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.