Payday Loans

By 2g1c2 girls 1 cup

GM Chairman and CEO Dan Akerson testified before Congress yesterday. He opened with the following statement. Akerson has been criticized in the media for his lack of experience in the auto industry and his public comments of his competitors’ products, specifically Prius and Lincoln. This statement to open the hearing, though, is perfect. Whoever wrote this statement should have prepped Rick Wagoner and the rest of the auto CEOs when they testified a few years ago. Enjoy.

Good morning and thank you Chairman Jordan and Ranking Members Cummings and Kucinich.  I welcome the opportunity to testify today and stand behind a car that all of us at GM are proud of.

Please allow me to start with some Volt history: 

GM unveiled the Volt concept at the January 2007 Detroit Auto Show.  In June of 2008, the “old GM’s” Board of Directors approved the Volt project for production well before the bankruptcy and infusion of government funds.

The battery story goes back much farther to the early 1990s with GM’s extensive work on the EV1.

Drawing on that experience, we engineered the Volt to be a winner on the road and in customers’ hearts.

Today, I’m proud to say the Volt is performing exactly as we engineered it…

            …In its first year, Volt garnered the Triple Crown of industry awards: Motor Trend Car of the Year; Automobile Magazine’s Automobile of the Year; and, North American Car of the Year;

            …Volt is among the safest cars on the road – earning 5 Stars for occupant safety and a Top Safety Pick from the Insurance Institute for Highway Safety;

            …And, 93 percent of Volt owners report the highest customer satisfaction with their car — more than any other vehicle and the highest ever recorded in the industry.

Beyond the accolades, the Volt’s importance to GM and our country’s long term prospects is far reaching.

We engineered Volt to be the only EV that you can drive across town or across the country without fear of being stranded when the battery power is drained.

You can go 35 miles, and in some cases much more, on a single charge… which for 80 percent of American drivers is their total driving range.

After that, a small gas engine extends your range to 375 miles before you have to recharge or re-fill.

But, if the Volt message boards are any indication, there’s some real one-upmanship going on out there – with customers reporting going months and thousands of miles without stopping once at a gas pump.

No other current EV can do this or ‘generate’ that much passion with its drivers.

We engineered Volt to give drivers a choice— to use energy produced in the United States rather than oil from places that may not always put America’s best interests first.

And, we engineered Volt to show the world what great vehicles we make at General Motors.

Unfortunately, there is one thing we did not engineer.  Although we loaded the Volt with state-of-the-art safety features — we did not engineer the Volt to be a political punching bag.

And that, sadly, is what it’s become.

For all of the loose talk about fires, we are here today because tests by regulators resulted in battery fires under lab conditions that no driver would experience in the real world.

In fact, Volt customers have driven over 25 million miles without a single, similar incident.

In one test, the fire occurred seven days after a simulated crash.  In another, it took three weeks after the test.  Not three minutes.  Not three hours.  Not three days.  Three weeks.

Based on those test results, did we think there was an imminent safety risk?  No.

Or, as one of our customers put it:  if they couldn’t cut him out of the vehicle in two or three weeks, he had a bigger problem to worry about.

However, given those test results, GM had a choice on how we would react.  It was an easy call.

We put our customers first.  We moved fast and with great transparency to engineer a solution.

We contacted every Volt owner and offered them a loaner car until the issue was settled.  And if that wasn’t enough, we offered to buy the car back.

We assembled a team of engineers who worked non-stop to develop a modest enhancement to the battery system to address the issue.

We’ll begin adding the enhancement on the line and in customers’ cars in a few weeks.

And in doing so, we took a 5-star rated vehicle and made it even safer.

Nonetheless, these recent events have cast an undeserved, damaging light on a promising new American technology that we are exporting around the world, right from Detroit.

As the Wall Street Journal wrote in its Volt review:  We should suspend our rancor and savor a little American pride. A bunch of Midwestern engineers in bad haircuts and cheap wristwatches just out-engineered every other car company on the planet.

The Volt is safe.  It’s a marvelous machine. It represents so much of what is right about General Motors and, frankly, about American ingenuity and manufacturing. 

I look forward to taking your questions.

