GM and the electric car: a murder-suicide?

BY MATT HUTCHINS

Clouds Build Over the Renaissance Center in Detroit, Home of General Motors

General Motors, the world’s largest automaker, announced on Monday that it had lost $2.5 billion in the third quarter, continuing more than a year of losses. The company says it will run into a cash shortage early next year if emergency funds are not made available. While President-elect Barack Obama ’91 has openly expressed his support for a package to protect the Big Three of GM, Ford, and Chrysler, the precipitous downturn in the economy may make January of next year too late to initiate a bail-out package. As a result, House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) are pushing Treasury Secretary Henry Paulson to administer funds to the Big Three through the already approved $700 billion bail-out package.

Americans have to ask themselves at this point what could have happened to lead to such a crisis in a set of companies which are vital to the U.S. economy and which enjoyed record profits in the late 90’s early part of this decade. Rising benefits costs for union workers and intense competition from foreign firms have been advanced as primary factors, but there are many voices crying that the entrenched powers in auto manufacturing have created their own dilemma by failing to exercise the foresight to design more fuel-efficient vehicles. Obama seems unable to speak about the future of the auto industry without mentioning greater fuel efficiency, and yet the Chevy Volt remains perpetually perched on the horizon, not slated for release until 2010. How has popular sentiment built to this level without a product being put to market?

The Big Three have entertained the idea of producing an electric car before. The technology to produce one has existed since the dawn of mechanized transportation, and GM produced a feasible production prototype, the EV1, in 1990. The EV1 was celebrated by drivers as an attractive, powerful, economical vehicle, but by 2006 GM had revoked the leases, and impounded and destroyed every one of them. The conundrum of a popular product being taken away from consumers and destroyed makes us ponder the question which is the title of the documentary Who Killed the Electric Car?

The Environmental Law Society and the Harvard Environmental Law Review had a screening of the film recently, and the main culprit identified by the makers of the film is GM. The documentary begins with a sequence which could fairly be described as an advertisement for the EV1, the main character of the film. Just when you begin to think everyone loved the EV1, the impersonal corporate giants at GM seem to reverse their strategy and retract it from the market. The apparent reason: They were offended by the California effort to mandate the production of zero-emissions vehicles. Faced with the overwhelming political clout of the auto industry, California’s regulators ultimately balked at the enforcement of their own mandate, and with that the fight for electric vehicles fizzled away.

The film proceeds to explore all the official and subtextual reasons for the decision to destroy all evidence that electric cars ever existed. The film explores the possible guilt of batteries, hydrogen fuel cells, consumers, oil companies, government, and the car companies themselves. The verdict is that all were guilty except batteries, which were sufficiently powerful to carry the electric car farther than almost all consumers need for their daily driving. Hydrogen fuel cells were a convenient distraction which lacks the technological feasibility of battery powered cars.

Consumers, especially those who had not yet driven one, were hesitant to buy an EV1. Oil companies funded study after study which concluded, contrary to the actual experience of drivers, that the range limitations and cost of production were insurmountable barriers to adoption. The federal government, spearheaded by President George W. Bush and his cadre of cabinet-level former oil executives, squashed California’s zero-emissions initiative.

Most of all, once the electric car became a viable alternative to the internal combustion engine, car makers seemed to realize that it was not in their best interests to innovate, especially while oil was trading at about ten dollars per barrel. The program was never developed to the scale needed to realize efficient manufacturing, and those marketing efforts made were unconventional and not widely advertised. Among the possible explanations given were pressure from the oil industry, pressure from suppliers whose parts would become obsolete, pressure from service providers who would have been woefully under-worked by the reliable electric vehicles, and obstinate refusal to bend under the yolk of regulatory pressure to innovate. Ultimately, the manufacturers had a choice between the whole-hog endorsement of oversized SUVs or the marketing of smaller, more efficient electrics, and they bent to the pressures to conform to the existing market.

Perhaps it is enough to expect that capitalists would reach for the low-hanging fruit, and it is natural to expect that a President from Texas with numerous ties to the oil industry would believe that most Americans want big trucks and will be able to afford them thanks to his administration’s policies. The economic developments of this year have taught us to reject both of these propositions. The bubble in oil prices this year may have burst with the slowdown of the economy, but it is a startling preview of a future in which our nation, addicted to oil for our daily driving habits, is starved by foreign suppliers whose willingness to sell to us has been overridden by a swelling global demand for fuel.

The reversal of key market assumptions has revealed the too-big-to-fail syndrome in GM just as it did in AIG in September, and while the global recession continues to deepen we must tread carefully in the enforcement of market discipline. There can surely be few Americans who will enjoy seeing reckless executives at a giant, heartless corporation saved from their own ignorance to the cyclical nature of their industry. But there can be no denying the potential devastation which would ripple through the U.S. economy if even just one of the big three were allowed to fail. The auto industry advocacy group, the Center for Automotive Research, has predicted that a 50% reduction in domestic vehicle production would result in a wave of insolvencies, reorganizations and production freezes in the part producer industry, freezing all domestic production. As a result, as many as 2.5 million jobs would be lost in 2009, $125 billion in personal income erased, and close to $50 billion in tax revenues lost.

At this point, the failed management of GM has led the company to the point where it can plausibly ransom our national government for whatever aid it needs to remedy its plight. The answer is not to ignore their cries, as they truly do possess enormous economic might. Rather, we must protect the well-being of the economy in the short-run while taking measures to ensure that as the wheels of capitalism begin turning once again, the oligarchy of these too-big-to-fail firms will be broken.

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