Congressional plan for green Detroit could be financially fatal
We're from the government and we're here to help. Those words strike fear into the hearts of conservatives anywhere. Right now those words probably should be terrorizing those hoping for a loan deal for the Detroit automakers as well. Before and after Congress declined to provide quick passage to loan package until the carmakers put a forward a plan, many people wanted to attach strings to the deal requiring the three companies to transform their fleets with a green lineup.
To a large extent this was already in process before the situation turned into a full blown crisis this fall. Product plans at Ford and General Motors (nobody really knows what's happening at Chrysler) had already been completely revamped over the last 18 months as the price of fuel skyrocketed. Most of the future "gas guzzlers" had been canceled or put on hold while more efficient cars were fast tracked. The programs that were moving forward were meant to be both greener and profitable. All of this was being driven by the market, specifically high gas prices, not CAFE. So, what's a good proposal for Congress to implement? My thoughts are after the jump.
[Source: Detroit News]
Right now, politicians want to force things along even further with a mandated move to plug-in vehicles. While this holds great promise, it's not clear that GM, Ford or anyone else will actually be able to sell any of these vehicles at a price that is both affordable and profitable any time soon. There are plenty of companies that have appeared over the years trying to do just this. None have succeeded because the market was not ready, the technology was not ready and the business case didn't work. Even Tesla is struggling right now and where is Phoenix Motor Cars anyway?
If Congress tries to mandate a technological requirement to go along with the cash, they could end up hobbling the companies with a plan that they can't money with. That would negate any benefit of keeping the Big Three alive. Perhaps the solution is to stay out of the supply side of the equation, and stimulate demand for efficient cars. Do something to actually get credit flowing and provide a bridge loan.
Most importantly, Congress needs to show some back-bone and get fuel prices back up again. They missed a golden opportunity earlier this year to implement a tax system that would not have caused any additional pain by setting a floor price for oil or gas. This would allow them, when the price falls below the threshold, to tax it and maintain a minimum level. If Congress tries to do this now, they will actually have to raise the price rather than maintain it. No one will be happy with them for that. Still, in spite of that political pain, this is what Congress needs to do and it will ensure that all automakers have a reason to get more efficient, not just Detroit.
If fuel prices stay low and only Detroit is mandated to build green cars, the market will go to more affordable machines no matter what mileage they get. A price floor is not the politically expedient solution, but it is the right one. Ensure demand and a way for consumers to buy the vehicles are there and they will get built, both by Detroit and other automakers. They exist solely to fill demand.
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