24 Nov 2008: Analysis

A Detroit Bailout Must
Include a Green Makeover

Any federal assistance package for U.S. automakers must require that they finally commit to retooling their industry to produce cleaner, more fuel-efficient cars.

by jim motavalli

With much fanfare, the Clinton Administration in 1993 launched the Partnership for a New Generation of Vehicles, challenging Detroit’s size-obsessed Big Three to come up with 80-mile-per-gallon vehicles. The $1.5 billion program ended in 2001 with success…of a sort. General Motors built a car called the Precept that reached the 80-mpg goal. Ford’s entry, the Prodigy, delivered 72 mpg, and Chrysler’s ESX-3 did the same. All three were handsome diesel-hybrid family sedans, and all three were one-of-a-kind prototypes. Yet with some additional development work, versions of them could have hit the market in time to give the Japanese hybrids – Toyota’s Prius and Honda’s Insight – some real competition.

Instead, Detroit’s automakers abandoned their hybrids and plowed their
Detroit’s bigger-is-better formula was never sustainable in the long term, because it depended on a bottomless well of cheap oil.
research and development money back into the trucks and SUVs that were making them steady profits. The first American hybrid, the Ford Escape, did not appear until 2004—the same year Toyota introduced the second and much-improved version of the Prius. With such a commanding lead and high-quality products, Toyota soon captured more than 80 percent of the hybrid market.

Detroit’s bigger-is-better formula was never sustainable in the long term, because it depended on a bottomless well of cheap oil. And when prices soared above $130 a barrel, the pain at the pumps turned consumers away from gas-guzzlers, perhaps permanently. Even as oil prices have dropped dramatically, SUV sales have made only very modest recoveries.

America’s auto industry is drifting toward unprecedented disaster, and its resistance to change is at the heart of the problem. Lawmakers rejecting a $25 billion industry bailout have been understandably skeptical that auto executives, many of whom had flown to the congressional hearings in private planes, had learned the proper lessons, not just about austerity but also about increasing consumer demand for fuel-efficient, low-emission vehicles.

“Their board rooms in my view have been devoid of vision,” said Senator Christopher Dodd (D-CT). “The Big Three turned a blind eye to opportunities. They have promoted and often driven the demand for inefficient, gas-guzzling vehicles, and dismissed the threat of global warming.”

As Washington weighs whether to provide some form of assistance, some of the best ideas for saving Detroit are coming from environmental groups that would like to see any bailout or loan package coupled with a green realignment of the industry. Although the Big Three may regard that as a poison pill, it has the virtue of actually putting the automakers in line with the emerging market.

These reforms could include a commitment to producing competitive small cars as well as hybrids, plug-ins and clean diesels; an industry-wide focus on fuel efficiency and reduced emissions; and an end to litigious opposition to environmental regulation.

“The first requirement is that the automakers should drop their four-year legal attack against the global warming laws in California and other states,” says Ailis Aaron Wolf of 40mpg.org, a project of the Civil Society Institute.

At least 40 percent of the greenhouse gases California produces come from transportation. Recognizing that, California’s lawmakers in 2002 passed the nation’s first law regulating climate emissions from vehicles. A vehicle’s greenhouse gas emissions are directly related to its fuel economy, so carmakers argued that California’s law would mandate more economical cars. They sued the state, claiming that the federal government alone has the right to set fuel economy standards.

Carmakers further claimed that California’s law would shut down eight auto plants and cost many thousands of jobs. The auto industry’s most loyal home state advocate, Congressman John Dingell (D-MI), predicted that, if enacted, the legislation would cost consumers $3,000 per car.

The Bush administration sided with the industry. In 2007, under apparent pressure from the White House, the EPA blocked California’s efforts to obtain a routine Clean Air Act waiver that would have allowed the greenhouse bill to go into effect. But that action is likely to be reversed by the Obama administration soon after it takes office.

One of the reasons a proposed GM/Chrysler merger was unlikely to have worked was that both have product lines heavy on SUVs and light on small cars. “Obviously, the more forward-thinking automakers that have built hybrids and concentrated on fuel efficiency have done better in the marketplace,” Wolf says. “Any bailout funding should be tied to requirements that they commit to building hybrids, clean diesels and other highly fuel-efficient vehicles.”

