Why (and which) strings should be attached to any automaker bailout

During a bout of insomnia the other night I sat down and tapped out the beginnings of a column:

Congress’ $700 billion bailout for the financial industry came with the understanding that banks wouldn’t repeat risky behavior and wouldn’t object to additional government oversight just to make sure.

But what about the automakers?

Will there be strings attached to the $25 billion loan that the House of Representatives intends to debate next week?

Will the companies, after decades of foot-dragging, be obligated to meet sensible fuel-efficiency standards? Will they finally agree to produce vehicles that are in the best long-term interests or the country and the environment? (Or will they slip back into the gas-guzzler business now that oil prices are falling again?) Will they be compelled to renegotiate their lavish labor contracts and pension deals to a level that, for example, provides UAW retirees no better health-care benefits than those that federal retirees receive? Will they issue an official apology to taxpayers for decades of blunders that transformed a great industry into a national embarrassment? 

Now the shoe’s on the other foot
Charles Wilson said famously in 1952 that “what’s good for General Motors is good for the country,” but now, it seems to me, the shoe is on the other foot. What’s good for General Motors (and Ford and Chrysler), indeed, what’s necessary for their survival, is to do what’s really best for the country. And that’s to finally produce cars (not self-indulgent toys) that the nation needs at a crucial point in history.

That’s what I wrote. Turns out that Tom Friedman nailed the idea in his column the next morning in the New York Times. He did a far better job of finishing my thought than I could have ever done. If you missed it, here it is.

The main string Friedman wanted to attach was this one: no car company gets taxpayer money without demonstrating a plan to transform every vehicle to hybrid-electric technology.

Actually, Paul Ingrassia, the Wall Street Journal’s former Detroit Bureau Chief, had beaten Friedman to the punch with an earlier suggestion: GM gets the money only if it its board and management are ousted, its union contracts are torn up and an impartial government receiver is appointed to return the company, eventually, to private ownership.

The broader effect on cities
My broader point to you Cityscapers was going to be that cars, more than any force, have dictated the design of American cities over the past 60 years. Upon visiting here, an alien from outer space might easily conclude that cars, not people, are Earth’s chief inhabitants. Everything revolves around them. Wide roads and huge parking lots have eaten away the architectural character of older neighborhoods. And they’ve robbed newer sections of any chance at human scale.

As for government subsidy, cars already enjoy largesse far beyond the $25 billion that Congress will now consider. Gasoline taxes (user fees) pay only a small portion of their public cost, especially when you consider the layers of law enforcement, courts and medical trauma infrastructure needed to bolster auto use. Even that doesn’t include the foreign-policy and Pentagon muscle needed to assure America that her thirst for oil will be satisfied. Toss in the societal cost of global warming and you begin to realize that the cost-benefit analysis has begun to shift away from excessive and inefficient driving.

It’s a point that the automakers have missed, and missed badly. The cars they bring to market have a much higher calling than just the satisfaction of consumer whim. Bubba’s desire for a vehicle that’s big, fast and greedy may well deliver a higher per-unit profit. But that’s not the car America needs right now. In fact, we haven’t needed that car for a very, very long time. We might not need it again, ever.

Only if GM, Ford and Chrysler agree to get with the program should they get the money.

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Comments (7)

  1. Submitted by John N. Finn on 11/14/2008 - 12:05 pm.

    If the federal government bails out our ‘big three’ auto makers, perhaps acquiring some sort of equity position, it’s with the obvious intent that the auto companies achieve profitability. To me, that seems to make government a partner in the task of selling Detroit’s products. And what better way to do that than to enact policy aimed at making travel by personal automobile even more essential for participation in society and the workforce? In other words, funding for mass transit, passenger rail, walkable cities, curbing urban sprawl, etc. wouldn’t be exactly “getting with the program”. Or am I missing something here?

  2. Submitted by Robert Moffitt on 11/14/2008 - 01:02 pm.

    “The main string Friedman wanted to attach was this one: no car company gets taxpayer money without demonstrating a plan to transform every vehicle to hybrid-electric technology.”

    Actually, Steve, Friedman said that they should be FLEXIBILE FUEL hybrids, which could run on cleaner-buring fuels like E85 as well as gasoline.

