[corp-focus] Auto Bailout: Ecological Sustainability Before Economic Viability

[robert weissman]

Auto Bailout: Ecological Sustainability Before Economic Viability
By Robert Weissman
December 19, 2008

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.

Robert Weissman is editor of the Washington, D.C.-based Multinational 
Monitor, <http://www.multinationalmonitor.org> and director of Essential 
Action <http://www.essentialaction.org>.

(c) Robert Weissman

This article is posted at: 
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