My Yale Law School colleague Ilya Podolyako comments on the Obama administration’s plan for the auto industry and the tension between public goals - preserving jobs, increasing fuel efficiency, etc. - and private goals - profitability.
By now, the dust seems to have settled around Obama’s rescue plan for two-thirds of the long-ago “Big 3” (in 2007, Chrysler ranked 12th in the world in total auto sales; GM has ranked 2nd; Ford, which is not receiving government assistance, was 4th). The policy itself seems prudent enough. The President’s Task Force on the Auto Industry recognized that due to its small scale, reliance on light trucks, and objectively low product quality, Chrysler is not viable as a stand-alone company. On the other hand, General Motors has large economies of scale and makes certain well-received products (the report mentions the Chevy Malibu and Cadillac CTS by name, though one could add the Cavalier, Corvette, and Escalade to those lists), but faces exorbitant legacy costs for its nearly one million retirees and low margins on its fuel-efficient vehicles. Given this fact pattern, the plan does as good of a job as anyone could in offering a helping hand to iconic American manufacturers while preserving some incentives for efficient private-sector operation.
My problem with the restructuring proposal comes not from any one of its details, nor even its general spirit. At this point, I feel fairly neutral about heavy-handed government involvement in US industrial policy. Admittedly, I am from Michigan and really like cars (despite consistent problems, I keep driving Fords, though I am not sure why), so I have some emotional connection to the industry to balance against the gross, obvious inefficiency of pouring money into enterprises that, by their own admission, will at best break even by 2014. I also do believe that a GM bankruptcy would lead to the net loss of a significant number of jobs that would permanently cripple Michigan’s already desperate economy.
I am concerned, however, with the absence of any apparent long-term vision for the “American” automobile industry within Obama’s proposal. A New York Times story provides a nice contrast to our own state of affairs when it explains that “Chinese leaders have adopted a plan aimed at turning the country into one of the leading producers of hybrid and all-electric vehicles within three years, and making it the world leader in electric cars and buses after that.”
Mechanically, the Chinese policy does not seem to be that different than that of the United States. If anything, it is facially less intrusive into the affairs of the automakers, though the fact that the government continues to own a controlling stake in most such entities makes this difference illusory. The national government will provide research funds for the development of alternative-fuel vehicles, coupled with direct subsidies for consumer purchases of such products. The PRC’s policy motivations look similar to those present on our shores too: cut down on pollution, preserve national stability in the face of shrinking foreign oil supplies, and foster industrial excellence.
(To View remainder of this article see:
http://baselinescenario.com/2009/04/04/guest-post-obamas-plan-for-the-auto-industry/
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