Detroit Bets Its Future on Washington

The curtain comes down this week on the 2009 Detroit International Auto Show — and with it likely on the American auto industry as we know it. This might turn out to be a watershed year when some of the industry’s big players permanently shift gears from serving ordinary car buyers to serving the grand designs of central planners.

The only other time that the industry subordinated its customers to the government was World War II. Then it had no choice. This time the industry, particularly General Motors, is desperately “retooling” itself to make Washington’s environmental and industrial policy priorities a vital part of its business revival plan.


By accepting government welfare, GM rejected the chance to transform itself into a worthy competitor to foreign manufacturers. That would have required making too many hard decisions, such as confronting unions, cutting legacy costs, and slashing dealerships under a Chapter 11 filing.

Parading green technologies has been something of a ritual at the auto show, even before Leonardo DiCaprio made the Toyota Prius a status symbol. Prius might be a money loser (despite selling a million cars, analysts still believe Toyota sells each one at a loss) — but the prevailing industry wisdom is that the halo effect hybrids produce is important for other reasons, including gaining a foothold in an elite market segment. Whatever the plausibility of this line of thinking previously, one would think that after being forced to rattle their tin cup in Washington, they would be slashing their extravagant PR schemes and rededicating resources toward products with a proven market.

Instead, auto makers did the opposite at this show — downplaying displays of bread-and-butter cars to make room for the largest display of experimental green vehicles ever, particularly cash-guzzling electric vehicles. Ford announced it would bring an electric car to the market by 2011. Chrysler, bleeding so much red ink that it gave away 35% of its equity stake to Fiat for free last week, unveiled three new electrics. And GM — the clear winner of the electric horse-race — rolled out its latest Chevrolet Volt, while also announcing that marketing this $40,000 plug-in with its “extended” driving range of 40 miles by next year is a top priority. The company is planning to build a $30 million battery factory in Michigan — instead of outsourcing production to Asian makers.

WSJ