Wednesday, December 10, 2008

Why The Big 3 Bailout Won't Work: $1.67 Gas

LA TIMES -- Am I the only one insulted by the charade of the Big Three chief executives pleading their cases before congressional leaders who don't even understand that investment in green technology and measures to avoid financial collapse in the short run are completely at odds? How exactly is investment in high-mileage vehicle production going to cut operating expenses and increase revenues now?

Sadly, congressional concern is less about the well-being and endurance of the companies and their workers per se than it is about keeping those companies afloat to serve their own political objectives. Half the congressional Democratic caucus wants to compel the automakers to pump out green cars, regardless of the fact that they are money losers for Detroit. They're still too expensive to produce, and Americans are even less keen on consuming them as gas prices continue to plummet.

~Cato Institute's Daniel J. Ikenson

WALL STREET JOURNAL -- Leave it to Bob Lutz, GM's voluble vice chairman, to puncture the unreality of the auto bailout he himself has been championing. In an email to Ward's Auto World, he notes an obvious flaw in Congress's rescue plan now taking shape: The fuel-efficient "green" cars GM, Ford and Chrysler profess to be thrilled to be developing at Congress's behest will be unsellable unless gas prices are much higher than today's.

"Very few people will want to change what has been their 'nationality-given' right to drive big and bigger if the price of gas is $1.50 or $2.00 or even $2.50," Mr. Lutz explained. "Those prices will put the CAFE-mandated manufacturers at war with their customers -- and no one will win in that battle."

Translation: To become "viable," as Congress chooses crazily to understand the term, the Big Three are setting out to squander billions on products that will have to be dumped on consumers at a loss.

~Holman W. Jenkins, Jr.


At 12/10/2008 10:33 AM, Blogger Marko said...

If we really want to help the U.S. auto industry, we should lift the oppressive foot of government regulation, not increase its pressure. We could lift the cafe standards, and lift the obligations forced on the company by previous (government backed) labor negotiations. Duh. Instead, the Federal Government is going to increase the amount of control they have over the industry, which lead to this problem in the first place. Brilliant.

At 12/10/2008 10:56 AM, Blogger lineup32 said...

The gov't could add a large tax say $5.00 to each gallon of gas to maintain a higher cost and create the need for more fuel efficient cars but the political class would be vote out and a new group would repeal the law so it will be left to father time to work its way through the market as we pump out more and more oil and thereby bring the reality of $200 bl oil in focus.
Credit rationing will probably do more to reduce the auto craze and urban lifestyle then any gov't action.

At 12/10/2008 11:00 AM, Anonymous Anonymous said...

I wholeheartedly agree. Without gas prices in the $3 range the big three don't have prayer that the smaller cars being mandated by the govt will save them. The govt needs to be a partner in this. Higher gas prices are actually in the national interest.

At 12/10/2008 11:12 AM, Blogger Ironman said...

From Detroit in Four Squares:

"How would making the cars the government mandates the carmakers to build (to satisfy political special interest groups) instead of the cars U.S. consumers might actually want to buy somehow produce a thriving domestic auto industry?

And now, the follow on question is: what will the government do to attempt to avoid total failure?

At 12/10/2008 11:14 AM, Blogger Dave Narby said...

Long term, this (sort of) makes sense.

The only way to avoid future oil shocks (which was part of the 'perfect storm' which caused this recession) is to have several different methods of providing transportation energy.

Oil is one (gas and diesel), CNG is another, and electric is a third.

Then OPEC will have serious competition from two fronts, as opposed to no fronts.

I have always held that capitalism works best when you have three or more huge companies competing for price (with an honest government watching them to insure they're actually competing).

Right now we don't have enough transportation energy competition, pure and simple.

So while 'green' isn't the answer, if it ultimately leads to alternate 'fuel' usage, it will work out OK.

At 12/10/2008 11:25 AM, Anonymous Anonymous said...

There's no such thing as a "kinda free market." We can let market forces work and companies like GM look smart and prosper when gas is cheap with their huge profit-making vehicles, or tax everything in sight and regulate with CAFE. I suggest everyone run out today and buy a new truck for themselves and an SUV for their wives (yes, I meant wives as plural :). Buy American. Buy many. Buy now!

At 12/10/2008 11:26 AM, Anonymous Anonymous said...

In order to sell autos in the USA under a new concept. The car must be as good or better then those already on the market. Green cars are junk.
Who are the Government or Hippie voters to mandate to another American what car you should or should not drive? I am sure the Framers of the constitution would have some problems with this type of thinking process.

In California, our fuel is double and triple taxed. High fuel prices have killed our economy because we will not drill for the vast oceans of oil we have in the USA. Example. In California, we have not built a new power plant in over thirty years (thanks Hippies). In the five heated months of the year. My energy bill for a 2500 Sq Ft home is $450. to $500 dollars a month.

Our energy policies along with Government mandates by Menatl Giants like Dodd and Frank have killed our economy and some here wish to make the problem worse by addititonal taxes on fuel?

WOW! Very socialist of you.
Hotrod. Sac. CA.

At 12/10/2008 12:11 PM, Blogger Marko said...

As far as I am concerned, how to deal with fluctuating fuel prices is the auto industries problem! Not ours, and not mine. They will generally do a better job if the government de-regulates their industry and let them solve the problems themselves, and when they ask for help we can tell them to pound sand with a clear conscience.

At 12/11/2008 6:03 AM, Blogger OBloodyHell said...

> so it will be left to father time to work its way through the market as we pump out more and more oil and thereby bring the reality of $200 bl oil in focus.

The fact is, that's not happening for at least another 25-30 years.
(if oil goes above $150 a barrel and STAYS there, then oil shales and tar sands become cost effective to retrieve, and that sticks the price at about that level for a long, long time, since the known reserves in that form are something less than the oil already taken out of the ground, IIRC).

The changes in physics alone in that time could easily make the whole concern utterly moot.

Further, we CAN build electric cars, we just can't do it at a level which is cost effective with oil less than $200 a barrel. And that means nuclear power plants.

Of course, the small-scale reactor designs may well be fully functional by then.

In short, the way it's going to play out is such that none of us can begin to make a reliable guess, because there are SO MANY factors which come into play. This is the doom of central planning economies.

Think about two things:

1) Just 30 years ago -- do you really think that there was anyone who could see the internet's penetration and centrality to social life?

2) Hell, just 20 years ago -- do you really think that we'd all have defacto Star Trek Communicators in our pockets costing us less than $1000 a year, and as little as $200 a year?

There are so many factors which could radically alter EVERY possible guesstimate of What Is To Come in the next 30 years.

A really serious influenza virus could wipe out a huge chunk of humanity, and discourage international movement and personal social interaction (I suspect cargo and goods would still trade, but people wouldn't move).

The Cold War could revive with a rebuilt Russia.

China's got population issues. Waaay too many males, not enough females. Historically, this has always lead to warfare as a way to bleed off the excess males and to provide males a way to compete for mates. Hopefully, they can instead, do this economically. But jingoism is tried and true solution.

Any of these things could become quite significant out of nowhere -- within 5-odd years.

And so any *expectation* of what the world will be like 30 years hence is an exercise in foolishness. Change is too fast, and comes from too many directions. You should always look ahead, but never, ever make long-term, rigid plans.

The plans which will succeed are the flexible ones with many open options.


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