What Steven Rattner doesn’t get about the auto industry

At graduate school, a professor of mine voiced a strong distaste for Steven Rattner, the New York Times’ young chief economics reporter, based in Washington. This professor, an adjunct who worked at the World Bank, thought Rattner just didn’t get economics; he advised us to rely instead on The Wall Street Journal. Soon after, Rattner left the Times for Wall Street, becoming a billionaire in the employ of the investment bank Lazard Frères (now Lazard), an influential voice in Democratic politics, and generally a guy with serious connections. Last year, President Barack Obama, beset with crises domestic and foreign, asked Rattner to figure out what to do about America’s failing car industry. So it is that this week, we get Rattner’s memoir of the car company rescue, Overhaul: An Insider’s Account of the Obama Administration’s Emergency Rescue of the Auto Industry.

Rattner is getting serious attention. Tom Braithwaite at the Financial Times interviewed him. Jonathan Cohn at The New Republic interviewed him. Holman Jenkins, a writer for The Journal‘s editorial page, didn’t praise the book, but did offer free publicity while using it as a platform for yet another swipe at unions and mileage-efficient cars.

I received my copy today from the publicist. I’m interested in the overhaul, but more so in the decision — begun under President George W. Bush — to put the federal government behind the creation of a competitive electric car industry (under Bush, we got the current $7,500-a-car subsidy toward the purchase of electric vehicles). The rescue of GM and Chrysler were regarded as strategic and political necessities – Obama thought it risky to saddle the already pummeled country with the loss of this trademark industry. But the proactive push for electric cars was more of a bet on the companies’ — and the nation’s — healthy longevity. After all, was Washington bailing out car companies just so they could produce more cars, or so they could help to move the country on to its next big chapter?

But Rattner isn’t so taken with electric cars or their enabler, advanced batteries. He devotes little space to the topic of either, and when he does, he is scathing. I quote:

Advanced car-related facilities, like battery plants, were high on [Obama’s] list. But mixed in with the evidence of progress were telltale signs of waste. While there’s a healthy debate about the future prospects of the industry, The Wall Street Journal quoted one expert, Menahem Anderman of Total Battery Consulting, as estimating that the capacity to produce batteries for electric cars just from stimulus-funded U.S. plants will be three times greater than global demand by 2014.

Speaking of telltale signs, one traditional corollary of boom manufacturing businesses is eventual oversupply. Everyone is trying to get in on the action — then the incompetent and bad actors wash out, and you are left with those who can truly compete.

Reading Rattner’s prose, Josie Garthwaite at Gigaom gets the (correct) impression that he regarded his job as “by no means a green overhaul.” If so, says Zach McDonald at Plugincars.com, then there’s much to quibble with — as my former professor said of Rattner’s economics, McDonald argues that the car czar doesn’t grasp that electric cars are a bet not on the now, but on the future.