"A Bridge for the Carmakers"

Jeff Sachs says save the auto industry:

A Bridge for the Carmakers, by Jeffrey D. Sachs, Commentary, Washington Post: A government-supported restructuring of the auto industry is urgently needed for our economic and energy security. If the Bush administration allows the auto industry to collapse, it will compound the panic that started with the bankruptcy of Lehman Brothers. Washington should seize the opportunity to begin a new era of U.S. technological leadership in the global auto industry, starting with an immediate loan.

First, this is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon. This achievement is closer than many suppose... American-made fuel-cell cars may be a large-scale reality within a decade. ...

Second, the sudden closure of an automaker would be catastrophic, possibly pushing our economy from recession to depression..., and the shock waves would reverberate across the world.

Third, any restructuring under Chapter 11 bankruptcy rules would be a death knell. Yes, in some industries, Chapter 11 can provide breathing space. For the automakers, however, it would accelerate the collapse of consumer demand and the mass bankruptcy of parts manufacturers. Consumers choose vehicles in part on their expectation of the long-term health of the companies that make them, which they rely on for parts, service and resale values.

The industry does not need a shakeout but a change of technology for long-term energy and climate security. The recent collapse of annual sales, from 17 million vehicles to 11 million, is not permanent but cyclical. Over time, sales will increase...

Yet the automakers cannot turn to ordinary borrowing to tide them over until that happens because of the ravaged capital markets. The risk spreads of corporate bonds over U.S. Treasuries are the highest ever, and many borrowers can't get credit at any price. That's why the government has embarked on nearly $1 trillion in direct interventions. A small part of that should be used for the auto industry. ...

Some want to see the industry punished for its neglect of energy and environmental realities, but we should acknowledge that the SUV era reflected poor judgment across society. ... Rather than kill the auto industry, and destroy the U.S. economy in the process, we should fix the industry with a sense of national responsibility and purpose. (We should also fix our ramshackle health-care system, which has burdened the industry and the economy with punitively high costs.) ...

We face an unprecedented financial calamity, energy crisis and environmental threat. A vibrant, growing U.S. automobile industry should play an essential role in solving all three. The technologies that will win the day are in sight; industry has already made important advances. A partnership with government is vital and should begin this week.