Memo to Congress: Oil isn’t at $147 anymore.
One of the obvious flaws of the proposed bailout is that the government is forcing Detroit to shift towards more Volts and Prius-like cars precisely at the time when SUVs and trucks are looking economically viable again. Just at the time when Detroit’s manufacturing capabilities might actually be in line with the market — perhaps even better positioned than its foreign rivals — Congress remains stuck in the past.
Holman Jenkins sums it up nicely:
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.
None of this was mentioned at four days of congressional bailout hearings, because Detroit knows better than to suggest Congress has a role in the industry’s problem. Yet its own recently updated Corporate Average Fuel Economy regime, or CAFE, makes a mockery of the idea that government money will render the companies profitable, even as the same bailout bill demands that the Big Three drop their legal challenge to a California mileage mandate even more unsustainable than the federal government’s.
Here’s a prediction, though: Let’s say Detroit gets its full bailout, manages to hang around a few more years, but then remains teribly unprofitable because its fleet is so poorly positioned to the market. So they come back to the trough, and despite the fact that the situation remains dire, enough politicians will commend them for having made strides towards energy efficiency that they’re given another pass. In other words, the bar will change. It won’t be about profitability, but rather what they’ve done on the green front to justify another slug of cash being thrown their way.
But then the whole discussion resides in fairy tale land of unreality. Not just on this front, but as we discussed yesterday on the question of pay. Congress is demanding that Detroit “radically restructure” itself in three months, when in fact the industry has already done a lot of restructuring, and pay just isn’t the core issue.
The automakers dare not question Congress on any of this, since they might get their feelings hurt and deny them cash. Just don’t expect any political solution to solve the problem.
(HT: Tom Kirkendall)
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