What to Do About the Big Three?

Hey David Bornstein -

As far as green buses are concerned, it looks like the Big 3 have been doing something already. There are 1,000 GM-Allison Hybrid city transportation buses on the road. Deliveries to municipalities started in 2003. Looks like there are orders for 700 more. Here's a link to one of the reports about the bus from the National Renewable Energy Lab: http://www.nrel.gov/vehiclesandfuels/fleettes...

Many of the ideas below are Mr. Friedman's. I am simply recasting them a bit and adding some of my own thoughts:

A New Deal for the Auto Industry

With US auto companies in trouble, there is no shortage of opinion on how to solve their financial woes. Let's take a closer look at what could be done to create a revitalized auto industry that's truly an economic engine for our country. Just this July, foreign car companies passed Detroit in total US sales. Since then, all manufacturers, whether domestic or foreign, are having a hard time selling cars.

What I believe has happened is that consumers are wary of any car purchase because the cost of owning a car, mostly fuel, has become unpredictable. Even though gasoline has dropped from over four dollars per gallon a few months ago to around two dollars now, anyone thinking of paying for a new car is scared of what the future will bring. The American consumer is incredibly fickle. When gas is cheap, they want large, roomy SUVs. When it's expensive, they want small, economical cars. What's a car company to do? Can the environment survive when the decisions of what the product mix will be are determined by one thing--the price of oil?

In the process of finding fault, some have blamed management for poor decisions, labor unions for high wages and expensive benefits, lobbyists for keeping Congress in check and technology stagnant, and consumers for being short-sighted. Even foreign car companies share some blame because they have national healthcare and nonunion labor that keeps their costs lower. There is plenty of blame to go around. For that reason, we all need to sacrifice to save the auto industry.

Most of the solutions proposed to date are in the form of loans to car companies, buying their stock, or assuming pension or health care obligations. Some believe we should just let them go bankrupt and pick up the pieces. The main problem with these ideas is that they do not encourage mutual sacrifice. They just let car companies hopefully weather the crisis, just as they did in the energy crisis of the late '70s and early '80s, and once the smoke clears it's business as usual. Instead of loans, stock purchases, or other gifts of cash to prop up American car manufacturers, what I propose is that we create a "New Deal" for the auto industry that reduces dependence on foreign oil and makes fuel costs for automobiles more predictable. Here are the terms of the deal:

1. Gasoline will have a more predictable price. That price will be high enough that it encourages everyone, whether consumers or manufacturers, to think small. The price would be maintained through a variable tax on oil that increases when market prices drop, and decreases if they rise. You and I would need to sacrifice by paying more for fuel, and driving more efficient vehicles.

2. The Government would issue bonds, funded by the tax, that would give the auto industry necessary relief to get them through the transition period needed to build new vehicles. The money can only be used to retool factories, design new vehicles, or research new technologies. Any auto company that accepts the relief needs to fire its management team and board of directors. If they don't, they can try bankruptcy as the alternative. The car companies will also make a sacrifice.

3. Labor unions will need to sacrifice. Some of the money from bond sales would be used to fund pension and healthcare programs for a set period of years. In exchange for that relief, all existing contracts will be renegotiated going forward so that they are fair to all given the economic realities of the market.

4. Foreign car companies that do not provide a good standard of living for their workers would be forced to pay a tariff on vehicles imported into the US. The tariff would cancel out the cost advantage foreign firms have. Offshore manufacturers would also bear a sacrifice.

5. Money from the fuel tax and tariff not used for aid to unions or car companies would be used to build an oil-free infrastructure for fueling the cars of the future. That infrastructure wound consist of subsidies for biofuels, a Manhattan-project style program to create clean, inexpensive fuels and electric batteries, and installing green power generation capacity such as wind and solar power. This initiative would create new jobs for displaced auto workers and support new markets in the US for fueling our transportation system. This is the part of the New Deal where we benefit from our shared sacrifice.

If we adopt this program, the result will be that fuel for cars will become much more like a regulated utility. Regulating a critical part of our nation's transportation system will help greatly in making costs predictable. We know roughly what it costs to budget for electricity, phone service, and natural gas. Gasoline should be no different. As we make the transition to renewable fuels, the country will become immune to oil price fluctuations.

