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.
© 2008 Robert Weissman