The domestic auto makers' fuel-economy games start anew—this time with taxpayer help.
GM says it has new ideas on how to build its large trucks while still meeting Washington's tough new fuel-economy standards, but don't let the spin kid you: Its main way of meeting those rules will be simply to push small and electric cars into the market at a loss in order to create the "fleet average" freedom to sell larger vehicles.
This is exactly the Faustian compromise that kept the industry together for 25 years, albeit with one big difference today: Now GM will be counting on direct taxpayer subsidies added to the mix.
We hasten to add that one old and hidden subsidy will continue to prevail, as it has for four decades, namely Washington's 25% tariff on imported "light trucks," imposed by LBJ in response to a long-forgotten chicken dispute with Western Europe. Detroit and Washington worked together to exploit the chicken tax to create a protected niche for the Big Three to make large passenger cars, call them "light trucks," and thereby shield them from foreign competition as well as the stricter fuel economy rules that apply to cars that are called "cars."
But the chicken loophole is no longer sufficient, so taxpayers will have to pitch in too. They will do so with a $7,500 tax credit for buyers of electric cars like the forthcoming Chevy Volt, plus some $25 billion in direct loans to carmakers to retool plants dedicated to "green" cars.
If this is beginning to sound like the ethanol boondoggle writ large, the parallels (and perils) are impressive.