Tuesday, March 31, 2009

Calling the Shot - Halfway there

Yesterday I posted about the Wagoner firing being a smokescreen--a bit of PR to throw a scapegoat before an angry mob weary of bailouts.
Here are the options:

Option 1) GM can build more inexpensive fuel-efficient green cars
Option 2) GM can preserve UAW jobs, contracts, and legacy commitments
Option 3) GM can be profitable

Pick two.

The math doesn't work out any other way. It is an impossibility.

Analysis:

Option #1 is pretty much a given under the current administration and Congress. CAFE standards and a near religious-like zealousness amongst the Democratic party base has pretty much settled this issue.

I failed to state that, even though wildly improbable, my preferred method of dealing with this is that we back off the environmental jihad, and let American car companies make cars Americans want and turn a profit. However, GM building more fuel-efficient cars is a federal mandate, because anthropogenic climate change is for all intents and purposes a secular religion, and not to be questioned.

The American auto companies, saddled with higher labor costs and legacy costs compared to overseas competitors, were only staying afloat because of the higher profit margins on vans, full-size trucks, and SUVs--exactly the kinds of things that ever more stringent federal environmental controls make it harder and more costly to produce. In turn, this eats away the profit margins on those vehicles, leaving U.S. auto manufacturers no choice but to cut labor rates to be competitive in the small-car market (sacrificing option #2, above). Caught between a rock (CAFE standards) and a hard place (the UAW), they can sacrifice neither option #1 or #2, both deemed sacred by the current administration and congress.

Alas, GM has to surrender any hope for option #3 (turning a profit).

Michael G. Franc points out that the smokescreen obscured even more than I originally thought. On the same day that Wagoner was fired by the President stepped down from GM, a DOT press release stated:
U.S. Secretary of Transportation Ray LaHood announced today that the Department of Transportation has posted the new fuel economy standards for cars and light trucks for the 2011 model year…
Yep. Looks like a pretty safe bet that the government won't ease up fuel efficiency standards. The Detroit News goes on to report:
Stricter fuel economy standards… for the 2011 model year will cost struggling auto companies nearly $1.5 billion and boost the cost of passenger vehicles an average of $64 for cars and $126 for light trucks.
Will you recoup those costs in fuel savings over time? See my next post.

#UPDATE#
Ok, see "a future post". Not my "next post". I'm still hammering this one out. -ER

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