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.
Thank you for your trenchant observations on the present crisis and prospects of the auto industry. Your demand that the Big Three be required to manufacture carbon-free vehicles is, however, based as much on wishful thinking as on technological realities. In point of fact, there is no practicable carbon-free technology in the offing for automobiles; hybrid technologies are a mere band-aid, an expedient that will not come close to meeting the ICCPs projections for needed carbon-emission reductions over the next three decades; there is also no prospect for a sustainable all-electric-powered vehicle that would have both sufficient range and sustainable manufacturing for the toxic batteries needed to power them; hydrogen-powered cars are at this point a pipe dream that cannot likely be realizable in time to meet the ICCP's timetables.
The more critical long-term requirement, then, would be to oblige the automakers to begin to shift a significant portion of their industrial prowess toward the manufacture of equipment for intercity high-speed rail and local and regional mass transit systems. Such all-electric systems could be powered, eventually, entirely by renewable energy sources and thus offer the only practicable means of moving masses of people in a manner consistent with the imperatives of the drastic carbon-emission reductions needed to rescue the planet from disaster.
I urge you to press this issue more vigorously--not just in your columns on the auto and financial crises, but in your overall political/environmental agenda. I urge you to read the following:
http://www.urbandesign.org/newdeal2009.html
Sincerely,
Bill Kaufman
Excellent article, when will we get that can't have sustained economic viability with out ecological sustainability.
What we have now is some kind of corporate socialism or maybe even corporate communism ala the Soviet Union. Whatever we call it, we've been maneuvered into a situation where in order to keep our paychecks, we pay taxes on, coming in, we have to keep doing stupid and destructive things for completely self-interested corporations whose primary mandate is to maximize income and profits. On top of that, now we are compelled to give them or loan them our tax dollars(with little collateral) they say they need to keep the whole destructive, health harming life-support damaging system afloat; the tax dollars we pay to the government to protect us from such schemes and to protect our interests in general.
Toward resolving this dilemma, I've co-authored a 30 page Brief that may show us a way out. It lays out a free-market investment strategy to make San Diego County renewable electricity net-metered-out. The plan requires start-up capital which is paid back including interest and profit but requires zero subsidies and will actually cost less than not doing it even assuming the average cost of a kWh will be 10 cents over the next 40-years. The Brief is free at www.jimbell.com, click on "Green Papers".