American Elephants

Will You Buy a Lemon at an Exorbitant Price? by The Elephant's Child

There will be something new at this month’s World Series:  Government Motors will launch their new electric plug-in lemon, the Chevy Volt, with a big ad buy.  In the middle of the televised spectacular of America’s pastime’s crowning event, Government Motors will use taxpayer money to buy premium ad time to pitch the Washington approved, money-losing, taxpayer-subsidized, green car to Americas well-to-do green true believers.

The idea is to drum up some enthusiasm for the General Motors bailout in time for the elections.  The bailout proved that the government wipe out the debts of a company in trouble and then prop it up with a big injection of taxpayer money. With enough public money, this is a foregone conclusion.

Mr. Obama was supposed to surprise us by being a smart regulator who would rescue America’s most important business.  Economists and engineers for a generation have been telling us that the fuel economy mandate called CAFE standards created only perverse results and was a failure.  It forced automakers to throw capital at cars they could not deliver profitably, and undermined their reputation for quality.

Americans didn’t want small fuel-efficient cars, they wanted bulky SUVs to protect their children and move their stuff around.  The correct question was do Americans want to pay higher gasoline prices in order to create a demand for small fuel-efficient cars?  But that is not the answer they wanted.

Even Alan Mulally, widely considered a winner in turning down a government bailout, said he was surprised, when he arrived from Boeing, at how “CAFE standards distort the market, requiring Ford to make and sell small cars at a loss so “we could also make and sell cars customers really wanted.”

Next month will be the General Motors Initial Public Offering, to pay back all that money invested in Government Motors.  The U.S. Government gave GM $50 billion in exchange for 62% of its shares.  The Canadians chipped in nearly $10 billion more for another 12% of the shares.  Both governments will sell some of their shares immediately so that their taxpayers can begin to be repaid.  Full repayment would mean that the new GM have a total market capitalization of about $70 billion or about 30% more than the company’s peak market cap.

That doesn’t even begin to account for the government money plowed into the car industry.  Electric cars,  battery factories, tax credits, stimulus funds, the list is endless, and now, big ad buys for a car nobody wants in the most expensive advertising time of the year.  But that’s not all — Government motors is making campaign contributions.  According to data released by the Federal Assistance Commission  last week GM has given more than $90,000 to political campaigns.  Most of the contributions went to Midwestern congressmen and senators from states where GM has a presence, evenly distributed between the parties.

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