The Autos’ perfect storm

Meltdown in the financial sector.  Recent spikes in oil prices.  Democratic electoral gains throughout Washington, made possible in part by the political muscle of organized labor.  Add it all up, what have you got?  A perfect storm that will surely translate into an infusion of billions more in taxpayer life-support for the seriously – possibly terminally – ill U.S. car-makers. 

Such an outcome may not happen during this week’s lame duck session of the expiring 110th Congress.  In fact, the smart money says that sufficient numbers of Republican legislators will find offensive the idea of throwing good money after bad that they will preclude passage in the Senate this year of any bail-out for Detroit that the Democrats manage to cobble together.

Even so, the increased numbers of Democratic legislators who will make up the 111th Congress and the evident support of the incoming Obama administration essentially assures that there will be a rescue package for Ford, General Motors and Chrysler, known collectively as "the autos."  The only question is what are its terms – how much money, how few strings and how long it will stave off the inevitable: the restructuring, downsizing and retooling of what used to be known as the "Big Three"?

At this writing, it seems likely that, come next year, economic conditions in general and those of the U.S. auto-makers (not to be confused with American-based manufacturing operations of their foreign competitors) will translate into relief for Detroit.  "Too big to fail," too many jobs at stake, too much of the nation’s manufacturing capability at risk are among the considerations that will justify government intervention on a massive scale.

The effect will probably be to perpetuate, rather than alleviate – let alone eliminate, the myriad problems that afflict Ford, GM and Chrysler.  Until the effects of this bail-out peter out, management changes may or may not be made.  Inefficient facilities may or may not be shuttered.  Turning the Big Three into the not-so-Big Two will or won’t happen. 

Unless the costs associated with producing American vehicles in union shops are dramatically reduced and there is a turn-around in the appeal of such cars and trucks to consumers buying fewer of them from anybody, the writing is on the wall:  No amount of largesse at the taxpayer’s expense is going to stave off the autos’ inevitable downsizing, job loss and economic dislocation.

There is, however, one thing that might make a difference in alleviating these bleak prospects and, if integrated into the coming rescue package for Detroit, even justify such an intervention:  Tie the bail-out to the adoption of a new "Open Fuel Standard" (OFS) that would have the effect of giving U.S. auto-makers a distinct, near-term competitive advantage, while making a giant leap on one of our most important national security challenges – energy security.

The idea is straightforward.  The Big Three have produced approximately six million vehicles now on America’s highways that are equipped with what is known as a Flexible Fuel Vehicle (FFV) capability.  FFVs can be configured to run on ethanol or methanol – fuels that can be manufactured from a variety of sources that we have here in abundance – or on gasoline, or some combination of the three. 

The American auto manufacturers have also produced many more such vehicles for the Brazilian market where an OFS is effectively the law of the land, ensuring that all new cars offer consumers "fuel choice."  Brazil’s experience is instructive.  Where fuel competition is afforded and the monopoly gasoline currently enjoys in the United States is broken, the costs of powering the transportation sector are dramatically reduced.  More importantly, billions of dollars that might otherwise go to purchase oil from sources that are unstable at best and unfriendly at worst can be kept at home.

During the recent presidential campaign, both Barack Obama and John McCain endorsed the concept of an Open Fuel Standard.  Legislation that would institute it has been introduced on a bipartisan basis in both the House and Senate (H.R.6559 and S.3303, respectively).  By incorporating the bills’ requirement that, by 2012, 50% of all new cars sold in this country be Flexible Fuel Vehicles – which Detroit’s auto companies have already committed and are planning to do – we can begin to wean America off of our cars’ current, absolute addiction to oil.  The legislation would require that by 2015, a further 30% of these fleets be equipped with FFV technology, something that today costs less than $100 per car.

Imagine a President Obama as one of his first initiatives formally embracing the Open Fuel Standard, rewarding Detroit for taking a step that is highly desirable from both an environmental and national security perspective with a bailout tied to the imposition of such a standard on both domestic and foreign cars.  The new chief executive could inspire his people and advance his stated agenda of achieving energy independence by calling on the American people to purchase a vehicle with FFV capability.  Until foreign manufacturers retool and conform to the Open Fuel Standard, most of those FFVs will be sold by the Big Three – a shot in the arm for them, our economy and the national interest more generally. 

An additional benefit for an Obama administration concerned with alleviating world poverty is that the adoption by this country of an Open Fuel Standard will have the effect of establishing it as a global standard.  Car manufacturers will sell their FFVs all over the world, enabling about 100 countries to grow the fuels they need to power them, ending their dependence on foreign oil and reducing dramatically the petro-wealth transfers being used by freedom’s enemies to our collective detriment.

Call it the silver lining of the autos’ perfect storm.

Frank J. Gaffney, Jr. is President of the Center for Security Policy and a founding member of the Set America Free Coalition (SetAmericaFree.org).