A Plan for Revitalizing the U.S. Auto Industry
It’s January 20, 2029. The new President, committed to revitalizing America’s once-dominant car and truck industry, requests a briefing on the current state of affairs. The news isn’t great. Global market share of the big American automakers has bottomed out at single digits, well below the nearly 25% it enjoyed in the 1990s. Factories that made cars for export are either closed or closing.
That’s because the rest of the world doesn’t really want American cars any more. Continued tension and uncertainty in the Middle East has kept gas prices high and underscored the security and economic vulnerabilities of overreliance on oil. Outside the United States, consumers are snapping up Chinese-made EVs that go hundreds of miles, charge in minutes, and sell for less than $10,000. Industry is similarly pivoting to electric freight. On the home front, Americans are angry that U.S. policy is preventing them from buying exciting cars hitting the streets in neighboring Canada and Mexico. Workers aren’t much happier, as trade disputes and tariff barriers cause the once-integrated North American auto industry to come apart at the seams. And the U.S. truck oligopoly still runs on diesel, adding cost to almost every consumer good.
The President sighs and asks their team for a plan. Fortunately, they have one.
The World is Jumping Ahead on Electric Vehicles, Whether the U.S. Likes It Or Not
The writing is on the wall: electric vehicles (EVs) are the future. Industry knows it. Workers know it. Investors know it. Politicians on the left and right know it. EVs are simply getting too good, too quickly, for even the most pro-fossil policy agenda to stop. That’s good news for our climate, and for consumers globally, who deserve access to the latest, greatest, and cheapest cars. But it’s bad news for Americans, who are going to suffer the long-term effects of short-sighted transportation policies that fail to acknowledge economic and technological reality.
Eventually, this reality is going to become impossible to ignore. EVs are already dominating in countries as diverse as China, Norway, Vietnam, and India, and the geographic spread is only accelerating. Sooner or later, the United States is going to need a plan to catch up. It’s clear that what the plan won’t be is a simple return to the outdated regulatory frameworks we used for decades to regulate vehicle emissions and fuel economy. We need to think more broadly and more creatively.
Why Nixon-Era Statutes Won’t Catch Us Up On Their Own
Two statutes have historically governed vehicles. The 1970 Clean Air Act (CAA) structures the tailpipe emissions standards that the EPA and California enforce, while the 1975 Energy Policy and Conservation Act (EPCA), which charges DOT with setting separate (albeit overlapping) fuel economy standards. These laws, as we’ve previously written, were helpful for making gas-powered cars cleaner and more efficient, but they weren’t designed to guide a wholesale transition from fossil to electric technology with the pace and comprehensive scope needed.
There’s a case to be made for doing your best with old tools if those are the tools available. Indeed, that’s why the Biden administration’s vehicle regulatory regime was largely predicated on the CAA and EPCA. But these tools have become far less available in light of the second Trump administration’s actions. The Trump administration, in partnership with Congress, has dismantled the legal basis for regulating greenhouse gas emissions from vehicles under the CAA, gutted the fuel economy program that EPCA sets up, and rolled back California’s EV rules (which traditionally set the most stringent, future-forward vehicle standards). It also fired lots of people from federal agencies who understood how federal vehicle regulations worked. Thus from both a legal and a capacity angle, CAA and EPCA have become significantly weaker policy levers. Compounding these issues is the fact that the Supreme Court (now and likely into the near future) is profoundly hostile to regulatory ambition, limiting the probable reach of new rules set under these statutes.
Even if one could magically snap Biden-era vehicle rules back in place, those rules would only cover one player in the auto market – automakers themselves. Telling automakers that they have to develop cleaner, more innovative vehicles is an important tactic, but it is not a comprehensive policy agenda. CAA and EPCA don’t cover worker pensions, factory refits, trade policy, or continental industrial strategy. They don’t deploy charging networks or build out the grid. They don’t help fossil-fuel-producing counties diversify their economies, don’t structure smart spending priorities for the transportation system, don’t thoughtfully manage refinery closures and other giant infrastructure shifts. And as we’ve seen, CAA and EPCA don’t put real pressure on giant incumbent companies to change, and to make affordable new products, rather than to lobby hard against rules they don’t like.
By 2029, many of these core economic and industrial policy areas will also be in shambles. And as we’ve learned from the partial repeal of the Inflation Reduction Act, a party-line reconciliation bill won’t be a silver-bullet fix. Reconciliation bills are, as the Trump administration has made clear, no basis for stable investments. Fiscal policy is useful. Unstable budget policy will not draw in the billions in investment we’ll need to catch America back up.
These aren’t ancillary problems. Failing to manage the EV transition as the giant economic shift it actually is makes the policy and politics of the transition brittle and subject to reversal.
And Neither Will Ad Hoc Dealmaking
We need approaches that both compel and encourage giant incumbent companies to change and make affordable new products, rather than lobby hard against rules they don’t like. We need approaches that take the lived experiences of people who can’t afford to finance a new car, who don’t have access to charging at home, or whose livelihoods depend on the fossil economy seriously.
