Monday, November 08, 2010

Chrysler and General Motors Must Build Better Mousetraps

I know of no one who hasn’t heard the famous quote by Ralph Waldo Emerson, “Build a better mousetrap and the world will beat a path to your door”. In fact, I know of no one who can disagree with this basic truism.

As you well know, our government decided to use our taxes to keep GM and Chrysler alive. Over a year and many billions of dollars later both companies are claiming to be profitable and are planning to sell stock so that they can pay back a portion of what they owe us taxpayers. Of course, we will never really know how much money we’ve really spent in this futile rescue attempt. The latest secret that was revealed is that the US Treasury is giving GM a pass on paying taxes for several years. This required a change in the law that was kept very quiet until this fact was needed to pump up the price of GM’s IPO stock price. Wall Street was naturally very impressed to learn that General Motors will not have to pay taxes on any of the first $45B they earn, unlike all of their competitors. Talk about a competitive edge! How do you think this makes Ford Motor Company feel after they refused to take a handout from the government like GM. Our government is rewarding bad behavior and punishing good.

Consumer Reports just announced their list of the most reliable new vehicles for the new model year. Do you think that anybody in Washington D.C. is concerned about the fact that Chrysler is ranked “dead last” in reliability out of 27 makes sold in this country? How about the fact that the highest ranking for any GM car is #17 for Chevrolet? Buick is 18th, Cadillac 19th, and GMC is 21st! Of course Honda and Toyota dominate the reliability survey as always. There’s not one single American owned company in the top 10, but Ford is #11.

Washington seems to think that they can solve any problem by throwing enough money at it. The only reason that GM and Chrysler’s balance sheets look better and they are showing a profit this year is because of all the taxpayer’s money and “smoke and mirrors” accounting. I’m not taking a political position here because there were lots of politicians from both sides of the aisle who pushed for the bailout.
Now that GM and Chrysler have their bailout money, they’re reneging on their agreement to build smaller more fuel efficient cars. They’re lobbying to defeat the next plateau in EPA fuel economy standards. About a year ago, GM and Chrysler signed a deal with the White House agreeing to boost fuel-economy standards nearly 35% by 2016 but that’s because they had to “go along to get along”, in other words get their billions in bailout money. They’re now lobbying heavily to defeat Washington’s efforts to continue to improve fuel economy after 2016 with a goal of 62 mpg by 2025. There is no opposition from Honda, Toyota or most other manufacturers on this because they have confidence that they can meet these fuel economy standards.
The simple facts are that it’s easier and cheaper to build lower quality cars and big gas guzzlers and sell them for too much money than it is to build fuel efficient cars, trucks, and vans. GM and Chrysler live or die on the price of gasoline. When gas prices are relatively low, they can sell enough Chevy Suburbans, Cadillac Escalades, RAM pickup trucks, and other gas guzzler models to be profitable. One of the reasons that GM and Chrysler made profits this year is relatively low gas prices. Everybody knows that it’s only a matter of time before oil and gas prices rise to record levels. Ten years from now we will look back fondly on $3 and $4 gasoline. When that happens, GM and Chrysler will go bankrupt again. There isn’t enough time for them to reengineer a new line of fuel efficient cars and trucks and, even if there were, they are so far behind in the quality game it wouldn’t make a difference.

The Chevrolet Volt is a PR stunt, nothing more. GM will build only 11,000 Volts next year and they will be sold in only 23 states, not in Florida. One reason that GM won’t build more Volts is that it costs more to build them than they can sell them for. The Volts sole purpose is to provide a halo effect around their line of low quality gas guzzlers.

Are you ready to bail out GM a second time and Chrysler a third time? I’m not.

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