Transforming the auto industry.

recent months, with public opinion running strongly against government fi nancial support for it. The industry fell into a trap of high costs, including unaffordable benefi ts and a morass of regulatory and contractual obligations that enabled foreign producers to take a growing share of the U.S. market. Worse, the Big Three (Chrysler, Ford and General Motors) continued to promote gas-guzzling SUVs while the risks to the climate and U.S. energy security mounted. To some extent, the industry is also paying the price for spiraling national health costs, which should be under better public control, and for the U.S.'s inadequate fuel-effi ciency policies and low gasoline taxes (in comparison with Europe and East Asia), which facilitated consumer demand for large vehicles. Yet many of the indus-try's problems indeed result from its own strategic miscalculations. Still, the scorn for the industry misses four crucial points. First, a collapse of the Big Three would add another economic calamity to the crisis-roiled economy. Millions of jobs would be lost in places with very high unemployment and no offsetting job creation. Second, the auto-makers' plight is the result of the dramatic collapse of all domestic vehicle sales rather than the U.S.'s declining share of those sales. The Big Three would not be at the precipice of bankruptcy were it not for the worst recession since the Great Depression. Third, the public and political leadership bear huge co-responsibility with industry for the misguided SUV era, with its fl agrant neglect of energy security, climate risks and unsustainable household borrowing. Fourth, and most crucially, the changeover to high-mileage automobiles must be a public-private effort. Major technological change, such as from internal-combustion engines to electric vehicles recharged on a clean power grid or with hydrogen fuel cells, requires a massive infusion of public policy and public funding. Research and development depends on huge outlays, and many of the fruits of R&D should—and in any event will— become public goods rather than private intellectual property. That is why for a century the U.S. government has practiced public fi nancing for R&D in many industries, including aviation, computers, telephony, the Internet, drug development, advanced plant breeding, satellites and GPS. To bemoan that the forthcoming Chevy Volt plug-in hybrid will have a fi rst-year price tag of $40,000 is to miss the point. Early-stage costs are inevitably far above those seen in the long run. Public policy should help promote …