North America’s auto manufacturers seem to be next on the list for a big government bailout. As with other bailouts of private sector firms, there are legitimate worries about the public at large bearing the cost of losses, while gains had accrued to private individuals. In the case of the auto industry, there is the further risk that a bailout will permit North American firms to continue with their existing mode of operations, which had clearly failed before the credit crunch made the situation acute.
That being said, a case can be made that a bailout is the least problematic option. It can also be pragmatically recognized that governments are likely to provide the cash, rather than allow one of more of the firms to fall into bankruptcy.
Perhaps the best way this situation can be turned somewhat positive is to mandate tougher efficiency standards for vehicles, as partial public recompense for the funds. The biggest gains can be made in improving the least fuel efficient vehicles. According to calculations posted on Gristmill, improving the fuel efficiency of dire vehicles like the Hummer H3 (15 mpg), Yukon Denali (14 mpg), and Chevy Trailblazer (13 mpg) is a more promising initial strategy than trying to push the efficiency of cars like Honda Civics (29 mpg) upward.
This strategy is likely to be politically problematic. For one thing, it impinges on the flawed notion that people have a right to drive whatever they want and can afford. For another, the production of highly inefficient, high-margin vehicles is concentrated in North America. Nonetheless, if this is to be a one-off rehabilitation, rather than a temporary reprieve from systemic problems, the North American auto industry needs to shed much of its past philosophy and approach. It is remarkable that no automobile assembled in North America meets China’s fuel-efficiency standard. Along with the structural financial problems in the industry, that is a situation that will need to change.