As the saying goes, be careful what you wish for - you just might get it. Just ask American carmakers.
In December, the chief executive officers of General Motors and Chrysler flew, hats in hand, to Washington. They needed billions of taxpayer dollars to stay out of bankruptcy court, company executives said.
Unfortunately for all of us, they got their wish - and more than they thought they had bargained for.
On March 30, President Obama ousted General Motor's CEO. He also ordered Chrysler to join forces with a particular suitor (Fiat). And he vowed to stand behind your car's warranty. Our commander in chief is now our car czar, too.
GM and Chrysler have no one to blame but themselves. As the Brits might say, once the automakers took “the Queen's shilling,” they belonged to her army. They had no choice but to follow federal orders. Because taxpayers now have a multibillion-dollar stake in these companies, it follows, as night follows day, that Washington could demand changes in GM's management.
No wonder some banks are now returning federal bailout money. They would rather risk failure than virtually guarantee it by having policymakers in Washington tell them whom to hire and how much to pay.
So what might a government-owned automaker look like?
”The United States of America will lead the world in building the next generation of clean cars,” Mr. Obama announced on March 30. Yet the president's own automotive task force wrote recently that GM's electric car - finally approaching the streets after years of design work and billions of dollars spent on research and development - remains “too expensive to be commercially successful in the short-term.”
Worse, Mr. Obama's team adds that “GM earns a large share of its profits from high-margin trucks and SUVs, which are vulnerable to a continuing shift in consumer preference to smaller vehicles.” So it seems the government will demand that GM manufacture compact cars.
But - and this is the multibillion-dollar question - is there really a consumer preference for smaller vehicles?
Apparently not. Edmunds.com reports that in 2008, sales of fuel-efficient hybrids dropped 10.3 percent. Small cars are languishing on dealer lots, the Wall Street Journal notes. That's astounding, because throughout 2008, the price of gasoline reached levels most Americans had never dreamed it could. Yet as soon as gas prices tumbled, so did hybrid sales.
Meanwhile, in November, GM had workers at its auto plant in Texas - the only one where its big sport utility vehicles are made - working overtime to produce the vehicles people were actually buying. Half the cars sold in the United States in December were SUVs.
Consumers are fickle. They haven't wanted enough of the cars GM has made in recent years, so the company's market share has eroded. There's no reason to expect Americans will be eager to buy the cars a government committee orders it to build.
Quite the contrary, in fact. One of GM's problems has been that it can't change its product line as quickly as its competitors can. Honda, for example, runs a plant that can switch from making compacts to crossover SUVs in an afternoon. It takes GM and Ford months to switch over a line and costs hundreds of millions of dollars. If GM's problem today is that it's inefficient, wait until layers of federal bureaucracy are added to the company's management structure.View Entire Story
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