You’d be hard-pressed to find many similarities between the cities of Detroit and Madison, but there is a shared and systemic failure represented in the two cities. Detroit, the veritable capital of American automotive power, is now presiding over the collapse of American auto manufacturing capability. Madison, the liberal capital of Wisconsin, has for its part created a fiscal legacy that, while not wholly responsible for Wisconsin’s current budget deficit, has made it much worse.
Detroit’s, and more specifically, Ford, GM and Chrysler’s problems are even worse than Wisconsin’s as private industries can fail — states cannot. The Big Three automakers are teetering on the brink of bankruptcy and clamoring for billions in federal aid just in order to meet day-to-day needs like payroll. While they don’t deserve it, a bailout of American automakers could be one of the greatest legacies of the incoming Obama administration — provided they attach the right kind of strings.
And those strings must be more than taxpayer equity and increased fuel efficiency standards. They must include an agreement by the Big Three automakers to become a part of the largest federal program since Social Security. This program will completely shift the American automobile fleet from a dependence on carbon-based fossil fuels to hybrid and plug-in capable vehicles.
Chrysler, GM and Ford have obstinately followed a path that is tailor-made for irrelevancy and insolvency. Eschewing the Japanese trend of smaller, fuel-efficient cars, they have pursued a bigger-is-better method of producing a product line that features massive, inefficient gas-guzzling SUVs and trucks. Instead of noting the consumer preference for lighter, more efficient vehicles and investing in more efficient engines, they’ve spent millions lobbying Congress in an attempt to fight fuel economy bills and maintain their sub-standard status quo.
Ford, Chrysler and GM are years behind firms like Honda in manufacturing capability. According to a report by The Wall Street Journal, assembly lines in Honda plants can be adapted quickly and affordably to produce different models depending on market demand. It takes Ford 13 months and $75 million to do the same at one of their plants. For Honda, it takes five minutes at no cost.
The market teaches valuable lessons, and the lesson being taught here is American automakers are not worth their salt, and they certainly aren’t worth a bailout. But their workers are, as well as the industry and workers who provide critical components to make their vehicles. It may not be the right thing to do from a free market standpoint, but it’s not as if we have a choice. It’s time to bail out American automakers.
The Big Three are asking for roughly $25 billion in loans to stave off bankruptcy. Give it to them. But any automaker accepting this taxpayer-funded bailout must opt in to a federal program that invests billions into shifting the American automotive fleet from an obsolete system that makes America’s transport infrastructure dependent on fossil fuels to one that boasts hybrid and plug-in vehicles.
This program would provide billions in overhauling American automakers plant by plant. A new cabinet-level position would oversee this program, and who better to fill that post than Al Gore? Word is that he has been resistant to joining the Obama administration, but with the promise of billions of dollars and a federal program unparalleled in scope, I can’t imagine Gore would say no.
President-elect Obama should open this program up to involvement from global institutions like the United Nations Environmental Program, which just weeks ago called for a “global green New Deal.” A commitment to international involvement would put America at the forefront of the next great global industry, just as it was at the forefront of the last great industries: manufacturing, transportation, energy, communication and information.
And if Detroit balks at the decades-long commitment it must make in shifting its operations into the 21st century, spend the billions elsewhere. Let them fail if they refuse. They deserve it.
The notion of so massive a public involvement in private industry will surely give pause to anyone trained in free market thinking. But the current economic status quo demands innovative and bold actions. Millions of jobs will be protected and created from such an effort. And President-elect Obama will create a framework upon which our economy can experience unparalleled and sustainable growth, our national security will be better assured, and our environment can be protected. That’s quite a legacy.
Gerald Cox ([email protected]) is a senior majoring in economics.
