Randall Stross wrote an article in the New York Times recently asking whether Tesla should receive the $400 million in low-interest federal loans it has requested. The money would come from a $25 billion loan package the government initially earmarked for improving fuel efficiency, but which now may be necessary just to keep the Detroit companies afloat.
(For a concise summary of Detroits economic woes over the last few decades and through the recent loan requests, read here.)
The government has two fundamentally different questions on its hands in making these loan decisions.
For the Big (and shrinking) Three, the question is,
“Should the government bail out an industry that, regardless of the current recession, is responsible for driving itself to the brink of bankruptcy because of poor strategic decisions in product offering and labor management?”
For Tesla, the question is,
“Should the government bail out a high-tech startup that perhaps overreached in its goals for reinventing the automobile power system?”
While all the companies concerned are “US automobile manufacturers”, the two questions are drastically different in reasoning.
Many have argued that bankruptcy is just the medicine Detroit needs to cure its financial woes. Others feel the painful restructuring process will do more damage to the local and national economies and related industries than is worth suffering, including the auto executives requesting the assistance.
I think the correct response lies somewhere in between. Now that the government has significant leverage over the auto companies, let’s use this bargaining position to our advantage. The EPA has always butted heads with auto industry lobbyists over fuel economy standards. Now the government can write the standards on its own terms. For example, we could model new standards after those in Europe with regulated CO2 emissions.
I’d like to avoid bankruptcies, if only for consumer psychological reasons. Consumers will avoid purchasing cars from bankrupt companies, and this will only exacerbate market share losses to foreign competitors.
But if Congress needs to send Detroit back home a couple more times (driving in their hybrids!) until they return with appropriately detailed and significant plans for their use of the loans, so be it.
Tesla is in a separate universe from the established companies. With its small size, it does not have the gravity in the national economy and its failure won’t send the US plummeting into an economic black hole.
On the other hand, its lofty vision of selling all-electric autos is a force far beyond its fleet size. While the sale of a few hundred Tesla roadsters will not make a significant impact on greenhouse gas emissions, the same bunch of battery-powered cars will exert undeniable pressure on the Big Three to respond with similar offerings.
Sure, Tesla’s only product costs $100,000 and is far out-of-reach for most Americans. But consumers will look at that vehicle and then walk into a Ford, GM, or Chrysler dealership and ask for the same thing at a third of the price. They’ll figure that with the R&D capabilities and scale of a major auto manufacturer, a plug-in auto at a reasonable price should be feasible.
Let’s face it. History shows that American auto companies lack the foresight to take longer-term, strategic factors (like the inevitable rise in cost of oil) into consideration when they do research and design vehicles. So, if they don’t possess the internal initiative to develop cleaner vehicles, then maybe Tesla is just the thorn in their sides we need.
Is it worth $400 million in loans to keep Tesla in place as a carrot to lead Detroit?
I think that is some produce that will really produce.
(Sorry, I couldn’t resist!)