While wind and energy credits stall, automakers seek $25 billion in loans

September 16, 2008

We talked yesterday about the need for Congress to extend the wind and solar energy tax credits.  While we are not sure that subsidies and tax credits are the best way to find the most efficient solution to our energy crisis, given the complete failure of our current energy policy, this is the best tool currently in use.  This is especially the case when the cost of producing energy via fossil fuels does not include the price borne by the environment from the resulting greenhouse gas emissions.  This externality which is not internalized into the price of energy generation via fossil fuels gives them an unfair price advantage versus renewable sources.  Therefore, until Congress can pass a meaningful energy bill that includes a tax on carbon emissions, the only existing solution is a tax credit for renewable sources.

With that said, when a sector such as American car manufacturers, which has vehemently resisted all government mandated fuel efficiency laws, seeks governmental assistance, as GM CEO Rick Wagoner did last week from the Senate, we are much less sympathetic.  Unlike the wind and solar industries, the auto manufacturers made a conscious decision to pursue products, such as large cars and SUVs, which have put them in the current financial situation they face.  Of course it is important for America to have a strong manufacturing base, but it was a decision by the government not to regulate that allowed them to commit to big inefficient vehicles, and now they are looking for government assistance to help get them out of their self inflicted mess.  After more than 100 years of building cars, it is probably time for the auto manufacturers to stand on their own.

[Note in describing the details of the assistance program, the AP writes, "Congress authorized $25 billion in loans in last year's energy bill but has not funded the program. The loan program was intended to help the industry meet new fuel economy standards of at least 35 miles per gallon by 2020, a 40 percent increase.

The government interest rate for the loans would be around 5 percent, providing about $100 million a year in savings for the companies for every $1 billion in loans. With poor bond ratings, the Detroit companies would only qualify for double-digit interest rates on the open market."]

This isn’t a financial institution whose failure could completely devastate our national economy, nor is it a budding alternative energy industry whose failure could devastate our ability to compete in a future green world economy.  This is a 100+ year old industry that was greedy during the era of big cars and whose domestic products are easily replaceable by its competitors (many of which have a growing economic presence in America).  

Photo credit.

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