THE CHEVY ILLOGIC

I want to discuss a company. This is a company that each and every American owns in our portfolio.

Can you guess what that company is?

If you guessed, General Motors, you are correct!

If you have either been living on another planet or just awoke from a Rip Van Winkle type of nap, in 2009 the President decided to step in, break secured creditors and basically take over the automaker known as General Motors. I had, and still have very serious issues with the actions of our government in regards to General Motors. Simply put, the government is the umpire/referee of the auto industry. It is not fair to the other auto companies that the entity that makes and calls the rules is also a player. It was also not fair that the government decided to take secured creditors and essentially wipe them out, subsequently breaking the most fundamental of business law; much of this, to bail out the unions. This charade/shakedown was all conducted under the auspices of, “If we don’t do this, millions of people are going to be laid off,” or “We can’t have this company go under, communities are going to be destroyed and towns are going to be destroyed.”
The cases the government was making for their unprecedented takeover were all straw-man arguments. I happen to own a General Motors automobile. The General Motors automobile that I own was acquired before the government took the company over. I also happen to love the car. General Motors has consistently winning awards for the quality of automobiles they are producing. If General Motors went into bankruptcy, they would still be making cars today. However, they would be making those cars with a labor agreement that mirrors the prevailing market based wages that Toyota, Honda, Hyundai, BMW and Mercedes manufacture their automobiles within the United States. General Motors ceased being an automobile manufacturing company years ago. It instead had become a pension and healthcare provider that just happened to have a side business of making cars.

The government, as well, played a significant part in the demise of General Motors. Having to play by union rules and also government rules, such as corporate average fuel economy (CAFE) standards which forces fuel economy standards on an automakers fleet; compelled the company to make automobiles that lost money. If General Motors was only making pickups, SUV’s and Cadillac’s it would have been in a much different position.

General Motors is about to release a brand new vehicle. Years in the making! Years in the hype! An automobile so ridiculous, that it could only be possible due to the meddling of our government and our tax dollars. Ladies and gentlemen…I give you the Chevrolet Volt! President Obama was recently in Detroit, and he took that new government sponsored, taxpayer subsidized GM vehicle for a spin. No joke here, he got in, buckled himself in, and proceeded to drive…10 feet.
The Chevy Volt got its first review from the New York Times, the title of the column, General Motors Electric Lemon. General Motors first introduced America to the Chevrolet Volt at the 2007 Detroit auto show. If you can remember, when they first released the car, it looked like something out of a futuristic movie. It WAS a very attractive car. Now…not so much. Many of you are saying to yourself, “Come on Chris, people are not buying an electric car for its looks. They are buying because it is efficient! It will save people money and save the environment.”
My reply…

This car is going to get 40 miles on a charge. That’s right, you plug in the car in for between 4-6 hours and it will go 40 miles on the charge. I could ride my bike 40 miles in less than 4-6 hours. When your 40 miles are up on battery power, the engine kicks on, it can take the car about 360 miles. The car needs to run on premium gasoline.
The cost of the Chevy Volt will start at $41,000. This Chevy Volt costs as much as the new Mercedes Benz c350. As I stated, the Chevy Volt that they are rolling out looks nothing like the really cool car from the 2007 Detroit auto show. In fact, the car most similar to the Volt is another GM vehicle called the Chevy Cruze. The interiors are basically the same except the Chevy Cruze is slightly better with more head room and more leg room. The BIGGEST differences are the Cruze will set you back $17, 000 and the Volt has a battery.
Time for some Math!
$41,000-$17,000=$24, 000.

There is a $24,000 discrepancy between the Chevy Volt and the Chevy Cruise.

“But Chris, you can plug it in, and it’s green, it’s a green car. Plus it will save you money on fuel costs!”

First off…Where does electricity come from? Did all of a sudden, Ben Franklin come back to life and find a way that we can harness electricity through lightning. For the most part, coal and natural gas are used to create electricity. Granted there are some areas that get hydroelectric power and very minimal amount from solar and wind. The myth that this is a green car because you plug it in is ridiculous. I also have yet to find any information in regards to how much of an increase in ones electric bill can one expect by plugging an automobile for 4-6 hours a day.
Secondly, let’s just assume that gasoline is at $3 a gallon. The Chevy Cruze does pretty darn well as far as fuel economy standards are concerned. It gets 40 miles per gallon.
If you were to take that $24,000 savings, and you were to buy gasoline with it, that gasoline would take you 320 thousand miles in the Cruze. Once again…320 thousand miles
If Spock from Star trek were reviewing this car, the title of his column would be Illogical. This is the problem, when the government starts getting involved in the private sector, we get waste, we get fraud, and we get illogic.

Robert Bryce penned a great piece in The Daily Beast, “The electric car has long been recognized as the ideal solution, because it is cleaner, and quieter, and much more economical. That sentence was published in the New York Times on November 12, 1911. Prices of electric cars will continue to drop until they are within reach of the average family, that line, appeared in the Washington Post on October 31, 1915.

I want fuel efficiency as much as the next guy. But when the government gets involved and starts subsidizing technologies that are economically unviable we do not progress, we regress. There was a government report that came out in January 2009; it was published by the Department of Energy’s Office of Vehicle Technologies. The report concludes that despite the enormous investments being made in hybrid vehicles, electric vehicles, and lithium ion batteries, barriers stand in the way of their commercialization, cost, performance, and abuse tolerance in life. The key problem was the batterysystem. Lithium based batteries, which is the most promising chemistry, are 3 to 5 times too expensive. They are lacking in energy density, and not intrinsically tolerant to abusive conditions. The only reason companies are making electric vehicles, is because we the tax payers are subsidizing them.

Some of the arguments I have heard backing Chevy Volt have come in the form of Don Johnson Miami Vice brick telephone comparisons. Whereas the misguided thought is, the Volt is just the beginning, the technology will get better. I also had a caller to my daily radio program in Tampa Bay who made the plasma television analogy, stating that when the first plasma televisions came out they were priced at $15,000. Now you can pick them up for $1000. The illogic of their argument was that the advances in the cell phone and the television were done without the taxpayers of the United States being forced to subsidize the technology. If we did subsidize the technology and the government did get involved in picking winners and losers, there would be no IPhone; there would be no flat screen. You would be carrying around a brick-phone and still adjusting the rabbit-ears. When business makes investments in technologies based upon what people want and what they can afford, then, and only then do you get progress. Whenever the government gets involved in anything, when they decide who they are going to back, it fails.

Last September, the President of Audi America, was pretty blunt in his assessment of the Chevy Volt, “There are not enough idiots, who will buy it.” Audi has since announced that it will begin production of an electric car.

Why?

Government subsidies. We are providing welfare to corporations for a product that they know is going to fail. Something is wrong with this picture. There is no economic reason behind the car; there is no economic reason behind owning the car. We own General Motors and this is the product that we are putting out.

Source Material:
Niedermeyer Edward GM’s Electric Lemon New York Times July 29, 2010
Dalmia Shikha GM’s Phony Bailout Payback Reason April 27, 2010
Bryce Robert The Electric Car Boondoggle The Daily Beast July 29, 2010
Terlep Sharon GM Volt Pricing to Start at $41,000 Wall Street Journal July 27, 2010
LeBeau Phil Can GM Sell The Volt as a Normal Car? CNBC July 2010