Taxpayers and auto companies.
- Joined At The Hip: Taxpayers And The Auto Industry
11.12.09, 12:25 PM ET (Forbes)
More than 2,000 auto companies have been started in the U.S. Long ago there was Stanley , the Auburn, Rickenbacker and even a Flint. Many of us recall the Willys and Hudson and Nash and Studebaker and Packard, old companies that succeeded for years and then vanished after World War II. And Crosley, King Midget and Tucker. Yes, they were real companies.
The last serious new American automaker was the Kaiser-Frazer company in the late 1940s. Joe Frazer knew the car business; Henry J. Kaiser--the construction giant and ship builder who launched his Liberty ships faster than German U-boats could sink them--had the money.
It cost big money in those days, too. Preston Tucker raised $25 million selling franchises and stock. And when Kaiser-Frazer finally died, Henry J said, "We expected to toss $50 million into the automobile pond, but we didn't expect it to disappear without a ripple."
Back then people put up their own money and found private investors to back them. Most failed, but some made it, such as Henry Ford, Walter Chrysler and Billy Durant, who created General Motors.
Free enterprise we called it.
But now there's another way: Government money. Washington is offering millions, even hundreds of millions of dollars, to carmakers, and even to companies that haven't built a car yet. Battery makers are eligible for the money, too, and even makers of three-wheelers, if any appear, are eligible. Imagine that: Our government is willing to finance three-wheeled cars.
But I don't expect that this new infusion of federal money will create successful new companies, or even new technologies.
Big winners so far include Fisker, which is headed by a Dane and is about to build expensive sport cars in Finland. It's been promised $528 million of U.S. government money. The money is to go for a new electric sedan to be built in the U.S. Tesla, which started with its own money, will keep going with government funds, $465 million promised, to build a new electric sedan. These are loans, but it's always easier to give money out than to get it back. And when money comes from Washington, it's no secret that who you know may be more important than what you know.
But as long as there is taxpayer money to pass around, we may expect volunteers ready to accept it. For example, there's talk of an electric car to be built in Syracuse, N.Y., with $52 million to come from the federal government and $12 million from the state. The car would be a version of a hybrid from India. Will it happen? Who knows, but I have my doubts. This is just the beginning.
Perhaps I'm too critical. General Motors took $50 billion of our government's money, Chrysler took $12 billion, and even Ford has been promised $6 billion for energy-saving vehicle development. Even Japanese Nissan is getting $2 billion to help build electric cars in Tennessee. And when the foreign plants were built here, most received huge grants in aid from state governments for the jobs they could--and did--create.
But most auto companies have failed. We've had more than 2,000, remember?
We had handouts during oil crises a few decades back. Washington put up money to unknowns to come up with new technologies, and gave lots to Detroit to come up with super high-mileage cars. Nothing much came of it all.
There are many fuel-saving technologies and companies around the world working to develop them, from fuel cells, which create electricity to drive cars, to diesel-like gasoline engines. They just need lots of work by engineers who understand automobiles.
Perhaps there's nothing wrong with all this taxpayer money going into the car business. Perhaps costs are just too high now for any single rich man, or even a group of them, to create a going auto company. Perhaps it's sensible for the government to spend billions to preserve industry and jobs and try to create new automobile technologies. Perhaps the government must invest to build battery-charging stations, just as it built highways.
Times have changed, but don't you wish that we could do it the old way?