It is entirely possible that, by the end of the summer, there will be no American auto industry. Right now the Obama administration is in a high-stakes game of chicken with both conservatives and automakers. On one side, they are aggressively challenging the Big Three to come up with an adequate recovery plan, and on the other sparring with conservatives over whether the government should bail out automakers at all. It is a difficult spot to be in. No doubt part of the reason the President has been so tough with the Big Three is that he wants to protect himself from criticism from the political right. He wants to save the American auto industry if possible, but he wants to do so without being abused for wasting taxpayer money.
All of this battling, however, overshadows what I think is a far more important issue. It is useful to save the Big Three because it will save jobs. It is also useful because it shores up blue collar jobs, which are the most vulnerable in this economy. But these are short term matters. The longer term, and far more important issue is that the worldwide auto industry is not far from catching on fire, and if the Big Three goes down, America will miss a long term economic boom.
Two factors will fuel a dramatic growth in auto sales in the next 20 years — the emergence of the Chinese and Indian economies, and concerns about fuel efficiency. At this moment, China has about 25 million cars. By comparison, the U.S. has about 200 million cars and trucks. If the Chinese reach only half the number of cars per person the U.S. has, China will easily top 400 million cars and trucks in the coming decades. Put another way, in the next 20 years 380 million cars could be sold in China alone, and China, at this moment, has nowhere near the industrial capacity to build them.
Now take that number, and almost double it for India, and you have an idea how many cars could be on the road by the middle of this century. At least one pair of authors thinks the worldwide number could rise to 2 billion, or three times the number we have now.
But this staggering number of cars cannot exist without radical improvements in efficency. There is no way our environment, or the worldwide oil reserves, can sustain 2 billion gasoline-burning automobiles for very long. Almost all of these cars will have to be hybrids, or alternative fuel cars, or (my preference) electric. At the moment production of electric cars is tiny. The potential growth for any company that can produce millions of economically viable electric cars is almost as high as the sky. The prize in the race for the modern, fossil-fuel independent vehicle is an unprecedented fortune.
This brings us back to the sad situation in Detroit. In the short term, prospects in the American auto industry appear bleak. Sales are down, foreign cars are perceived as more reliable and fuel efficient, and the current credit crunch will make it very hard for the Big Three to boost sales any time soon. But in the long run the outlook for the transportation sector is unbelievably bright. It would be a sad economic failure if the U.S. bowed out of the auto industry just as this new age is beginning.
Conservatives argue that if the Big Three crash, startup companies will take their places. Companies like Tesla, the California concern that builds electric sports cars. The problem with this is that, once electric technology is perfected, electric car companies will need huge factories and infrastructure to bring such a car to the world market. Tesla is having trouble building 100 cars a year. I don’t like Tesla’s chances against Toyota. I like Tesla as a niche company possibly licensing some of its technology to GM, but I don’t like Tesla alone. The auto industry is too mature to expect that a few tinkerers in a garage can create and market a product that can compete with Mercedes-Benz.
Everyone is talking about the job losses that will occur if the Big Three go down, but no one points to the tremendous growth opportunity just on the other side of this recession. An opportunity no American company will be positioned to take advantage of if Ford, GM, and Chrysler are gone. Are we really going to sit here and watch the Germans, the Japanese, the Koreans, and the Chinese leave us in the dust in an industry that the United States largely created? We’re going to give up, right before the big boom that anyone with eyes can see is coming.
It reminds me of an old joke my mother used to tell me when I was a boy. A man invented a new soft drink and named it 1 Up. It didn’t sell. So he revised it, and renamed it 2 Up. It still didn’t sell. He kept trying until he made 6 Up, then quit. The next day someone else came by, saw the recipe and improved it. He marketed 7 Up and became a millionaire.
That’s us. 6 Up.