Marshall made the radical suggestion that Washington State and other major fleet purchasers hold off on buying new vehicles for the next two or three years until plug-in hybrids or decent-range electric cars were available. "The state owns hundreds of Toyota Prius cars," they wrote, "that average 45 mpg and plans to buy more. But plug-in hybrids will get 100 to 150 mpg -- and all-electric cars will not use a drop of gasoline."

The idea makes huge environmental sense. It makes sense fiscally, in terms of states and other major fleet purchasers waiting a bit longer for cars that would be far cheaper to operate. But if executed on a large enough scale, it would be a disaster for the barely-surviving American auto companies.

Felix Kramer, who founded the plug-in-hybrid innovation and advocacy organization, has just come up with an idea that could solve the dilemma: Getting consumers to put down a $10,000 down-payment on plug-in hybrids, in a way that would allow them to get the money back through already-enacted federal tax credits. This would give America's car manufacturers a huge pre-sold base for these cars, a massive incentive to getting them produced and ready for the market. It would also provide a major potential influx of capital.

While Kramer's idea, which I've posted below with his permission, is still a work-in-progress, it would allow consumers to invest in technologies that are essential to any future American economy. And do this in a way that complements the government support, and would ultimately pay back financially in decreased gas outlays.. I've never spent more than $3,000 on a car in my life, but if I had the opportunity to purchase a plug-in hybrid for $30,000 or less, and help save the American auto industry in a way that also helped save the planet, I'd gladly put down the $10,000 now, and the remaining $20,000 when the vehicles were ready for delivery.

Maybe the idea could be combined with Neil Young's audacious proposal that our auto-makers start building cars with space reserved for engines and transmissions, while using one or more of their other existing factories to produce these and retrofit kits using the best of existing technologies, along the lines of Young has done as a pilot project with a modified 1959 Lincoln Convertible, that now gets 65 miles per gallon, and is being engineered with the goal of 100 MPG.

Here's Kramer's proposal which at the very least could be an innovative starting point:

"How Prepaying for Plug-In Cars Can Save and Transform the Auto Industry" is CalCars' proposal for federal actions in December-January to aid the auto industry. We hope that the concept and perhaps the specifics of this proposal can be incorporated into Congress's response to the "sustainable plans" the carmakers will be bringing to Washington DC.

We're continuing to circulate this proposal to non-governmental organizations for possible co-sponsorship, and to people in the auto industry, Congress and in the Presidential transition team. It is followed by notes and background. We've published it on CalCars-News.

Congress and the President-Elect have asked Detroit's automakers to come back with a plan. What if that plan, and automakers' credibility, could be based in large part on delivering the fuel-efficient low-emissions plug-in cars people want, using today's technology and today's infrastructure?

We propose a way to give carmakers the cash they need to keep going -- while making sure they devote maximum effort to rapidly transform their companies and their product lines. We build on the breakthrough $7,500+ plug-in tax credits enacted in October -- when the federal government quantified the public benefits of displacing petroleum with cleaner, cheaper, domestic electricity.

Our "end of business as usual" proposal is a multiple win: for car buyers, communities whose plants will stay open, automakers, energy security, and efforts to slow global warming. Here's our plan, followed by some additional explanations:

A FEDERAL "PREPAID PLUG-INS PLAN" FOR A 21ST CENTURY CAR INDUSTRY would give carmakers real targets and quick funds. Here's how it can work:

CARMAKERS PRE-SELL PLUG-INS. They're encouraged to accept $10,000/vehicle deposits on highway-capable flex-fuel PHEVs and EVs with at least 4kWh battery capacity (the minimum for existing tax credits), to be delivered ASAP and NO LATER THAN YEAR-END 2012. The sooner they issue PRELIMINARY specifications and maximum prices, the sooner they become eligible to collect prepayments. Any carmaker that wants to receive loan guarantees beginning in January 2009 must commit by year-end 2008 to have at least one eligible plug-in vehicle for sale by the end of 2010 in volumes greater than 10,000.

INDIVIDUAL CAR BUYERS get a 100% refundable federal tax credit on their $10K prepayments.

FLEET BUYERS get 100% refundable federal tax credits. (Public fleets receive 100% grants.)

