Save the automakers

You’d think that after forking out vast sums of money to reboot America’s flailing financial sector, it would be relatively easy for the federal government to find a few billion more to save the auto industry. After all, as many as 3 million Americans depend on Detroit, directly or indirectly, for their jobs; it’s believed by some economists that allowing the Big Three to collapse would trigger a cataclysmic economic meltdown.

In fact, though, lawmakers are currently squaring off for a major showdown over a proposed $25 billion auto-industry bailout. Many Republicans now believe that supporting the financial-sector bailout was a political misstep that likely cost them the White House; now they're opposing Democratic efforts to save Detroit on the grounds that bankruptcies are simply part of the ebb and flow of free-market capitalism.

According to the GOP, this is an ideological issue: either you trust in the creative destruction of the free market, or you side with big-government interventionism. Detroit is a dinosaur, goes the argument, and its problems are of its own making; a bailout will merely delay the inevitable, and a few months down the line we’ll be right back where we are now.

That sounds pretty plausible; after all, in recent years automakers have made plenty of mistakes, churning out Hummers and Escalades even as American consumers were lining up to buy imported hybrids. Republicans are probably right: with or without a federal handout, the Big Three will collapse unless they change their ways.

But in fact the entrenched Republican resistance to government action could actually accelerate Detroit’s decline. The GOP and the White House are using the current crisis as an excuse to undermine efforts to force the sector to clean up its act, arguing that instead of providing a bailout, lawmakers should allow automakers to dip into federal loans intended to help the industry meet new fuel-economy requirements.

That would be massively counterproductive: in order to remain competitive, Detroit desperately needs to invest in clean technologies. Allowing automakers to stave off bankruptcy by spending money ring-fenced for greening the industry would simply lock the sector into its current death-spiral, making it even more likely that the companies will implode a few months down the line.

President-Elect Barack Obama seems to realize that fact; he’s calling for a new bailout that would force companies to invest in clean technologies, and in the new Congress he’ll likely have the votes to push through his vision. Unfortunately, thanks to the GOP’s obstructionism, it’s far from clear that the Big Three will still be around by the time Obama takes office.

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