Thank you

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GM in the News

18th August 2010

GM has been in the news a lot recently. I’ll try to recap some of the more interesting topics:

GM 2nd Quarter Profit – GM announced that they had earned $1.3 billion in the 2nd quarter and had positive net cash flow of $2.8 billion. This is the General’s 2nd quarter in a row with positive earnings and cash flow. Chairman Ed Whitacre was heard exclaiming, “Yeee-haw!” In related news, the FAA has issued a warning to all commercial aircraft to watch out for pigs over Detroit.

Big Ed Whitacre announces retirement – Chairman and CEO Ed “I don’t live in Detroit, I just work there” Whitacre announced that he is stepping down as CEO on September 1 and as chairman December 31. Though nobody thought Ed was in it for the long term, the news was met with some surprise. The timing was to help facilitate the impending IPO (see below), as investors would want to know who’s running the show before they pony up the cash to buy the stock. Taking both positions at the dates above is Dan Akerson, who has been on the board since bankruptcy. He is an investment banker and an expert in financial matters (editors note: but can he tell the difference between an intake manifold and an emory board???). He is also a telecom veteran, like Whitacre. Roger Daltry sang at the press conference.

GM files for IPO – in a surprise to nobody, GM today filed its first registration papers with the SEC (not the Big 10) to file for its IPO. They expect to actually go public later this year. IPO filings are not particularly interesting, except for 1 major exception – the Risk Factors. This section typically shares some of management’s biggest fears about their business. This is a rare look into the company. They have to be brutally honest, because non-disclosure of significant risks could be the subject of a future lawsuit. GM’s Risk Factors are no exception. Here are a few of the more interesting tidbits. All of these points are followed by a detailed discussion which are too long to be included here:

The UST (or its designee) will continue to own a substantial interest in us following this offering, and its interests may differ from those of our other stockholders. (Gee, ya think?)

New laws, regulations, or policies of governmental organizations regarding increased fuel economy requirements and reduced greenhouse gas emissions, or changes in existing ones, may have a significant effect on how we do business. (Wait, government regulations can affect your business? Who knew?)

The ability of our new executive management team to quickly learn the automotive industry and lead our company will be critical to our ability to succeed. (So you have a bunch of inexperienced bozos running the operation. Great.)

The costs and effect on our reputation of product recalls could materially adversely affect our business. (Wait, is this the Toyota IPO?)

We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls could materially adversely affect our financial condition and ability to carry out our business plan. (Really? This isn’t giving me a warm, fuzzy feeling about your company…)

So, to sum up, your biggest shareholder has different “interests” than the rest of the shareholders, that same shareholder is going to make up new rules that will screw you, your management doesn’t know its butt from an exhaust pipe and can’t trust the numbers it’s given and the customers are scared that your products will suck. What’s not to like about that? Where do I sign up for these shares?

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Toyota’s Smoking Gun?

22nd February 2010

The Wall Street Journal is reporting today that among the documents Toyota has turned in to the Congressional committee investigating acceleration-gate is a potentially damning document that apparently describes as a win their success in lobbying the National Highway Safety Administration (NHTSA) to limit the recall over sudden acceleration to only 55,000 units. The document claims the save to the company was $100 million. The document also claims other wins in eliminating other potential recalls, including the Tacoma pickup.

This is just the kind of “smoking gun” that Congress and safety advocates will say “proves” that Toyota intentionally put the company’s profits above the safety of its customers. Toyota said, “Our first priority is the safety of our customers and to conclude otherwise on the basis of one internal presentation is wrong. Our values have always been to put the customer first and ensure the highest levels of safety and quality. Our recently announced top-to-bottom quality review of all company operations, along with new quality initiatives and a renewed commitment to transparency are all designed to reaffirm these values.”

It is entirely inappropriate to take a page from a presentation out of context and use it like this. Of course Toyota cares about its customers – just about every company does. Just about every company also cares about its profits, and they should. It is likely that the Toyota employees that put the presentation together would regard saving $100 million as a good thing – who wouldn’t? They likely also thought that because they were successful in lobbying NHTSA to limit the scope of the recall, NHTSA agreed that more vehicles didn’t need to be recalled. Given what the letters NHTSA stand for, Toyota logically assumed that NHTSA would push for the recall if it deemed it necessary. It apparently didn’t, at least until the publicity of the San Diego law enforcement officer’s death made this a bigger, more public issue.

