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Fuel efficiency enters bailout debate

House Financial Services Committee Chairman Barney Frank speaks during a news briefing with House Speaker Nancy Pelosi after attending a meeting with House Democrats to discuss a federal bailout of the U.S. automotive industry.

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Kai Ryssdal: What seemed so certain yesterday about this time doesn't look like such a slam dunk anymore. The haggling over a government rescue of the American automobile industry continues in Washington.

Congress and the White House are still at odds over what conditions to impose on the companies, that in return for $15 billion worth of taxpayer loans. That should be enough to keep the Big Three in business until springtime. Longer-term restructuring plans would have to be in place by the end of March.

What we know about negotiations goes something like this: There's talk of a car czar, strict consequences for any of the three that can't demonstrate they're going concerns and what kinds of fuel efficiency standards Detroit ought to be held to.

Marketplace's John Dimsdale has more on that from Washington.


John Dimsdale:
Environmentalists say for many years, U.S. auto companies ignored the market warnings about the declining popularity of big cars.

Daniel Weiss: That has to do with the huge management failure on the part of all three of these companies.

Daniel Weiss worked for 16 years at the Sierra Club and now he's with the Center for American Progress.

Weiss: The Big Three business model was based on cheap oil and gasoline and being able to block stricter fuel economy standards. There's more profit to be made from making a big gas guzzling car than there is from a smaller fuel sipping car.

Many in Congress are asking for greener cars in return for a taxpayer bailout. Some think the 35-mile per gallon average by 2020 should be moved up by five years. Others are pushing for a faster switch to electric-powered vehicles. But David Cole, at Detroit's Center for Automotive Research says Congress is pushing technologies that few car buyers can afford.

David Cole: But ultimately the market is going to determine what sells. Congress can't force people to buy, the auto industry can't force people to buy. And if you're in the business of making cars and trucks, you have to be in sync with the market or you'll go out of business.

Cole says more affordable batteries and alternative fuel engines will be available soon without government mandates.

Congressional members from California and 15 other states are backing a bailout condition that car companies drop their suits to block tougher emission standards in those states. So far, the White House is resisting that provision.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.
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Daniel Weiss was way off base with his comments last night: "The American Car companies were ignoring the market's move to smaller cars".

This is Marketplace, so let's talk supply and demand. Why were trucks and big SUV's so profitable? Because many Americans were willing to pay a premium for them. That's why Nissan debuted the Titan and Armada, and Toyota has come out with the Sequoia and a more powerfull Tundra when the smaller engined truck didn't sell.

No one held a gun to anyone's head and forced them to buy a gas guzzler. Car companies had to price big vehicles higher to reduce demand and stay under the CAFE standard. Gas prices weren't high enough to discourage big vehicles.

Weiss's friends in the Sierra Club have been buying more fuel efficeint cars, but the general public wasn't interested until the price of gas skyrocketed. And if the price of gas stays under $2, you can look for the public to start buying big again.

Will a car czar help? No way. If the American companies are forced out of the big vehicle market by government fiat, it will be another sector that the Americans will lose their edge in.

If you want to discourage burning gasoline and protect the environment from the damage gasoline does, raise the price of gasoline.

The irony light over our kitchen radio lit up when CAR's Cole said "you have to be in sync with the market or you'll go out of business", as reason to resist Congress's setting the development agenda.

Great. Taxpayers are always on the hook whether it is auto industry or environmentalist lobbying government.

Why impose rules on American car makers making them less competitive (than they already are). Instead, TAX gasoline, and give us the cash from that tax so we can use it for other purposes (might be investments in greener appliances, etc).

To hear Weiss bemoan management failure at the "Big 3" vehicle manufacturers while wielding a flotilla of obstructionist lawyers and lobbyists, I must ask why didn't he and the Sierra Club hire engineers and designers instead? They could have designed and contracted out the manufacturing of the Sierra Car that embodied all of the technology that was claimed to exist and was economically viable. They could have out-competed the intransigent corporations and returned their profits back into their environmental altruism instead of enriching the lawyers and foisting expensive legislation and marginal solutions on everybody else. This is his management failure.

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