Why General Motors Will Fail

Question: What should American car manufacturers do to increase the sale of hybrid vehicles?
Answer: Drastically raise the federal gasoline tax.

That was essentially the answer given by General Motor’s CEO, Rick Wagner, when he proposed that a gas tax hike was “worthy of consideration.”

Let’s consider the logic behind this. When gas reached (and exceeded) four dollars a gallon last summer, drivers were redlining. Toward new automobile purchases, however, they responded by buying hybrid vehicles. Thus, the GM’s logic is that by forcing Americans to pay a higher gas tax and maintaining gas prices at a minimum four dollars a gallon, car buyers will once again flock to the beloved hybrid.
Not coincidentally, increasing hybrid sales fits perfectly into GM’s roadmap, “around 2015” predicts GM Vice Chairman Bob Lutz, “we’re going to have to sell a ton of hybrids whether people want them or not.” (emphasis mine). GM, whose stock has dropped 94% since June 2007, has already begun implementing its program. During the height of the gas extravaganza, Wagner promised, “If you want to talk hybrids; we are introducing four more hybrids in the US this year. In fact, counting the new Saturn Green Line, we are introducing sixteen hybrids in the next four years. That’s one about every three months.”

But that gas has dropped to below two dollars a gallon, hybrid sales have fallen just as hard as GM’s stock.

Meanwhile, GM is on life support. And, of course, the government is generously providing enough capital to weather the financial storm. One string attached to the bailout though is the requirement that GM submit a viability plan to prove that GM will not be an utter failure. One can only wonder if Rick Wagner’s statement proposing a gas hike is an effort to please Uncle Sam. But if GM’s best response to demonstrate its future profitability is by suggesting a raise to the gas tax so Americans buy hybrids (“whether people want them or not”), then I fear to the car company has lost touch with basic economics and thus deserves what probably inevitable: failure.

2 thoughts on “Why General Motors Will Fail

  1. But hybrid cars only account for about 2% of US auto sales anyway. It is just like GM to put a lot of time, effort, and money into what could very well be a failing project from the very beginning.What GM should do is . . . wait for it . . . BUILD A BETTER CAR, one that could compete with Toyota, Honda, and others in the standard market. This may mean making deals with the UAW to lower production costs, hiring better (or different) engineers, or new management to get GM out of the box it’s been stuck in for some time now. We need to compete beyond the very small hybrid niche, because as GM takes over that unprofitable 2%, Toyota will be dominating the other 98%.

  2. With the requirement that vehicles achieve a certain (higher) MPG rating, I suspect that we will see more hybrid vehicles. I don’t think that’s a bad thing either. The challenge, however, lies with auto manufacturers (GM) to develop such vehicles that can be on par – in performance and price – with gasoline-only vehicles. If GM wants to focus on hybrid vehicles, that’s fine. But as long as there is a still premium to be paid, hybrid sales will be relegated to a niche market. In other words, I agree – GM does need to build a better car. The means to achieve this – whether done by truly developing a competitive hybrid or stepping up the quality of its current market, is unimportant. But advocating gas tax hikes without addressing the underlying problems will lead the company to bankruptcy.

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