Thoughts on the GM bailout proposal

This essay goes in favor of a bailout, on a few principles:

• It's a loan.  The Chrysler bailout in the 1980s was paid back.
• The credit crisis means that GM could probably not do Chapter 11 (reorganization bankruptcy) and would instead have to do Chapter 7 (liquidation).  
• That means as many as a million jobs lost in manufacturing and supplier stores.  And these are good jobs with health benefits.
  
• The Big 3 are retooling and learning the lessons, improving efficiency, renegotiating with unions, and building more fuel efficient cars.

A bailout isn't the worst idea ever, but there should be some fairly strong guarantees about the direction the industry goes if they get a handout.

Detroit: needs a restructure, not a bailout

President-elect Obama has proposed a bailout for Detroit auto firms, but this proposal reeks of political favor rather than rational economic policy.  From Tom Friedman's column on the proposed bailout:

Bob Lutz, G.M.’s vice chairman...has been quoted as saying that hybrids like the Toyota Prius “make no economic sense.” And, in February, D Magazine of Dallas quoted him as saying that global warming “is a total crock of [expletive].”

Is there any question as to why an industry led by these idiots is sinking in a down economy with gas prices having been higher?  Oh, there's the health care thing, but Friedman has a thought on that:

please, spare me the alligator tears about G.M.’s health care costs. Sure, they are outrageous. “But then why did G.M. refuse to lift a finger to support a national health care program when Hillary Clinton was pushing for it?” asks Dan Becker, a top environmental lobbyist.

It's not just the car companies themselves, their Congressional representatives have done them an ill turn, as well.

The blame for this travesty not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom, year after year, voted however the Detroit automakers and unions instructed them to vote. That shielded General Motors, Ford and Chrysler from environmental concerns, mileage concerns and the full impact of global competition that could have forced Detroit to adapt long ago.

 In other words, we should finally show them the tough love, or we'll be doing this all over again. 

“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”

Given this advice, I think the companies (and unions) are likely to go for bankruptcy instead.  That's lousy, too, because either way there are a lot of good, union jobs going down the toilet.  But I'm not convinced there's any way to save the car companies from themselves, in a fashion that would prevent this kind of bailout again.

The SUV is dead

Gas is $4 a gallon and the SUV is dead.

Industry watchers predicted sales of passenger cars would surpass those of trucks within in a couple of years. Instead, it happened almost overnight...Need more proof the SUV is a goner? Ford's venerable F150 pickup ended its 17-year-run as the best-selling vehicle in America last month, dethroned by the Honda Civic and three other Japanese sedans.

Good riddance.

Thought experiment: replacing gas with solar power

No, not rooftop panels for your Prius, but using a lot of solar panels to make electricity to drive electric cars. Robert Rapier's analysis tries to uncover how much solar it would take to supplant gasoline (if we had the battery technology to drive on electricity only - we may, actually - the GM EV-1 got 75-150 miles per charge, more than enough to commute on).

How much land area do we need for PV panels? 36 x 36 miles.

How much would 444,000 MW of solar PV cost? $1.8 billion
(if you believe the price Southern California Edison is forecasting for their upcoming solar project). Even at double the cost, that's less than 0.1% of the federal budget.

Plug-in hybrids can reduce pollution, too

The tireless folks at Energista have struck energy information gold again, reviewing two new reports at the Minnesota Department of Commerce. The more interesting (to me) is the report analyzing the air pollution impact of converting Minnesota's vehicle fleet to plug-in hybrid electric vehicles (PHEVs).

PHEVs are an existing-technology route to gaining oil independence by shifting fuel use to electricity. When combined with a flexible fuel engine capable of using E85 or biodiesel, a car could get over 100 miles per gallon of fuel and more than 500 miles per gallon of gasoline.

I examined this technology in a past post and concluded that for $170 billion, the United States could achieve oil independence in two years, assuming a price premium of $5000 for a hybrid engine and $100 to make it flex-fuel compatible.

The Minnesota report shows that for almost all criteria air pollutants, a fleet of PHEVs would reduce pollution compared to regular cars (the exception being sulfur dioxide, due to most Minnesota electricity coming from coal). However, with Minnesota already committed to 25% renewable electricity by 2025, these figures can only improve.

Your car's little black box

That little black box on airplanes has become part of popular lexicon and an invaluable tool for crash and accident investigators to improve the safety of air travel. But what about the little black box in your car?

The Goal - Better Crash Data
The Wall Street Journal has a story - "Will Your Automobile Become a Tattle-Tale?" - on the effort by General Motors to pioneer crash data technology in cars and to require cars to contain it in the near future. In addition to the existing OnStar technology, which can call 911 when the car's airbag deploys, GM's new crash detection system will record

"the direction of the impact, whether the car rolled over, the "delta V," or the change in speed, and other data."

GM is going to work with (and pay for) the Centers for Disease Control to determine how best to transmit that information to emergency services personnel on the scene of an accident. A high-speed side impact, for example, might suggest internal injuries that aren't immediately apparent.

The Effect - Tracking to Tailor Insurance Rates
Of course, once the car becomes a carrier of such data, other interested parties come knocking: insurers. In Europe, drivers can have a satellite tracking system installed in their cars and receive discounts for avoiding geographic areas and times of day with high accident rates. Canadian insurance companies have a similar scheme, but it also tracks vehicle speed, acceleration, and braking.

The Consequences?
And as we've learned with Social Security numbers, creating more data about people tends to lead far beyond the initial intent. So is it a good idea? Are better black boxes a boon to injured drivers? A great way to lower insurance rates? A nice piece of evidence that contradicts your alibi on the night of the 24th?

Hybrids may save the environment, but not your pocketbook

The Omninerd has a thorough analysis of the economics of hybrid cars and concludes that for overall savings, it's still far more economical to drive a conventional high efficiency vehicle like a Toyota Corolla than a "gas sipping" hybrid Prius. Those who also employ an environmental consideration in their purchasing decision may be willing to pay a premium for lower overall gas consumption, but saving the Earth is not equal to saving money in this case.