Bailing Out Big Three Will Keep New Technologies Off The Market
The heads of the Big 3 automakers are heading back to Washington this week for another round of congressional hearings on a proposed bailout package. There is little question that the Democrats in the House and Senate will eventually pass a relief package, but what remains in doubt is where the money will come from. There seems to be little appetite among lawmakers for a new appropriation, so the two proposals under consideration would take money away from existing programs and redirect it to the ailing automakers.
The initial bailout plan would have taken $25 billion from the Troubled Asset Relief Program administered by the Treasury Department. Secretary Paulson and President Bush have both made it clear that they would not support this diversion of funds away from the intended purpose of propping up the banking system. Apparently they see no irony in the fact that they have already diverted the money away from the original intended purpose of purchasing troubled assets.
Convinced by the auto executives that their survival hinged on immediate action, proponents of a bailout set their sights on another pool of unspent funds. Passed in 2007, the Energy Independence and Security Act contained several provisions, including an increase in Corporate Average Fuel Economy standards, and a mandate for the increased use of biofuels. The bill also created a $25 billion fund known as the Advanced Technology Vehicle Manufacturing Incentive Program to be administered by the Department of Energy. This is the money that lawmakers now seek to redirect to aid the Big 3.
It has been widely reported that the intended purpose of this fund was to help the automakers retool to build more fuel efficient vehicles, with the assumption being that the funds were specifically targeted at GM, Ford and Chrysler. This is simply not true. The act specifically stated that the Department of Energy should use the funds to provide “grants and loans to eligible automobile makers and component suppliers for projects that re-equip, expand, and establish manufacturing facilities in the U.S. to produce light-duty vehicles and components that make meaningful improvements in fuel economy.” Any company that meets the technological and financial requirements set forth by the DOE is eligible to participate. Nothing in the act indicates that the Big 3 are the intended recipients of the funding.
Tesla Motors is one of several new automobile companies formed in recent years to manufacture electric vehicles in the U.S. They recently began production of their two seat roadster model that offers a range of 244 miles per charge. They have plans to begin producing a five passenger sedan in 2011. Their current vehicles are quite expensive which is to be expected for a low volume producer. As with any new technology, we should expect to see the price fall dramatically as production volume increases.
Tesla has applied for a $400 million loan under the ATVMI program. The company intends to use the money to construct a new plant and purchase tooling to build their sedan model. If Congress raids the fund to provide a bailout for the Big 3, new companies like Tesla will find it nearly impossible to get the funding needed to bring their revolutionary products to market on a scale that will make them affordable to the general public.
Supporters of the Big 3 tell us constantly that automobile manufacturing is vital to our economy and to our national security. I agree with them wholeheartedly. Where I disagree is with the notion that GM, Ford and Chrysler are vital. If they disappeared tomorrow, there will still be a healthy demand for automobiles that someone will build in the U.S.
Tesla Motors is not alone in the development of revolutionary green vehicles that are ready for large scale production. The Aptera 2e will be available for sale in California starting next year, and Fisker Automotive is taking orders for their plug-in hybrid sedan for delivery in 2010. The plans of all three companies could be jeopardized by the current lack of available credit. We should not hinder the growth of new businesses offering revolutionary products in order to prop up failed companies that will only give us more of the same. If Congress truly believes that automobile manufacturing is vital to our national interests, they should demonstrate their convictions by leaving the ATVMI program intact.
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I’m becoming slightly irritated by the number of people claiming we should be purchasing more of the Big 3 vehicles based solely on the fact that it’s “patriotic” and “American”. These same individuals also seem to believe that every dollar we spend on foreign cars manufactured in the U.S. goes out of country.
Somehow, Americans are stuck in a mindset that only American companies provide jobs and improve the local economies. They also believe that alternative designs are unacceptable.
It’s this particular (or, shall we say, “idiotic”) mentality that allows for situations such as this, where we will pour money into failing companies at the expense of other companies who are actually succeeding or have good potential for success.
This will, decidedly, provide a negative impact on both our technological advances in automotive engineering and our continued desire to reduce our dependency on petroleum.
If we give The Three money, and let’s just say exactly what they asked for, there is no way they can turn their companies around considering the economy and the general lack of spending by Americans. In six months they will be back with their hands out saying the exact same thing.
“If you don’t “lend” us money we will go bankrupt.”
This will continue until either one dissolves or the US runs out of loans.
And we are close to both situations so I say let one of them fracture.
All you have to do is look at their projected sales for the next few months compared to their cash burn rate and it is obvious that $25 billion does not begin to solve the problem
Grrrr.
I just read The Big Three now want $34 Billion.
What was it? Nine days ago they asked for $25 Billion and now they want/need $34 Billion.
That’s a 1 Billion a day increase.
If we had just given them the original 25 Billion we could have saved 9 Billion.
So each day we wait they collectively lose a Billion?
Krimonies!
If we wind up bailing them out (again), we might as well have every failing, mismanaged business in the country propped up by taxpayer dollars.
That’s the message I’m reading from all of this. If you run a successful business by making sound decisions and listening to your consumer base, you just need to fight through the hard times. However, if you run a business poorly, Uncle Sam will toss you some money to help you continue making a mess of things.
I’m just curious, but when did we start rewarding idiocy, bad judgement and an inability to make worthwhile products?