    Right now, there is not a single production model hybrid vehicle available that is flex-fuel, even though the flex-fuel option is proven, inexpensive, and the fuel infrastructure is already in place in some states (especially Minnesota).

    The proposed Chevy Volt would be a flexible fuel hybrid, there are a few test-model Ford Escape hybrids that can use E85 (MNDOT has one!) as well as gasoline.

    This is important to Minnesotans, as we are the E85 Capitol of North America, with more than 360 outlets and the capacity to make all we need in-state. When cellulosic ethanol becomes commercially viable, it can use the same infrastructure the corn-based stuff uses today.

  3. Submitted by Bernice Vetsch on 11/14/2008 - 04:13 pm.

    And they could be building more flexible-fuel buses as well.

  4. Submitted by Doug Hageman on 11/15/2008 - 09:04 am.

    It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn’t have any real effect.

    This time it’s the car industry.

    While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable – so this time let’s target unemployment, create AMERICAN jobs and pump up the economy all at one time.

    Consider the following:

    Manufacturing costs of motor vehicles are 65% labor (ie: W-2 income), that’s not all direct but due to suppliers. GM alone has over 1300 suppliers. (That’s a lot of jobs!)

    1 in 10 Americans makes all or part of their income due to the automobile industry.

    Money turns over 5 times in a year.
    Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
    (This isn’t magic, it’s simply how the economy works.)

    Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

    Here’s the solution

    Instead of either shipping cases of cash off to car makers; or sending us all another check:

    Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that’s domestic. (Civic = 70% Ford Explorer=80%)

    Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

    This would bail out the car industry without giving them a dime directly
    Further it would reduce the overall age of the nations cars which would in turn;
    increase overall fuel economy
    & decrease pollution.

    Strengthen the dollar!

    Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported …like gas!

    Jobs

    Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
    That would give the economy good swift kick right where it needs one!

    Pays for itself!

    Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
    What is the income tax on 65,000 anyway?
    (Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)

    Another Stimulus Package?

    I’m sure you’ll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV’s usually made in Malaysia or some such place.

  5. Submitted by Matt Boynton on 11/16/2008 - 12:24 am.

    I make about $14 per hour and it infuriates me that taxes might be taken out of my check to pay for some walking-dead dinosaur company like GM and $73 per hour UAW workers. They refuse to make quality vehicles with good gas milage that are more affordable than the completition. They are just an international company like Honda in Ohio (Mexico plants, etc). When our kitchen puts too much salt and ruins a dish we don’t pick out each grain -easier to wipe the slate clean and start over again without all the baggage. If they get a bail out, I want one too. Bailing out is moral hazard -it rewards bad decisions -look it up. We need to put our efforts into fresh new companies that have a more environmental focus. It makes me want to almost cry that the guuvment just wants to reward the status quo of wall street fat cats auto execs & UAW members that feel entitled. Sure the transition will be painful -but as the song says it has to be a catastrophe (temporary) TO GROW!!! Go USA -down with GM. If GM is gone it does not mean that people will stop buying US cars so the domino effect is overstated.

  6. Submitted by John N. Finn on 11/16/2008 - 06:59 am.

    Calculating the domestic labor content of a particular motor vehicle is probably pretty complicated and constantly changing. For instance, until recently I was employed designing gadgets the components of which were manufactured here and in Mexico, Canada, Asia, and Europe and that are installed on cars assembled in those locations, some destined for export wherever, but not necessarily in the location nearest to where most of the components came from. (I could explain it better with a world map flow chart.) But that’s a minor quibble about Mr. Hageman’s scheme which makes a lot of sense.

    However, it only makes sense if we want to continue what commentator James Kunstler calls our “happy motoring” economy. I think we would be much better off if we didn’t need to devote so much of our resources to perpetuating that system, the sustainability of which is doubtful no matter how greatly the miles per gallon of carbon based fuel is increased. Note Berg’s paragraph on “The broader effect on cities” above.

  7. Submitted by Matty Lang on 11/17/2008 - 11:07 am.

    Americans already own too many cars and drive them much too often. Why would we want to make it easier to buy more cars?

    Jobs can be created to make our communities more walkable, bikeable and more transit-oriented just as easily as jobs building cars can be subsidized.

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