Retooling Detroit: Fixing a Failure of Finance or Imagination?

How can the U.S. auto industry remake itself?

March 16, 2009

How can the U.S. auto industry remake itself?

If heavy industry leaves Detroit, and the U.S. automakers fail as businesses, it won’t be as much from lack of financing as from a failure of imagination.

Michigan has the nation’s most extensive heavy manufacturing and transportation infrastructure. But a decade of national policies that defined “globalization” as synonymous with shrinking the U.S. manufacturing sector — while the United States a whole transitioned to the “knowledge economy” — have left Detroit’s industry fatally dependent on consumer purchases of one commodity, automobiles.

The current discussion about Detroit’s future seems to focus almost exclusively on electric cars. Unfortunately, the electric car is not an ultimate solution, either for the auto industry or for global warming.

The U.S. battery industry is several years behind leading manufacturers in Japan and Korea in the development of affordable, light-weight lithium-ion batteries. Despite a $25 billion federal grant and loan program announced in 2008, the most costly component of the new electric vehicles proposed by U.S. automakers, the battery, is likely to be procured from foreign suppliers.

From an environmental perspective, the adoption of electric cars without sufficient renewable or nuclear electrical generating capacity may actually result in more fossil fuel usage, not less.

Forty-one percent of U.S. electricity is generated from natural gas — and 30% from coal. Only 10% is generated from nuclear energy and about 10% from hydroelectric, wind, solar, biomass and other renewable sources.

Furthermore, generation and distribution of electric power from the generating plant to the electric car battery involves a loss of at least 20% of the generated power, as mechanical and electrical resistance turns it into heat.

Thus, with the current mix of electrical power generation, less than 20% of the energy use by electric cars would be supplied by sources which do not increase CO2 emissions, contribute to global warming, and deplete scarce renewable fuels.

In the United States, in contrast to France (which generates 75% of its electricity at nuclear power plants), it is hard to see how electric cars would reduce either global warming or dependence on fossil fuels, except to the extent they are smaller, lighter and more efficient than current automobiles.

However, there are other means by which the automotive industry and its work force could retool and reinvent itself to produce products for which there are abundant markets — and which don’t depend on the permanent expansion of America’s car culture.

Yet, the current debate on the future of the U.S. car industry assumes that the answer is simply to build the “right car,” probably an electric car.

Let’s remember that the U.S. automotive industry has already showed the ability to rapidly retool its manufacturing plants in the face of a national emergency.

Six months into World War II, Time magazine reported: “The automotive industry has undertaken to build 75% of all the aircraft engines, more than 33% of the machine guns, 40% of the tanks, besides all the motorized units. One company alone is making more than half the Diesel engines for the whole U.S. Navy.”

And Time added: “It is cutting costs and saving time all along the line through mass-production short cuts: a parts plant lopped 25% off the time Army Ordnance thought it would take to make machine guns; an automaker cut the time scheduled for a British ack-ack gun by four months and evolved a new way of broaching the barrel that cut that operation from 3½ hours to 15 minutes.

“But perhaps the most extraordinary thing of all about Detroit-at-war is the change in the industry’s thinking about improvisation. As late as a year ago, many automen swore that not much more than 15% of their wonderful one-purpose tools could be used for anything but automobile production.

“This week’s report cited one automaker who is now using more than 80% of his automotive tools and equipment for war production. For the industry as a whole, the big manufacturers have converted some 65% of their automotive equipment, the smaller ones more than 40%.”

Given all that, perhaps the question to ask at this point of time is not, “How can Detroit build and sell more cars again?”

The more imaginative and most constructive question to ask is, “How can Detroit’s unique heavy industrial base be redeployed to produce goods that can meet our transportation needs while strengthening our national infrastructure and reducing our profligate energy use?”

Come to think of it, and ideology aside, demand for mass transit in the United States has never been greater, with ridership at its highest levels in 50 years and almost 400 new rail, streetcar and bus rapid transit projects proposed across the country. Americans took 10.1 billion trips on public transit in 2007, saving 1.4 billion gallons of gasoline.

There is so much interest in mass transit that 37 states have proposed projects worth $248 billion. Yet at the current rate of federal investment, these projects would take 77 years to complete.

The relatively low level of light and heavy rail transit investment in the United States stands in sharp contrast to funding in other parts of the world. China, for example, is dedicating $88 billion for the construction of 1,062 miles of rail from 2001 through 2015.

