“Transforming the Auto Industry”

Jeff Sachs says a public private partnership is needed to bring about a creative transformation of the auto industry:

Transforming the Auto Industry, by Jeffrey D. Sachs, Commentary, Scientific American: …The auto industry has been widely vilified in recent months… There has been an insistence on “letting free markets work”…

The critics have no doubt felt their frustrations building—justifiably—for decades. … Still, the scorn for the industry misses four crucial points. First, a collapse of the Big Three … would add another economic calamity to the crisis-roiled economy. … Second, the … Big Three were financially weak, to be sure, but they would not be at the precipice of bankruptcy were it not for the worst recession since the Great Depression. Conversely, with an overall economic recovery, the Big Three can be viable. Third, the public and political leadership bear huge co-responsibility with industry for the misguided SUV era, with its flagrant neglect of energy security, climate risks and unsustainable household borrowing.

Fourth, and most crucially, the changeover to high-mileage automobiles must be a public-private effort. To wait for the “free market” to bring it about is to wait forever. Major technological change, such as from internal combustion engines to electric vehicles recharged on a clean power grid…, requires a massive infusion of public policy and public funding. Research and development depend on huge outlays, and many of the fruits of R&D … will become public goods rather than private intellectual property. That’s why public financing for R&D is so vital, and has been widely recognized and practiced by the U.S. government for a century in many industries, including aviation, computers, telephony, the Internet, drug development, advanced plant breeding, satellites, GPS and much, much more.

To … bemoan the fact that the forthcoming Chevy Volt plug-in hybrid will have a first-year price tag of $40,000 is to miss the point. The costs of early-stage … deployment are inevitably far above those that companies can realize in the long run. Public policy should help to promote this transition…

U.S. financing of sustainable energy technologies … has been dreadfully small ever since President Ronald Reagan reversed the energy investments started by President Jimmy Carter. …U.S. federal spending on all energy R&D … amounted to just $3 billion or so per year in recent years—less than two days of Pentagon spending, and roughly a tenth of … outlays for health technologies at the National Institutes of Health. …

The move to high-mileage automobiles is real, and the effort will shape U.S. international economic competitiveness for decades. The U.S. needs a public-private technology policy, not merely finger-pointing at the private sector. GM’s Chevy Volt, Chrysler’s new Extended Range Electric Vehicles and the large-scale efforts of GM and others to produce a fuel-cell vehicle within a decade, all require public backing… This is the future of the auto industry. It would be a mistake of historic proportions to let the industry die on the threshold of vital transformative change.


Originally published at the Economist’s View reproduced here with the author’s permission.

2 Responses to "“Transforming the Auto Industry”"

  1. Anonymous   January 20, 2009 at 8:19 pm

    In 2008 10 of the top 20 selling vehicles were produced the by big three Detroit auto companies. In 2007 GM and Toyota roughly sold the same amount of vehicles, one lost roughly 37 billion while the other made about 17 billion. I would say the issue is not in the type of vehicles Detroit made but other issues. The law in my state has electric utility companies paying a fine if electric usage is not reduced in the coming years – how will this work if every body plugs in there electric car that the central planners want produced?

  2. Guest   January 24, 2009 at 3:03 am

    Lets not focus on the current crisis as the trigger for the mess the Auto industry in now it. The business model of economies of scale, lean engineering and just in time production is best practiced by foriegn OEM’s, American car designs not appreciated by the rest of the world and, with the exception of some emerging markets, the industry is very mature. Add in legacy costs due to strong unions and the Big 3 are unsustainable in America.So lets not focus on an economic crisis. This industry is down and out unless it can re-invent itself.