Luke Tonachel, a transportation analyst at the Natural Resources Defense Council, also wants to see some tough love for the auto industry. “Any money that helps the automakers deal with their current economic situation should be conditioned on their establishing a business plan that will make them competitive in the future,” he said. “They have to make dramatically cleaner, high-mileage vehicles if they want to be competitive in a world of insecure and volatile oil markets and intensifying global warming.”

Tonachel points out that Detroit has a wide variety of on-the-shelf technology that could be incorporated into today’s cars to improve their environmental performance. These include streamlining body designs to reduce aerodynamic drag, the use of more efficient six- or even seven-speed transmissions, low-friction lubricants, and low rolling-resistance tires. Carbon fiber and other composites can also replace steel to reduce vehicle weight and improve fuel economy.

Jim Kliesch, a senior engineer at the Union of Concerned Scientists, thinks automakers should commit to a four-percent-per-year improvement in fuel
Although it sometimes talks tough to Detroit, Congress has rarely had the temerity to actually impose strong regulations on it.
economy across their entire product lines, from big trucks to compact cars. “We’re saying the taxpayers should be getting a return on their investment,” he said. “Consumers are clamoring for more fuel-efficient vehicles, and sadly there aren’t many of them out there right now. There’s plenty of blame to go around, but one of the biggest problems is that the industry has dragged its heels too long.”

Even the most negative assessment, however, should take into account that American automakers were innovators once, and can be again. “I don’t think we should count the carmakers out just yet,” Kliesch says. “They got fat and happy producing SUVs, but times have changed.”

Although it sometimes talks tough to Detroit, Congress has rarely had the temerity to actually impose strong regulations on it. Given the iron grip of Michigan’s delegation, especially the autocratic John Dingell, it’s not surprising it took nearly 20 years, until 2007, for Congress to impose tougher Corporate Average Fuel Economy (CAFE) standards.

But power bases are shifting. On November 20, Dingell was ousted from his powerful position as chairman of the House Energy and Commerce Committee, in part because the new chairman, Henry Waxman (D-CA), was perceived as more in sync with President-elect Obama’s environmental priorities—and less beholden to the auto industry.

Carmakers have already received one $25 billion payout in the form of federally subsidized loans that were included in the 2007 energy bill. Those loans are earmarked for retooling auto plants to produce fuel-efficient cars. Now, lawmakers from auto states want to free that money to meet immediate obligations, but there’s plenty of opposition to that idea, too.

The House version of the current bailout bill actually contains some worthwhile oversight of the industry, including a requirement for a long-term restructuring plan by next March. Indeed, under that version of the legislation, the auto companies would have ended up at least partially controlled by Washington regulators. For an industry that has resisted nearly every environmental and safety innovation, from the catalytic converter to the air bag, this was a nightmare writ large.

In his congressional testimony, General Motors CEO Rick Wagoner stressed that his company was already moving toward more fuel-efficient vehicles. He tried to make clear that GM has a new set of priorities, pointing to nine hybrid models the company will have out next year. And he also touted the forthcoming Chevy Volt, a sophisticated plug-in hybrid (with a small gas engine used solely to generate electricity) that GM hopes can achieve 100 mpg.

“We felt we were well on the road to turning around the North American business,” said Wagoner. “Since then, the industry and the economy have been hit hard by the global financial crisis.” The Volt survives, but financial woes have forced GM to postpone the plug-in version of its Saturn Vue Hybrid.

GM said in a statement that it “intends to deliver a plan to Congress that shows them a viable General Motors.” Greg Martin, GM’s spokesperson in Washington, D.C., told Yale Environment 360 that the company is finally willing to accept rigorous government oversight. Martin said the company accepts and will meet the 35-mpg fuel economy standards that were passed as part of last year’s energy bill. And he maintains that GM really wants to do the right thing. “When you look at our evolving product plans, even under extraordinary circumstances, the one program that has remained untouched with full funding is the Chevrolet Volt,” Martin said.

