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The coronavirus pandemic has hit automakers hard. With U.S. car dealerships shutting down and consumers holding tightly onto their savings, car sales have plummeted.
So, as with many other troubled industries, talk is swirling from businesses and lawmakers alike about a bailout for the Big Three U.S. automakers. What form that bailout might take, or when it might come, is anybody’s guess. But it’s not too early to look at what happened the last time the U.S. bailed out Detroit. It worked out great for the auto industry, but not so well for the public or the environment, so we should take stock of the lessons learned.
At the time of the 2008 financial crisis, America’s Big Three automakers -— General Motors GM, +6.64%, Ford Motor F, +7.59% and Chrysler FCAU, +3.66% — were already slumping, victimized by their own short-sighted business decisions, including going all in on selling gas-guzzling trucks and SUVs that no one wanted when gas prices jumped in the mid-2000s. Then, when recession hit, not only did consumers rein in spending, but even those who wanted a car couldn’t get a loan, thanks to the collapse of many auto finance companies.
When Detroit begged for help from the U.S. government in the financial crisis, automakers got both massive cash infusions and special programs, such as the $3 billion “cash for clunkers” fund, to entice American consumers back into showrooms. By the time the bailout officially ended, even after the automakers paid back loans and the government sold its shares, the cost totaled more than $9 billion.
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The public investment came with caveats, requiring automakers to commit to modernize the industry and produce cleaner vehicles. In 2011, with the full backing of the grateful and indebted Big Three, the Obama administration dramatically strengthened national vehicle emissions standards, requiring a national average fleetwide fuel economy equivalent to 55 miles per gallon by 2025. The new emissions standards were estimated to save 12 billion barrels of oil and eliminate 6 billion metric tons of CO2 over the life of the program — more than the entire annual emissions from the U.S. economy.
After the bailout, many analysts and policymakers painted it as a success. The automakers were once again profitable, and fuel economy was on the rise.
“ Among the 17 pure electric vehicles for sale in the U.S. in 2020, only one -— the Chevy Bolt — is from a Big Three automaker. ”
Today, with the auto industry on the ropes again, the deal doesn’t look nearly as good. In 2015, gasoline prices fell, and automakers shifted back to SUVs, undercutting their recent efficiency gains. In 2019, the Big Three ranked last among major manufacturers for fuel economy and CO2 emissions. U.S. automakers have mostly sat out the electric vehicle revolution. Among the 17 pure electric vehicles for sale in the U.S. in 2020, only one -— the Chevrolet Bolt — is from a Big Three automaker.
With the election of President Donald Trump, automakers also reversed their support of environmental improvements. GM and Chrysler joined the Trump administration’s effort to roll back auto emission standards — a reversal that, if successful, would undercut one of the nation’s biggest steps so far to cut pollution that contributes to global warming.
Keeping automakers in their lane
Even the industry’s seeming successes over the past five years look worse in the rearview mirror. Recent record car sales have been built on a shaky foundation of unprecedented consumer debt, now totaling more than $1.3 trillion — nearly double the amount car buyers held in 2010.
For years, automakers used low interest rates and long-term loans to boost demand and get people to buy “more car” than they needed, pushing the average sale price of a new car up above $36,000. Now, with America in another economic crisis, automakers are stuck trying to sell high-priced SUVs to people who are still paying off their old cars and worried about losing their job. For car buyers with poor credit — including those exploited by dodgy practices in the subprime market — purchasing a new vehicle is either a risky or unattainable prospect.
The last federal bailout might have netted big short-term profits for automakers, but it may not be enough to prevent them from once again knocking at Congress’ door, asking for more taxpayer support. Any package of assistance to the auto industry has to get three things right:
1. Ironclad environmental commitments: Automakers must move away, for good, from selling polluting cars powered by fossil fuels. Scientists say we need to dramatically decrease carbon pollution by mid-century to prevent climate catastrophe. That will require fully electrified new car fleets by 2035 at the latest. Big automakers should have to use any stimulus funds to make that transition happen and to invest in complementary infrastructure, including electric vehicle charging stations.
2. Consumer protection: Automakers can’t be allowed to claw their way back by harming consumers, who are seriously vulnerable in this time of job loss and economic instability. That will require national policies against charging excessive loan rates; better enforcement of protections against fraud; ending discriminatory dealer markups, and requiring lenders to determine borrowers’ ability to repay their loans.
3. Investment in a car-free future: Support for the auto industry has to be paired with an even larger set of investments and actions to end our national dependence on cars. For a century, America has pursued transportation policies that put cars first — from the Interstate highway system to low gasoline taxes. The results have been polluted air, clogged roads, a ravaged climate, and households struggling with auto debt. Doubling down on that system makes no sense.
Congress can protect public transit systems from withering and dying as the result of the coronavirus crisis and forestall the construction of a new set of expensive, polluting highway projects that will increase emissions and suck up transportation funding in the name of “stimulus.” Then, local, state and federal governments can begin to plan and build a transportation system that provides access to everyone — even those who opt out of car ownership.
The past decade has shown that automakers can’t be trusted to repay taxpayer generosity with an increased sense of responsibility regarding the environment or the financial interests of car buyers. The lesson of the last auto bailout is that any new help for the auto industry will need to come with strings attached — strings that are long enough and strong enough to pull Detroit automakers into the 21st Century.
Gideon Weissman covers environmental and consumer issues as a policy analyst with Frontier Group, a public interest think tank. You can follow him on Twitter at @gweissman.
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