Last week’s news was headlined by efforts in Congress to provide temporary aid to Detroit until the new Congress and the Obama administration are ready to grapple with long term industry restructuring. The failure to reach an agreement in Congress last week led to the Bush administration reversing course and apparently agreeing to release enough TARP money to keep GM and Chrysler solvent for the next few months.
Washington is not alone with this problem. Automobile manufacturers in Europe and Asia are having similar problems and are appealing to their governments for support. Although the problems might not be as serious as those of Detroit, no government wants to see such an important segment of its economy as the automobile industry fail. All governments want to bring a new generation of fuel efficient, low emission vehicles into production as soon as possible.
At the minute these goals are very much in air. As we have seen in the Congressional debate last week, there is much concern that the industry, whose sales are fast approaching 50 percent of recent highs, will require massive subsidies to keep the industry viable long enough to achieve the needed reforms. Whether these massive subsidies are deemed worthwhile and affordable is one of the key questions facing the US and many other governments around the world.