Yet the United States has never had a clear, cohesive, and comprehensive electrification and innovation strategy for the auto sector. In the absence of a clear national program, we’ve cut a series of tenuous deals to structure nearly twenty years of U.S. vehicle policy.
President Obama, during the 2009 auto bailout, was able to use fiscal recovery funds to steer the auto industry into accepting a first round of emissions rules from the feds and California. This “car deal” set the template for several more. The first Trump administration (with tacit support from automakers looking to slow EV investment) blew it up. California stepped into the breach with another set of deals, persuading companies to keep making EVs in exchange for regulatory relief and by threatening to stop buying government cars from holdouts. Team Biden then used Inflation Reduction Act funds to provide EV rebates and support EV manufacturing, as a spoonful of sugar to help a new round of federal and California emissions rules go down. And then the second Trump administration blew up those deals, again with industry support as American companies pivoted back toward short-term profitable gas SUVs.
Same story with trucks. California made a deal with the truck makers to continue progress on clean trucks. Post-Trump 2, those same truckmakers sued California to blow up their own deal. They are now backing Trump on his effort to destroy the entire CAA greenhouse gas vehicle program.
These deals were crucial progress at the time – and it would have been rational for the industry to keep its word. But it didn’t – policymakers shouldn’t be fooled again, or lulled into thinking that even good deals are a long-term substitute for durable policy. Relying on ad hoc dealmaking is an absolutely wild way to run a major industrial sector.
No wonder Chinese companies, able to rely on consistent government policy, have surged ahead while American consumers struggle to navigate the increasingly byzantine and expensive world that is the American auto market. While American workers move their families to be near good-paying auto jobs only to see investment pulled back and factories shutter. And while auto companies, in the absence of a stable and dependable policy environment, almost inevitably engage in short-term profit chasing rather than longer-term innovation.
A Path Back to the Future for U.S. Auto Policy
What breaks this bad pattern? Green industrial policy, embedded in a bipartisan statute that can pass a filibuster-proof majority of the Senate, and that blends competition and innovation.
Because we need both. The U.S. auto industry is highly concentrated, with only a few companies dominating domestic sales of both cars and trucks. These companies are used to calling the shots and setting prices, which is terrible for everyone but CEOs. American auto CEOs are deathly afraid of real competition – witness how Tesla’s new affordable electric semi is sending major ripples through the entire freight sector. But it’s been decades since the United States seriously enforced antitrust laws. Rather, politicians from both parties have raced to erect steep tariffs shielding the American auto sector from essentially all real global competition. There’s a role for any government to play in supporting its domestic industries. But that role isn’t propping up failing legacy companies indefinitely, at the public’s expense.
A well-designed statute could strengthen market oversight and competition while also providing American companies with reasonable support. Don’t like the Chinese-backed EVs that are undercutting your market? Start making and selling better, cleaner, and cheaper vehicles – and we’ll help. This is the logic that motivated Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum to welcome Chinese competition while bolstering their domestic industries. The U.S. can catch up with the same approach. For instance, government can readily provide loan funds and policy support for overseas companies that want to scale up in the United States, in partnership with domestic manufacturers. Such joint ventures are win-wins: the foreign company gets a new market and learns how to build for the U.S. market; the domestic company gains process knowledge and the IP it needs to modernize its products. That is exactly what Toyota and GM did a few decades ago, when the U.S. industry faced major competition from overseas autos (then, from Japan). The strategy can work again, for cars and trucks and batteries. Throw in better federal loan terms for union facilities, and you have a worker-friendly, industry-friendly, pro-competition, pro-consumer package. And this time the government can even explore taking an equity stake. Because why not re-shore profits, too?
Is comprehensive statutory reform ambitious? Certainly. But anything less consigns core national economic and industrial strategy to the vagaries of judicial interpretations of decades-old pollution statutes. Half-measures will, given the context above, be essentially useless. As with riding a bike, we can’t afford to pedal slow. The fate of a vast national industry warrants real national vision, rooted in a democratic vision for ordinary people. Democracy repair is climate repair is industrial reconstruction.
To deliver that vision when the policy window emerges – when the next President asks for it – we’ve got to start structuring it now. We suspect it will include some or all of the following elements:
- A national electrification trajectory, established in law. No more trying to retrofit EV rules from fossil-era statutes. We need a clear, negotiated path for electrifying America’s auto sector and restoring our global competitiveness, with related provisions on battery life and durability. This path must be binding on manufacturers.
- An accelerated charging network. There’s truth to the industry argument that they can’t sell EVs without chargers. We need federal funding to fill gaps in the charging network that private capital won’t (taking inspiration and precedent for federal funding for rural electrification), while incentivizing additional private-sector buildout guided by federal reliability standards and provisions for incorporating chargers in building codes and urban planning requirements.
- A continental industrial strategy. North American EV manufacturing should be baked into the USMCA and trade policy. Do we focus on advanced manufacturing of batteries? On assembly? On new high-tech models? We don’t have to do it all, but we do have to decide and put real resources and legal muscle behind it.
