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Car Talk
Let the Big Three Die

Tesla and Detroit

It wasn’t that long ago that Ford could give its stockholders a 215 percent return on investment in just three years. That’s the three years between the company’s introduction of the 2.5-ton Explorer, in October 1996, when gas was selling at $1.38 a gallon, and February 1999, when it threatened to dip below $1 a gallon. Ford was clearing $12,000 in profit on each Expedition ($15,000 on each Navigator), and making 1,040 of the SUVs a day for after-tax profits of $2.4 billion. So much for labor costs dragging down Detroit . Instead, it was stock profits blinding innovation.

Ford stock peaked at a little more than $37 a share in 1999. The stock now is threatening to dip below $1 a share. And Ford is the least diseased of the Big Three automakers. Their problem isn’t gas prices or labor costs or the economy, all of which have been part of doing business for a century. Their problem is in too many of their products. GM spends about $4,400 on advertising per vehicle sold, only a little more than Ford and Chrysler. Toyota spends $1,090. Nevertheless, Toyota this year is expected to overtake GM as the world leader in market share. The market is telling American auto manufacturers something: They’re making too much stuff people no longer want to buy. Maybe the market can put up with one company doing that. But three?

 

Taxpayers ought to be telling auto manufacturers something, too: Either change your product or let us spend tax dollars on more promising ventures. There’s nothing inherently wrong in government bailouts. Private companies get them all the time. They just call it government contracting. What would Lockheed, General Dynamics, United Technologies and even Boeing be without the Pentagon bailing them out regularly? There’d be nothing wrong with a bailout of Detroit that was attached to a set of conditions, like a 50- or 100-mile-per-gallon car by 2015 and an affordable, fully electric-powered car by the same date. But Detroit isn’t interested in moving out of its dinosaur digs.

Fine. Americans love another museum destination. But they worship their innovators (look at Henry Ford: the guy was an anti-Semite, he was Big Brother’s father when it came to meddling in employees’ private lives, and he had a soft spot for Hitler, yet he’s still revered as an American hero). So I was surprised to read Daniel Lyons, Newsweek’s technology columnist, heaping scorn on Tesla Motors, the private-venture company building an all-electric car that gets 200 miles to the charge and goes from 0 to 60 in four seconds—faster than a Porsche. There’s been infighting at the company, a lawsuit here and there, money ran short, the car is over budget—yet the company is producing 10 cars a week and has 1,200 orders for a vehicle that costs $109,000. For a prototype to be selling at barely twice the cost of a luxury internal-combustion-engine clunker is hugely promising. So why the scorn, so untimely when Barack Obama and green gurus keep echoing the public’s craving for the next automotive breakthrough that reduces oil’s tyranny? If anything, Tesla-like projects are where the government should be pouring its billions.

Yet the country’s mindset is nowhere near that sort of investment. Lyons’ arguments are striking for their familiarity: They’re bleed-through from the anti-government rhetoric that for the past three decades has been poisoning discussions of how to move the country forward. It doesn’t matter that Tesla is one of those potentially revolutionizing innovations. “It’s late and over budget, has gone through loads of redesigns, still has bugs and, at $109,000, costs more than originally planned,” in Lyons’ condemning words. This for a startup getting no government backing.

Perspective would help. If a $25 billion bailout for Detroit’s reptilian museum isn’t a scandal, here’s another: The government has invested more than $65 billion on a jet fighter, the F-22, that was designed two decades ago to fight an enemy that no longer exists. The F-22 is also redundant because the military is developing the F-35 -- the more versatile Joint Strike Fighter, at $121 million a plane. The F-22 costs $350 million a plane. It’s wildly over budget. So is the F-35. The country doesn’t need both. Dozens of senators have tried to kill the F-22, including John McCain. But it has its lobbyists. So it carries on, while the Tesla, whose entire development costs were less than half the cost of a single F-22, struggles against snickers and scorn because it didn’t get it right on the first try.

Maybe the Tesla isn’t the answer. But an electric car is certainly part of the answer, if energy independence is a goal. The Tesla shows that the goal is within reach. But not if Detroit keeps hijacking investment dollars to nowhere, the Pentagon keeps burning billions for glorified, useless wings, and innovative companies actually doing something right get clobbered for falling behind on delivering a miracle.

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