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From Gas Guzzling Cars to Clean Buses

by Charles Stone, Jan 20, 2009
 


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"What is good for GM is good for the country!" -- once the battle cry of U.S. capitalism is now a mumbled query that sounds something like, "What is good for the U.S.? What is good for GM?"

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As America's auto manufacturers deal with the largest financial crisis in their history, officials are focusing on how to keep the industry afloat regardless of brand. Hence, the catchphrase, for some, now goes: "What is good for the automotive industry is good for America -- with or without GM."

America needs large scale investment by the federal government that will promote sustained development of public services and private enterprises. Simply lending funds to distressed companies, such as General Motors and Chrysler, to keep them operating will not stimulate economic growth. An innovative program of vouchers to promote mass transit, especially the manufacturing of clean and green buses, would spur investment while saving jobs and helping the environment.

The Recession and Transit

Deteriorating economic conditions in the region have put New York's Metropolitan Transportation Authority in a financial bind. A December report on MTA financing by the Ravitch Commission, named for its chairman, Richard Ravitch, said the situation has become "calamitous."

The MTA faces significant gaps -- of a billion or more -- in its operating budgets for each of the next four years.

By law, the authority's budget must be balanced, meaning it has proposed substantial fare increases, major service reductions, lowering administrative costs, personnel cuts, longer maintenance cycles and an interagency loan.

Uncertainty about the MTA's funding creates uncertainty among the suppliers of the equipment the authority buys. Uncertainty about the capital projects the MTA can fund compounds the already severe uncertainty that investors have. This is exactly what the U.S. economy does not need right now.

Keep in mind that New York's population of 8.2 million is expected to grow to 9.2 million by the year 2034. The Ravitch report, while not advocating specific capital projects, argues for an expanded bus system based on Bus Rapid Transit, which attempts to move passengers more quickly and comfortably through a system of buses-only lanes and other improvements. "Expanding the bus network is the only realistic approach," the commission said.

Clean buses that operate in a rapid transit mode will be the key to the commercial viability of the New York region. The problem is finding the money to purchase them.

Bus Benefits

To help surmount this obstacle, I suggest the federal government issue $25 billion of Clean Fuel Vouchers that municipal and state authorities could use to buy cleanly powered buses over the next five years.

The $25 billion figure is a quick calculation of what it would cost to replace the 64,350 gasoline powered transit buses on the road at the end of 2006 with alternative fuel buses, with $500,000 as the cost of each new bus. Twenty-five billion dollars over five years ($5 billion per year) would be a significant increase in the slightly more than $1 billion nationwide the Federal Transit Administration has currently budgeted for capital spending on transit buses.

It also would build on an existing commitment by federal, state and municipal governments. Between 1995 and 2006, the number of transit buses using alternative fuels increased from 2.8 percent to 16 percent. In its 2009 budget, the Federal Transit Administration said it is "striving to increase by 2 percent per year the deployment of energy efficient and low emission technology vehicles in the transit industry." This kind of fiscal stimulus package would significantly ramp up the 2 percent growth in clean fuel buses on the road.

As of 2007, about 21 percent of transit buses operating in New York City were powered by either compressed natural gas or diesel/electric. The MTA's proposed capital program calls for the purchase of 2,492 new buses. Of those, 1,544 will use clean fuel technology.

A commitment to these buses would create investment opportunities for manufacturers and jobs for the unemployed.

Nationally, the voucher program would employ autoworkers and activate plants now idled by a precipitous drop in car and truck sales. It would spur banks to loan money for mass transit production. Replacing diesel powered buses with hybrid/electric ones or vehicles fueled by compressed natural gas also would reduce carbon monoxide and nitrogen oxide emissions.

The Voucher Market

This is how the voucher plan would work: Transit authorities would receive vouchers they could use to buy clean fuel transit buses within five years. Once a transit authority places the order for a bus, the voucher would be pledged to the bus manufacturer. The bus manufacturer could use the vouchers as very high quality collateral to raise working capital during the production stages.

The vouchers could also be bought and sold. If the MTA, for example, decided it valued operating income over an expansion of its clean fuel bus fleet, it could sell some or all of its vouchers. Because the vouchers would be federal obligations, there is no risk they wouldn't be honored.

Once sold, the voucher could be used for any hybrid/electric, electric or fuel cell vehicle, not only transit buses. Those buying the vouchers might be other municipalities, rental car companies, taxi fleet operators, trucking companies, equipment-leasing companies, and school bus operators. The secondary market for vouchers would help those governments that cannot effectively use their vouchers. It also would broaden the fiscal stimulus while keeping it focused on demand for automotive products.

Good for General Motors

The vouchers will create a flow of private capital to the sector of the automotive industry that designs, builds and maintains green machines. This could help General Motors.

Why does that matter? The survival of many firms is linked to GM's ability to buy and pay for the goods and services they produce. GM, Ford and Chrysler currently owe about $60 billion to their suppliers. Not only must these receivables be secure, but suppliers must be able to expect timely payment for future sales to the auto companies. Trying to stimulate the U.S. economy while the core of our manufacturing base is in financial distress would be like bailing out a leaking ship with a Dixie cup.

GM has valuable technologies, products, designs, processes and patents along with engineering talent and a skilled labor force. Unfortunately, all of this is trapped in an ossified enterprise. For the company to survive, these assets must be redeployed.

When an earthquake destroys cities and villages, governments around the world mobilize resources to save lives and rebuild wells, schools and hospitals. A financial quake has struck and now is the time for a massive financial lift. To emerge from this worsening global recession each of the world's economically powerful countries must make a commitment to invest significant public funds in sustainable development.

A massive investment in clean fuel mass transit would be consistent with stimulating the U.S. economy, improving air quality, lowering urban road congestion, increasing opportunities for mobility in and outside of the cites, and making U.S. cities the premier showcase for green urban transit. Vouchers can help accomplish that. At the same time, they will increase demand in a key sector of our economy.

Charles A Stone is a professor of finance at Brooklyn College.


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