By David Cribbin
Tuesday, the President announced his new cafe mileage standards and the world rejoiced. Well, maybe not the whole world, not even all of the automakers, but the ones on the government’s life support system were wildly enthusiastic. In announcing the new standards for the industry, Dear Leader has shown them the way forward and has divined a new “Path to Prosperity”. This “Change that he believes in,” is a future where Detroit produces tiny little green cars; the kind you can plug into a wall outlet, get a good night’s rest and be ready in the morning for your next trip into town. If this is what he truly believes, I believe he’s crazy.
The Detroit Two and a half are in the mess they are in today partly as a result of cafe standards, which forced them to produce domestically small unprofitable cars. How will making these standards more difficult and costly to achieve do anything but make their situation worse, although at this point it’s hard to imagine the auto companies in worse shape. The new standards mean the Auto manufacturers will need to produce ever lighter (smaller is lighter) and costlier automobiles (technology is expensive) than they do now. The great leap forward in autos is here, or is it?
That technology is going to cost big money, which shouldn’t be a problem for the Detroit Two and a half who are, after all, flush with profits from a decade of phenomenal sales and record earnings. Only kidding… sorry about that… I mean bankrupt. Where will the money come from to finance the new technologies needed? I think you already know the answer to that question: it will come from you and me. Taxpayers will fund the auto industries next, almost certain to fail government mandated attempt to sell little green econo-boxes that no one wants. This isn’t change! This is what they have been doing for years, losing money on little cars people didn’t want. The difference is, this time it will be your money they’re losing. In my book, that’s failure!
So the President, who said he didn’t want to run the Auto industry, having dipped his toe into the water, in order to give a beat down to the folks who had previously financed the automakers, and finding he liked it, now stands hip deep in the nationalization pool, wading towards the deep end and a government purchase of GM in a “surgical” bankruptcy proceeding. Making his next big splash with your money, he’ll top off GMACs coffers with another $7.5 Billion dollar bailout, without missing a stroke.
This example of smart government is very similar to the tiny little “Smart Car” already available. It’s great if you don’t want to take too many people very far, but if your ambition is to save the entire U.S. Automobile industry, you’re gonna need a big car and a private sector willing to finance profitable automakers. The President’s actions of late bode poorly for the future on both counts, and shows that when it comes to autos, he seems to be in over his head.
David Cribbin is as ALG News Contributor and the President of the TailWind Capital Group. His blog can be read at http://therightsideofdave.blogspot.com.
