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JANUARY 16TH 2011 

Driving change in the auto industry

“Auto makers fight Obama’s fuel standards”

So read the headline in a recent issue of the Wall Street Journal. And the article it headed is so troubling on so many levels.

Let me start with the superficial. I’m pretty sure Obama didn’t single-handedly set the new fuel standards, but the easiest way to heap scorn on something in the US these days is to suggest it was Obama’s idea. Bad Wall Street Journal.

Now let’s dig in to the really upsetting part. Here’s a quick summary of the facts:

  • GM, Chrysler, and Ford go to Washington to plead for a bailout
  • As part of the deal, they agreed to boost fleet fuel-economy standards by almost 35% by 2016
  • The White House has now proposed that the fuel economy standard should rise 3-6% annually from 2016-2025, which could result in average fuel economy of 62mpg by the end of that period.
  • The Alliance of Automobile Manufacturers, with GM, Ford, and Chrysler among its largest members, doesn’t like the proposal and is going on the offense to squash it

Now here’s what’s wrong with this:

  1. The vast majority of the oil that Americans use comes from the Middle East, in many cases from countries hostile to the US. American drivers are helping to fund the terrorist movements who would harm them. Seems like sending them fewer dollars—buying less oil—might be in our best interest.
  2. Another big chunk of the oil we need to drive cars comes from offshore drilling, and the Alberta tar sands, both environmental disasters in various stages of unfolding.(Don’t get me wrong, we need oil, but the less of it we use, the better. And now on with the rant.)
  3. The car companies respond as follows: “If the economics for high fuel-economy vehicles is so over-whelming (sic), why do so few consumers choose to buy high fuel-economy vehicles.”  They point to recent sales patterns, which that suggest that relatively affordable gasoline has encouraged Americans to buy pick-ups, sport utility vehicles, and large cars. The problem here is “the relatively affordable gasoline” part. It was so because demand was down during the recession. And because gas prices don’t reflect the full cost of the carbon they contain. It is inevitable that gas prices will rise, either due to government policy or simply due to scarcity. So consumer choices will change, and they will choose to drive smaller and or more fuel efficient vehicles. If that’s not happening by 2016, let alone 2025, then we’re all in big trouble.
  4. GM stopped making political contributions during its taxpayer-funded bankruptcy restructuring, but it has now resumed such spending, contributing to politicians who will push policies that help the industry (i.e. not this one). Ok, I’m a capitalist and this is a time-honoured tradition in business. But that doesn’t mean it doesn’t smell bad. I’m not sure what we do about this other than increasing the mandatory transparency around such donations. Have you got any other ideas?
  5. Lastly, where’s the leadership? Where’s the collaboration? We know this change has to come.  We know it has to be implemented in such a way that minimizes job losses due to the structural change required to move our industrialized economies to a more sustainable future. Structural change will hurt those invested in the status quo. And they’ll fight like caged animals for their survival, ostensibly on behalf of their investors.

In Citizen Capitalism, we all have a role and responsibility to each other, as politicians, business leaders, employees, consumers, and citizens, to share the load and do our part to move our economy into a sustainable future. Success can’t come for some at the expense of others. And to be clear it will be driven by profit. This isn’t some socialist notion. We need the power of profit to create the returns that will fund the transition. And the profit will be there for those who innovate to make that happen.



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