Let's just think about this for a second. No-one in their right mind will deny that oil is a non-renewable, dwindling resource. Exactly how dwindling it is remains up for debate but one day it will run out - probably sooner rather than later. And even if it takes a while to run out the overall trend is for oil (and the production of derivative products) to become more expensive. Therefore, it stands to reason that building cars that are more fuel efficient with an eventual intent to run cars on renewable energy is a good long-term strategy. It just makes sense - particularly if you want your business to survive the next oil crisis.
But that's not what the car industry has done. Instead it has just proceeded down the path of least resistance, continuing to build and (admittedly) enhance old technology without introducing anything truly new. The US managed to kill off their fledgling electric car development (watch Who Killed the Electric Car - it's quite interesting) and all we have left are hybrids. Yes, they're a step in the right direction but the movement away from oil is not happening fast enough.
It should not be surprising that the US auto industry has it's hand out for US$25 billion to fix their own businesses. Again - same question with the same reasons for asking. On top of that, the US industry has spent years lobbying their government to avoid having to produce cars that have better fuel economy.
The other thing to be aware of is that Australia doesn't really have a native car-producing industry. It is all owned by external (to Australia) companies. So if we end up giving them cash then a lot of it will end up overseas. Not really that handy. And as our history with handouts shows, it doesn't stop the industry in question doing the right thing anyway - just look at Mitsubishi who were given millions of dollars and still shut down their Adelaide plant. Personally, I think it was because they made a very bad decision with what cars to manufacture but that just goes back to my point above. Not only that, but the cars they chose to produce were IMHO ugly. Doesn't help at all.
Again, I'm not an economist or even someone with great business ideas. But why are are politicians always trying to take the easy way out? Some of it has to do with the industry lobbies but surely there has to be a better way. Hell, for the money that we're spending we could (as suggested by several other pundits) buy at least one of the current "big" car manufacturers. If we did that we could produce whatever we felt like. And at least we'd be in control...
Update: Check out this post in the New Yorker. In short, a report delivered to the US Congress in 1980 (just before the car industry was bailed out) basically says that they need to make smaller, more fuel-efficient cars. Looks like they paid a lot of attention to that advice. Wonder if this time will be any different.