I follow the auto industry pretty closely, being both a fan and a critic (my book “Horsepower War” is a collection of essays, some of which are critical about Detroit) of American cars. After reading Tom Friedman’s “How to Fix a Flat” column in the NY Times November 13th, I had to get something off of my chest – something that’s really been bothering me about the ‘liberal’ critique of Detroit.

To wit: “GM-has-feet-of-clay-and-didn’t-make-the-small-cars-everyone-wanted.” And while liberals in the ‘60’s might have argued the quasi-monopolist GM (with 50% market share) made too much money, now neo-liberals – at least Tom Friedman, are exhorting GM’s foolish executives (they have feet of clay after all) to “innovate” so they will be profitable in the neo-liberal global capitalist order.

The first problem is that this story is nearly forty years old now – and even forty years ago, it wasn’t strictly true. In fact, it was in late 1968 that GM, worried about increasing foreign competition, announced their “XP 887” project – the car that would become the sub-compact Chevrolet Vega of 1971. The Vega was a bad car, but it did actually sell decently for a while. The problem was, as it is now with cheap small cars – it just didn’t make money.

GM instituted a wholesale downsizing of its fleet from 1977 to 1989. Yet in the 1989-1991 period, Honda created its luxury “Acura” division Nissan created the “Infiniti” luxury division and Toyota created the prestige “Lexus” line. Ironically, these more powerful, bigger cars filled a void in the market GM had mostly abandoned in order to meet CAFE rules. And during the 1980’s, as GM cars were shrinking, Toyotas Hondas and Nissans were getting bigger and bigger.

So already, by 1990 the “GM has feet of clay and doesn’t make small cars people want” narrative was already defunct. Now, eighteen years after that, Toyota’s product lineup in the US pretty much mirrors GMs – mostly SUVs – and the SUVs they make now tower over their “Land Cruiser” 4x4s of the ‘70’s.

The second part of the problem is the liberal assumption that “Detroit is not profitable because it doesn’t make small, cheap cars that everyone wants.” This prescription is simply a concept at war with itself. Would liberals suggest to Mercedes or BMW that their problem is that they “don’t make the small cheap cars everyone wants” (?) In fact, a Mercedes subsidiary does make a car that “Jesus would drive,” – the “SMART.” If you’ve been to Europe recently you notice the streets teeming with them, and now the phone booth shaped, two passenger cars are popping up all over big US cities like New York and Chicago. Here’s the problem with the SMART though: despite its popularity, it has never made money.

Mercedes makes money not by packaging a set of commodities like steel, rubber and glass in the most efficient and optimized way. They make money on prestige. People don’t buy BMWs to maximize their transportation utility either. The profit margin comes in when BMW is delivering roughly the same amount of steel, rubber and glass, but people pay more for it than they would for the same amount of steel, rubber and glass with, say, a Pontiac label on it.

By the way, BMW and Mercedes both regularly choose to pay ‘gas guzzler’ fines to the NHTSA rather than conform to the CAFE corporate gas mileage requirement. The cars are so expensive to begin with that the extra $2000 or so they tack onto the sticker is barely noticed by their prosperous buyers. Where’s the outrage about that Tom?

Lately auto commenters of all stripes have been posing the question of why GM is so different than healthier companies – but the thing is they’re not really that different. GM’s fortunes in Europe and China are significantly better than in North America. In fact TATA motors, most recently in the news for its NANO people’s car, recently purchased Jaguar from Ford. Why? Because they think the Jaguar name will allow them to sell expensive luxury cars no one would have taken seriously with a TATA nameplate. Tata knows it: the prestige market is where the money is. Even the NANO is an attempt to get people to move out of cheap motorcycles and into a more expensive car. Similarly, another ‘people’s car’ maker, Hyundai, once ridiculed for its econo-boxes, is launching a new luxury car with a 370hp V8 engine and $45K+ pricetag – because that’s where the money is.

So the bottom line is that if Americans are going to take an ownership stake in GM and also demand it be profitable, the first priority of this new “People’s Car Company” should be to shore up Cadillac with a $75,000 flagship prestige car that could make the kind of profit margin Mercedes gets from the S Class or BMW gets from its Seven series.

There is a powerful but unspoken assumption that the domestic makers should be shouldering the role of some kind of People’s National Transportation Collective, but these assumptions don’t apply to luxury makers (‘limousine liberal’ anyone?), or even to the companies exploiting “right to work” anti-labor states where liberally-loved Honda and Toyota work their magic. Some of that false “collective” assumption can be traced to GM’s P.R. efforts. For decades they’ve paraded various socially responsible cars at auto shows. In 1990 they were showing a super sedan that got 70mpg. Then in the 1990’s under Clinton/Gore there was the “Project for a New Generation of Vehicles.” It was a public private partnership that was supposed to lead to 80mpg cars. When the political winds shifted in 2001, the project was tossed in the garbage by the Bush administration.

In 2008, we have the Chevy “Volt.” It’s an ‘economy car’ that will cost $40,000 to build at current estimates. But its real mission has already been accomplished – Chevy got some sweet liberal ink in a few Tom Freidman columns. That was what the Volt and its many GM ‘idea car’ predecessors have always been about – good press. They’re a fig leaf meant to cover ugly SUV genitalia.

“What is to be done, then?”

Before liberals make their car industry prescriptions, at least they need to join the “reality based” community in their basic assumptions.

Liberal critiques are wrapped up in two super-sized unacknowledged assumptions:

1. “GM should make cheap small cars - the cars ‘people’ want”
2. “Companies lose money on big expensive ‘guzzlers’ (the cars ‘people’ don’t want).”

These are demonstrably false – and not just for GM either. Even in Europe, rich people pay a huge premium for big Mercedes and BMWs. It’s just that working class consumers buy small(er) cheap(er) cars because that’s all they can afford.

If liberals are supposed to be the masters of nuance as opposed to those Manichean ol’ conservatives, it’s time to acknowledge that our simple minded story about the US car industry stopped being true twenty years ago, and that our assumption about the pious, thrifty US auto consumer is probably one part wishful thinking and nine parts denial. Maybe US consumers really are obsessed with prestige and luxury – maybe they are really ‘shallow’ and ‘vain’ and ‘conformist’ and try to buy the biggest most prestigious car they can possibly afford.

Forcing GM to be a “good” automaker who makes $40,000 economy cars that get 80mpg, while allowing Mercedes and BMW to be “bad” (even blowing off CAFE, our only real attempt at increasing auto efficiency) - will only make Mercedes and BMW even more profitable and speed GM’s demise. Whatever we do with the bail-out or energy policy, we’ve got to have simple and consistent rules that apply to all, rather than demanding piety and poverty of domestic makes and allowing Mercedes to go on being ‘sinister’ and profitable.

The problem with American liberals is our American-ness. We want to offer painless ‘can-do’ solutions that deny the simplest truth there is: We can’t have everything. We can’t have cheap fuel then expect everyone to conserve it. We can’t expect domestic carmakers to enforce our view of consumer piety while the “shallow” vanity obsessed consumer flocks to luxury brands.

I don’t want to see GM or Chrysler die – maybe for sentimental, nostalgic reasons I can’t really rationalize. It’s probably best to see them through this tough period just to avoid a whirling vortex of unemployment and depression. But the thing not to do is saddle these makers with ‘pious’ conditions that will make them go broke. We might be able to make GM “The National People’s Transportation Collective” and have it make cheap economy cars, and we might be able to get GM in the black again – by making expensive prestige cars, but I would humbly suggest that we can’t have it both ways.