One of the most attractive reasons people want to own electric cars is that electricity has a predictable cost that's less than gasoline when it sold for four dollars a gallon. If we move our transportation system to one where fuel costs are predictable, we will feel more secure making a buying decision for our next car. Our auto industry will come roaring back, the environment will benefit, and our economy will benefit from stable, high-paying jobs.

Some recent comments on this blog defend GM management as victims of a downturn in the economy or because "they choose to build vehicles in a way that they think makes them the most money." The reality is that America is the victim of the auto makers and oil companies, who, as stated by T Boone Pickens; are in the process of producing the “greatest transfer of wealth in the history of the world”, from America to OPEC to the tune of 750 billion dollars per year. We praise our soldiers for their unselfish sacrifices in the Middle East where they’re fighting and dying. How about a little unselfishness from GM management? Perhaps they could commit themselves to weaning America from foreign oil; they are in better positions than anyone to create a revolution in green cars. Instead of “screw America, I’m just in it for the money”, how about a little old fashioned patriotism.

Much as I would like to mandate green cars, the problem is that if the big three don't get loans soon they may totally disappear before they can start on green cars. I'm not sure the economic system would support Chapter 11 at this point. And too much of our economy is wrapped up in the big three to let them collapse. Perhaps some sort loan guarantees with federal oversight is appropriate.

Beyond the next few months and today’s low gas prices; let’s get serious about stopping the sell-off of America and start restoring America’s transportation industry and reducing greenhouse gas emissions. We don’t need to haul 3 tons of steel with us every time we go to the store for a gallon of milk. But the reality is that with our urban sprawl; it’ll take years to develop the high density urban villages linked with efficient mass transit. We need the auto industry to come onboard in rebuilding America.