Did Toyota act perfectly? It seems not. But to take this piece of paper as proof that they willfully put the lives of their customers in danger is silly, and dangerous.

That’s what I think – how about you? Please leave your comments below. Thanks!

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As expected, Toyota announced that it will, in fact, recall 133,000 2010 Priuses in the United States and about 300,000 in the rest of the world, for a total of 437,000 units worldwide. Toyota also included 14,550 2010 Lexus HS250h models as well, because they utilize the same anti-lock braking system as the Prius.

This picture speaks for itself. Note the Prius in the customer parking lot. Spotted today (9 Feb 2010) in suburban Detroit.

This picture speaks for itself. Note the Prius in the customer parking lot. Spotted today (9 Feb 2010) in suburban Detroit.

Toyota’s explanation of the problem is that “the anti-lock brake system (ABS), in normal operation, engages and disengages rapidly (many times per second) as the control system senses and reacts to tire slippage.  Some owners have reported experiencing inconsistent brake feel during slow and steady application of the brakes on rough or slick road surfaces when the anti-lock brake system (ABS) is activated in an effort to maintain tire traction.” They go on to say that the affected vehicles are safe to drive, as increased effort will stop the car.

The fix is an update to the software that controls the anti-lock brakes. This update was already introduced for Priuses in production last month. Toyota says the update will take about 30 minutes.

Hidden away in the release is another recall, this one for the 2010 Toyota Camry. This one is for brakes also, but is unrelated to the Prius/HS250h ABS problem. In the Camry’s case, some 4 cylinder units have a power steering pressure hose in the engine compartment that is the incorrect length. If this condition exists, a crimp on the power steering pressure hose may come in contact with a front brake tube. Should this condition continue, a hole may wear in the brake tube and deplete the brake fluid in the vehicle.  As a result, the brake pedal stroke will increase and lead to greater vehicle stopping distance. Owners will be notified within the next week or 2. If affected, your dealer will inspect and, if necessary, adjust the space between the brake tube and the power steering pressure hose crimp.  Based upon the inspection results, the dealership may need to replace the brake tube.

In yet another issue, the National Highway Traffic Safety Administration (NHTSA) is considering opening a formal investigation into the 2009-2010 Toyota Corolla. An analysis by Automotive News found that the Corolla has been the subject of 83 power-steering complaints to the National Highway Traffic Safety Administration since April 2008. Seventy-six of those reports note that the vehicle unexpectedly veers to the left or right at 40 miles an hour and up. The complaints compare the issue to hydroplaning or being hit by a strong wind gust. NHTSA is reviewing the complaints and will decide whether to open a formal investigation. Following NHTSA’s initial review, a formal investigation typically begins with a preliminary evaluation which, if warranted by the evidence, can be upgraded to an engineering analysis. A recall can follow. Toyota switched from hydraulic to electric power steering with its 2009 Corolla, which first went on sale in February 2008. This is in addition to another Corolla issue. Since November, NHTSA has been investigating reports of engine stalls in the 2006 Corolla.

Wow. That’s about all I have to say. Toyota’s reputation has taken a slide so steep and so sudden that it would have been unimaginable just a few months ago. It is not just the recalls themselves that are the problem, strangely enough. The American people have a very forgiving nature. As long as you give them a real, heart-felt apology and fix the problem, they won’t hold a grudge. By all reports, Toyota has dragged its feet and has had to be forced by the US and Japanese governments to recall the biggest problem (at least in terms of number of vehicles affected – the accelerator pedals). This is why the media has been all over these issues. Toyota’s handling of these issues will be studied by students and businesses for years to come as an example of what not to do. It will be interesting to see, going forward, how they step up and if these issues continue to haunt them.

That’s what I think – how about you? Please leave your comments below.

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The Slandy Report first told you about the Prius brake issue back in December, before it was known to most of the general public. Back then, they had only recalled 3.8 million vehicles for accelerator issues. That number is now over 8 million. Back then, Toyota was not the subject of congressional investigations for potentially withholding evidence of the safety defect and for stalling before doing anything about it. Now they are. Back then, their stock was trading in the US at almost $85. Now, Toyota’s market capitalization has lost about $18 billion, or more than 15% of its value in those 6 weeks. Apparently, much can happen in 6 weeks. The Lions, however, didn’t win anymore games. They still suck. But I digress.

