Auto Bailout: Ecological Sustainability Before Economic Viability

Thank you, George Bush. The federal government is finally acting to protect the auto industry from failure.

The $17.4 billion in loans for GM and Chrysler is not going to be enough to rescue the industry -- but it will keep these companies going until the next administration takes office.

The Big Three will be back for more money soon, and Congress and the Obama administration will have an opportunity to structure an appropriate bailout package.

A very unfortunate consequence of the Congressional debate over the bailout, and the subsequent Bush administration handling of the issue, has been to raise the near-term viability and short-term profitability of the industry as the overriding objective of any bailout.

That's an unrealistic and undesirable goal. Much better would be to focus on long-term ecological sustainability.

A quick return to profitability is unrealistic, because whatever the deep structural problems of the industry (and they are legion), the proximate cause of its revenue shortfall is the collapse of auto sales and the deepening recession. U.S. auto sales are down by more than a third over the last year, crushing U.S. and Japanese automakers alike. As long as the recession persists, the automakers are going to struggle.

The emphasis on rapid return to viability is undesirable on at least two counts.

First, from Democrats and Republicans alike, it is associated with unfair demands for new rounds of concessions from auto workers. These demands ignore three decades of steady concessions from auto workers, including terms in the 2007 contract that start many new workers at $14 an hour. These demands imply the abrogation of promises made to retired workers, including by slashing existing health insurance benefits and possibly pension payments.

And the demands suggest -- explicitly from President Bush and Congressional Republicans -- that unionized workers reduce their wage levels to those of non-unionized workers in Japanese company-owned plants in the United States. Not only does this aim to destroy the benefits of unionization, it pushes down the wage structure of working families at a time when economic recovery depends on increasing the buying power especially of debt-burdened low- and middle-income consumers.

The emphasis on viability also threatens what must be the highest priority regarding the auto industry, which is to transform it into providing modes of transportation that do not imperil planetary well-being.

It is true that the long-term viability of the companies certainly rests on their ability to transform their product mix, sell much more fuel efficient cars at a reasonable cost, and undertake major investments in transformative technologies. Ultimately -- and in the not-so-distant future -- this must mean abandoning the internal combustion engine.

But current market realities are different. In the short term, gas prices are low, and the consumer love affair with hybrids is over (or at least suspended). The Big Three aren't good at making fuel efficient cars that make them money, and it will take work, time and money for them to learn. And transformative technologies will require major new investments in R&D, and then physical plant; companies being pushed to turn around their balance sheets in a matter of months are in no position to do this.

The United States needs its auto industry. The economic cost of failure to the industrial Midwest and the entire country would be overwhelming. The direct costs to the government (health insurance, unemployment benefits, lost tax revenues) would by far outweigh the costs of bailout. A collapse of the industry would transform the recession into depression. It would vastly worsen the situation on Wall Street. It would worsen the U.S. trade deficit, which is a major source of long-term concern for well-being and even functioning of the global economy.

And the country needs an auto industry for positive reasons: It needs to be able to manage its own transportation needs on an ecologically sustainable basis.

The country, and the world, needs a revolutionized transportation sector. This crisis is the opportunity to achieve that transformation. But it will be an opportunity lost if success is measured by short-term "economic viability" of the Big Three.

When they come back to Washington, the primary demand on the auto companies should not be to show their plan for viability. It should be to work with the government (or under the government, or for the government) to develop a plan to change their product mix and for steady and long-term investments in new technology. Implementing such a plan will take time and large-scale investments, and much of money inevitably will have to come from the public. The government should impose very strict fuel efficiency performance standards, to be followed by medium-term requirements to sell zero-carbon emission cars. The government should have an ongoing role in monitoring and directing auto company investments to ensure these objectives are met. To level the playing field, these contractual arrangements should be accompanied by new fuel efficiency and carbon-free regulatory standards applying to all carmakers.

