Another $25 billion is finding a use for itself providing a hand to the battered U.S. auto industry. A product line from the Stone Age and a market share which doesn’t deserve the name are the real problems. The industry is forced to reinvent itself.
Death Valley, aka Detroit, has been the last to see the writing on the wall for the gas guzzling, uneconomic, inefficient monsters. The car industry has added a whole new meaning to the phrase “American primitives”, decades behind other countries.
mlive.com , a Michigan site, explains the disease and cure:
The Energy Department, which will parcel out the 25-year loans, says it will take at least six months and possibly up to 18 months to get the program running after Congress on Saturday funded it as part of a giant spending bill.
Sen. Debbie Stabenow, D-Mich., said "it's absolutely unacceptable for them to take six months or longer to implement this program and make capital available." She vowed to seek prompt funding of the program.
Her Democratic colleague from Michigan, Sen. Carl Levin, said the funding will produce "a quicker shift to the advanced technology than would otherwise occur."
Manufacturers and their domestic suppliers say they will use the money to offer a broader array of gas-electric vehicles, more fuel-efficient engines and plug-in electric cars that could be on the market within two years.
The loans are expected to carry an interest rate of about 5 percent. With weak sales, poor bond ratings and tighter credit markets, U.S. automakers would otherwise have to pay double-digit interest rates.
The Senators aren’t too far wrong. The sooner Detroit and Michigan return from the dead, the better, and the sooner the US auto industry turns green the better.
Michigan itself has been on the receiving end of one of the all time epic economic shaftings in US history, perhaps worse than the Ninth Ward in New Orleans on the basis of time/lack of results ratios. Starting with the maquiladoras, the state has been gutted.
Detroit’s anachronistic clunker makers have created their own mess to a large extent, but Sen. Levin is right. Modernization, with the credit and capital situations, would take forever without some help. The industry is chronically under-performing, capital is out of reach, and it’s a whole paradigm shift in terms of technology.
The car manufacturers need to retool and rethink. Design, logistics, pick a noun or a verb, there’s a lot of work to do.
There’s also a legal imperative, and in this condition the industry has no hope of meeting the requirements:
Executives with General Motors Corp., Ford Motor Co. and Chrysler LLC asked Congress this summer to fund the loans, which were authorized last year in an energy bill that ordered automakers to meet costly new fuel-efficiency standards of at least 35 miles per gallon by 2020.
Hence the bit about gas-electric vehicles, more fuel-efficient engines and plug-in electric cars. 12 years is a reasonable amount of time, but if you’re not making money, it could be 200 years. The work required is all high cashflow, all expensive, and all needs some holistic design to be cost efficient. Unless someone creates an auto factory that can reproduce itself, the industry couldn’t meet the deadline.
The auto industry has gone from cultural icon to industrial dead weight in a decade. On its current performance, it could only get investment from relatives and charities. The gas guzzler is now seen as a homewrecker, trashing the overstretched budgets and poisoning the atmosphere at the same time.
It’s not a great selling point, and it’s a very ugly market profile. Detroit needs to be reworked from the ground up, and that’s what this loan will do.
The positive side of this is that if the industry revives, Michigan will benefit, and the state economy could jump start if enough business is attracted in the revamp and retooling. That is a realistic possibility, because greener industries tend to be lower cost, meaning the marketplace gets a lot more active, more quickly.
The trick here will be convincing US consumers with very sore wallets and bruised credit that their car industry is worth the effort.
