Alternatives to an Auto Bailout: Help the Economy and the Planet

Are you as tired as I am of the unending bad economic news? From the subprime crisis to the collapse of the real estate bubble to the near-failure of the global finance industry, it just goes from bad to worse. More scary news this week — major retailers are failing (Circuit City) and one or more of our domestic auto manufacturers appears to be next.

It now appears likely that the government (and as a result we, the taxpayers) will fund some kind of bailout for the auto industry. The price tag could be in the $25 - $50 billion range, and that’s on top of a $25 billion loan they’ve already received from the US Department of Energy to retool their operations to produce more efficient cars.

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This really pains me. Several years ago, when the Prius began to take off, it was pretty clear (at least here in California) that this was the beginning of a transformation rather than a little niche. It doesn’t take that much marketing insight to see that something major is happening when folks who normally would buy $50K+ luxury cars (executives, celebrities, high-tech entrepreneurs, etc) are standing in line to buy a $22K mid-size car that looks like a spruced-up door stop. Especially when that trend is being driven by a real-world problem that just happens to threaten the entire planet.

Instead of taking action, the US car companies pursued inaction. Instead of investing in new design on these alt-fuel cars, they lobbied hard to prevent increased fuel economy standards. They repackaged old products based on old technologies in increasingly extravagent ways (see Hummer and Escalade) instead of ramping up innovation. And they made sure that they used their clout (both companies and unions) to keep anyone else who might prod them to change, such as the State of California Air Resources Board, at a standstill as well.

These companies deserve to fail, but this can’t happen. Our economy is teetering on the brink, and losing one out of every ten jobs in the US (and probably a higher percentage of wealth, given that these jobs are high paying) would certainly push us into a deep dark hole the likes of which we haven’t seen before. This would take a huge human toll: as much as auto unions have been part of the problem, they represent hundreds of thousands of workers who have families to support and homes to keep out of foreclosure.

Now, I’m not an economist. But it would seem that we can either “rescue” these companies (albeit from themselves) or sustain their work forces in a way that ensures we are fueling the creation of a new economy rather than prolonging the rattling last gasp of an old one.

Here are some thoughts, and I’d love to hear some of yours as well:

• Provide the funds, but with major strings attached. First, they must be used exclusively to fund the acceleration / development of new green cars. The Japanese and German manufacturers seem to be able to do this on their own, but our companies need a big stick. Second, remove the Boards and top executives who have been part of the downward spiral. Thomas Friedman in the New York Times recommended bringing Steve Jobs to the rescue, but why stop there? Assemble new boards and sprinkle the executive teams with folks from Silicon Valley and other centers of innovation. 
• Invest in retraining a major portion of the companies’ workforces for new energy-related jobs as part of any package. Together, the Big Three employ about 140,000 hourly workers in the US. You could pay full salaries and benefits and fully retrain half of those workers for less than $10 billion. Our new government is likely to invest billions in new energy technologies (solar panel installation & manufacturing, geothermal generation, new transmission infrastructure, etc), and these workers could be on the ground floor of the next great growth industry.
• Provide incentives to new renewable energy manufacturers to locate near failing auto plants. Take, as an example, thin-film solar companies. Billions have been invested in this promising technology, and many of the leading companies are based in the US.  But, most of the production capacity is being built overseas.  The same is true for many other green tech advances. Keep them here, and staff them with displaced auto workers.
• We’ve learned as of late that large banks can fail in a less-painful way when they’re immediately taken over by a stronger bank. Let’s do the same here - wouldn’t Honda or Toyota do a better job managing GM’s manufacturing network? I know this is controversial, but pitting any domestic survivors against a combined multinational company would be the competition needed to make all remaining players stronger.

I’m sure some of these won’t pan out under rigorous economic or political analysis. But this crisis is also an opportunity to finally get things right in a critical industry. That will require new and perhaps radical thinking, not more of the same.