Let Them Fail

Last month, the chief executives of General Motors and Chrysler made their now monthly trek to Washington — skipping the private jet this time — to grovel at the feet of Congress. Their humble request? Another $21.6 billion, please. That’s how much taxpayer support is needed — on top of the $17.4 billion in loans they had already been granted in December — to allow them to keep the lights on through March. Without this aid, they warn, two-thirds of Detroit’s Big Three will plunge into bankruptcy, sending cascades of financial woe throughout the U.S. economy.

My advice? Congress should say no.

The U.S. auto industry has an annual manufacturing capacity of about 18 million vehicles. According to MotorIntelligence, the industry’s annual sales rate in January was just 9.6 million vehicles. Recession or no, any industry that produces twice as much product as consumers wish to buy is in need of a great deal more than a little “restructuring.”

Take Chrysler, for example. Since the breakup of its transatlantic marriage to Daimler, the company has lacked both the infrastructure and the ability to design new cars for today’s market. Addressing that fatal flaw will ultimately cost many more billions in taxpayer assistance than what the company requested.

Why on earth should taxpayers be responsible for stringing Chrysler along just so that it can eventually partner up with Fiat (in yet another dubious transatlantic marriage) to produce American-made copycat versions of fuel efficient cars that Europe and Asia have been churning out successfully for decades? Who benefits from that arrangement?

If Congress refuses to give them another bailout, G.M. and Chrysler will almost surely shut down nearly all of their plants and lay off tens of thousands of workers. When that happens, the taxpayer resources that would have gone to propping up these two “zombie companies” should instead be used to transition their profusion of industrial capacity from the business of producing unwanted cars to producing desperately needed solar panels, wind turbines, biomass generators and advanced batteries.

Beyond the obvious imperative to jump-start these industries in order to forestall the worst effects of climate change, there’s a substantial amount of unmet demand for these products in the marketplace. Here in California, the electric utilities are likely to fall well short of their state-mandated renewable portfolio standards next year, not for lack of trying but for simple lack of supply resources.

And anyway, as a result of new federal fuel efficiency standards, as well as California’s soon-to-be-approved greenhouse gas emissions standards for vehicles, the auto industry was going to be required to significantly re-tool its remaining plants anyway. Why not give them a complete overhaul and turn them into state-of-the-art green power manufacturing plants?

As for the thousands of soon-to-be-unemployed workers at these plants — the welders and machinists and sheet metal workers — they already possess all of the skills necessary to make the U.S. a global leader in the clean energy sector.

As it happens, the combined $39 billion in loans that G.M. and Chrysler have received and are seeking from Congress is almost exactly the incremental cost that the Department of Energy estimates would be required for the U.S. to produce 20% of all of its electricity from wind energy by 2030.

That amount of money alone — which would of course leverage many times more funding from the private sector — would also be enough to install at least 10,000 MW of concentrating solar power. Or to build at least 25,000 miles of new high-voltage transmission lines to deliver all of this clean energy to urban load centers on the coasts.

Whether used to fund manufacturing tax incentives, production tax credits or grants, investments in energy R&D, green collar jobs training programs or direct investment in promising start-ups, this money would yield enormous long-term environmental, economic, and national security returns. According to the Apollo Alliance, for example, a $300 billion federal investment in clean energy over 10 years would generate 3 million new jobs and ultimately return $306 billion to the treasury in revenues. That’s economic stimulus that we can all believe in.

So Congress — and the Obama administration — face a choice: they can gnash their teeth and wring their hands, they can deliver stern lectures to auto executives until they’re blue in the face, and they can pretend that 535 elected officials (plus a panel of appointed “car czars” for good measure) can do a better job guiding the industry than Detroit has done. Or, they can seize this unlikely opportunity and use it to stake our country to an insurmountable lead in what is likely to be the most important industry of the 21st century.

Rather than continuing to prop up the failed enterprises of the mid-20th century, Congress should embrace its inner venture capitalist and actively encourage the creative destruction process that once made the Big Three the titans of industry. As Thomas Friedman notes, our national mantra right now should be “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”

Half a century from now, what do we want to hand over to our children and grandchildren: the keys to a homegrown, pollution-free energy sector, or the keys to a beat-up rusty auto industry — an anachronistic and semi-nationalized also-ran that is a full half century past its glory days?

Jim Stack is a resource planner at the City of Palo Alto’s municipal electric utility, where he works on renewable energy procurement in an effort to meet the City’s self-imposed RPS mandate of 30% by 2012 and 33% by 2015. He holds a Ph.D. in mechanical engineering and a Master’s in public policy, both from U.C. Berkeley.

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