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A road map for Detroit

Don't scrap the US auto industry. Overhaul it. Here's how.

By Mark Lange / November 19, 2008

San Francisco

When your car is burning oil, you have a few choices. Buy quart after quart and watch your money go up in smoke. Scrap it and try to manage without. Or overhaul the engine and keep it for the long run.

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As it stands, the $25 billion US auto industry bailout championed by congressional leaders amounts to another quart of oil. The only jobs it may save – temporarily – are those of executives, without forcing real accountability for management and unions. Hope, maybe. Change? Not a chance.

But Republican resistance to intervention – the scrap-heap strategy – amounts to principle (or dogma) divorced from reality. With 2.5 million American jobs at risk, from dealers to admakers, we'd abandon the industry at our peril.

Consider a third way: Provide $25 billion in federally guaranteed loans only after company management seeks Chapter 11 protection, to finally and fundamentally restructure their operations, and prepare to compete.

In other words, offer the carrot only after the stick.

The economic stakes

The US has lost more than 1 million jobs this year, for a total of 10 million unemployed – and that counts only those still looking. Hundreds of thousands of auto-related jobs in Michigan, Ohio, and Indiana have already vaporized.

Detroit: the pheasant city?

Hurricanes don't hit Detroit, but the Motor City looks as if it's been devastated by a slow-motion Katrina.

Block after block of crumbling and burned-out homes and businesses has literally become an urban hunting preserve, with head-high weeds offering what the Detroit Free Press calls "ideal roosting, nesting and feeding covers" for wild pheasant. Hunters just need to watch out for open manholes and packs of aggressive feral dogs. Pheasant hunting season reopens in downtown Detroit (no kidding) on Dec. 1.

You could romanticize this surreal return to nature if it weren't for the immense human costs of Detroit's decline – the disastrous consequence of business and social failure.

Companies, it turns out, are inseparable from their communities. Neither prospers without the other. Detroit's schools don't produce the skills relevant to competitive manufacturing – and its businesses and unions have been locked in a fatal wrestling match of mutually assured mediocrity.

Now, we've come to the point where the companies want the larger community's help.

Don't just bail – rebuild

If the industry were to start over today, it would have enviable assets: 100 years of know-how. Real progress in automation and productivity. A nation passionate about cars, and steeped in innovation.

The reforms Detroit needs may sound radical, but they're not unreasonable. And they're essential if we want to avoid making a $25 billion bridge loan to nowhere:

•Offer the best "retooling assistance" available: Chapter 11 protection from creditors. That will provide both the time and the incentive for real restructuring and stable job creation.

•Fill GM's board with enough seasoned aerospace, electrical engineering, and technology hands that they make up a majority – and have them determine how much of current management stays on.

•Give management the right tools to renegotiate existing debt and get out from under excessive dealer contracts and expensive leases for unused facilities.

•Renegotiate labor contracts, bringing pay and benefits (at GM, it's $71/hour) in line with Toyota's US operations ($47/hour), and providing profit sharing and stock plans.

•Amp up the plug-in hybrid Chevy Volt. The company's future depends on its ability to master technology that doesn't defy the laws of nature. Which means…

•Shut down Chevy's hydrogen-car fantasy. Beyond the untold billions needed for retail hydrogen infrastructure, hydrogen is the most codependent atom on earth (it hates to be alone). The electricity needed to pry it from water far exceeds its energy as a fuel.

•Scale down the consumer truck and SUV businesses, and consolidate product lines. (Quick: What's the difference between Pontiac and Buick?) Shut down excess plant capacity, now estimated at four million cars a year.