Wednesday, November 12, 2008
Roger Rabbit Does Detroit?
LOTS of news today about Detroit, where the Big Three are sinking fast. So President-Elect Obama (my hero) and the Congressional Democrats are considering bailing them out. There are several problems with this.
- The leaders of the Big Three have acted incompetently for years — do we really want to trust them with our money now?
- We're not going to buy our way out of this crisis by coming up with exciting new cars, but that seems to be what the Democrats are talking about.
- What we really need is an alternative to what Detroit has been selling us — but maybe they can be a part of that. Big idea below.
A graph in today's Wall Street Journal shows how poorly American automakers have performed against their competition since 1995. Only high-margin, gas guzzling SUVs and pickups have kept them in the game.
Tom Friedman seems to concur in his column in the New York Times today. He has a dumb quote about the Prius from General Motors' Vice Chairman, who, speaking of dumb, also said that global warming "is a total crock of sh*t." The days when what's good for GM is good for America are clearly over.
Friedman has a new book out that advocates government policies to help make America the center of green innovation and technology. He says government intervention is necessary because the oil and highway lobbies are so strong that they successfully stifle green energy innovation, preventing a Silicon Valley type of bottom-up revolution. He may be right in general, but I think he's wrong about Detroit.
Friedman thinks that if we first fire all the Big Three executives, innovation and gizmos can solve the industry's economic crisis, but there are problems with that theory for this specific industry. First, we have almost one car per person in the US, and in the current economic crisis we're not going to go trading all those in on new models that lose 20% of their value as soon as you drive them home. Especially when they're like the Chevrolet Volt, which even with a big US subsidy will cost over $40,000 for a car that's not very good. Someone like me, who parks in a garage two blocks away can't even use one, because I'd have no way to charge it.
More effective than a putting all our Detroit eggs in a plan to exchange our polluting automobiles with clean green cars might be a plan to reduce our dependence on cars. The good news is that Obama and Congress have plans for that, and so does the American electorate. On Election Day, we passed 23 ballot initiatives that collectively authorized $75 billion in local expenditures on mass transit, like California's Proposition 1A. California's trains will be wind and solar powered and they are designed to drastically reduce both air and auto travel.
The bad news is that the trains will be bought from Japan or Europe. What if the Big Three go into the train and streetcar business instead?
In the early 20th century, America had thousands of profit-making streetcar systems. A GM-led coalition bought many of them and replaced them with bus systems (see Who Framed Roger Rabbit?). Now places like Portland and New Jersey are putting back thousands of miles of streetcar tracks, and it seems that many more miles are coming. Could Detroit once again lead the way, positively this time?
Executives like GM's Vice Chairman might be too big a problem to overcome. but we shouldn't bail them out if they're going to make money losers like the $40,000 Volt.Transforming Detroit from a car, truck bus industry to a clean car, truck, bus, train and streetcar industry is the big idea. Some of the funding could come from the $100 billion already being talked about for new infrastructure and mass transit. And there's more money in places like the ISTEA bill (see T4America). Isn't it better to leverage other funds and include Detroit in the plans to reduce auto dependency than to simply bail them out?
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» Why don't We the People give the Big Three contracts to build railroad cars and streetcars? from Veritas et Venustas
UPDATE: Freidman continues to put all his bailout eggs in one green technology basket, talking about what he calls "Car 2.0." I'm talking about Detroit 2.0. SINCE I WAS A KID, my immediate family has owned 12 BMWs, 3 Volvos, 2 Alfa Romeos, a Mercedes, ... [Read More]
Tracked on Dec 10, 2008 1:03:43 PM
Speaking of GM, in the 90's, they build a fantastic electric car that you could charge at home and that actually looked like a car. It was designed to meet California's zero-emission standards and was very popular.
Of course, at the same time GM, Ford and Chrysler were also doing everything they could to overturn California's visionary law, and once they were successful in that effort, GM recalled all their electric cars and had them crushed. Lessees were neither allowed to extend their leases, nor to buy them.
There is a great little movie about this available at iTunes called 'Who Killed The Electric Car'. You can see the trailer here...
As for the Prius, while Toyota is now making hay proclaiming it as evidence of their long-standing concern for the environment, it was actually just part of their preparation to meet California's laws. We, the market, made it an unexpected hit.
Posted by: Thomas Massengale at Nov 13, 2008 3:05:18 AM
I agree completely on the problems of the auto industry and also question the need for a bailout. I too am a strong Obama supporter but disagree very much with him on this...
First off GM needs to dump all their lobbyists in the Detroit River, and spend all that money that was used/wasted on lobbying politicians, on adapting and reforming the company to function in the year 2008. For too long they bought politicans and legistlation that allowed GM to keep the status quo (or more like the status quo of 1972). Unfortunately, now the President of 'change' has sided with the status quo. The only way I can understand this Obama support of the Auto Industry is for political reasons.
Ironically I was in Detroit a few months ago and talked with a transit advocacy group in the GM headquarters that was pushing for light rail along Woodward.
One thing I must say about Detroit... it has some amazing works of architecture, particularly Beaux-Arts and Art Deco.
Posted by: Roger Rabbit at Nov 14, 2008 6:07:41 PM
It seems to me that sooner or later the US auto industry is going to have to come to terms with the fact that union contracts are a large part of what makes it very difficult for them to compete in the global market.
In the long run, it might be better for the Big Three to be turned down for the federal bailout. That way, they declare Chapter 7, and restructure with the ability to renegotiate labor contracts. Otherwise, if the bailout comes through, they will simply burn through the money and will be in the same place they are today a few years down the road.
I believe that this is a big part of why Obama is for the bailout...he is a supporter of (and to some extent beholden to) Big Labor.
Posted by: EKE at Nov 20, 2008 2:31:52 PM
GM asking congress for a loan that means that they're incurring debt faster than they're able to produce revenue. That means either 1) they're in a cash flow situation which is short term, or 2) their business model is fundamentally flawed due to burdensome union contracts and heavy-handed regulation by the federal government.
Posted by: Egy Azziera at Mar 24, 2009 12:21:35 AM