A Volt Out of the Red

A Volt Out of the Red http://online.wsj.com/article/SB120890912345836455.html?mod=todays_columnists
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 savings.
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 U.S. factories.
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.
Civis Romanus Sum

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