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Bailing out Detroit

by Paula | 9 November 2008 | permalink | comments
Tags: car culture, recession
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Keith Johnson at WSJ’s Environmental Capital blog asks:

The fundamental problem, as Detroit keeps pointing out, is that new rules mandating more efficient cars cost money that the Big Three don’t have. Many analysts are worried that U.S. automakers are already stretched to the limit trying to meet existing standards, let alone Sen. Obama’s proposals.

So, given Detroit’s history of floundering in the wake of government bailouts, the question becomes: Is there any way the new administration can both bail out Detroit and make it a marquee player in its clean-energy push? Or are the two goals mutually exclusive?

Has everyone forgotten the EV-1? Once upon a time, Detroit was on the cutting edge of green auto technologies and even produced hundreds of EV-1 beta models, every last one of which was leased and which generated massive wait lists. GM closed down the EV-1 plant in 2000 and axed the EV-1 program altogether in 2003 amid protests. Protests! What company wouldn’t sell its soul to have people protesting the absence of its product from the market?

GM snubbed not only the market, but also the citizenry from whom it is now asking for a massive bailout. And for what, so it can continue snubbing the market in the future and ask for more bailouts next time gas prices spike?

Somewhere, GM has a factory that is at least partially tooled for turning out electric vehicles. All three are also currently turning out production hybrids. How can it be too expensive to produce more efficient vehicles when they’re already doing it? Is Detroit completely blind to the fact that Japanese hybrids and German clean diesel vehicles are selling like crazy, regardless of dollar fluctuations against the Yen and the Euro? And especially in the case of German cars, which come from a nation with far greater tax, labor, and environmental controls than anything Detroit has ever seen.

None of this makes any sense. No angel or VC would invest in a company with a track record like that until it axed the whole of upper management and came up with sound plan for making money in the future. Yet we the people are being asked to pony up… what is it now, an additional $25 billion?… to save these companies because of “systemic risk,” and we are being given no information about our return on investment in either Detroit or the “system” that enabled it to shove its head that far up its ass.

Throwing good money after bad will create a much worse situation down the line than if Detroit were forced to play by market rules once and for all.

Maybe what we need is this: a business planning contest in which entrepreneurs submit plans, including detailed financials, for how that money can be used to get Detroit profitable and to make good on taxpayers’ investment. The prize? A Tesla, naturally.

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