Why the Automakers Won’t Make Fuel-Efficient Cars, Even as the Price of Being Bailed Out

Telling automakers to make more fuel-efficient cars as a condition of being bailed out is like telling Citigroup or any other big bank to issue more affordable loans to Main Street as a condition of being bailed out. It won’t happen. Conditions like these make the public feel better about using their tax dollars to bail out private firms, but they’re useless. Automakers, like the big banks, will do the minimum required, and you can bet their lawyers and lobbyists will find ever more clever ways of avoiding even that minimum. Without lots of buyers who want fuel-efficient cars, automakers won’t produce them, period. (Without credit-worthy borrows able and willing to pay the costs of bank loans, they won’t be issued, either.)

You might think that the recent memories of $5-a-gallon gas would transform nearly everyone into prospective buyers of hybrids that get more than 30 miles a gallon. Think again. Consumer memories are dreadfully short. With gas prices settling down to half that sum, buyers (to the extent they still exist in this recession) are moving back to SUVs and pickup trucks, which automakers are all too happy to provide given the larger profits that come with gas-guzzlers. We’re witnessing a repeat of what occurred immediately after the oil crises of the 1970s. As soon as cheap gas was readily available, consumers who had said they wanted fuel efficiency went back to their old ways — and so did the Big Three.

What to do? Short of a gas tax that would push prices back up to $5-a-gallon — something deemed politically impossible — the only way to get lots more fuel-efficient cars is to put the costs of the gas-guzzlers on to the automakers themselves, as part of a cap-and-trade system requiring the major sources of carbon-dioxide emissions to pay for them. This would give automakers a powerful incentive to make more fuel-efficient cars and price them far more attractively than the guzzlers, thereby attracting consumers to them.

But a conditional bailout that flies in the face of consumer demand won’t work.

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About Robert Reich 547 Articles

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

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