Government Motors: Losing Money and Reliability

In November 2011 I raised the question of whether or not Obama politics were putting Government Motors in jeopardy:

The Volt is not really a car. It is, at best, politics in motion. But the politics of car manufacturing do not stop at simply putting the Volt out on the market. It seems that Government Motors has also allocated its product development resources according to political preferences. In the latest car review issue of Consumer Report, once-highly ranked GM vehicles have taken a reliability tumble … Not since the 1990s has GM suffered from such poor reliability in its products. Even Buick, a long-standing hallmark of quality within GM, now struggles with reliability problems. But what is most interesting about the reliability report is the contrast between the Volt and the Cruze. In essence, the Cruze is a Volt with a traditional, though admittedly anemic, gasoline engine. While the Volt is at the top for first-year reliability – giving Toyota a run for the money – the Cruze is at the bottom of the scale.

Consumer Report has now released its 2013 issue, which verifies the declining reliability of GM cars and trucks. Again the Volt stands out as highly reliable, but most vehicles produced by Government Motors are either at or close to the bottom in reliability comparisons. The embarrassing, and clearly politically motivated, difference between the Cruze and the Volt is still staring car buyers in the face.

The politization of car manufacturing becomes outright laughable when Buick releases its new Enfant, a microscopic “SUV” with a 1.4-liter engine that Buick thinks it can sell for $30,000. But it is easy to choke on the laughter when we consider the fact that we the taxpayers are the ones who have to pay for the Obama administration’s reckless attempt at building cars. Ignoring common-sense credit ratings, Government Motors is giving credit to people with close to disastrous credit score - and Obama is ordering government agencies to buy GM vehicles as much as they possibly can.

One of the cars that the Obama administration is trying to shove down America’s throat is the infamous Volt. Not only are they ignoring potential health hazards from all the electric wiring, batteries and motors in the car, but they are also ignoring sound finance principles. In addition to bad-credit loans, GM is also taking a sizable, and undoubtedly deliberate, loss on every Volt they build. From Reuters:

General Motors Co sold a record number of Chevrolet Volt sedans in August — but that probably isn’t a good thing for the automaker’s bottom line. Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.

Here is what you can get for $49,000. Sorry, just had to make that point… back to Reuters:

Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce. And while the loss per vehicle will shrink as more are built and sold, GM is still years away from making money on the Volt, which will soon face new competitors from Ford, Honda and others.

May we make the point here that Toyota released the Prius in 1997 (three years later in America), that they developed the model on their own and that they sold it already back in the ’90s without a dime’s worth of subsidies from the federal government. In fact, Toyota has been able to reclaim the throne as the world’s largest auto maker, and they have done so without being bailed out by taxpayers.

Reuters again:

GM’s basic problem is that “the Volt is over-engineered and over-priced,” said Dennis Virag, president of the Michigan-based Automotive Consulting Group. And in a sign that there may be a wider market problem, Nissan, Honda and Mitsubishi have been struggling to sell their electric and hybrid vehicles, though Toyota’s Prius models have been in increasing demand. GM’s quandary is how to increase sales volume so that it can spread its estimated $1.2-billion investment in the Volt over more vehicles while reducing manufacturing and component costs – which will be difficult to bring down until sales increase. But the Volt’s steep $39,995 base price and its complex technology — the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine — have kept many prospective buyers away from Chevy showrooms. … Out in the trenches, even the cheap leases haven’t always been effective. A Chevrolet dealership that is part of an auto dealer group in Toms River, New Jersey, has sold only one Volt in the last year, said its president Adam Kraushaar. The dealership sells 90 to 100 Chevrolets a month.

Perhaps VP Joe The Gaffe Machine Biden should stop traveling the country boasting that GM is still alive:

The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from September 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year.

In the meantime, Toyota sells 14,000 Priuses per month, starting at about $20,000. And they make a profit on each and every unit that rolls off the assembly line.

There is no doubt that the Obama administration has painted itself into a corner with Government Motors. It has ordered the company to bet everything it has on the Volt, because that looks good from a warped energy policy viewpoint. Now that the Volt is turning into a highly charged financial failure for the company, it cannot kill the car. That would be an acknowledgement that they were wrong from the get-go, and the Volt would be just another item on the Solyndra junk pile of failed attempts at central economic and energy planning.

It should therefore come as no surprise that the Democrats, in order to save their Great Leader, are embracing the policies of throwing taxpayers’ money after bad business ideas. The National Review Online reports:

The Democrats have decided to run in 2012 as the bailout party. It is an odd choice — the 2008–09 bailouts were deeply unpopular among the general public, and even their backers were notably conflicted about the precedent being set and the ensuing moral hazard. But Democrats have nonetheless made one of the most abusive episodes in the entire bailout era their economic cornerstone: the government takeover of General Motors.

Back in the ’80s I had friends who drove cars built in the Soviet sphere. One rusted away at breathtaking speed (though if you tried to drive it at any speed it would shake, rattle and creak like it was falling apart) and another was so poorly engineered that it rolled over, almost exactly like this guy did. My friend was unhurt, thankfully.

This might be a good reminder of what happens when government gets in to the car business.

Back to the NRO story:

Admirers of the GM bailout should bear in mind that it was the Bush administration that first decided to intervene at the firm, offering a bridge loan on the condition that it draw up a deeply revised business plan. President Obama’s unique contribution was effectively to nationalize the company, seeing to it that the federal government violated normal bankruptcy processes and legal precedent to protect the defective element at the heart of GM’s troubles: the financial interests of the UAW. It did this by strong-arming GM’s bondholders into taking haircuts in order to sweeten the pot for the UAW. … Mitt Romney’s proposal for a structured bankruptcy would have necessitated considerable federal involvement, too, but with a key difference: The UAW contracts would have been renegotiated, and GM’s executive suites would have been cleaned out, placing the company on a path toward innovation and self-sufficiency rather than permanent life support.

So Government Motors has four things going against it: poor product priorization – Volt over cars people want; poor profitability – the $49K lost on every Volt must come from somewhere else; poor reliability – the Obama car bureaucrats are borrowing a page from the Soviet era; and now a corporate structure that is antithetical to a self-reliant company.

The only hope for the employees of GM is that Romney wins in November. He knows more about corporate restructuring than all the people in the Obama administration combined.