Almost 30 years ago I reported for my first job, as a Time magazine correspondent, in the Fisher Building in Detroit, a gilt-laden, art deco marvel, which stood across the street from the headquarters of General Motors. During the past few weeks, as the heads of the auto companies have started pleading for federal funds, I have found myself thinking about those times.
In the 1980s, I collaborated on a book about the automobile industry and, in particular, Chrysler's plea for $1bn of federal loan guarantees. The passage of time has made me wonder why I ever thought the first Chrysler bail-out made sense and reflect on why the prospect of today's far more extensive federal assistance would be a dreadful way to usher in a new presidency.
The 1980 bail-out of Chrysler was a good short-term investment for the US taxpayer. The loans were paid back seven years before they were due and were accompanied by an $800m profit. But the bail-out was a temporary salve and did not address the underlying problems of the automobile industry. Any US politician wondering whether to pour money into General Motors or Ford should study the debacle known as British Leyland.
Depending on your point of view, it is easy to blame the downfall of the US car industry on management, the unions and the shortcomings of the healthcare system or the federal government. Each of these bears some responsibility, but this invites the question of what needs to happen to turn things round.
It has taken me time to understand the insanity of the mandatory corporate average fuel economy regulations (the so-called Café standards) which compelled the US automakers to produce smaller, more fuel-efficient cars. While the Café standards spanked Detroit, they did absolutely nothing to encourage US consumers to buy small cars. No American politician - particularly any who has eyed the rustbelt's 121 electoral college votes - has ever been able to summon up the courage to say cheap petrol is not America's birthright. In current dollars, the price of petrol in the US has barely moved since the late 1970s.
As a nation we have lived well beyond our means and nowhere is this more apparent than at the petrol pump. The future of Detroit, the battle for the future of the US economy, the effort to wean ourselves from the teat of foreign oil and the attempt to clean up our air are all irrevocably linked. Just imagine what today's US automobile fleet would look like if since the second world war - or even since 1980 - we had been made to pause before we filled our tanks. In 1999, for example, while we luxuriated in $1.26 for a gallon of petrol, Germans were paying $3.62 and the Japanese $3.26. It is no surprise that foreign manufacturers came to perfect the production of smaller, more fuel-efficient cars: their customers could not afford to run thirstier vehicles.
I have made the case for a sizeable petrol tax to a number of politicians but have yet to encounter one who wants to discuss the idea seriously. Instead, in less time than it takes to switch on the ignition, they say this would be unfair to low-income Americans and that it is the last thing the country needs in a recession.
However, politicians need to explain why we have no alternative but to pay more for petrol. Bear in mind that the average petrol tax in America is $0.49/gallon at a time when a gallon of petrol sells for more than $8 in Europe. If, for example, a $3 federal excise tax were slapped on every gallon of petrol there would be considerable hardship (which perhaps should be offset by tax credits for low-income Americans) but the US would be half a trillion dollars a year better off, oil imports would drop, Detroit would trim excess capacity and have a permanent incentive to shift its output to small cars - perhaps even including more fuel-efficient diesels, which account for 50 per cent of some European markets compared with about 4 per cent in the US, and would be a guaranteed topic of conversation around every table in the land.
I am opposed to the bail-outs because they are just an expression of a country in denial. If, on January 20, we hear new president Barack Obama ask every American to join him in the painful battle to change our country by making a costly and tangible sacrifice every time we buy a gallon of petrol, we really do have cause for hope.
The writer is a partner in Sequoia Capital. Its investments include alternative energy technologies.