Toyota acknowledged the Prius issue today with this release:

Toyota is aware that NHTSA has opened a Preliminary Evaluation centered on owner complaints of a braking issue with the 2010 model year Prius. Toyota will cooperate fully with NHTSA’s investigation.

Some customers have complained of inconsistent brake feel during slow and steady application of brakes on rough or slick road surfaces when the anti-lock brake system (ABS) is activated in an effort to maintain tire traction.  The system, in normal operation, engages and disengages rapidly (many times per second) as the control system senses and reacts to tire slippage.  A running production change was introduced last month, improving the ABS system’s response time, as well as the system’s overall sensitivity to tire slippage.

This preliminary evaluation addresses owner complaints specific to the 2010 Prius.  This condition is not related to either the floor mat entrapment recall or the sticky pedal recall currently in action.

Toyota will continue to evaluate the condition as it relates to owner complaints and will keep NHTSA informed of its progress.

Toyota Toyopet - see? They were known for green cars then, too.

Toyota Toyopet - see? They were known for green cars then, too.

At this rate, all of Toyota’s vehicles will be the subject of 1 or more recalls. Which is next, the 1957 Toyopet (the vehicle that launched Toyota’s sales in the US market)? It seems that Toyota can’t buy break (pardon the pun) these days. It seems that they are suffering from the same ailment that has infected the Detroit 3. for a long time, they could do no wrong and their sales were only limited by their ambition. They made the age-old error: they began to believe their own press. They have violated the basic tenants of their own systems that are the source of their great success to this point, believing they could violate them at will with no consequences. They were wrong.

That’s what I think – how about you? Please leave your comments below.

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Toyota’s New Math

3rd February 2010

Perhaps you’ve been following the news about Toyota’s “issues”. Perhaps, even, you know a bit about automotive design and engineering and can see through the PR-speak and the smoke screen that they tend to put up in front of the real truth. If so, then you have already come to the same conclusion that I have. Congratulations, but this column is not for you. This column is for the people who are taking all of the news in, and are confident that Toyota is the greenest, most altruistic company that has ever walked (several inches above) the Earth. Toyota makes the best cars and trucks anywhere, and this little glitch only proves that they’re human, even if all previous evidence indicates that their headquarters is not in Japan, but on top of Mount Olympus.

To recap, Toyota is recalling over 8 million vehicles around the world for 2 separate, but similar, problems. In some vehicles, the floor mats can interfere with the gas pedal and cause it to stay depressed even when the driver takes their foot off of it. The other is for gas pedals that, on their own, stay depressed when the driver intends to slow down. Different problems, same effect – the car doesn’t slow down when the driver intends it to slow down.

Toyota maintains that the floor mat issue is simple to fix – the mat just needs to be secured properly. In other words, customer error. Toyota is taking the step of recalling the affected vehicles to fix this.

Toyota's Pedal Fix

Toyota's Pedal "Fix"

In the other, Toyota blames the pedal itself, and said a few days ago that it has a fix for cars on the road. A small metal part will be inserted into the accelerator pedal assembly to make sure that the pedal’s springs will work as intended and force the pedal up when the customer takes their foot off.

So far, so good, right? Wrong. Toyota says only the pedals made by CTS, an Indiana supplier, are affected. Pedals made by the other supplier, Denso, are not. Denso, by the way, is partly owned by Toyota. In the world of automotive purchasing, such an arrangement is called “dual-sourcing” (as opposed to “single-sourcing”). Two (or more) companies make the same part for the same vehicle from the same set of specifications from the automaker, and are used interchangeably. Neither Toyota nor the government has indicated that CTS is to blame in any way, but only its pedals need to be fixed, not Denso’s. The pedal design is to blame, according to everybody. If it’s a design issue, then why are Denso’s parts not part of the problem?

Something doesn’t add up.

