Who's Gonna Drive You Home Tonight?

This October 2008 auto sales data should be a sobering influence on those inclined to support a financial bailout for U.S. automakers. As Thomas Friedman noted in his New York Times Op-Ed, the spectacular failure of U.S. automakers is largely due to the fact that they have been sheltered from free-market competition. Overblown labor union contracts and the special interests of the Detroit auto lobby have lulled U.S. automakers into a sublime state of moral hazard where there is little incentive to innovate, retool, or reform. 

Consequently, these companies have churned out line after line of overpriced and inferior products - even by American consumer standards. Moreover, U.S. automakers have failed to lead pioneering efforts in the research fields that will ultimately define the future of the auto industry: fuel efficiency, hybrid technology development, and alternative fuel development. The cost of insulating U.S. automakers from market risks that they would otherwise be exposed to could be disastrous. For starters, U.S. taxpayers may get saddled with a bailout bill to the tune of $25 billion.

We are not losing the battle for global market supremacy in the conventional auto industry. We lost, a very long time ago, but the legacy of the "motor city" can be restored. In September, Paul Ingrassia spoke nostalgically of Ford's Model-T as "the car that changed America". If Congress passes a bailout bill for U.S. automakers, there must be legislative provisions that demand strict fiduciary requirements for innovation, retooling, and reform. Only then will the production of the next car that could change America be possible. Otherwise, Mr. Ingrassia may need to prepare a eulogy for U.S. automakers.