Transforming the Auto Industry

[one...two...tree 2,762]

Only a partnership between the public and private sectors can help the Big Three roll into the future

By Jeffrey D. Sachs, Scientific American

The debate about the future of the U.S. automobile industry exemplifies the shortcomings of U.S. public discussion about large-scale technological change. The auto industry has been widely vilified in recent months, with public opinion running strongly against government financial support for it. There has been an insistence on "letting free markets work" despite the fact that financial markets have collapsed in the worst crisis since the Great Depression. Environmentalist critics of the industry have understandably criticized the poor performance of the Big 3 automakers yet have not acknowledged the missing role of public policy and public finance in any lasting solution.

The critics have no doubt felt their frustrations building—justifiably—for decades. The industry fell into a trap of high costs, including unaffordable benefits and a morass of regulatory and contractual obligations (for example, related to dealerships) that enabled foreign producers to take a growing share of the U.S. market. Worse, the Big Three (Chrysler, Ford, and General Motors) continued to promote gas-guzzling SUVs while the risks to the climate and to U.S. energy security mounted. To some extent the industry is also paying the price for spiraling national health costs, which should be under better public control (and on the public budget), and for the nation's inadequate fuel-efficiency policies and low gasoline taxes in comparison with Europe and Asia, which facilitated consumer demand for large vehicles. Yet many of the industry's problems indeed result from its own strategic miscalculations.

Still, the scorn for the industry misses four crucial points. First, a collapse of the Big Three in the coming months would add another economic calamity to the crisis-roiled economy. Millions of jobs would be lost in places with very high unemployment and no offsetting job creation. Second, the automakers' dire state is the result of the dramatic collapse of all domestic vehicle sales rather than the declining share of the U.S. industry in those sales. The Big Three were financially weak, to be sure, but they would not be at the precipice of bankruptcy were it not for the worst recession since the Great Depression. Conversely, with an overall economic recovery, the Big Three can be viable. Third, the public and political leadership bear huge co-responsibility with industry for the misguided SUV era, with its flagrant neglect of energy security, climate risks and unsustainable household borrowing.

Fourth, and most crucially, the changeover to high-mileage automobiles must be a public-private effort. To wait for the "free market" to bring it about is to wait forever. Major technological change, such as from internal combustion engines to electric vehicles recharged on a clean power grid or with hydrogen fuel cells, requires a massive infusion of public policy and public funding. Research and development depend on huge outlays, and many of the fruits of R&D should and in any event will become public goods rather than private intellectual property. That's why public financing for R&D is so vital, and has been widely recognized and practiced by the U.S. government for a century in many industries, including aviation, computers, telephony, the Internet, drug development, advanced plant breeding, satellites, GPS and much, much more.

To sit back and bemoan the fact that the forthcoming Chevy Volt plug-in hybrid will have a first-year price tag of $40,000 is to miss the point. The costs of early-stage development and deployment are inevitably far above those that companies can realize in the long run. Public policy should help to promote this transition through such measures as the public-sector procurement of early models for official vehicle fleets, special tax and financing incentives for early purchasers and higher gasoline taxes that internalize the costs of climate change and oil import dependence.

U.S. financing of sustainable energy technologies, such as for the high-performance batteries that are the limiting factor in high-performance plug-in hybrids, has been dreadfully small ever since President Ronald Reagan reversed the energy investments started by President Jimmy Carter. According to International Energy Agency data, U.S. federal spending on all energy R&D (solar, wind, nuclear, clean coal, batteries, bio-fuels, and others) amounted to just $3 billion or so per year in recent years—less than two days of Pentagon spending, and roughly a tenth of U.S. federal outlays for health technologies at the National Institutes of Health. Annual federal spending on battery research has been in the tens of millions of dollars, when tens of billions of dollars are at stake. This neglect is finally changing with the pledge of $25 billion in loans for technological upgrading approved in last year's energy legislation. Direct grants for R&D to companies, academia and government laboratories should also be increased.

U.S. society, politicians and the Big Three are finally waking up to the imperatives of energy security and climate-change mitigation. The move to high-mileage automobiles is real, and the effort will shape U.S. international economic competitiveness for decades. The U.S. needs a public-private technology policy, not merely finger-pointing at the private sector. GM's Chevy Volt, Chrysler's new Extended Range Electric Vehicles and the large-scale efforts of GM and others to produce a fuel-cell vehicle within a decade, all require public backing, with R&D for basic technologies, policy and financial support for early-stage demonstrations and diffusion, higher taxation of gasoline to reflect security and climate costs, and public investments in complementary technologies, such as a clean-power grid built on solar and wind power distributed over a direct-current high-voltage grid to charge the automobiles. This is the future of the auto industry. It would be a mistake of historic proportions to let the industry die on the threshold of vital transformative change.

http://www.sciam.com/article.cfm?id=transf...e-auto-industry

Edited January 27, 2009 by Mister Fancypants

[LunaticRex 0]

'Higher gasoline taxes...' to "internalize the costs of climate change..." What are you smoking, Sachs? If climate change is caused by human activity (and that isn't a closed argument, regardless what the climate monkeys say), then certainly the US signing onto Kyoto (which I presume you think we should do), will not have any effect except to ensure the downfall of any administration who tries it. This is because the developing world (India, China, others) is growing much too quickly, and needing more oil every minute. These countries will not, cannot 'internalize the costs of climate change' because cheap energy is needed for growth.

