Fix Detroit? Guaranteed Car Loans and $4 Gas

Last week, on NPR’s Diane Rehm Show, a panel of auto industry observers discussed the future of the United States auto industry. The consensus? Chrysler is on its last legs, and General Motors and Ford will need a bailout to survive.

Dr. Sean McAlinden, chief economist and vice president, Research at the Center for Automotive Research, described his remedy to Detroit’s predicament:

What I think is really needed is a straight flat-out bailout: $15 billion dollars in cash with no restrictions except that it be spent in the United States—to carry these firms through to 2011 when this recession is over, and when their product line is 60 to 70 percent new, and with higher fuel economy, which is what the customer wants.

To set Detroit on the right course toward financial health and high-efficiency vehicles, Warren Brown, automotive writer and "On Wheels" columnist for The Washington Post, outlined an alternative plan:

Forget this crazy argument about socialism versus the free enterprise system. The bottom line is that we’re socialist when we need to be socialist and we’re free enterprise when that works. Right now, we need to be a little socialist.

Since we’re throwing money around anyhow [to rescue the financial sector], one idea could be federal guarantees of consumer loans [for cars], as long as they are for cars that get at least, let’s say, 35 miles per gallon.

To me, that would help accelerate the development of more fuel-efficient vehicles. But in the United States, we had the problem of making demands for more fuel-efficient vehicles, but doing nothing to encourage the purchase of those vehicles.

So let’s have federal subsidized loans of fuel-efficient vehicles. But there’s a catch. Let’s also have a floor under the price of gasoline. Four dollars a gallon seems to have done the job. It helped consumers make more considered judgments of the kinds of cars and trucks they buy. And it has also had some tangible effect on their driving behavior and fuel-wasting habits on the highway. The bottom line is that consumers need some skin in the game.

Oh, by the way, the Department of Energy today released official gas price figures for the week. The national average is now $2.71, exactly $1 less than the price at the beginning of September.

You can listen to the entire discussion from the Diane Rehm Show at the wamu.org website.