Next, the issue being “fixed” is being called unintended acceleration, as in “the car keeps going faster than I want it to.” No matter if you’re talking about the floor mat issue or the pedal issue, neither one will make the car or truck go faster. The both would prevent the car from slowing down. Big difference. To be fair, to a panicking driver, these would likely feel very much the same, so maybe this is a case of a badly worded problem. However, if that were the case, wouldn’t Toyota or the US government use the proper wording when describing the problem? If the cars are, in fact, accelerating, Toyota’s “fix” won’t “fix” anything. It will simply pacify the masses while they really try to figure out the problem. If they really are accelerating, then the problem is likely to be in the vehicle’s electronics, in the software code that makes modern cars and trucks (usually) so reliable and fuel-efficient. Toyota itself said during a meeting with a congressional committee that “…sticking accelerator pedals are unlikely to be responsible for the sensational stories of drivers losing control over acceleration as their cars race to 60 miles per hour or higher.” In addition, there have been reports of the acceleration issue in vehicles that are not subject to either recall.

Something doesn’t add up.

Also, less than 2 weeks ago, Toyota said it did not know what the problem was, nor how to fix it. Yet on Monday, February 1, Toyota announced the fix, complete with a diagram, saying, “Toyota’s engineers have developed and rigorously tested a solution…” Toyota went from still investigating to a “rigorously tested” solution is less than 2 weeks. Just how “rigorous” is this solution?

Something doesn’t add up.

If the “solution” is so good for the cars already on the road, why then is the solution for cars and trucks yet to be built different? That’s right, kids, CTS is already making a redesigned accelerator pedal for the factory to use after they are back up and running next week. It is NOT the same pedal with an extra part inserted, as described above for cars on the road. Why?

Something doesn’t add up.

If the various “fixes” that Toyota is implementing do not correct the problem, they will have a PR problem that will make the Pinto look like a schoolyard argument. And something else won’t add up, either. Toyota’s sales and profits.

That’s what I think – how about you? Please leave your comments below.

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27 vehicles (19 cars and 8 SUVs) earned the Insurance Institute for Highway Safety’s Top Safety Pick award for 2010, substantially lower than for 2009, the IIHS announced recently.  The main reason for the lower number of recipients is that the IIHS added a requirement that the vehicles must score a “good” in a roof strength test to measure protection in a rollover is required to win. 94 vehicles earned the Top Safety Pick for 2009.

Ford was the big winner for the 2nd year in a row, earning 6 Top Safety Picks, while Volkswagen and Subaru were next with 5 each.  Chrysler earned 4, and IIHS commented specifically on Chrysler’s efforts, saying, “… continuing a recent trend of improving the crashworthiness of its vehicles.”  Notable in their absence from the list are Toyota (which includes 28 Toyota, Lexus and Scion models), and BMW.

3 of the best selling midsize cars notably didn’t make the list. Honda Accord and Ford Fusion just missed scoring a “good” on the roof strength test or they would have earned the Top Safety Pick.  Toyota Camry would have qualified with good ratings, except for its rear crash evaluation.  Camry’s seats and head restraints are rated marginal for protection against whiplash injury.

Keep in mind that all cars and trucks have to pass certain safety standards to be for sale in the US; the IIHS evaluates vehicles to determine which are the safest, according to their own standards.  In some ways, the IIHS is at odds with the federal government, which promotes fuel economy.  In the IIHS press release, they say, “Keep in mind vehicle size and weight, because larger, heavier vehicles generally afford better protection in serious crashes than smaller, lighter ones.  Even with a Top Safety Pick, a small car isn’t as crashworthy as a bigger one.”  All things equal, a “larger, heavier vehicle” will get poorer fuel economy than a “smaller, lighter vehicle.”  The smaller, lighter one will also generally be more maneuverable, thus helping avoid the accident in the first place.  My point is simply to remind you that there is no one way to evaluate a potential vehicle purchase.  Use your common sense (if you have any) to look at how the vehicle scores on many different criteria.