But not even the rosiest analysis would show Detroit reversing its fortunes with fairly expensive, low-volume products like the Volt, which is scheduled to appear in late 2010 as a 2011 model. Far more systemic change is needed. The cars rolling off American assembly lines—and soon—need to be as affordable and versatile as the Honda Fit, as well-made as the Nissan Maxima, and, of course, as environmentally friendly as the highly fuel-efficient, extremely low-emission Toyota Prius. Meanwhile, Detroit’s research labs will have to work overtime inventing competitive clean cars for the future.

POSTED ON 24 Nov 2008 IN Business & Innovation Business & Innovation Energy Science & Technology North America North America 

COMMENTS


I'm amazed this article does not mention the EV-1.
Posted by rrgg on 24 Nov 2008


The best way to "green" detroit is by letting them go bankrupt. New and innovative firms without the SUV = money mentality need to replace the current business model. ANY $$ sent to detroit will go towards business as usual.
Posted by David Zetland on 24 Nov 2008


How do you (or Chris Dodd or anyone else) know
what kind of cars Detroit should produce?

Detroit offers products that consumers buy. The
Precept, Volt, and Prodigy all fail that simple test.

It's not due to a lack of "vision" but rather due to
complex set of perverse incentives and poor
management that has Detroit in a jam.
Posted by pete geddes on 24 Nov 2008


"Critics beat up Detroit for building SUVs and
pickups (which earn profits) and scrimping on
fuel-sippers (which don't). They call for
management's head (fine -- but irrelevant).

These pre-mortems miss the point. Critics might
more justifiably flay the Big Three for failing
long ago to seek a showdown with the UAW to
break its labor monopoly. In truth, though,
politicians have repeatedly intervened to
prevent the crisis that would finally settle
matters.

The Carter administration rushed in with loan
guarantees to keep Chrysler out of bankruptcy.
The Reagan administration imposed quotas on
Japanese imports to prop up GM. Both parties
colluded in the fuel-economy loophole that
allowed the passenger "truck" boom that kept
Detroit's head above water during the '90s."


Posted by pete geddes on 24 Nov 2008


Detroit can't compete due to the onerous costs
of employer provided health care- not one of
the the major car producing countries suffers
from this limitation except the US.
To untangle the knot:
1. put uaw and retirees onto a derivative of hr
676( expanded medicare)
2. force detroit to signficantly increase cafe and
emissions compliance /targets
3. the us taxpayer will have to subsidize the HR
676 costs- less per year than the 25-50 billion
dollar bailouts under discussion.
4. the uaw gives back the 51 billion in VEBA's
that they will never see otherwise.
Win -Win-Win.
Posted by geoff thomas on 25 Nov 2008


Jim and others with similar proposals are making a big mistake by focusing only on the supply side. It is the demand side that is hurting Detroit. The auto industry has about 30% more capacity than the market can bear, and with the economy in trouble demand for new vehicles is only going to go down. Older, less efficient vehicles will therefore stay on the road longer--making GHG reductions more difficult. So, forcing Detroit to take the steps Jim proposes won't really solve their problems. Instead, they will make things worse for the industry.

The solution, from my perspective, is for any federal bailout to link the supply side changes proposed here with a federal buy back program where the government begins to purchase and get off the street all cars that fail to get at least 30 mpg (which is most) by, say, 2015. This will create the demand needed to save Detroit and dramatically reduce GHG emissions if the vehicles that replace them have get more than 30 mps and/or are electric, plug ins etc.

I'm writing a column on this issue for the papers I write for.

Bob Doppelt
Posted by Bob Doppelt on 26 Nov 2008


I've long been drawn into various levels of debates over who and what to blame for the giga tonnes of transport machinery, now more and more idle, on the lots of car dealers in America. Then I bought an electric, brushless dc motor hub for my bicycle. My thinking on the subject transformed. The bicycle pureists think it's slovenly. It fits my needs well. My transportation fuel costs are one tenth of fossile-fuel, happy motoring. The ratio of transported weight to vehicle weight are up in the whole numbers, instead of a tiny, inefficient fraction. Then again, I derive zero status from my mode of transportation.
Posted by Dave Crowlie on 26 Nov 2008


Though there is some sympathy for what lies
ahead for Detroit, there isn't a lot, even here in the
Great Lakes state. We asked the question at the
Apollo Alliance more than a week ago and received
this vigorous response. Pretty telling:

http://apolloalliance.org/feedback/apollo-
feedback-detroit-bailout-raises-ire-support/

