Meltdown in the financial sector. Recent spikes in oil prices.
Democratic electoral gains throughout Washington, made possible in part
by the political muscle of organized labor. Add it all up, what have
you got? A perfect storm that will surely translate into an infusion of
billions more in taxpayer life-support for the seriously - possibly
terminally - ill U.S. car-makers.
Such an outcome may not happen during this week's lame duck session
of the expiring 110th Congress. In fact, the smart money says enough
Republican legislators will find offensive the idea of throwing good
money after bad that they will preclude passage in the Senate this year
of any bailout for Detroit that the Democrats manage to cobble together.
Even so, the increased numbers of Democratic legislators who will make
up the 111th Congress and the evident support of the incoming Obama
administration essentially assures there will be a rescue package for
Ford, General Motors and Chrysler, known collectively as "the autos."
The only question is what are its terms - how much money, how few
strings and how long it will stave off the inevitable: the
restructuring, downsizing and retooling of what used to be known as the
At this writing, it seems likely that, come next year, economic
conditions in general and those of the U.S. automakers (not to be
confused with American-based manufacturing operations of their foreign
competitors) will translate into relief for Detroit. "Too big to fail,"
too many jobs at stake, too much of the nation's manufacturing
capability at risk are among the considerations that will justify
government intervention on a massive scale.
The effect will probably be to perpetuate, rather than alleviate -
let alone eliminate, the myriad problems that afflict Ford, GM and
Chrysler. Until the effects of this bailout diminish, management
changes may or may not be made. Inefficient facilities may or may not
be shuttered. Turning the Big Three into the not-so-Big Two will or
Unless the costs associated with producing American vehicles in
union shops are dramatically reduced and there is a turnaround in the
appeal of such cars and trucks to consumers buying fewer of them from
anybody, the writing is on the wall: No amount of largess at the
taxpayer's expense will stave off the autos' inevitable downsizing, job
loss and economic dislocation.
One thing might make a difference in alleviating these bleak
prospects and, if integrated into the coming rescue package for
Detroit, even justify such an intervention: Tie the bailout to the
adoption of a new "Open Fuel Standard" (OFS) that would have the effect
of giving U.S. automakers a distinct, near-term competitive advantage,
while making a giant leap on one of our most important national
security challenges - energy security.
The idea is straightforward. The Big Three have produced
approximately 6 million vehicles now on America's highways that are
equipped with what is known as a Flexible Fuel Vehicle (FFV)
capability. FFVs can be configured to run on ethanol or methanol -
fuels that can be manufactured from a variety of sources that we have
here in abundance - or on gasoline, or some combination of the three.
The American auto manufacturers have also produced many more such
vehicles for the Brazilian market where an OFS is effectively the law
of the land, ensuring that all new cars offer consumers "fuel choice."
Brazil's experience is instructive. Where fuel competition is afforded and the monopoly gasoline currently enjoys in the United States
is broken, the costs of powering the transportation sector are
dramatically reduced. What's more important, billions of dollars that
might otherwise go to purchase oil from sources that are unstable at
best and unfriendly at worst can be kept at home.
During the recent presidential campaign, both Barack Obama
and John McCain endorsed the concept of an Open Fuel Standard.
Legislation that would institute it has been introduced on a bipartisan
basis in both the House and Senate (H.R. 6559 and S. 3303,
By incorporating the bills' requirement that, by 2012, 50 percent of
all new cars sold in this country be Flexible Fuel Vehicles - which
Detroit's auto companies have already committed and are planning to do
- we can begin weaning America off of our cars' current, absolute
addiction to oil. The legislation would require that by 2015, a further
30 percent of these fleets be equipped with FFV technology, something
that today costs less than $100 per car.
Imagine a President Obama as one of his first initiatives formally
embracing the Open Fuel Standard, rewarding Detroit for taking a step
that is highly desirable from both an environmental and national
security perspective with a bailout tied to the imposition of such a
standard on both domestic and foreign cars. The new chief executive
could inspire his people and advance his stated agenda of achieving
energy independence by calling on the American people to purchase a
vehicle with FFV capability. Until foreign manufacturers retool and
conform to the Open Fuel Standard, most of those FFVs will be sold by
the Big Three - a shot in the arm for them, our economy and the
national interest more generally.
An additional benefit for an Obama administration concerned with
alleviating world poverty is that the adoption by this country of an
Open Fuel Standard will have the effect of establishing it as a global
standard. Car manufacturers will sell their FFVs all over the world,
enabling about 100 countries to grow the fuels they need to power them,
ending their dependence on foreign oil and reducing dramatically the
petro-wealth transfers being used by freedom's enemies to our
Call it the silver lining of the autos' perfect storm.