The most difficult part of the starting any process is taking the courage to choosing the path, making a decision, and part of it is because:”that sad, that idiots are so sure of themselves and geniuses so full of doubts”.
I can only hope that we, as a society, already have one crucial decision behind us: we have decided that we need change. More than one aspect of today’s economy has to be adjusted or rethought, we have to reach to the primary idea of working in the right direction and knowing, and by this we will realize the opportunity to create profit and prosperity. It looks like for many years now (really many, perhaps 30 or more) someone tried to build our economy on the idea of creating profit and…..
But perhaps we all have to be thankful for that, because now instead of facing social revolutions, bloodshed, nationalism or any other of the lowest form of human behaviors, we are just facing one seemingly undoable challenge: to transform ourselves from energy consumers to energy producers.
I cannot agree more with Mr. Freidman that we need leadership in making this change; we need a lot of courage from our government to throw us in to the revolution we desperately need-ET REVOLUTION!
And exactly how he says: “vision without resources is hallucination” -we have one chance in this lifetime to achieve this incredible project – to build the wealth of the nation by building the wealth of individuals and securing the future of the planet. But, someone need to find the courage to stop the easy money making machines of the “drill baby drill” establishment, and push those people with theirs resources to the “new-old” ball game – invest into the future, or somebody else will. There will be no bailouts for any of existing structures – they already prove themselves damaged beyond repair. Let those who run these companies take responsibility for their actions.
In times like this, we have to develop the necessary solutions for producing the cars featuring wind power turbines installed into the body of the vehicle (the way Mitsubishi is looking), with rooftops converted to the solar energy accumulators, lighter and” internet smart”. If we are still traveling on paved roads let us put energy converting mash into the structure of roads surface turning this surfaces to heat collecting platform. We definitely still have enough of the brain power in OUR research facilities, especially in new coming generations of scientists ,students and the always hungry for accomplishment garage inventors , to push forward the few last steps dividing us from finding final solutions for the new technologies and energy production.
Let’s forget for a moment about profit, we will not have it any way falling down for the crash, and lets concentrate on developing the way not only to avoid the crash, but to get on constant progress and growth- not by constant and irreversible use of irreplaceable resources of our planet, but by using given us, without limit, forces of our surrounding nature.
Enough of the theory, the practice still doesn’t look too good.
I am writing those words from Arizona, more specifically from sunny Tucson, where instead of being the solar energy capital of the world we are welcoming region to two substantial plagues of our country:
the drugs infestation and weapons use and production .And somehow even by having local research centers (U of A and ASU) for years now we are managing to do nothing in the way of progress.
I myself for the period of last year am trying to push forward the very basic idea of cooperation between major forces of the region on a very basic project: reuse( at this moment totally unusable)huge land platforms of non-operational cooper mine tailings as a base for a solar energy producing plant. A year ago my office was approached with the request for locating a couple thousand of acres of flat land at southwest of Arizona, as a location for a solar plant. When looking for the ideal location obvious thoughts came to play, one being the vast and undesirable surfaces of an abounded mine tailing. And after almost a year we are nowhere: the mining corporation still doesn’t know how to approach the problem of useless and other way worthless properties, local government officials (contacted 45 of them) still cannot figure out who will profit from this idea and how, U of A need investments to continue the research in this direction (already quite advanced and promising), and the solar company (at this moment FOREGIN) is waiting for the outcome. In conclusion simply no one is able to determinate the profit for them, looking on the project which in the short time will change the way in which this region is seen. Abundance of sun, perfect example of the recycle of damaged and unusable land, creating the supporting infrastructures in form of the glass and other necessary materials production, balancing heavily bearing in one direction age structure of the population of the region (creation of the job will offset now aging demographics of the Southwest)- what is wrong with this picture?
If I will believe in higher authorities I would say that they need to help us.
Mr. Freidman, I know that this example will not discourage you on your quest for only one solution to our redemption. Yes for unstoppable progress and green revolution, no to bailouts and lock of responsibility. Yes we can warranty the government support throughout taxpayer money for the auto industry under several conditions: complete change of corporate staff of those entities, temporary renegotiations of terms with labor unions ,establishing time period for repaying the “loans” to the budget and complete redo the transportation industry (please notice not AUTO industry)- let’s make it again the American pride. When creating the energy independence and its surplus we have to turn our attention to Deep Ocean and space discovery and continue development of new technologies. By completely changing our international policies and structure of our economy we will create an international environment in which we can cooperate and sell our technologically advanced products and exchange resources with India, Russia, China, EVERYBODY. We have to give respect to anyone’s way of life; we don’t have to change them according to ours or anyone else’s standards, they can decide for themselves how positive could be for them cooperation with us. Being the world “bully” or the world resourceful genius – that is the chose we can make now.
Commanding position at energy production, environmental issues, new technologies and the ways of its distribution – that what will put our country into position of the unchallenged leadership in global democracy building process.
Yes for investing in the education and research, no to repairs of unsolvable dinosaurs of industry, yes to the government restrictions on forms of the energy productions, yes on the courage to choosing the direction of development, yes on posting the energy and emission taxation.
We can come out of this mess stronger than ever, if only not everybody in our country has the brains of my Arizonians partners.

PS
Mr. Freidman,
Thank you for being here for us. You always give me hope for “The intelligent life on Earth”.

The Government should give the money to these Auto makers on the condition that they only produce green car technology.
The government should make it compulsory that they do this or they be left to battle their own financial problems if they don't want to move into the future!

Who in the right mind gives gas coupons to buyers and encourages them to buy sport utility vehicles? Why any of these three major US auto makers have not invested, produced alternative energy cars? Now that reality hit the consumer and they have awakened and refusing to buy SUV's these companies are begging for relief? If there is going to be a relief first rule has to be to fire all these executives without their golden parachutes. Instead of spending on lobbyists and gas coupons they should have spent money and planned for alternative energy cars.

Saw you on Meet The Press this morning. There isn't anyone in America I respect more on the issue of energy independence than you but I'm worried about one thing, the future of the Chevy Volt and subsequent models built on similar technology. GM's plug-in electric car is the game changing ticket we need to free ourselves of Middle Eastern dictator control of the US economy, our unwelcome entanglement in Middle Eastern affairs and our funding of the Al Qaeda trickle down economy and anti-American propaganda networks. I see what GM has on the front burner as vital to our national security and key to our finally ending and winning the War on Terror as well as preventing future conflict over limited global oil supplies that could involve nuclear superpowers. We can't let the Chevy Volt die.