U.S. GOVERNMENT The level of loans guarantees to carmakers is based on the volume of prepayments received by each carmaker. Government also provides bonus payments to automakers for every plug-in vehicle delivered by year-end 2012 -- large incentives in 2010, declining in later years. Deposits with carmakers that don't deliver by 2012 become debt to U.S.

• CONVERSIONS are included in tax incentives to consumers and automakers for safe and reliable plug-in retrofits of existing internal combustion engine vehicles.

THE PROGRAM AND THE MATH: We aim to enlist five million pre-purchasers. At an average of $10,000, this will generate $50 billion for carmakers. Buyers will get the money back in less than a year via tax credits. Credits for deposits made by 4/15/09 can be counted for the 2008 tax year.

OUR IMMEDIATE GOAL: To get buy-in on this concept -- or some variant of it -- so it's on the agenda of automakers, Congress and the incoming administration. This can happen if ANY ONE OF THESE PARTIES steps up in the next few weeks.

NOTES: This is an outgrowth of the "fleet moratorium" idea by Steve Marshall of the Cascadia Institute and Denis Hayes of the Bullitt Foundation plus CalCars (see the second half of "Can Fleets Help Rescue Auto Industry? Four Actions Could Make a Difference" at CalCars-News). It also reflects strategic thinking by Craig Lewis, VP of Government Relations at GreenVolts and formative member of Clean Tech for Obama. Please consider endorsing it on behalf of your company or organization; convey comments to (Felix Kramer) or call 650.520.5555, and by all means forward the proposal.

• How does this connect to the $7,500 already available to the first 250,000 purchasers?
• We need an adjustment mechanism for buyers of vehicles whose specifications/price change significantly from when they were prepaid to when they become available.
• This program can be oriented to automakers that most need support if the incentives they receive include small levels of government equity.
• A possible parallel program that would expedite the initiative is a federal "feebate." This revenue-neutral measure will incentivize high-MPG vehicles in multiple vehicle classes and disincentivize gas-guzzlers, while having no impact on most mid-range MPG cars.

WHY ARE CAR SALES FALLING? Not just because of the economic crisis. The more Americans hear that better cars are on the way, the more individuals and fleets will be reluctant to commit to inefficient vehicles whose resale value may fall quickly because they run only on price-volatile, polluting fossil fuels. We can harness these impulses.

The low-carbon, high-MPG flex-fuel plug-in hybrids (PHEVs) and electric vehicles (EVs) they want to sell are two to four long years away from mass production. General Motors says it plans to electrify its whole fleet, beginning with the Volt and the Vue in 2010-2011. Chrysler CEO Robert Nardelli says choices must be made -- so he's focusing on electricity. Chrysler plans to build one of three "production-intent" plug-in prototypes. Ford has PHEV prototypes of its Escape hybrid; Bill Ford has talked with President-Elect Obama about support on electrification. But Ford Motor Company plans no plug-in production until 2015. At this rate, vehicles won't arrive soon enough to save the auto industry -- let alone U.S. industrial leadership or the climate.

We're inspired by how Americans rose to past challenges: We raised $17 billion Liberty Bonds in two years in World War I. And 85 million Americans bought $185 billion in War Bonds during World War II. Especially since dollars back then were worth over ten times more than now, our proposal is small in comparison.

The proposal challenges automakers to explain, market, and promote plug-ins as energetically -- and urgently -- as they have other vehicles. Plug-in advocates will pitch in. It requires having cash on hand, but telling buyers they'll get the prepayment back in a tax credit within months will help. Auto industry supporters are prime candidates.

The November 14, 2008 Wall Street Journal reports, Hey, Auto Industry, Need a Jump? Utilities Consider Buying Electric Cars "to put weight behind development and, perhaps, persuade Congress to give the auto industry the assistance it needs." (Find the story at CalCars-News). Auto rental/car sharing companies are other likely candidates.

Retrofits will speed plug-in market penetration beyond new cars; even "partially electrified" vehicles will significantly reduce fossil fuel use. They will provide revenues to carmakers for vehicles they've already sold. And they will create local green retrofitter/installer jobs. Both independent companies and carmakers partnering with third party QVMs (Qualified Vehicle Modifiers) can participate in conversion businesses.