Why the Automakers Won’t Make Fuel-Efficient Cars, Even as the Price of Being Bailed Out

by Robert Reich —

Telling automakers to make more fuel-efficient cars as a condition of being bailed out is like telling Citigroup or any other big bank to issue more affordable loans to Main Street as a condition of being bailed out. It won’t happen.

Conditions like these make the public feel better about using their tax dollars to bail out private firms, but they’re useless. Automakers, like the big banks, will do the minimum required, and you can bet their lawyers and lobbyists will find ever more clever ways of avoiding even that minimum. Without lots of buyers who want fuel-efficient cars, automakers won’t produce them, period. (Without credit-worthy borrows able and willing to pay the costs of bank loans, they won’t be issued, either.)

You might think that the recent memories of $5-a-gallon gas would transform nearly everyone into prospective buyers of hybrids that get more than 30 miles a gallon. Think again. Consumer memories are dreadfully short. With gas prices settling down to half that sum, buyers (to the extent they still exist in this recession) are moving back to SUVs and pickup trucks, which automakers are all too happy to provide given the larger profits that come with gas-guzzlers. We’re witnessing a repeat of what occurred immediately after the oil crises of the 1970s. As soon as cheap gas was readily available, consumers who had said they wanted fuel efficiency went back to their old ways — and so did the Big Three.

robert_reich.jpgWhat to do? Short of a gas tax that would push prices back up to $5 a gallon — something deemed politically impossible — the only way to get lots more fuel-efficient cars is to put the costs of the gas-guzzlers on to the automakers themselves, as part of a cap-and-trade system requiring the major sources of carbon-dioxide emissions to pay for them. This would give automakers a powerful incentive to make more fuel-efficient cars and price them far more attractively than the guzzlers, thereby attracting consumers to them.

But a conditional bailout that flies in the face of consumer demand won’t work.

by Robert Reich

Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.

This article first appeared on Robert Reich’s Blog. Republished with permission

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  1. george says

    According to the LA Times, at least GM (and probably the others) make efficient cars abroad and make money on them. They also produce cars with about the same labor input as foreign companies in the US. The difference is the cost of labor and healthcare. The first thing they need is interim support for healthcare and a fast track toward an eventual universal single-payer system similar to Germany. The second is matching benefits for their competitors in crappy “right-to-work” states, which means the UAW has to give up some benefits and their competitors can either increase benefits or help fund Big 3 (or 1 or 2) workers. They just couldn’t afford to emphasize small cars with their union cost structure, competing with non-union no-legacy-cost competition; I probably would have done the same in their position.

    They all have to agree to higher efficiency and emission standards, cut back on lobbyists and perks, a lot of dealers must disappear, one of the companies can disappear and the others perhaps shed some operations, etc., but the big item is fair competition.

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