Lavishing Billions on Old Technology While True Innovation Is Scorned

It wasn't that long ago
that Ford could give its stockholders a 215 percent return on
investment in just three years. That's the three years between the
company's introduction of the 2.5-ton Explorer, in October 1996, when
gas was selling at $1.38 a gallon, and February 1999, when it
threatened to dip below $1 a gallon. Ford was clearing $12,000 in
profit on each Expedition ($15,000 on each Navigator), and making 1,040
of the SUVs a day for after-tax profits of $2.4 billion. So much for
labor costs dragging down Detroit. Instead, it was stock profits
blinding innovation.

Ford stock peaked at a little more than $37 a
share in 1999. The stock now is threatening to dip below $1 a share.
And Ford is the least diseased of the Big Three automakers. Their
problem isn't gas prices or labor costs or the economy, all of which
have been part of doing business for a century. Their problem is in too
many of their products. GM spends about $4,400 on advertising per
vehicle sold, only a little more than Ford and Chrysler. Toyota spends
$1,090. Nevertheless, Toyota this year is expected to overtake GM as
the world leader in market share. The market is telling American auto
manufacturers something: They're making too much stuff people no longer
want to buy. Maybe the market can put up with one company doing that.
But three?

Taxpayers ought to be telling auto manufacturers
something, too: Either change your product or let us spend tax dollars
on more promising ventures. There's nothing inherently wrong in
government bailouts. Private companies get them all the time. They just
call it government contracting. What would Lockheed, General Dynamics,
United Technologies and even Boeing be without the Pentagon bailing
them out regularly? There'd be nothing wrong with a bailout of Detroit
that was attached to a set of conditions, like a 50- or
100-mile-per-gallon car by 2015 and an affordable, fully
electric-powered car by the same date. But Detroit isn't interested in
moving out of its dinosaur digs.

Fine. Americans love another
museum destination. But they worship their innovators (look at Henry
Ford: the guy was an anti-Semite, he was Big Brother's father when it
came to meddling in employees' private lives, and he had a soft
spot for Hitler, yet he's still revered as an American hero). So I was
surprised to read Daniel Lyons, Newsweek's technology columnist,
heaping scorn on Tesla Motors, the private-venture company building an
all-electric car that gets 200 miles to the charge and goes from 0 to
60 in four seconds -- faster than a Porsche. There's been infighting at
the company, a lawsuit here and there, money ran short, the car is over
budget -- yet the company is producing 10 cars a week and has 1,200
orders for a vehicle that costs $109,000. For a prototype to be selling
at barely twice the cost of a luxury internal-combustion-engine clunker
is hugely promising. So why the scorn, so untimely when Barack Obama
and green gurus keep echoing the public's craving for the next
automotive breakthrough that reduces oil's tyranny? If anything,
Tesla-like projects are where the government should be pouring its
billions.

Yet the country's mindset is nowhere near that sort of
investment. Lyons' arguments are striking for their familiarity:
They're bleed-through from the anti-government rhetoric that for the
past three decades has been poisoning discussions of how to move the
country forward. It doesn't matter that Tesla is one of those
potentially revolutionizing innovations. "It's late and over budget,
has gone through loads of redesigns, still has bugs and, at $109,000,
costs more than originally planned," in Lyons' condemning words. This
for a startup getting no government backing.

Perspective would
help. If a $25 billion bailout for Detroit's reptilian museum isn't a
scandal, here's another: The government has invested more than $65
billion on a jet fighter, the F-22, that was designed two decades ago
to fight an enemy that no longer exists. The F-22 is also redundant
because the military is developing the F-35 -- the more versatile Joint
Strike Fighter, at $121 million a plane. The F-22 costs $350 million a
plane. It's wildly over budget. So is the F-35. The country doesn't
need both. Dozens of senators have tried to kill the F-22, including
John McCain. But it has its lobbyists. So it carries on, while the
Tesla, whose entire development costs were less than half the cost of a
single F-22, struggles against snickers and scorn because it didn't get
it right on the first try.

Maybe the Tesla isn't the
answer. But an electric car is certainly part of the answer, if energy
independence is a goal. The Tesla shows that the goal is within reach.
But not if Detroit keeps hijacking investment dollars to nowhere, the
Pentagon keeps burning billions for glorified, useless wings, and
innovative companies actually doing something right get clobbered for
falling behind on delivering a miracle.