Monday, June 01, 2009
Ah, That Special Feeling
Update: Craig posted a very interesting link to a WSJ article by the man who used to be Romania's car czar, Pacepa:
When the Romanian dictator Nicolae Ceausescu decided in the mid-1960s that he wanted to have a car industry, he chose me to start the project rolling. ... I knew nothing about manufacturing cars, but neither did anyone else among Ceausescu's top men.Pacepa goes on to discuss Jaguar's travails after the UK nationalized some primary industries.
My job at the time was as head of the Romanian industrial espionage program. Ceausescu tasked me to mediate the purchase of a minimum, basic license for a small car from a major Western manufacturer, and then to steal everything else needed to produce the car.
GM is now owned by the government, which will inevitably cause Congress to want to play with it around election time, and the UAW, which will keep the money flowing to Congress to keep them interested.
This seems likely to be a reprise of the ethanol program, which does not help the environment, has raised food costs around the world as well as in the US, and is extremely popular in Congress.
Yesterday I got an email from Hyundai. Last year I had gotten quotes on several models when I was investigating the likely effect of the gas tax.
They are advertising 12 months free give-back if you buy a car and lose your job. Plus, now if you buy a car in June they'll pay you so-and-so much per month (depending on model), or give it to you upfront as a credit. The upshot is that you can buy a 2009 Accent for about 10,600. The mileage on those (with standard shift) is around 40 mpg. They've got quite a warranty, too. Capital cost of driving that is going to be under 1.2K a year.
I can't figure out how Gubmint Motors can compete. The stated goal - to build fuel efficient vehicles - is completely incompatible with GM's fixed costs, because fuel efficient cars are smaller cars.
GM owns OnStar, the electronic tracking system. This system will now be owned by the federal government.
The federal government can then mandate ALL automobile be equipped with OnStar, regardless of manufacturer. GM gets a cut, the government gets to track you every automotive move. It's a win-win for government, and a lose-lose for human beings.
"This seems likely to be a reprise of the ethanol program, which does not help the environment, has raised food costs around the world as well as in the US, and is extremely popular in Congress."
I don't think we took the ethanol program far enough. Had we burned all of our food and continued to do so, I'm confident that within 90 days oil demand would have dried up significantly.
Sorry. Couldn't resist the dark sarcastic gallows humor. Shame on me.
In other news, it seems my girlfriend's former boss was let go just three days after she was, his boss was demoted, and new policies were put in place related to the comments my girlfriend offered that last day. Karma's a bit.... well, you know.
I don't know how many people died of malnutrition because of the US ethanol program (and we had help, other countries were switching from food ag to energy ag), but some surely did. That's a damned load of karma.
As for the rest of you, your OnStar speculations are a bit frightening. Otherwise I don't see how GM can compete. It's not that GM can't build cars - it is doing so and competing satisfactorily in new operations without the union drag. But as I read the economic tea leaves, I think GM's domestic operations are deeply impaired.
"Deeply impaired" doesn't begin to describe it. Here's what no journalist can begin to understand well enough to tell the public:
The problem with the UAW isn't the wage scale. Even the pension costs can be dealt with, as it's a discrete cup of suffering which can be separated from GM (and it sounds as though it will be in bankruptcy).
What can't be separated from the UAW is the work rules. Work rules are the source of UAW's power, and the leverage that allows them to extract their income stream from GM-Chrysler-Ford. There are 60-plus years worth of work rules built up like barnacles on the daily work processes of GM-North American Operations. Most of them lock down operations to a format that was perfectly appropriate for front engine, rear-drive, body-on-frame construction. One of the reasons that the Big 3 can make money on trucks, but not on small cars, is that trucks are a front-engine, body-on-frame design, and cars are not. Trucks fit the fixed plant mandated by UAW work rules. Cars, particularly small cars, do not.
OK, so now the government is effectively mandating even more radical changes to the way that automobiles are constructed. At the same time, government is mandating that the UAW stay in the driver's seat regarding work rules.
You do the math.
Even work rules that have nothing to do with construction, like putting gas in the car, are time-inflated by over 600% compared to, say, Toyota's US plants. The time-inflation is there to create unnecessary jobs.
If TeamObama treats UAW work rules like they treat bondholders, GM may be able to compete. Fat chance of that happening since that would reduce headcount by 60%.
But the biggest reason the US manufacturers can compete on trucks is the tariff on imported trucks, not the design of trucks.
I don't think you could even get Congress to pay attention to something like the impact of work rules. I'm sorry, half of them still believe there are Social Security and Medicare trust funds. They haven't got the attention span.
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