WEEKEND READ: Saving Detroit

Barack Obama seems intent on saving US car makers from bankruptcy. But any bailout needs to have huge strings attached to force car companies to build environmentally-friendly vehicles.


General Motors and Ford burned through a stunning $US14.6 billion in cash last quarter. GM's stock has sunk so low that you could buy the entire company for $US2 billion. Bankruptcy seems all but inevitable.

In September, Congress authorized $25 billion to US auto makers to retool their factories to build fuel-efficient cars. But that money is slow in coming and Detroit wants more, including some of the bucks from the $800 billion Wall Street bailout. Last week, Barack Obama said he'd like to speed up the $25 billion and pursue additional policy options to help the car companies "weather the financial crisis and succeed in producing fuel-efficient cars here in the United States."

But remember, when you bail someone out of jail, there is no guarantee he won't jump bail, and even less of a guarantee he won't ultimately end up back in jail anyway. And when you bail out water from a leaky boat, everyone still sinks until you plug all of the leaks.

The management of the car companies formerly known as the Big Three – soon to be the Medium Two, if GM and Chrysler merge – brought this upon themselves. Yes, the economic and credit meltdown has hit them hard, but it has hit all American companies. The tragedy of Detroit is that for years it simply refused to listen to those of us who begged them to build fuel-efficient cars. Indeed, before we hand them more money, let's reflect on a little history.

When I was at the Department of Energy in the 1990s, we partnered with GM, Ford and Chrysler to speed the technological development of hybrid gasoline-electric cars, given that increased fuel efficiency and advanced hybrids vehicles were (and remain) clearly the best hope for cutting vehicle greenhouse gas emissions and ending our oil addiction. This partnership was an informal deal between the Clinton administration and the car companies. We did not pursue fuel economy standards and the car companies promised to develop a triple-efficiency car (80 miles per gallon) by 2004.

In one of the major blunders in automotive history, GM and Ford and Chrysler walked away from hybrids as soon as they could when the Bush administration came in – and after taxpayers had spent over $1 billion on the program. Ironically, the main result of our government-industry partnership (which had excluded foreign auto makers) was to motivate the Japanese car companies to develop and introduce their own hybrids.

GM, in particular, which had a technological lead in electric drive trains, allowed its number one competitor, Toyota, to achieve a stunning seven-year head start in what is certain to be this century's primary drive train, that of the hybrid gas-electric Prius.

GM was publicly criticizing the future of hybrid technology as late as January 2004, and announced later in that year a half-hearted effort to catch up to Toyota.

Worse, in the past quarter-century, GM has spent millions of dollars lobbying to stop Congress from increasing fuel economy standards – standards that might have forced them to build the kind of cars people actually want when oil prices are high. And despite the recent temporary drop in oil prices, there's little doubt we will be above $4 gasoline in a few years, headed for $6 and higher within the decade.

Also, reducing greenhouse gas emissions to avert catastrophic climate change requires cutting automobile oil consumption by a factor of five over the next three decades. Yet Detroit has been waging a four-year legal battle against efforts by California and other states to regulate tailpipe emissions of greenhouse gases.

In other words, Detroit has not only been suicidally lobbying against its own inescapable future, but it has been lobbying against the future of all Americans who want to end our oil addiction, and against the future of all humans who want to preserve the health and well-being of our planet for future generations.

And for this they are to be rewarded with billions in taxpayer money?

Not without major strings attached, they shouldn't be. We know that even with a bailout, tens if not hundreds of thousands of jobs will be lost, as the industry downsizes to match the reality of its mistaken management decisions as to what kind of cars will sell.

So the question is not whether many more jobs are going to be lost in the short term – they are. The question is: will we end up with a well-managed domestic auto industry that can prevent far larger job loss in the medium term and thrive in the long term? Will we end up with an industry that understands its only hope for the future is being part of the solution to peak oil and global warming?

We know what the car of the near-future is: the plug-in hybrid electric vehicle. Indeed, electricity is the only alternative fuel that can lead to energy independence. All other alternative fuels are inevitably linked to the price of oil or lack sufficient domestic resources. Electricity is the only alternative fuel that can easily be made from pollution-free sources and still be far cheaper per mile than gasoline even at current prices.

We need, as Obama promised, one million plug-in hybrids by 2015, and then S-curve growth after that. Moreover, Toyota and Honda believe hybrid production costs may drop two-thirds within 10 years, but obviously only for companies that are aggressively making the transition to hybrids.

If we are going to bail out Detroit, the deal has to be based on meeting the new fuel economy standards of 35 miles per gallon by 2020, and meeting them increasingly with hybrids. The deal has to be for multiple plug-in hybrid car models. And most important, the deal has to include a management team that is wholly committed to that 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 global warming and peak oil.

This isn't socialism. And it isn't nationalization of the auto industry. It is immunization of the auto industry against the seemingly fatal disease of mental decay. And it is immunization of the nation against far graver threats. Indeed, the potential risks the bankruptcy of Detroit poses pale in comparison with the all-but-certain risks of continuing on our path of ever greater oil consumption and ever greater greenhouse gas emissions.

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