BTW: Thanks for Roots of 9/11 and Addicted to Oil. They were the best education I've had on the biggest challenges

This won't be published but it needs said.

GM or Israel

That’s the question that Americans should answer. Every year for several decades the USA taxpayers have borrowed billions from China, and then sent them to the 6 million people of Israel to do with as they wish. We’re not talking peanuts here and in fact much over 135 BILLION dollars to Israel alone. http://www.wrmea.com/html/us_aid_to_israel.ht... . In addition we borrow tens if not hundreds of billions more from China to give Egypt and Jordan so that they don’t disturb the peace in the Middle East (i.e. as a bribe to maintain Israel’s well being).

So now Congress has a choice. Should they bailout our US auto industry and the remaining vestige of our heavy manufacturing and potential defense provider and 3 million US jobs even though the CEOs have shown to be utterly incompetent, or do we instead borrow billions more from China and send it onward to Israel, Egypt and Jordan to make things better for Israelis. And do we also give away hundreds of billions to the worthless greedy schmuck money changers of Wall Street that have destroyed the credibility of the USA financial industry?

Facts: Automotive companies are commercial enterprises, there are several of them, and they all compete to build products that folks want to buy. In the NA market, this meant a high fraction of large pickups and sport utility vehicles throughout the 90s and for the first half of this decade. Virtually all automakers have produced these to varying degrees. The ones that chose to do so innovatively made big profits, because lots of americans wanted them and all the comfort features that they provieded instead of smaller, more fuel efficient cars. The ones whose business was very dependent on them are now struggling because of the upward trend in gas prices. These companies are not "moral" entities...they choose to build vehicles in a way that they think makes them the most money.

It would be nice, if for once we could have a moderated, balanced, and informed discussion based on facts and data, rather than personal bias. It is obvious that Mr. Friedman has a personal agenda, and that he chooses to intentionally distort the discussion by presenting statements into his editorials as facts when in fact they are opinions, and in some cases false or poorly informed. Makes for good fiction and stimulating columns which is probably why he's doing well as an author and columnist, and not as a scientist or economist. He asks leading questions that hinder the follow on discussion because the responses are falsely steered by his questions and distorted "facts". In any case here are some responses:
"Is it a good idea for the government to rescue GM with a financial package like the ones offered to Wall Street earlier this year, or is such a rescue a way of stimulating ignorance and rewarding the worst offenders, the foes of energy innovation?"
Are automakers the foes of energy innovation?...they make machines which convert energy into motive power so that people can move from point A to point B. The cheapest and most technically feasible energy to date has been fossil fuels. They are abundant and have excellent volumetric energy density. This is why their use is so common, and it is why automobiles use gasoline and diesel fuel. If we feel the long term costs of using these are not accurately reflected by current prices then we should tax them highly enogh to reduce consumption and stimulate more investment into alternatives. More fuel efficient vehicles will follow from all manufacturers because folks will either (1) Buy smaller vehicles, and/or (2) be willing to pay more for technologies because they will offer savings due to reduced operating cost.
Are automakers ignorant?... perhaps in some areas but I'd be willing to bet that even the "bad" ones have far more collective knowledge, and scientific and economic insight than Mr. Friedman.

to the person promoting their idea of using bio-fuels as an alternative for the future.

that solution is no solution at all. it is also part of the problem. what happens if we move toward bio-fuels? food grains are taken out of the food markets. don't believe it. thinking only waste will be used. you're living in lala land. already bio-fuel processing plants are sprouting up. one in my area and guess what? it's being subsidized by you! you're paying for them with tax breaks and subsidies.

what's the payoff? none. another bad idea from people who see tunnel vision views of the problem. bio-fuels are not free. it takes food from the markets---which will drive up prices. not lower them. will it change things? make fuel conservation the rule. no that's funny.

the only thing that will lower our dependence on foreign oil and oil in general is a true alternative. wind and natural gas conversions are the only real alternatives that offer any real hope. solar is also but the technology isn't theer yet for it and may not be for some time before some bright person discovers a viable system that works cheaply.

why are gas prices down? i had a person say to me that things were getting better and his rationale? lower gas prices....lol lower gas prices is NOT a sign of improvement----it is a sign that people were shocked into conservation and now they don't have to money or ar afraid to not conserve. even when they cut production prices still went down. prices are lowered either by a gut in availability or lack of sales. it is the same retail sales and gas prices are just as subject to those rules as other segments. it demand were not down...prices would not be down.

what i'm afraid of is that now that gas prices are lower we're not going to do as T. Boone Pickens is promoting and move to natural gas (which we have abundantly) and wind and solar for the future.

