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Auto Rebirth: Detroit Is Leading an Industrial Renaissance, but There's More Work to Do

Yep, that is correct, we still make stuff here.
Over on the New York Times opinion page, Paul Krugman has given the Nobel-prize imprimatur to the revived U.S. manufacturing sector and credited the auto industry with leading the way. Krugman focuses on the politics of currency manipulation (weak dollar = good for manufacturers, bad for Republicans), but in terms of the car business, there's more to be said. And it's being said by Krugman's ideological opposite.

The University of Maryland economist Peter Morici considers himself a conservative in the vein of Ronald Reagan. Over the past few years, he's been merciless on the enormous U.S. trade deficit, which he argues is made up mainly of unbalanced trade with China and a vast amount of imported foreign oil.

Opposites attract
He obviously isn't off the mark with either of those observations. China has kept its currency down to keep its exports cheap, and this had led to a fair amount of saber-rattling on the maybe-we'll-have-a-trade-war front. As for the oil thing... well, it's not like we're getting that much on the homefront anymore.

What's interesting is that Morici doesn't parrot the usual redneck GOP line of "Drill, baby, drill!" when it comes to exploiting domestic oil reserves, such as they are. Rather, he takes Detroit to task for failing to maximize existing technology to achieve much greater fuel economy and reduce the overall amount of oil we have to import. (He also takes Obama to task for betting too much on alternative energy and electric vehicles, but that's another story.)

So Krugman thinks the (unionized) auto industry is doing pretty well. Morici seems to agree, bucking GOP hatred of the 2009 bailouts -- but thinks it could do better.

Pragmatism now, futurism later
One of the things that auto writers commonly complain about, even as they rip around test tracks in supercars that get 5 miles to the gallon, is the geological pace of MPG-improvement in the U.S. Why don't cars today get significantly better mileage than they did 30 years ago? They're not asking for a (ahem) reinvention of the wheel. Just a sedan that gets 60 MPG, powered by a conventional engine.

Corporate Average Fuel Economy (CAFE) standards haven't been raised significantly since the 1990s, so a lack of political will is to blame. But if you agree with Morici that the trade deficit is sapping the current wobbly recovery, then you can see why Detroit's antipathy to building a much higher MPG fleet is a case of shooting itself in the foot.

Detroit doesn't need to build the car of the future. It just needs to realize the full potential of the car of the past.

What about (more) government assistance?
Of course, Morici probably wouldn't like the idea that in order for Detroit to better its lot, aid the recovery, and ensure its future, it will need some help from the government. This goes beyond Department of Energy loans for electric-vehicle applications. Detroit is going to require some capital to get past the low-MPG, high-profit trucks and SUVs that have been its bread and butter since the late 1990s.

This could even help with the next round of CAFE negotiations, which could lead to a 62MPG fleet standard by 2025. The Big Three have created a distinct new lobbying group, the American Automotive Policy Council, and I think one of its main tasks is going to be pleading domestic carmakers' legislative case against much higher CAFE standards.

Unless, that is, the federal government subsidizes the adoption of technologies that would enable those standards to met -- while also holding down the value of the dollar. Yes, it would be a kind of "soft" industrial policy. But then again, the bailout of Detroit was "soft" nationalization, and that doesn't seem to have turned the U.S.A into Cuba.

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Photo: GM Media
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