The Automotive Industry Needs Guidance, Not just a BailOut

In his address to the Detroit Economic Club, Obama said (at 9:30 in the video):

Whenever an attempt was made to raise our fuel efficiency standards the auto companies would lobby against it, spending millions to prevent the very reform that could have saved their industry. Even as they shed thousands of jobs and billions in profits over the last few years, they’ve continued to reward failure, in some cases with lucrative bonuses for CEOs.

Now the American automotive industry has fallen behind and want a $25 billion bail out to develope new technology.

Q: Since when is the government responsible for the private auto industry R & D?

A: The govt is not responsible for R&D in the private sector. The confounding issue here is that the auto industry is a large part of the economy, and the government has the responsibility to mantain the economic integrety of this country. For this reason the automotive bail out should be considered, and it should only pass with strict requirements. These include: The auto industry should recognize why it got into trouble–because it wasn’t innovative and competitive. and be responsible to meet mile stones of fuel efficienies matching and surpassing those of Asian manufactureres.

Requirements for receiving a bailout:
-Strategies to improve fuel efficiency (to match and surpass those of Asian manufacturers)
-Time line for a fleet comprised mostly of electric or hybrid vehicles
-Continue to make big cars (SUVs and smaller pick-up trucks) that are lighter, safer, and have them run on smaller more efficient engines. Just because a soccer mom wants an SUV to fit 5 kids with the added safety associated with size, that doesnt mean she needs a V8 engine.

-A fraction of the bailout dollars should go to provide additional incentives for purchasing smaller, more fuel efficient cars

In addition to the automotive industry’s efforts in retooling and innovation, they will also have to invest in revamping their image (not paid for by the bail out).



  1. popsrcr says:

    The problem isn’t the cars, its the pensions the unions negotiated. Our cars get decent gas mileage. But, I really don’t think the gov’t should bail them out, either. We’ve been here before, its just worse this time.

  2. I feel that the difference in mileage between Asian and US manufacturers is at least partially a product of perception, particularly GM. I will list a few cars in similar segments for comparison of the 2009 model year line up:
    full-size luxury sedan
    Cadillac CTS 18 mpg city 26 mpg highway
    Infinity G37 18 mpg city 26 mpg highway
    Lincoln MKZ 17 mpg city 24 mpg highway(Ford lagging)
    Lexus GS350 19 mpg city 26 mpg highway

    Chevy Malibu (4cyl/6cyl) 22/18 city 33/29 Highway
    Honda Accord (4cyl/6cyl) 22/19 city 31/29 Highway
    Toyota Camry (4cyl/6cyl) 21/19 city 31/28 Highway
    Chrysler Sebring(4cyl/6cyl) 21/19 city 30/27 Highway
    Ford Fusion (4cyl/6cyl) 20/18 city 28/26 Highway

    Ford Focus(auto/man) 24/24 city 33/35 Highway
    Chevy Cobalt(auto/man) 24/25 city 33/35 Highway
    Chevy CobaltXFE 25 city 37 Highway
    Honda Civic(auto/man) 25/26 city 36/34 Highway
    Nissan Sentra(auto/man) 24/21 city 30/29 Highway

    From this list we can see that GM is leading the way domestically in meeting or even in a many cases exceeding Asian efficiency. Ford and Chrysler better pick up the ball. I didn’t bother listing the Dodge Caliber in the compact segment but it matches the Sentra which is horribly out of spec when compared with the other Japanese companies.

  3. Ooooh, correction on my part.
    Lincoln MKZ 17 mpg city 24 mpg highway(Ford lagging)

    should read

    Lincoln MKS 17 mpg city 24 mpg highway(Ford lagging)

  4. MCM says:

    I think a bailout is hardly necessary. American automakers are viable in emerging markets – of which is China, which will be investing $586 billion by 2010 in it’s own economy. This will mainly be in the form of infrastructure which should spur automotive sales in China.
    This year, sales of cars in emerging markets like Brazil, Russia, India, and China are predicted to outpace America’s appetite for vehicles.
    Keep in mind that America averages one car for every person eligible to drive. At the moment China has less than a 3 to 100 ratio and it would be fair to say that this statistic will go up sharply.

    Welcome to the global economy!

  5. The only issues with Brazil and other South American countries as a market is that they are fierce protectionists from what I understand and typically foreign companies make little to no money importing cars there.

    Here is an excerpt from the Ford wiki.

    “In South America, Ford has had to face protectionist government measures in each country, with the result that it built different models in different countries, without particular regard to rationalization or economy of scale inherent to producing and sharing similar vehicles between the nations. In many cases, new vehicles in a country were based on those of the other manufacturers it had entered into production agreements with, or whose factories it had acquired. For example, the Corcel and Del Rey in Brazil were originally based on Renault vehicles.”

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