- Trade policy that lowers prices and creates new manufacturing. Our current system both blocks affordable Chinese EVs with prohibitive tariffs and fails to transform domestic industry. Explore options like joint ventures that on-shore competition through domestic-foreign partnerships, paired with tariff adjustments tied to domestic policy supports.
- A real free market for vehicles. Today’s American vehicle market isn’t free. The few companies that dominate vehicle sales in America serve consumers poorly yet get bailed out when they fail to compete. Enough. It’s time to provide Americans with real choices. That means, at minimum, statutory terms ensuring that prices are transparent and fair (as California is currently considering) and resources for anti-trust enforcement and consumer protection.
- Genuine support for workers. Federal support (including funding, loan guarantees, land use and permitting policy, and offtake opportunities like fleet procurement) should be conditioned on high-road job standards (e.g., labor neutrality agreements, training programs (including apprenticeships and new career opportunities), community benefit agreements, and pension protections. This policy should move in tandem with pro-worker reforms to labor law, such as the PRO Act.
- Genuine support for communities. Local governments and communities seeking to attract new manufacturing, manage plant closures and repurposing, or diversify revenue streams will need support. Federal government can provide funds to patch short-term budget holes as well as technical assistance and capacity-building grants to manage these issues across silos – all while deeply engaging state and local leaders to co-create and iterate national auto strategy.
- Innovative fiscal mechanisms. Public money should be used to align and leverage private capital into serious modernization of the U.S. auto sector. The federal government can provide loans for new auto facilities and market hubs, make loans for EVs (especially expensive medium- and heavy-duty vehicles) as standard and easy to secure as loans for other vehicles, push prices lower by tying federal incentives to reduced MSRPs, and even consider funding some of these measures by taking equity stakes in firms it funds. There is plenty of private capital in the United States to harness towards a globally competitive auto sector. The role of public funding is to push it in the right direction.
- Durable implementation support and education. We’ve seen how the IRA failed to build a political constituency because it rolled out too slowly, and with too little political cover. This time, the national program needs to come with durable support to increase implementation capacity at all levels, for speed, and a clear political plan to keep the American people engaged on this crucial national project, sharing its rationale and working through both concerns and victories as they come.
What Needs to Happen Now
The comprehensive, statutorily based plan we envision is only so much wishful thinking today. But we can actually create the conditions to realize this plan in the future. That’s because states have very substantial economic development authority, complemented by the substantial financial muscle of large state-based green banks and infrastructure banks.
What if the next governor of California provided state-backed loans for any company seeking to expand an EV or battery firm with pro-union policies in the state? The governor might particularly encourage joint ventures, perhaps looking to the Chinese firm BYD’s existing facility outside of Los Angeles (which doesn’t make cars and semis now, but could be expanded to do so). This isn’t wishful thinking. California more or less created Tesla with over $3.2 billion in subsidies. It can now create a host of new competitors, but this time it can also be taking equity to ensure profits flow back into a “transition fund” in the budget that supports economic growth in counties facing declining oil production. It can simultaneously pass state laws strengthening oversight of the U.S. auto industry, forcing transparent prices and pro-competition market structures.
If California leads, it’s unlikely to stand alone. States like Michigan might well jump in, using its existing Office of Future Mobility and Electrification to draw in billions in investment in existing facilities and pairing public investment with scaled-up private capital in powerful capital stacks. So might Texas, Illinois, Ohio, and Georgia – states that have made significant investments in EVs and batteries that they, and their constituents, are loath to lose. After a year or so, we might reasonably expect an MOU linking a growing state coalition that is working to develop the capital instruments and policies needed to grow industry.
With this policy certainty, investments start flowing at scale and a positive cycle begins. States continue to implement the panoply of policies in their control that otherwise support economic modernization, from clean air planning to freight system electrification rules and programs to policies that help vehicle batteries profitably support the grid by storing energy. They update building codes, deploy chargers, insist on durable and quality products using their consumer protection laws, and steer public money towards necessary infrastructure. Critically, they root all that work in expanded capacity to navigate the “messy middle” of the ongoing clean-technology transition, ensuring that neither workers nor communities will be left in the lurch.
At the same time, far-sighted public officials, backed up by civil society and foundation support, start bringing together the interests the new President will need for a major statutory play. They bring in counterparts from Canada and Mexico, recognizing that the continent has to either work together or lag together. Soon, the collaboration starts looking like an actual industrial strategy at the scale of East Asia’s behemoths.
In this scenario, when the next President calls for an auto modernization plan, Governors across the country back her. So do many major investors, donors, local officials, and federal electeds. After all, they’ve already seen the future in their states, and it is in their interest to scale up the national program. When the gavel falls in the first year of the 121st Congress, the conditions for change are in place, and twenty years of shaky rules and ad hoc deals give way to a new approach – a lasting one.
Don’t like the Chinese-backed EVs that are undercutting your market? Start with a well-designed statute to strengthen market oversight and competition while also providing American companies with support.
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