The financial crisis, the deepening recession and the climate crisis each in their own way require abandoning a belief that unregulated markets can best measure (and reward or punish) economic success. Detroit does need to find a way to be economically viable over time, but the preeminent need is to ensure that auto manufacturing is viable for the planet.

Comments

[joebaggadonuts]

The reason we are not looking to long term solutions is because we have only recognized the power of the dollar, which rewards short term gain.

We must change the focus to long term national goals and industrial policy and understand where a properly regulated free market fits in to support those efforts. Anything else is more of the same crap which got us here.

Also, long term national goals are economic in nature, but environmental in impact. It is not a valid national goal to have marriage be proscribed between same sex couples or to prescribe any particular religious practice or set of social norms in a public function.

[mamacat]

Talking about the environment, I hope the requirement that the American auto companies no longer be allowed to try to stop improved environmental regulations by individual States with bailout money is now in affect. Somehow, I doubt it. Using taxpayer money to prevent better CAFE standards sounds like something the Bush administration would fall in love with.

[DoesItReallyMatter]

Quattro....BTY, what skill set would YOU suggest? Perhaps an MBA, ah no... maybe technology, but what? Perhaps retail....no, that's tanking too. Nope, the only one's hiring today are the military, and fifty year old ex-auto workers just won't do! Besides, the vast majority have ALREADY served!!! So, what is it you "do" that is so important as to be immune in this economic climate?

[mbaty]

We seem to have enough ineffecient cars sitting in car dealerships as it is. Maybe they could start by only making cars with very high efficiency from now on. You are right that this crisis brings an opportunity. It's an opportunity to examine how we think about transportation and what our ultimate goals are for all of us who need to get around. Public transportation is simply a societal need. Technology has allowed a lot of people to work from home, but there is still going to be the need for people to get elsewhere, and a major push towards accessible cheap (if not tax paid free) transportation will also stop so many drunk drivers. The collateral benefit will clearly outweigh the difficulty in transforming our current transportational needs. It has to be an evolution, organic to our current system, and yet transformative of our society and it's collective needs. We can already see how many people are affected by this crisis. We are in this together.

[Quattro]

It's not the government's job to run a business. It's not the government's job to bailout failing companies. We cannot afford to pay big labor unions, incompetent management to keep going the way they are by first giving them the money and then asking them to change their behavior. I feel shocked that Americans would allow this to happen in the first place. Let these companies go under, let the workers realize that they have to wake up and get some other skills to survive rather than producing 20th century obsolescense (ie, gas guzzlers).

it is ridiculous to think that governement knows how to run a company. We cannot reward failure.

[joebaggadonuts]

AIG, Citi.... These were what, free market bailouts?

[DoesItReallyMatter]

Thank you...thank you! After suffering though a month of "born again" automotive manufacturing "experts", finally a well reasoned, rational argument for the nation to put to use a vital sector of American manufacturing. There actually is a proven model for doing this. during WWII, all industry was essentially nationalized. The feds put out specifications for equipment, and the auto companies designed, engineered and manufactured it. We don't have to go that far today, but no single company can tackle these huge technological problems without some form of governmental assistance. GM really has gone broke by spending billions trying to bring the Volt to market, principally in battery development. Don't be fooled, hybrids are at best a transitional tech. BTY, universal health insurance and a four dollar federal gas tax wouldn't hurt either, just like the foreign manufactures have!

[w8aminute]

I agree that we need all of these things. Just please keep in mind that this is America - not Utopia.

The American auto industry and the millions of jobs (and retirees that depend on it) should not be made into the primary factor of energy independence. They are connected, things should and will be done, but don't lay the majority of the work on them when they are trying to survive. Technology should be the driving force to greening us - but that could come from IBM as much as GM. It took Toyota a billion dollars and a decade to come up with the Prius. You can't force GM to be the savior of the planet right now anymore than you can force Obama to do everything right. Don't lay the weight of the world on their shoulders at this time. Be patient - please.

[Mike49546]

Finally--an insightful post about the auto industry! But now watch all the commenters come out and show how much misinformation they have....