A Volt Out of the Red
With the administration's waning days coming up, the biggest implication
of yesterday's fuel-economy proposals from the Transportation Department
is that officials will have some media bouquets to Google at their
leisure when they leave office. How fun it will be to read about their
boldness in speeding up the already ambitious mileage targets that
Congress enacted last year.
But anyone who thinks the new schedule amounts to a hill of biofuel
soybeans must live somewhere far beyond the Beltway.
The fitting Earth Day hoax from Transportation Secretary Mary Peters
promises the average new car in eight years will get 35.7 mpg, up from
today's 27.5 mpg. Don't bet the mortgage money on it. The fact that the
world is "running out of oil" is no guarantee that gasoline will remain
$3.50 a gallon. And if it doesn't, a scheme that, by the government's
own forgiving estimate, would add up to $979 to the price of a popular
model might quickly lose any semblance of workability. For one thing,
such models will stop being popular and pile up on dealer lots if
consumers decide the size and horsepower sacrifice aren't worth the fuel
That doesn't mean the CAFE rules won't survive in some form, just that
lots of lobbying and log-rolling remain before any targets are set in
stone. Here's another Washington lesson for the innocents residing at
all points of the compass: After the 1970s, when gasoline prices
dropped, the newly imposed mileage rules quickly devolved into their
present form – mainly an elaborate scheme engineered by Washington and
the UAW to keep auto workers busy manufacturing small cars in the U.S.
at a loss, subsidized by the profits of big pickups and SUVs.
We just can't decide, in light of all this, whether GM is a genius or a
dolt for developing the Volt.
America's biggest near-dead car company called in reporters this month
to boast – boast! – about its willingness to lose money on its
forthcoming electric car. That includes betting the farm on whether
batteries can be developed with the necessary power-to-weight ratio and
life expectancy to give the car its needed usability. "Whatever it takes
to do, we will do" to deliver the plug-in Volt by a 2010 deadline,
project leader Frank Weber told journalists.
GM says it has a battery package in hand, and will have to squeeze 10
years of testing into two to make its schedule. Damn the costs and
risks. The biggest of the shrinking three has made no secret of its
Potemkin motivations. Vice Chairman Bob Lutz (who recently called global
warming a "crock") has been his usual candid self, saying GM intends to
beat Toyota at its own game of selling bogus green symbolism to
Washington and Hollywood.
Message: "GM had the technology to do hybrids back when Toyota was
launching the first Prius, but we opted not to ask the board to approve
a product program that'd be destined to lose hundreds of millions of
dollars . . . We made that mistake once. We won't make it again."
Is there a method in this madness? GM lost $4.3 billion in North America
in the past three years. But after much angst, the company has put
itself in position to compete with Toyota on cost and quality. It could
even conceivably, for the first time, invest in designing and building a
small, fuel-sipping car with the idea of making a profit.
GM expects to cut Toyota's labor cost advantage from $1,400 per car to
$100, thanks to a multifold strategy that includes buying high-cost
union workers out of their job-for-life guarantees. Meanwhile, in an
eye-opening BusinessWeek report, Toyota's own managers note that their
own costs are rising rapidly as a result of an aging work force at its
So why the Volt? Remember that in the person of its impressive CEO Rick
Wagoner, GM has a leader who came up through accounting, and who cut his
teeth making fine and subtle judgments about how many of which cars to
build at a loss, and how to minimize the capital commitment to them, in
order to defray GM's fixed labor obligations while meeting federal fleet
mileage standards. The Volt will lose money – and it's hard to see why a
reformed GM would bother building such a car now unless it's planning to
throw its lobbying clout behind a final set of CAFE rules designed to
disadvantage its rivals.
How so? For some number of dollars, GM can afford to bribe consumers to
drive Volts off the lot. That is, if doing so frees GM to build and sell
other cars bigger and more powerful than the cars its rivals can afford
to build under the CAFE rules. GM has shown itself pretty compos mentis
so far in its epochal turnaround, so we will continue to assume it
hasn't taken leave of its senses in developing the Volt.