EPA Announcement Pits Two Failing Industries Against Each Other
On Thursday the EPA announced that it is seeking comments on a proposal to increase the permitted amount of ethanol in regular gasoline to be increased from 10% to 15%. This debate will pit the army of lobbyists from two struggling industries against each other. On one side we have the corn industry, which has been struggling mightily since their market became saturated last year. Currently one-quarter of all corn produced in the U.S. is used to make ethanol. Increasing the gasoline blend limits would help prop up this highly subsidized industry.
And on the other side we have the even more vulnerable automotive industry. While carmakers, like GM, have been touting their green “flex-fuel” capabilities (read: boondoggle), they argue that if 15% blends are used in their older models that it could damage those vehicles’ fuel lines. Alan Adler, a GM spokesman disclaimed that “we want to be sure that we’re not on the hook for vehicles” that end up having problems with higher blends.
Of course, it is unclear in this debate which policy is actually in the public’s interest. We have two industries that are so thoroughly dependent on government subsidization for survival that anything they say or do must be viewed in that light. This is just one of many examples of how government mandates can distort the noble goal of improving the environment and decreasing our use of foreign oil. However, as see with this current debate, comprehensive subsidies and mandates are a clunky and inefficient solution to an incredibly complex problem.
Detroit Should Support Obama’s Efficiency and Emissions Laws (But They Won’t)
Not surprisingly, automotive industry groups expressed opposition on Monday to President Obama’s plan to increase vehicle efficiency laws at both the state and federal levels. The opposition was generally expressed in the standard “this is too costly” language, with a dose of “in these harsh economic times” thrown in for good measure.
But we’ve heard this a thousand times before. Of course it is costly to meet new efficiency standards, and of course times are especially difficult right now. But given that automakers always warn that regulations will put them out of business and cost jobs, they have questionable credibility in this debate. READ MORE
GM: Will Build Major Lithium-Ion Battery Factory in Michigan
GM announced plans to build the first lithium-ion battery-pack manufacturing facility operated by a major auto maker in the U.S. The plant, which will be located in Michigan, is expected to begin output in 2010. Until then, the Chevy Volt’s battery pack will be supplied by a LG Chem Ltd. unit, based in Troy, Michigan.
CEO Rick Wagoner said at the North American International Auto Show in Detroit, ”The design, development and production of advanced batteries must be a core competency for GM, and we’ve been rapidly building our capability and resources to support this direction.”
Additionally, GM announced that it would be opening a new automotive battery lab to further strengthen design, development and testing capabilities, as well as creating a partnership with the University of Michigan to develop a specialized curriculum for battery engineers.
While questions still surround the future of the Volt (and GM in general), these recent announcements, at least, are a good sign.
Automaker bailout dies in Senate
Unfortunately for Detroit, they’re not in the coal mining business– otherwise, they may have received the necessary support from Senate Republican leader, Mitch McConnell of Kentucky, who basically doomed the bailout proposal by speaking out strongly against it on Thursday.
As we’ve indicated before, our position is that comprehensive bailouts should really be reserved to threats of systemic collapse, which may not be the case here.
As it now appears, the bailout bill, passed by the House on Wednesday, will die in the Senate. McConnell indicated that he did support a Republican proposal for a bailout, offered by Sen. Corker of Tennessee. That alternative plan would give company bondholders 30 cents on the dollar to reduce the automakers’ debt burden, would bring workers’ wages in-line with foreign competition, and force the UAW to eliminate payments to workers after their jobs have been eliminated.
Nonetheless, it seems unlikely that any compromise between the two competing proposals will be possible this year. GM has indicated that it may not make it to 2009 without a bailout, and Chrysler retained bankruptcy council earlier this month.
GM Vice Chairman Bob Lutz: At $1.50 gas, the American public wants SUVs
This is a FoxNews interview with climate change denier and GM Vice Chairman Bob Lutz. Lutz and Fox host and apparent GM apologist, Gretchen Carlson, both seem to attribute GM’s crisis to external events rather than internal failures: READ MORE
Some more thoughts on the proposed Detroit bailout
On the bright side, at least if the Detroit bailout doesn’t lead to viability for the Big Three, their eventual successors are hard at work. Whether the next G.M. is EV infrastructure company Better Place, or some other group of entrepreneurs hard at work somewhere, or maybe Toyota, innovation will ultimately triumph.
But as Tom Friedman notes, “Do not expect this innovation to come out of Detroit. Remember, in 1908, the Ford Model-T got better mileage – 25 miles per gallon – than many Ford, G.M. and Chrysler models made in 2008.” It’s just too bad that the taxpayers have to be on the losing team in this race.
Bailouts put the US on a slippery slope
Beyond the public’s moral outrage and protests of unfairness relating to the Wall Street and Detroit bailouts, there is a systemic hazard that is very real and often overlooked in these objections. That hazard is that once the government steps away from its traditionally passive role, and steps into the role of picking and choosing which companies will be subsidized and saved, and which will not, a huge can of worms is irreversibly opened.
Historically, this was one of the biggest problems with communism– that is– governments are notoriously bad at making centralized decisions. The market is amoral– it picks winners and losers based upon events and merit. But government is biased– it picks winners and losers based upon personal biases and prejudices.
Now that our government is in the business of picking and choosing which companies succeed and which fail, there will be increasing attempts by the government to tell those companies how to run their businesses. And why shouldn’t they? Once these companies failed to survive on their own, it only seems fair that they should forfeit the right to make their own business decisions.
