By Siddhartha Shome
"It's over folks"
That's how a columnist at the Detroit News described the state of the American Auto Industry. But is this really the end of the road for Detroit?
A Conditional Bailout?
While there is much heated debate on what to do about the auto industry, one thing is clear: some form of a short term bailout of the Big Three is inevitable. With the economy in free fall right now, it is clear that the government should do everything it can to avoid consigning millions more to the already swelling ranks of the unemployed. At the very least the Big Three will be kept alive as a jobs program.
The question at hand really is: what to do about the American auto industry in the long term?
Most people who oppose a bailout do so on the grounds that the U.S. auto industry is already in an unstoppable death spiral, so why waste taxpayer money on a terminally ill patient? The answer, many experts say, is to impose conditions on the auto industry in return for the bailout. These imposed conditions, it is hoped, will make the auto industry competitive in the long term. The conditions suggested range from requiring a broad commitment to make more fuel-efficient vehicles, to requiring adoption of specific technologies such as plug-in hybrids, to the imposition of more ambitious CAFE (Corporate Average Fuel Economy) standards.
Most of these prescriptions are based on sound intentions and motivations. However, I am rather skeptical if they will work. Here's why.
1. Conditions, limits, regulations, etc., are good for achieving incremental improvement, where the technologies necessary to meet the targets are close at hand. However, it is unclear that this approach will succeed in achieving either the explicit goal of making the American auto industry competitive, or the broader implicit goal of tackling global warming.
2. If the conditions imposed on the auto industry are too ambitious for current technologies, there is a distinct possibility that a few years down the road these conditions will be diluted under political pressure.
3. The need of the hour is revolutionary new innovations in energy technology, both inside and outside the auto industry. It is highly questionable if imposed conditions can become the means of sparking such technological innovations. The recent experience with the Kyoto Protocol does not auger well in this regard.
An Alternative Paradigm -- Federal Investments in Innovation
So here is an alternative: the short-term immediate bailout of the auto industry should be followed by a large federal investment in the development of innovative new energy and automotive technologies. The aim should be to develop new technologies that will enable new clean energy cars to be designed that will be affordable to manufacture and operate.
The advantages of such a strategy are multi-fold:
1. With the U.S. government leading the way in developing new energy and automotive technologies, American companies can lead the world in these new technologies, much like U.S. government investments in semiconductor technology and aircraft technology have enabled American companies like Intel and Boeing to become world leaders in their respective fields.
2. Long before the new technologies become operational, the process of technology development itself can provide a significant economic boost to the U.S. economy, particularly the auto industry. Government contracts for defense research and development projects are a major source of revenue for many companies, like, for example, Lockheed Martin. In a similar manner, if the government were to invest heavily in developing new energy and automotive technologies, it could become a significant and reliable source of revenue for the Big Three - revenue which could help tide them over the next few economically difficult years.
3. There could be a "Columbus" effect, i.e., even if the initially designated destination is not reached something even more important may be discovered. It is quite possible that even if the primary goal of making the Big Three competitive is not attained, large investments in developing new technologies could spark a new wave of technological innovation and become an engine for economic growth.
How should such a program be implemented?
Ideally a new federal agency should be formed, along the lines of NASA to run this program. If that is not practical, this initiative should become a major new program under a federal agency such as DARPA (Defense Advanced Research Projects Agency).
The mandate of this new program should be to develop new technologies necessary for a new generation of clean automobiles that will be cheaper to manufacture and operate than the current generation of gasoline powered cars. The mandate should be clear and the goals should be well-defined. However, the specific technologies that program will nurture need not be specified in advance. Certain obvious technological avenues should be explored, such as improved battery technologies, fuel-cell technologies, car bodies made out of lightweight materials like carbon composites, etc. But other less well known and exotic technologies should be explored as well.
Universities, corporations and government agencies should be part of this program, which will need to be a broad collaborative effort. Substantial grants, research funds, contracts, etc., should be made available to companies and universities that join this program.
The new program should take advantage of the considerable experience that the government already has in kind of activity. The government's experience in new technology development in defense and aerospace can be used as an initial template for the automotive sector.
There already exists numerous scattered small-scale government-funded programs involved in automotive technology development. As a mechanical engineering graduate student at the University of Iowa in the late 1990s, I was involved in projects to develop simulation tools for new vehicle designs, including a hybrid-electric Humvee. Such projects were funded by agencies like DARPA, the U.S. Army TARDEC (The Tank-Automotive Research, Development, and Engineering Center) and the Automotive Research Center (ARC), a center for collaborative automotive technology research. The existence of such programs means that the basis for a new clean automotive technology program already exists. It just needs to be greatly expanded and focused on specific goals.
Much of the success of American companies in recent decades (including the auto industry's success for much of the 20th century) has come from being leaders in technology and innovation. Lack of innovation is responsible for the Big Three's current predicament. But what is at stake today is not just the survival of the Big Three, but long term American leadership in technology and innovation. A massive investment in innovation is the need of the hour.