Over the 12-year period covered by the last two federal transportation bills, the United States dedicated about $19 billion for mass transit. Under the fiscal stimulus bill, H.R. 1, currently only $10 billion is budgeted for mass transit, as compared to $30 billion for highway projects.

Of course, with GM alone generating revenues exceeding $200 billion in 2006, rapid transit and light rail alone will hardly lift Detroit. But surely public transit investment should be part of a dream of sustainable transportation.

A major hurdle for both light-rail systems and modern bus transit systems is the paucity of U.S. manufacturing capability for both light-rail cars and modern buses. This results in long waits for the new cars required to expand most rapid transit systems or even to replace aging cars.

The bulk of light rail cars are either manufactured outside the United States or assembled at U.S. plants from components made by foreign companies. For example, for the San Francisco and Los Angeles systems, the cars are manufactured in Italy by Breda Costruzioni Ferroviarie in Italy — and shipped to San Francisco for assembly.

The DC Metro system initially bought cars from Breda in Italy and CAF in Spain. Newer cars are assembled in New York from major components manufactured in Spain. Other major suppliers of light rail or commuter rail cars include Bombardier in Canada, Siemens in Germany, Rotem in Korea, and Kawasaki in Japan.

While some light rail cars are assembled from foreign components, of the 10 current manufacturers of light rail cars, only one company claims to manufacture in the United States. United Streetcar in Oregon, assembles cars from designs and components from the Czech company Skoda.

In addition, bottlenecks in foreign capacity often force long delays on U.S. transit systems which compete with expanding systems in Asia and Europe to take delivery of new equipment.

Until its sale by General Motors in 2005, GM’s Electro-Motive Division was the second-largest supplier of railroad locomotives in the world. It still has the largest installed base of rail engines in the world.

And if U.S. car companies are developing the technology for electric cars and hybrid vehicles, it is important to remember that light rail cars are also electrically driven.

Is there any reason that the revitalization of the automotive manufacturing sector could not, with some government support, include the development of a U.S. manufacturing capability for light rail and commuter rail vehicles — a market now almost entirely met by imports?

Does it take more imagination than the Congress or the U.S. automotive industry now possesses to envision a future where American workers and technology compete and succeed in a big market which they have never before entered?

It is indeed ironic that General Motors is often accused of sabotaging the street car infrastructure built in the Western United States before the 1950s in order to sell its buses. An April 9, 1947 anti-trust ruling by the 7th Circuit Court found nine corporations guilty of conspiring to monopolize interstate commerce.

With financing procured from General Motors, Firestone, and Standard Oil, these corporations were accused of buying and dismantling hundreds of private street car companies, replacing them with bus lines supplied, serviced, and fueled by the above investors. However, many dispute this story, saying the street cars were replaced due to their operating inefficiencies.

Of course, sustained demand for both more fuel-efficient vehicles or mass transit will depend ultimately on predictably increased costs for motor fuels. This is unlikely without taking measures to price petroleum fuels to reflect their real costs, effects on air quality and global climate.

For many years, Europe has led the way with high gasoline taxes that limit fuel demand. These have stimulated production of efficient cars and the expansion of rail and mass transit systems.

A significant increase in U.S. gasoline taxes, ideally offset by a matching cut in payroll taxes to ease the burden on working families, would make investments in next generation cars or U.S.-manufactured transit stock sustainable and ultimately profitable. This remains a key part of the solution to Detroit’s current problems, and to any ultimate solution involving either electric cars or expanded mass transit.

The U.S. experience with industrial conversion during WWII should teach us that transformative change in the nation’s industrial base is possible.

As textiles, pharmaceutical manufacturing, electronics and other industries have left this country, we have assumed that American factories could not compete with inexpensive labor in China and India. But is there any reason to believe that U.S. manufacturing can not compete with Canada, Germany, Italy, Spain, and Japan with their high pay scales, rigid labor rules, and higher business taxes?

These are the countries who now supply the key components for U.S. transit systems. This is the opportunity to use those assets that pulled the United States through so many past crises: energy, imagination, optimism and — above all — a willingness to work hard.


There are other means by which the automotive industry and its work force could retool and reinvent itself and which don't depend on the permanent expansion of America's car culture.

The current discussion about Detroit's future seems to focus almost exclusively on electric cars. Unfortunately, the electric car is not an ultimate solution, either for the auto industry or for global warming.

"Perhaps the most extraordinary thing of all about Detroit-at-war is the change in the industry's thinking about improvisation."

Demand for mass transit in the United States has never been greater, with ridership at its highest levels in 50 years and almost 400 new rail, streetcar and bus rapid transit projects proposed across the country.