Yet it is this righteous position that is so dangerous and could amplify the problems we already face. Although we personally don’t think a bailout is a good idea unless the actual viability of our entire system is at-risk, if we are going to bail out these companies, we need to resist the urge to micro-manage their businesses. READ MORE
Out of the dark comes a light rail project for Detroit
At a time when Detroit is dominating the headlines for its association with GM, Ford, Chrysler, and even the Lions football team (owned by the Ford Family), a nice piece of good news came to the city on Thursday when the state Senate approved plans to build a light rail line along the city’s main artery.
The public rail line is proposed to run along Woodward Avenue, which travels through the heart of the city. The plan would use $103 million in private money to build the above-ground light rail, which would loop between Hart Plaza and Grand Blvd. It is proposed that the line would have 12 stations, including stops in the business and theatre districts, the ballpark, museums, and hospitals.
Ironically, if it is built, a public rail line would have the potential to spark a renaissance in Detroit, which would be widely welcomed if the automotive woes continue.
Save the Hummer! Colbert Report parody of ‘Hummer Conservationists’
While I’m not usually a big fan of the Colbert Report, this is a great video about “Hummer conservationists.” Money quotes: “Between the machine guns on the front, to the grenade on the shifter, all the way to the guy on the back with the laser designator, if that’s not patriotic, I don’t know what is.” And: “If we can save the Hummer, we can save America.”
Hat-tip: DotEarth
CEOs trying to “save an industry” drive themselves to Washington
The AP reports that Ford CEO Alan Mulally and GM CEO Rick Wagoner planned to drive to Washington to ask Congress a second time for a bailout. Chrysler says CEO Robert Nardelli will not travel by corporate jet, but won’t disclose his arrangements due to “security reasons.”
While we’re not huge fans of the bailout, and even less fans of the CEOs of these companies, we still think the private jet fiasco was overblown. Now, instead of spending their time trying to right their sinking ships, the CEOs are driving their cars to Washington. Really?
Our only concern is– we’d feel more comfortable defending the CEOs’s use of private jets during this crisis if we were confident that they were actually spending all of their time working to fix their companies. However, given the sad state of their companies and the public relations nightmares they’ve allowed to occur under their watches, who knows how hard they are actually working? How capable can these guys be if they think driving from Detroit to Washington is a good idea? If they can’t fly private, how about commercial? It still must be faster than driving.
One thing is for sure though– they will now spend a good portion of their time this week driving to and from Washington instead of in the office. Is it naïve to think they at least hired a driver so they could work in the backseat?
Is a Detroit bailout a bridge loan or a black hole?
As the Big Three CEOs return to Congress to make their case for a taxpayer bailout of their companies, industry spokesman Senator Carl Levin, D-Mich stated:
“I believe the industry will make a compelling case for bridge loans that will allow the companies to return to firm financial footing, and they will lay out plans for continued restructuring and advanced technology products, all of which was underway prior to the global economic collapse.”
If this was truly just a case of a bridge loan to get the automakers past the global recession we are in, I don’t think there would be nearly as much opposition. The problem is, that despite the rationalization made by Senator Levin, the automakers had been destined for trouble long before the economic crisis. The economic downturn was merely the straw that broke the Big Three’s back. READ MORE
Detroit’s Big Three CEOs return to Washington for a second bite at the apple
On Tuesday, the CEOs of GM, Ford, and Chrysler returned to Washington to continue their attempts to get a taxpayer bailout of their beleaguered companies. Congress punted their requests for assistance last month after an embarrassing performance by the CEOs and a lack of Congressional consensus to help.
As Speaker Pelosi so eloquently stated last month, “Until they show us the plan, we cannot show them the money.” Well, the CEOs are returning to Washington ostensibly with a “plan” to turn their companies around and are now hoping to be shown the money.
Ford says that it hopes to conduct a transformation without tapping into government loans but said a cash infusion may be necessary if the economy continues to decline or one of the other automakers files for bankruptcy. Ford says it should have enough cash on hand to survive through 2009 though. READ MORE
GM forfeited right to privacy for private jet when they asked for a public bailout
While we have been fairly unsympathetic to the plight of the Big Three automakers, who have largely themselves to blame for their current mess, we did defend the decision by the CEOs to fly to Washington last week on private jets. In that post, we noted that while flying private is terrible for the environment, and very expensive, given the crisis situation they should not waste their time in airport lounges and on tarmacs, which naturally comes with commercial air travel.
However, we do agree that when these CEOs come to the government to ask for a bailout, it is appropriate for their activities to come under closer scrutiny by the government and the public. If they don’t want to be judged in the court of public opinion, they shouldn’t ask the public for subsidies. READ MORE
GM makes a huge bet on the Volt
With Detroit facing criticism from every corner, industry “leader” GM seems to be betting their future on the Chevy Volt. Although the electric powered Volt is being widely marketed by GM and touted by them as proof of a new philosophy, the car is not slated to arrive in showrooms until late 2010.
The NY Times estimates that, since the Volt requires the development of completely new technologies, that the R&D price tag for this car could exceed the $1 billion it generally costs to develop a new car model. READ MORE
Ban on lobbying should be a part of any Detroit bailout
If anyone is wondering how the Big Three automakers got themselves into their current predicament, it is illustrative to take a look back to 2004. That year, the state of California was in the process of implementing a law that would permit alternative fuel vehicles that achieved a minimum of 45 miles per gallon to use the state’s carpool lanes regardless of occupants.
However, only foreign cars could meet these objective standards. As a result, William C. Ford, Jr., the chairman of Ford (both then and now), wrote to California Gov. Schwarzenegger complaining that the law was basically a “Buy Japanese” campaign. At the time, Ford was about to release a hybrid SUV (the Escape) that would achieve only 31 miles per gallon. Unintentionally highlighting the fundamental core of Detroit’s problems, Ford, Jr., complained that this law would create a “competitive disadvantage precisely when Ford is entering the hybrid market with a family-oriented, no compromise S.U.V.” (emphasis added). READ MORE