Here is the IIHS’s complete list of Top Safety Picks for 2010:

Large cars
Buick LaCrosse
Ford Taurus
Lincoln MKS
Volvo S80

Midsize cars
Audi A3
Chevrolet Malibu
Chrysler Sebring 4-door with optional electronic stability control
Dodge Avenger with optional electronic stability control
Mercedes C class
Subaru Legacy
Subaru Outback
Volkswagen Jetta sedan
Volkswagen Passat sedan
Volvo C30

Small cars
Honda Civic 4-door models (except Si) with optional electronic stability control
Kia Soul
Nissan Cube
Subaru Impreza except WRX
Volkswagen Golf 4-door

Midsize SUVs
Dodge Journey
Subaru Tribeca
Volvo XC60
Volvo XC90

Small SUVs
Honda Element
Jeep Patriot with optional side torso airbags
Subaru Forester
Volkswagen Tiguan

That’s what I think – how about you?  Please leave your comments below.

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GM announced today that their 2010 full-size pickups will achieve a higher EPA rating for 2010, giving the Chevrolet Silverado and GMC Sierra the highest fuel economy in the segment (previously, the highest economy versions tied with the best Ford F150).

Silverado and Sierra 5.3L V-8 engine EPA-estimated fuel economy improves for 2010 from 14 city / 20 highway to 15 city / 21 highway MPG, while Extra Fuel Economy (XFE) models move from 15 city / 21 highway to 15 city / 22 highway MPG. This development, combined with the fact that GM’s hybrid pickups achieve an EPA estimated 21 city / 22 highway, puts Silverado and Sierra at the top in fuel economy.  This fuel economy improvement comes with no compromise in capability. Horsepower, payload, and trailering specifications remain the same for Chevy and GMC full-size pickups.

For reference, the following information is the most recent available EPA-estimated comparable fuel economy data for GM’s main competitors in this segment.

  • Ford – 5.4L: 14 city / 20 hwy; 4.6L with 6-speed transmission: 15 city / 21 hwy
  • Dodge – 5.7L: 14 city / 20 hwy
  • Toyota – 5.7L: 14 city / 18 hwy; 4.6L: 15 city / 20 hwy
  • Nissan – 5.6L: 13 city / 18 hwy

To be fair, GM is comparing its 2010 models against 2009 models for all of the above except Toyota.  Ford, Dodge and Nissan may well have a fuel economy trick up their sleeves for 2010 also.  Nevertheless, GM is showing that it takes fuel economy seriously and will do what it can to make incremental improvements without resorting to smaller vehicles with less capability.  Nice work.

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GM Declares Bankruptcy

1st June 2009

In a move unexpected only by some members of the Taliban, GM formally declared bankruptcy this morning in NY. Under its plan, GM will sell substantially all of its global assets to “New” GM. Because GM’s sale of assets to the New GM already has the support of the U.S. Treasury, the UAW and a substantial portion of GM’s unsecured bondholders, GM expects the sale to be approved and consummated quickly.

CEO Fritz Henderson made the following statement:

Today marks a defining moment in the reinvention of GM as a leaner, more customer-focused, and more cost-competitive company that, above all, can quickly generate winning bottom line results. The economic crisis has caused enormous disruption in the auto industry, but with it has come the opportunity for us to reinvent our business. We are going to do it once and do it right. The court-supervised process we are pursuing provides us with powerful tools to accelerate and complete our reinvention, as well as strong safeguards for our customers and our business. We are focused on the job at hand, for the benefit of our customers, employees, dealers, suppliers, retirees, taxpayers, investors and other stakeholders.

We recognize the sacrifices that so many have been asked to make as we have worked to reinvent GM and the automobile. GM deeply appreciates the support and the demonstration of confidence in our future by President Obama, the Presidential Task Force on Autos, the Canadian and Ontario governments, American and Canadian taxpayers, the unsecured bondholders who are supporting the proposed sale transaction, the UAW and CAW and their leadership, and the men and women of GM, including our retirees. You have enabled us to carry out this vital transformation for the good of GM, our customers and the economy, and we are working to validate your trust each day.

From day one, the New GM will be well-positioned to capitalize on the award-winning vehicles we have developed and launched during the past few years, and on our investments in exciting new technologies like the Chevy Volt, so that we can build and return value to our customers and to the millions who will have a stake in our success. The New GM will play a critical role in the future of the automobile, and assure that the U.S. has a strong stake in this rapidly changing global manufacturing industry.

The US taxpayers will now own 60% of GM and the UAW will own 17.5%. This creates many potential conflicts of interest, and it will be difficult or impossible for the government to do what it has said it will do: keep a hands-off approach to the running of General Motors.

