GM Vice-Chair: Bailout Can't Work

There’s so much to hate about the proposed bailout of the Big 4 automakers (GM, Chrysler, Ford, and Tesla), that you can occasionally be forgiven for forgetting some of the problems with the idea.  The Journal’s Holman Jenkins points out the most basic flaw: it can’t work.

Leave it to Bob Lutz, GM’s voluble vice chairman, to puncture the unreality of the auto bailout he himself has been championing. In an email to Ward’s Auto World, he notes an obvious flaw in Congress’s rescue plan now taking shape: The fuel-efficient “green” cars GM, Ford and Chrysler profess to be thrilled to be developing at Congress’s behest will be unsellable unless gas prices are much higher than today’s.

“Very few people will want to change what has been their ‘nationality-given’ right to drive big and bigger if the price of gas is $1.50 or $2.00 or even $2.50,” Mr. Lutz explained. “Those prices will put the CAFE-mandated manufacturers at war with their customers — and no one will win in that battle.”

Translation: To become “viable,” as Congress chooses crazily to understand the term, the Big Three are setting out to squander billions on products that will have to be dumped on consumers at a loss.

Read Jenkins’ whole piece. It’s superb.

Lutz is quite right. Congress and the Obama administration will force loan recipients to expand the sales of cars that lose money, while reducing the sale of vehicles on which they profit. In any rational marketplace, the companies would refuse to go along with a market strategy that leads inexorably toward bankruptcy. The difference here is that the car companies know that they’ll collapse more quickly without taxpayer money, and that the Democrats in Washington are likely to prop up their money-losing businesses for years. Faced with a choice of going bankrupt, or taking a generous federal check to step aside and allow Barney Frank to run your company, the U.S. automakers will eagerly take the latter.

Alternately, Jenkins implies that there is a way to allow the American automakers to sell their high-mileage cars at a profit: dramatically increase the price of gasoline, again.  If gas rises above $4.00 or $5.00 per gallon, then the high-mileage cars Democrats like suddenly become a lot more attractive.  There’s no doubt that there are some Democrats in Washington who see dramatically more expensive gasoline as ‘Step 2’ of the plan.  Now that energy prices have faded as an issue, look for those Democrats to quietly push for long-term policy changes that will increase gasoline prices down the road, and which are hard to reverse (such as a permanent moratorium on offshore drilling).