Posted by Keith Schneider on 28 Nov 2008


Detroit already has green technology. Check the Ford Motor Company Web page and click on innovation. For has been working on hydrogen fuel cell technology for a number of years. They are in the testing stage with both hydrogen fueled cars and hydrogen fueled buses. The main thing now is to push this forward to full scale production. It does require hydrogen fueling stations, but Ford has been working on that with BP. There could be an immediate application with municipal transit systems. They are also working on plug-ins, and other environmentally friendly innovations. Ford brought in its present CEO from Boeing, and he has been turning the company around and moving forward. He has also indicated that they do not need a bailout. People should quit talking about the "Big Three" and "Detroit," tarring everyone with the same brush.
Posted by Fred Camfield on 13 Dec 2008


I guess everybody is going to have to repeat, because nobody is paying attention to history. Specifically, "shock & trance". Gas gets cheap and folks want "gas guzzling dinosaurs" (a phrase coined by an automobile company president many decades ago). Anybody remember the "oil embargo" in the 1970's? Let's not forget about far-out McMansions and sprawl: they all need cheap gas.

An ever-increasing greenhouse gas tax (on motor vehicle fuel, too!) will provide full guidance to all auto makers, domestic and foreign (Toyota has a brand-new assembly plant specifically for making humungous bwanamobiles). The tax should be refunded on a count-the-noses basis, to avoid punishing the economy. And the tax obviates all need for a governmental "car czar" to ride herd, whip in hand, on the auto industry.
Posted by David Ocampo G on 15 Dec 2008


We all knew this was coming sometime. I have been embarrassed by the US auto industry for a long time with their lack of design, environmental consideration, pretty much turning a blind eye to the consumer. It has finally caught up with them. The good side is that this can be the turning point for them to make things better.
Posted by Japanese words on 29 Mar 2009


Hybrid Sales Tank: http://www.latimes.com/business/la-fi-hybrid17-2009mar17,0,6682265.story

So it looks like this guy was just as wrong as he could be.
Posted by Rob H. on 08 Apr 2009


It shouldn't have had to come down to a global recession to force the car manufacturers hand to produce greener more fuel efficient vehicles. It should have been something that US auto makers were looking into a long time ago. Bio fuels like Corn ethanol, soybean and Algae which is still expensive to produce but creates a much cleaner end product could have been refined to the point where they were now a viable alternative to fossil fuel. Maybe if for all those years they invested some of their record breaking profits back into the right kind of development like Toyota then the impact they are feeling now wouldn't be so great.

I don't think softening the laws on pollution is the right answer either we only have one planet and cant fix it once its damaged beyond repair. Our generation will not be one that's looked back in history favourably.
Posted by Bead Stalk on 01 Jul 2009


The Carter administration rushed in with loan guarantees to keep Chrysler out of bankruptcy.

The Reagan administration imposed quotas on Japanese imports to prop up GM. Both parties colluded in the fuel-economy loophole that allowed the passenger "truck" boom that kept Detroit's head above water during the '90s."
Posted by antcollector on 18 Oct 2009


Jim and others with similar proposals are making a big mistake by focusing only on the supply side. It is the demand side that is hurting Detroit. The auto industry has about 30 percent more capacity than the market can bear, and with the economy in trouble demand for new vehicles is only going to go down. Older, less efficient vehicles will therefore stay on the road longer--making GHG reductions more difficult.
Posted by Silver on 20 Oct 2009


An ever-increasing greenhouse gas tax (on motor vehicle fuel, too!) will provide full guidance to all auto makers, domestic and foreign (Toyota has a brand-new assembly plant specifically for making humungous bwanamobiles). The tax should be refunded on a count-the-noses basis, to avoid punishing the economy. And the tax obviates all need for a governmental "car czar" to ride herd, whip in hand, on the auto industry.
Posted by Chest on 26 Oct 2009


Comments have been closed on this feature.
jim motavalliABOUT THE AUTHOR
Jim Motavalli is a senior writer at E/The Environmental Magazine, a blogger for the New York Times and The Daily Green, and a syndicated auto columnist. His six books include Forward Drive: The Race to Build Clean Cars for the Future.
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