Low Voltage Problems at Government Motors

The Obama Administration has threatened to veto the House of Representative’s “Cut, Cap and Balance” deficit reduction legislation; because it does not preserve what the President refers to as “investments that encourage economic growth”. A signature example of that Presidential encouragement has been prioritizing production of the Chevrolet Volt electric car in the government bankruptcy restructuring of General Motors. But after six months and a $700 million to build the cars; only 2,745 Volts have been sold at the $39,995 price tag and 508 unsold vehicles are languishing in dealer inventories. Deficit spending to finance losses of $255,009 per unit doesn’t sound like an investment that will encourage growth.

The Administration effectively fired the CEO; forced bondholders to take 75% loss; and “invested” $50 billion of tax payer money to gain 61% control of GM’s stock. Since the restructuring, the independent Government Accountability Office has issued reports that cast “substantial doubt” on the likelihood taxpayers will fully recoup their investment. More troubling is the Administration, at the behest of the UAW, forced GM to withdraw from their profitable NUMMI joint- venture with Toyota in California.

GM reported the NUMMI plant’s production in 2008 of 149,000 Toyota Corollas, 122,000 Toyota Tacomas, and 71,000 Pontiac Vibes 2008. According to Motor Trend Magazine, Toyota stated: “Our hope was for the 50/50 joint venture to continue,” and indicated willingness to move production of their wildly successful Prius Hybrid from Japan to NUMMI. But under pressure from the Administration, General Motors opted out of the 25-year-old California venture with Toyota and spent hundreds of millions building Volt manufacturing in UAW friendly Michigan.

NUMMI ceased operations on April 1, 2010. The closure left 4,700 employees jobless at the Freemont plant and affected another 25,000 supplier jobs around the state, according to a study commissioned by California State Treasurer Bill Lockyer.

Toyota continues to build all Prius hybrid cars at Toyota City in Japan. Bloomberg reports U.S. Toyota dealerships currently have less than one day’s inventory of Prius cars on their lots, after the Fukushima nuclear power plant disaster drastically interrupted deliveries of parts from Japanese manufacturers that service Prius production. Prior to the Japan quake, Toyota targeted Prius sales in 2011 that would top the car’s 2007 peak of 181,221. While that level may be out of reach for now, Toyota can still exceed 2010’s deliveries of 140,928, said Donald Esmond, Toyota’s senior vice president for U.S. sales. Prius is the focus of Toyota’s effort to gain market share in the next few years, said Jim Lentz, president of the U.S. sales unit. The Prius nameplate will be expanded to include a wagon, subcompact and plug-in. “By the end of this decade, the Prius nameplate will be the number one passenger car nameplate in the industry.”

In winning the Motor Trend Car of the Year Award, the Volt follows two Chevrolet small car winners; the 1971 Vega and the 1980 Citation. Car & Driver Magazine rates these vehicles as leading competitors for “Worst Car of All Time”. When Consumer Reports tested the Volt, the car averaged a paltry 25 mile distance running on electric-only power and only 30 miles to the gallon of “premium” grade fuel (equal to about 27 miles to the gallon on “regular” gas). This compares poorly to a Honda Accord; which seats 5 (instead of the Volt’s 4), gets 34 mpg on the highway, and costs less than half of what CR paid; even after the $7,500 federal tax subsidy.

As the President travels the nation he regularly speaks about forming “Key Partnerships — An All Hands-on Deck Effort by Government, Business, Philanthropy and Others” to gain support for government subsidized investments he believes will encourage economic growth. He likes to reassure Americans that “Contrary to the claims of some of my critics and some of the editorial pages, I am an ardent believer in the free market.” The problem with the free market is that it not free for producers to design and build products that will interest customers; and those products must offer enough value that customers will pay sufficient money for the producers to recover their investment and make a profit. The Chevrolet Volt demonstrates the federal government knows how to spend money on remarkably large investment subsidies; but there is no evidence those investments will create enough value to encourage any economic growth.

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