Tuesday, March 31, 2009

Government Shows Automakers How To Manage


"Off with its head!" So declared President Obama. And off came the head of General Motors. It was, by all measures, a quote from the French Revolution, but why quibble?

General Motors was out of money; it was out of options. Management showed that it couldn't control its spending: the CEO took a private jet. Management showed that it couldn't plan ahead: it didn't forecast the end of the credit market. Management showed that they were not people people: they couldn't get rid of people fast enough. Management showed that they didn't care about product: they only had 18 models getting more than 30 mpg.

The government has the money; it has all of the options. Government showed that it could control its spending: the bank bailout was less than $2 trillion. Government showed that it could plan ahead: it is forecasting a recovery as soon as the downturn is over. Government showed that it cared about people: its policies "encouraged" lending institutions to give mortgages for those needing "social justice." Government showed that it cares about product: it will "encourage" people to buy what they didn't know they wanted.

As an indication of how badly General Motors was run and how simple it is to fix all of the problems, Government established new regulations:

New fuel rules to cost autos $1.5 B

Higher mileage standards for ailing automakers will increase new vehicle price tags $64 to $126.

By David Shepardson

The Detroit News

WASHINGTON — Stricter fuel economy standards outlined Friday by the federal government for the 2011 model year will cost struggling auto companies nearly $1.5 billion and boost the cost of passenger vehicles an average of $64 for cars and $126 for light trucks.

The National Highway Traffic Safety Administration said the ad­ditional vehicle cost will be re­couped by buyers of pickups, SUVs and minivans, through fuel savings, in an average of 7.7 years. Passenger car buyers will recover that cost in an average of 4.4 years. “These standards are impor­tant steps in the nation’s quest to achieve energy independence and bring more fuel efficient vehicles to American families,” said Trans­portation Secretary Ray La Hood.

The Corporate Average Fuel Economy rules set by the Obama administration pegged the 2011 passenger car standard at 30.2 miles per gallon and the light truck standard at 24.1 mpg.

Overall vehicle efficiency climbs to 27.3 mpg in the 2011 model year, up 8 percent over the 2010 model year.

It is the first increase in fuel ef­ficiency requirements for passen­ger cars since the 1985 model year. The regulations will save an esti­mated 887 million gallons of fuel and reduce tailpipe emissions by 8.3 million metric tons over the lifetime of the vehicles.

“There is clearly demand for automobiles that can achieve President Obama’s new standard and the Big Three have cars com­ing to showrooms that can meet this ambitious goal,” said the au­tomakers’ longtime champion, Rep. John Dingell, D-Dearborn.

NHTSA said that the higher prices likely will lead to a small re­duction in auto sales, and estimat­ed that as many as 1,024 auto in­dustry jobs could be lost as a re­sult of the regulation.

The new CAFE standards were generally praised by members of Congress and the automakers. “With gas prices once again on the rise, I am pleased to see

the Obama administration tak­ing this historic first step to­wards reducing our depend­ence on foreign oil and helping revitalize the domestic auto in­dustry,” said Rep. Ed Markey, D­Mass, chairman of the House Select Committee on Global Warming and Energy Inde­pendence.

Michael Stanton, president and CEO of Association of Inter­national Automobile Manufac­turers, said the industry is pleased to have a final standard to meet for 2011.

“We encourage NHTSA and the (Environmental Protection Agency) to work closely togeth­er to harmonize and finalize standards through the 2016 model year,” Stanton said, not­ing that the companies “have pledged to meet or exceed these new standards.”

The new rules subject nearly all vehicles of 10,000 pounds or less to fuel efficiency require­ments. Under prior rules, vehi­cles more than 8,500 pounds were exempt from fuel efficien­cy regulations.

The new rules are the first step in meeting a 2007 energy law that will require car makers to achieve an industry fleet av­erage of least 35 mpg by 2020, a 40 percent increase over today’s standard of about 25 mpg.

Federal law carves out a sep­arate category of work trucks between 8,500 and 10,000 pounds. NHTSA will spend at least two years studying the is­sue of whether to impose new fuel efficiency regulations for medium- and heavy-duty trucks. But they wouldn’t take effect until 2015, at the earliest.

You can reach David Shepard­son at (202) 662-8735 or .



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And that's why its head had to come off.

Oh, those cost estimates... $64 to $126 per vehicle? Hey, you believed the rest of it, too.
Not counting the Lexus models, hybrid cars cost roughly $1,700 to $11,200 more than comparably equipped gasoline vehicles.
But don't worry. Government money will help you pay for that... and help you forget the cost estimate was off by one or two decimal places.
"Close enough for Government work."

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)