Obama proposes $10-billion subsidy for U.S.-based automakers

Stop signDemocratic presidential candidate and Illinois senator Barack Obama wants America’s Big Three automakers to crank up their fuel efficiency standards … and he’s willing to pay them $10 billion in taxpayers’ dollars to do it. The money would be handed over in subsidies to retool plants ($3 billion) and in federal help for the companies’ troubled health-care plans for retirees (up to $7 billion).

The health-plan help is probably partly a ploy to get these three enormous employers to support federally-funded health care for all Americans.

America’s Big Three — Ford, General Motors and Chrysler, though it’s still German-owned at least for now — gambled huge on a strategy of producing big, high-margin vehicles like SUVs and pickups, and they lost huge as the price of gasoline climbed starting a few years ago. No informed consumer would buy one of these now without a good and specific reason (working in construction or agriculture, say) or a million dollars in the bank. The era of big-truck-as-declaration-of-manhood might not be over, but it’s no longer within reach of most customers, even with generous financing plans. Even if the price of gasoline dips again, the writing’s on the wall.

Asian and European automakers make small cars and lots of them, so they’re perfectly placed to take advantage of a consumer trend toward such vehicles. And, indeed, they make a fair number of their vehicles in North America. (Here’s a summary of Toyota’s operations, for instance.) But now a major presidential candidate wants to subsidize their competitors’ recovery from what was, simply, a lousy business decision.

These are like agriculture subsidies: they distort the market and force other governments (such as Ontario’s; the undated story is from 2004) to match the subsidies just to keep the playing field level.

Does anyone seriously believe there won’t be enough cars to buy if governments don’t spend tax money to keep three failing manufacturers from suffering too badly from their mistake?

(Via the Wall Street Journal’s Energy Blog.)


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