  1. How will the government balance its desire for higher fuel efficiency with GM’s (and therefore, its biggest shareholder’s) need to turn a profit? President Obama has said he intends to be out of the auto business as soon as possible. That will require GM to make a profit so the Treasury can sell its shares to pay off the $50 billion it has invested in GM. It’s a fact of the auto industry – at least in the US – that the larger, less efficient vehicles make more profit. See the problem? For the US to break even on its “investment”, GM will need to have a market capitalization of at least $80 billion, but the recent high point was $56 billion in 2000.
  2. Will the government be able to resist giving GM (and Chrysler as well) preferential treatment in regulations, tax breaks, government contracts, etc? After all, won’t they have a fiduciary responsibility to the taxpayers to ensure the investment in GM is paid off as quickly as possible?
  3. How will the UAW balance the needs of its members (high pay and benefits, job security) with its need for GM to make a profit so the UAW can sell its shares to pay for the long-term needs of its members (retiree health care, etc.)?
  4. All of this applies to Chrysler as well, but to a lesser extent. That leaves one other big question: where does all this leave Ford? Ford, which is not exactly healthy, has been able to keep the Feds out of its boardroom. Will not Ford be in an unfavorable position with respect to the points above? If so, what does that say about our society, that we will put a company at a competitive disadvantage which has fought hard to keep itself solvent?

These are difficult questions to an unprecedented situation. I’m not smart enough to know the answers, but I sure hope the gods of the Potomac are.


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The Obama administration today announced the biggest and most expensive increase in fuel economy ever. Flanked by 10 auto executives, UAW President Ron Gettlefinger and others, Obama announced the plan in the Rose Garden.

The new standards will commonize the various regulations governing the sale of vehicles in the US into 1.  In return for the stricter standards, the state of California agreed to drop its attempt to institute its own fuel economy standards and the automakers agreed to drop lawsuits aimed at forcing them to drop the attempt.  This is the only good part of today’s announcement.  The threatened patchwork of regulations would have made doing business extremely difficult and MUCH more expensive.

The plan:
• Requires yearly 5 percent increases in fuel efficiency from 2012 through 2016, resulting in an average fuel economy standard of 35.5 miles per gallon in 2016. The previous plan had the standard at 35 in 2020.
• Cuts oil consumption by an estimated 1.8 billion barrels over the life of the program.
• Cuts greenhouse gas emissions by a projected 900 million metric tons.
• Supported by 10 car companies and the UAW.
• Sets one clear, national policy for all automakers, instead of standards from the EPA, Transportation Department, and a California standard that would apply to 13 other states.
• Gives automakers clarity, predictability and certainty about the rules, as well as flexibility to meet the expected outcomes.

The oil savings and emissions cuts are spurious at best. CAFE has been on the books for about 30 years, and has not resulted in any fuel savings. Why? Because by forcing fuel economy gains without any increase in fuel price, CAFE encourages more driving. The increase in driving miles has more than offset the decrease in fuel consumption per mile. Also offsetting the increases in economy has been a shift towards pickups and SUVs, which has also been driven (pun intended) by CAFE & other government policies.

So why did 10 automakers, including the 2 divisions of Government Motors, say they are in favor of this? 2 reasons: the political winds are blowing in such a way that they risk significant negative PR if they are seen to be unsupportive and 2. the commonization of the standards is a real benefit of the plan, as discussed above. You can bet, though, that GM and Chrysler were told that they will be there and they will look happy.

Obama at least did one thing that has been noticeably absent in previous discussions on fuel economy: he admitted that this will increase the price of cars and trucks in the US.  He also stated that the price increase will be made up in 3 years of fuel savings.  The government numbers assume that gas prices will be $3.50/gallon for the life of the program (2012 – 2016). One thing about cost increases in a competitive market is that there is no certainty that the OEMs will be able to increase their prices to make it up. And with the current state of the economy, raising prices is anything but certain. The cost increase, however, is very certain.

With every major automaker losing money, now is about the worst time possible to be adding at least several hundred dollars to the cost of the average vehicle. This is where I would normally say, “I hope the government knows what it’s doing.” But clearly, they do not.


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