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.
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
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