If the US automakers are to be bailed out, let’s have the federal government directly take over the long term liability of their legacy pension and retiree health benefits (maybe not at the same lucrative levels).

Once the liability is off their books a financial restructuring of these companies could be completed, either individually, or by combining with, or being bought out by, other carmakers. Foreign carmakers would have bought out the Big 3 long ago had it not been for these liabilities. Since these companies currently build cars effectively in non-union parts of the US, they will rightly look for states like Michigan to limit the crippling effect of union influence.

Once restructured or consolidated into Toyota / Honda / Nissan, aggressive incentives to build parts, and assemble in the US should be provided. A risk to all US auto related businesses noted by Senator Carl Levin and others is a red herring. The same number of cars will be sold and serviced here whether the US automakers go into bankruptcy or not. So, as a total number, sales and service jobs, are not at risk. They will simply work for different employers. It’s the production jobs we need to try and keep here.

"Two for the price of one." How to help automakers by achieving another goal.

"Big 3" management has failed to be imaginative or futuristic making them less competitive to nimble offshore manufacturers. Giving them dollars directly will likely be lost down a dry well.

HOWEVER, one way to "Bail Out" the industry (and achieve other ends including blue collar jobs) would be indirect.

Quickly implement UNIVERSAL HEALTHCARE. Currently the companies have BOTH legacy and future costs which add $1,500+ to each automobile -- which means a loss of competitiveness against other countries.

Such a merging of goals could not be viewed as a direct governmental subsidy rising the ire of other governments because they, already, provide health care services to their citizenry.

It would lessen the production costs of most big three vehicles by 5-10 percent. It would protect the auto workers and their families in both income/jobs and benefits (as well as) and in downstream industries and occupations.

Removing the healthcare line item would allow the big three to more easily restructure under bankruptcy (and help them to (hopefully) also think outside of their (dis)comfort zone. Perhaps they'll even learn about "green" technologies.

There should be a connect between electric vehicles put on the road (an increase in load)and electricity produced from clean renewable sources, such as solar or wind,to keep the vehicles charged. If the increased electricity demand is met by traditional sources than I believe the environmental benefit will be minimal and we will develop a new set of problems.

If electricity generation for this purpose is left in the hands of those who provide the power now, I am certain that a way will be found to charge the equivalent of $4.00 per gallon for that electricity removing one of the current benefits of the approach, (low fuel cost). This will undoubtably impact negatively the cost of the electricity our current habits require.

A relatively small PV array at home or work could offset this new energy need. Reducing the load on the traditional energy system is more desireable than transfering the load from one bad choice to another.

First, let me start off by saying I think the book is wonderful and long overdue. My comment is about the "First Law of Petropolitics." You state, basically, that the premise of this law does not apply to democratic countries. As I was reading this section of the book a few notions popped into my head and then just would not leave. I had to put them down in this email. I thought about the rise of oil prices in this country, the United States, and the then subsequent affects on democratic values. These are some of the thoughts that come to mind:

2001-rising oil prices/passage of the Patriot Act
2003-rising oil prices/invade Iraq-anyone who objects is deemed not patriotic
2004-rising oil prices/American citizens detained as war criminals-loss of right to counsel-no habeous corpus-the 4th Amendment- which prohibits warrantless searches and seizures is greatly infringed on through the NSA
2005-rising oil prices/NSL's used at public libraries to try an obtain records-poor citizens of New Orleans lose homes as the city begins to comandeer certain ares of the city-no bid contracts awarded
2006 through 2008- rising oil prices/freedom to peacefully assemble- protestors arrested at Bush speaking events and Republican National Convention
2008- prices dropping/landslide victory for Barrack Obama

Again, thanks for writing the book. I do not purport to be an expert, however, I am a concerned citizen who loves to read books.