The Whistle of a Distant Train

After decades of relative stasis in the development of new automobile technology, the big three automakers find themselves in a difficult position. First, faced with record oil prices, the industry which had predicated its business heavily on truck and SUV sales saw its sales plummet by double digit percentages as consumers yearned for more fuel efficient cars. It turns out that the power of the markets is a much more effective sanction to reduce consumption than any government policy. Although oil prices have declined dramatically (without an additional ounce of increased capacity from "drill baby drill") the economic recession has lead to a considerable lack of available credit from lending institutions. Even if a person wants to buy an American truck or SUV, it's very difficult to get acceptable financing terms.

A major reason for Detroit's inability to innovate was it's political influence. So strong is its political influence that to this day, Michigan does not have any annual safety or emissions inspection requirement for automobiles. The big three have always had considerable influence in both political parties and have been successful in lobbying to prevent new legislation that would have kept it competitive with foreign automakers. They have also fought state initiatives to establish fuel economy standards and to regulate emissions. One of the most influential Democrats in the US House, John Dingell (D-MI) has been a champion for the automotive industry, much to the consternation of consumer advocates and environmentalists. He has been instrumental in fighting increases in Corporate Average Fuel Economy Standards (CAFE) and also fought for separate standards and exclusions for light trucks. These efforts effectively froze fuel economy standards from 1979 to 2005, with only tiny incremental increases since then. It is this perceived lack of compatibility with the future Obama administration's goals towards fuel economy and climate change that Rep. Dingell was released from his chairmanship of the powerful House Energy & Commerce committee in favor of California Democrat Henry Waxman.

Foreign automakers operate under different political systems, that have not been influenced by Detroit. Their governments have fought to keep their economies from becoming increasingly dependent on foreign oil and sought to promote innovation and the use of mass transit. They have often turned to the politically unpopular method of creating price floors for oil. Instead of allowing wild swings in the prices of gasoline to occur, the price stays relatively high regardless. This guarantees that citizens remain conservation minded, and that automakers have a stable market to produce vehicles and an incentive to create more efficient automobiles. Contrast this with Detroit, that must endure considerable cost to retool its entire industry to adapt to these wild shifts in consumer patterns due to fluctuations in crude oil markets.

 Now some may argue that Unions have an effect on Detroit's situation. It's true that UAW unions have some effect on the US automaker's bottom line, but its hardly as damning as the fall in SUV and truck sales. Detroit has been successful for decades with unionized labor and the production regime is much more mechanized now than it was in the past. Honda seems to be weathering the downturn much better than its competitors, despite being produced in the US by union workers. Other countries have considerable amounts of unionization within their auto industries, as well as lower worker productivity from shorter working hours and longer vacation time. We can't blame all (or even much) of this on union workers; differences in labor costs are basically incidental when compared to manufacturer incentives in these market conditions. People are looking for inexpensive, smaller cars that are significantly less cheaper than SUVs, which in turn accounts to $5-6,000 less profit per vehicle sold (at least in Ford's case). I would wager that if the big three did not have fleet contracts for nearly all local, state and federal government agencies, they would have not lasted as long as they have.

It seems incredulous that even though that electric car technology has been around since the late 1800's, the US auto industry has done absolutely nothing to make this commercially viable until now. As a condition of any bailout package, Detroit must be mandated to produce hybrid and plug-in electric vehicles and retool their industry to provide clean mass transit and renewable energy infrastructure. We should no longer support an auto industry whose business model is counter to national environmental and national security goals.

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