Leading article: The US car industry is stalled on a road to nowhere

But any rescue with public money should come with strict conditions

In olden times, when the United States was lauded as an engine of global enterprise and innovation, the ageing behemoth of its domestic car industry was conveniently forgotten. While the age of coal and steel was allowed to pass, leaving metal ghost towns and destitute communities behind, the US car industry somehow lumbered on. It even enjoyed a late and unexpected blooming when American families embraced those thirsty SUVs in the last flush of low fuel prices and rising incomes.

Credit crunch and recession between them have now confronted the US car industry with harsh reality. Sales of new cars have plummeted, as they have elsewhere. And when Americans do buy a new car, it is increasingly smaller, more economical – and foreign. Until recently, the "big three" US manufacturers – Chrysler, Ford and GM – commanded more than half the domestic market; they now account for only a little more than 20 per cent.

That the industry has survived pretty much unreconstructed to this point reflects the special place that the US car industry occupied not just in the American economy, but in American politics – and American hearts. Henry Ford's Model T is part of the American national myth, like the coast-to-coast road trip, the drive-in and out-of-town shopping malls that presuppose car ownership. The industry's lobbying power in Washington was, and remains, ferocious.

As is clear from the arguments now raging in the US Congress about what to do with the "big three", they are seen, rather like certain finance houses once were, as simply too big to fail. It is not just that between them they directly employ 250,000 people, but that the plants are for the most part concentrated in a single, already depressed, area around Detroit, and that – according to industry lobbyists at least – as many as 4 million other jobs depend on them. Without the $25bn the industry is seeking, a whole region could be condemned to penury overnight.

In other ways, though, the car industry's plight is not unique. It also exposes one great failing of the American way of doing things. The "big three" have become terminally uncompetitive, not just because more attractive foreign products have captured the market, but because so much of the profit on any sale pays for the health insurance and benefits of retired employees. Car workers in their time enjoyed some of the best terms available to US manual workers. But the economic model that supported them is no longer viable.

There is a school of thought that believes bankruptcy, for all the human cost, would be the soundest option. They cite the failed bailouts of British Leyland, among others. As the US Senate enters the second day of its two-day debate today, however, this "tough-love" option looks the least likely. The only question seems to be whether – as the Democrats argue – the car industry should be given a slice of the rescue already agreed for the financial sector, or whether, as the Republicans say, it should come from money already earmarked for developing fuel-efficient vehicles.

The industry insists this is too restrictive and would be nothing like enough. But more rigorous testing of the industry's arguments might be in order before more subsidies are approved. Of course, many groups have an interest in getting a rescue approved before a new, lobby-averse, President takes office on 20 January, and the transition is an uncertain time. But a more far-sighted solution that minimised state involvement, while encouraging reform, might be preferable to a hasty attempt to please everyone, even if the "big three" had to wait a little longer.