Wednesday, November 12, 2008

Can America Reinvent the Auto Industry?


In 2005, with GM and Ford teetering perilously close to bankruptcy, the Breakthrough Institute created the Healthcare for Hybrids proposal with Senator Barack Obama, Representative Jay Inslee, and the Center for American Progress, a plan which would have linked fuel-economy increases to relieving health care costs for U.S. automakers. Today, with the industry again on the brink of collapse, we invite you to join us is exploring a new question for the new era:

What will it take to reinvent the American auto industry?

We will publish the best responses on our home page, www.thebreakthrough.org. Please submit your op-eds to oped@thebreakthrough.org and paste or type your content into the body of the message; please do not send attachments.

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“As GM goes, so goes the nation,” went the old saying. Let’s hope not.

The U.S. auto industry is in its last throes. After decades of declining market share, sales have collapsed to 25 year lows, with total sales for October over 30 percent below last year. GM sales have plummeted by 45 percent, and its stock price is down to its lowest level since 1950. According to Deutsche Bank, GM may not be able to fund its operations past December. An op-ed in yesterday’s Detroit News put it this way:

“It’s over, folks… It would be impossible to overstate the historic implications of this -- what it means for the national economy, the city of Detroit, the state of Michigan, the industrial Midwest, GM employees and retirees, suppliers, dealers, non-profits and the United Auto Workers.”

Should the industry be allowed to fail? Obama, Pelosi and Reid don’t think so, and it appears increasingly likely that an additional $25 billion federal package -- on top of the $25 billion in direct loans included in the $700 billion bailout plan -- will be injected to prevent bankruptcy. Obama and the Democratic leadership have indicated that such a deal would be contingent upon automakers’ willingness to transition the industry to produce more fuel-efficient and cleaner vehicles, but no further details are on the table.



Here’s the problem: not even $50 billion is enough to save the automakers. The industry has been trapped in a downward spiral for decades. In the 1970s, domestic automakers sold 90 percent of U.S. vehicles. In 2007 they sold less than 50 percent, and their share is smaller today. Even if a major bailout can hold the industry over until the end of the recession, there’s little indication that Detroit can ever again compete with foreign manufacturers.

Now is the existential moment for an American industrial archetype. Is America ready to cut its losses? Or are we willing to do what it will take to rebuild and transform this industry to become competitive in the 21st century and create the clean, efficient American automobiles of the future?

The choice is ours – and ideas like yours can help determine the path we take. To join this conversation about America’s future, visit our website at www.thebreakthrough.org and submit your ideas in essay format to oped@thebreakthrough.org.

1 comment:

Jesse Jenkins said...

With this bailout for Detroit on the table, there's a lot of talk that we'll get a "grand bargain" with automakers out of it - they'll agree to some terms, like producing more efficient vehicles, in exchange for the loans. In fact, the direct loans approved by the 2007 Energy Bill require auto companies to use the funds to retool factories that produce vehicles that get 25% better fuel economy than the average vehicle in it's class.

But the real Grand Bargain in my opinion is to bust out of this incremental improvements mentality for fuel economy. We don't need incremental improvements, we need exponential improvements in fuel economy. Here's how it could work...

It takes something like 3-7 years to design a new car, build the plants and get it rolling off the assembly line. So, rather than say we want a 4% annual improvement in fuel economy (as current CAFE standards roughly call for), which gets us to no-where near plug-in hybrid-type fuel economy, let's say this: we'll give automakers tens of billions in loans, put tens of billions more on the table for consumer credits to purchase advanced vehicles, and provide billions more for advanced vehicle R&D incentives (for batteries and lightweight vehicle materials research). In exchange, Detroit would have to support and lobby for fuel economy standards that look like this:

-2009 to 2014: improve at 4%/year to something like 30 mpg.
-2015: jump to 65 mpg
-2018: jump to 85 mpg
-2020: jump to 100 mpg

That'll provide a clear and powerful signal that we're going to radically - not incrementally - change the American automobile, re-commit to innovation, and recapture the competitive edge in automotive technology.