Some good points here, things I hadn't considered. The main issue the general public (including me) have is that if (when) we, the taxpayers, bail these overspending, reckless idiots out, they will be rewarded with our money for their epic failure to prudently manage their businesses, which is, after all, their JOB. Of course, for people like the current administration (RePO), the upside is they would nationalize the auto industry so the central government would have control of the banks AND the major manufacturing sectors. There are many historical examples of why this is not simply a bad idea; it will lead to catastrophic failure of our system of government. At this point, I only wonder how long the resulting oligarchy / jackbooted Chavez-style dictatorship will last before anarchy sets in, and the country burns, and some future generation starts over. Let the Big Three fail. It's the only way.

And please don't mention Carter in the same breath as Reagan. I know you are a misguided liberal, but with time, you can be healed.

[Saddle Bronc 124]

And please don't mention Carter in the same breath as Reagan. I know you are a misguided liberal, but with time, you can be healed.

To torture you a little more...:

Reagan did manage (through coalition with Thatcher, and also with much "help" from commies themselves) to bring down communism--but he also enacted a shamnesty in 1986 for which prospective legal immigrants are still paying through case-process delays (and cutoff-priority-date nightmares); being formerly (1997-1999) one of these prospectives is one of the factors which colours me against Reagan permanently.

Carter on the other hand--a total incompetent as president who also managed to achieve the singular dishonour of being worse as an ex-president.

[GiGii 4]

These demands to the auto industry are a joke. They give them money to stay afloat, then demand min 35mpg by 2011. Technology costs money Barack sweetie!

The current mpg min is 25. How many cars dont make that? Every SUV, van & manyyy normal cars.

Efficiency costs cash to the consumer too. When the Prius came out, (no leather, no special features) was over $30k. Normal folks will not be able to afford a plug in hybrid either. Did people forget how much their last electricity bill was?

Efficiency costs cash. Lets keep gas under $2, that will keep the dollar value stable. Now lets get those jobs back from India, and stop importing cheap quality ####### from China. Problem solved

[Rocky_nBullwinkle 6]

Sonoma County, California is on the cutting edge again:

ZAP! WORLD

[Shad and Dani 3]

LOVE my Acura!

[pedroh 21]

These demands to the auto industry are a joke. They give them money to stay afloat, then demand min 35mpg by 2011. Technology costs money Barack sweetie!

The current mpg min is 25. How many cars dont make that? Every SUV, van & manyyy normal cars.

Efficiency costs cash to the consumer too. When the Prius came out, (no leather, no special features) was over $30k. Normal folks will not be able to afford a plug in hybrid either. Did people forget how much their last electricity bill was?

Efficiency costs cash. Lets keep gas under $2, that will keep the dollar value stable. Now lets get those jobs back from India, and stop importing cheap quality ####### from China. Problem solved

there's cars in europe that now give 35mpg..

[Pooky 3,794]

These demands to the auto industry are a joke. They give them money to stay afloat, then demand min 35mpg by 2011. Technology costs money Barack sweetie!

The current mpg min is 25. How many cars dont make that? Every SUV, van & manyyy normal cars.

Efficiency costs cash to the consumer too. When the Prius came out, (no leather, no special features) was over $30k. Normal folks will not be able to afford a plug in hybrid either. Did people forget how much their last electricity bill was?

Efficiency costs cash. Lets keep gas under $2, that will keep the dollar value stable. Now lets get those jobs back from India, and stop importing cheap quality ####### from China. Problem solved

there's cars in europe that now give 35mpg..

Got to be careful here. The Imperial Gallon the Brits use is 4.45 litres, whereas the US Gallon is only 3.8 litres. So comparing mpg figures on both sides of the Big Pond isn't quite as straightforward as you'd think.

Edited January 30, 2009 by Pooky

[NickD 203]

WI and other northern states ain't the place to drive a Prius, narrow hare high pressure tires will slide all over the road, plus the efficiency of that battery goes way down in sub-zero weather. SUV's aren't so hot either during the winter months, idiots think because the have 4WD capability they can fly, have a very high center of gravity, roll over easy, and see more of these damn things in the ditch than anything else. All vehicles have four wheel brakes, so no gain with a 4WD. Dang things are so heavy, can't even back out of a snow bank.

One thing the automakers haven't come to terms with, is that their vehicles are worthless to any consumer if you can't buy fuel to power them. They were buddy buddy with the oil companies, but all that has changed this last go around, everyone for themselves. But that is not limited to automobiles, the airlines, RV's, boat, semi's and general aviation companies suffered the same fate. Heck if they can't do anything about that huge increase in fuel prices, how can anyone of us as individuals have a say? IRS is in on it too, as no transportation deductions for commuting to work or to school. It's the law where you have to drive your kids to school and your transportation expenses come right off the top of your income.

EPA is no help either dictating what kind of fuel will be used with over 155 different blends, while MTBE's may reduce HC's in cold weather, also putting cancer causing ingredients in the ground water, ethanol is causing all kinds of new problems. Alcohol and gas do not mix and alcohol absorbs moisture. Ha, our idiot governor pushing ethanol never accounted for the fact that the increased demand for corn will raise the price from a $1.50 to over 9 bucks a bushel! We also see that at diary and meat price increases. Also with the EPA, made it impossible for the even super DIYer to make repairs on their own vehicles. Well you can if you want to pay $6,000 for a scanner, and $4,000.00 a year for a subscription to download the flashram codes.

It's one hell of a mess, mostly all caused by the government. Auto industry didn't help, average CAFE ratings today are worse than back in 1985, vehicles are worthless unless they have fuel. GM is nuts with the Volt, not even developing their own battery to power it, someone there is smoking crack.