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  • Automaker Bailout Sold on Empty Promises

    Have an idea but strapped for cash? Not sure if the idea is going to pan out? That’s all right, just ask the government for a few billion dollars. That’s what the automakers did. USA Today reports:

    If you believed all the talk from Chrysler about how our tax dollars would help finance its fast-track electric-vehicle future, you’re in for a big disappointment.

    Chrysler has disbanded the engineering team that was trying to bring three electric models to market as a rush job, Automotive News reports today. Chrysler cited its devotion to electric vehicles as one of the key reasons why the Obama administration and Congress needed to give it $12.5 billion in bailout money, the News points out.”

    No one, except for the government, expected the transition from the internal combustion engine to an electric battery to occur overnight, but did anyone expect the plans for the electric car to fail this quickly? As wasteful and frustrating as this is, it’s not entirely surprising and could even be a blessing in disguise.

    The decision to shift its resources, made under Fiat, is an economic one. Fiat’s CEO Sergio Marchionne said that electric vehicles will only comprise 1-2 percent of the company’s sales by 2014 and believes that “until the (battery) storage gets resolved, I think electric vehicles are going to struggle.”

    When Chrysler made their sales pitch for bailout money last September, the executives asserted that the company was developing three electric vehicles and one model would be on the market by 2010. In August, The Department of Energy gave Chrysler $70 million in grants to “develop a test fleet of 220 hybrid pickup trucks and minivans,” but those plans have since been scrapped by Fiat.

    Using subsidies to make electric vehicles that unprofitable devotes resources away from investment in resources that could be much more profitable and add more value to the economy. Even within the company, Fiat recognized this, replacing its team of electric vehicle engineers with a more traditional team.

    Instead of subsidizing cars no on wants to buy, why not return the taxpayer’s dollars and let the managers and business leaders of these companies determine what consumers want rather than artificially-forced decisions from the government. Ideas fail and succeed every day. In the business world, the good are rewarded with profits and bad business decisions are punished with losses. George Mason Economist Pete Leeson writes,

    Profits and losses do for producers what traffic signals do for drivers. They tell them when to “go,” “slow down” and “stop” their productive activities. By communicating which resource combinations consumers value most and which they don’t, profits and losses direct “economic traffic,” informing producers how to produce.

    If government prevents ineffective producers from failing, the red light on the “economic traffic signal” stops working. Production continues and resources flow when they should halt, destroying wealth instead of creating it.”

    By scrapping the electric vehicle idea, at least for now, maybe Fiat is signaling they’re more interested in profits than making uncompetitive products and continually relying on the government for help. Maybe the electric vehicle will eventually be an economic alternative to the traditional engine that earns car manufacturers a profit. If and when that time comes, they won’t need government handouts. For now, they should do the right thing and return the money to the taxpayer.

    Posted in Economics [slideshow_deploy]

    10 Responses to Automaker Bailout Sold on Empty Promises

    1. Leon, Durango, CO says:

      Good point, but there is no FREE Enterprise in America. All else being equal, you can argue that Americans will want Hybrids, their projections can be absolutely wrong. But, isn't it FRAUD to take money for projects, then cancel them on speculation. Fiat got bailed out, lied about their intentions and laugh all the way to the bank.

      The whole world is laughing at us. Get paid, then don't do any work. Easy money, son, Obama Money.

    2. Bradley A. Hajost says:

      From 1899-1906, DR. Ferdinand Porsche developed and perfected a functional electric/petrol hybrid automobile for the Lohner company hdqrd. in Vienna, Austria. It had two electric motors powering each of the two front wheels and was capable of traveling at a top speed of 45mph! Not bad for that early period of developement for the automobile. Unfortunately, cheap and plentiful crude oil put an end to further developement of the electric car after the the first decade of the 20th century. Now, we're really having to pay for our short sightedness and we're saddled with the burden of having to play "catch up" for all those decades of missed opportunities for conducting critically essential research. The day, we figure out how to produce considerably more efficient battery technology can't come soon enough!

    3. Jared, Texas says:

      Two automakers that had billions injected into their finances, and they still can't turn a profit.

      And they wonder why we can't swallow the health care bill…..

      amazing.

    4. Pingback: Taxpayers Were Lied To In Order to Secure Chrysler Bailout : Washington Memo

    5. Ross, North Carolina says:

      That in a nutshell is the problem with government mandates. They interfere with the far more efficient marketplace. We may find that batteries cannot be made more efficient (at a low enough cost). Chemical reactions power batteries and these reactions have been understood for many decades. Tweaking those reactions has helped, but we are still up against fundamental chemistry. I could foresee that hydrogen powered vehicles would (should?) leapfrog over lithium based batteries within a decade or two. Other than mandating safety requirements, government should stay out of the marketplace, and let consumers decide by voting with their hard earned dollars.

    6. Frank, Minneapolis says:

      The Jeep brand is probably the only division at Chrysler worth saving. The markets should have dictated Chrysler's fate. It is hard to swallow that we did bail them out and yet they still build cars fewer people want. Now that the company is owned by government, I'm less inclined to buy any of their products, including Jeeps.

    7. Michael L, Toronto C says:

      I think you have it all wrong. Consolidation of engineering forces is the intent. The electric vehicle market has yet to be established from an infrastructure perspective as well as a viability perspective. There are companies dedicated to the projects that are further ahead in development which would offer better alternatives to the likes of Chrysler if need be. Multi-Air systems are effective and proven, giving Fiat/Chrysler the distinctive advantage that most consumers will accept. This 'Plug and Play', or 'Use' in this case, doesn't quite fit the bill yet. Give them time and you will be pleasantly surprised of the outcome.

      F.I.A.T., 'For I Am Trustworthy'!

    8. What a waste... says:

      Of course… Producing EV's are not ( nor have they ever been ) in their interests. That money should have gone to all the startups who's sole purpose is to BUILD ELECTRIC VEHICLES. Not the top 3 Clown companies.

      I mean… the Goss132 company is doing better than expected with less than 1% of any money ever from a bail-out. Their Goss132 Coupe looks great!! Under 30K are you serious?? I'm totally on board.

      Check this out

      http://shelly724.blogspot.com/2009/11/goss132-ima

    9. Roger S., Ma. says:

      The future is strategic, the present is tactical.

      Long term viability depends on having the right angle on both in such a way that they "feed" one another instead of feeding on each other.

      Where is Lee Iacocca when we need him?

      Or someone like him?

      That's what "leadership" is really about.

      Any like him left out there?

    10. William says:

      Oil a sustainable resource? Read this very interesting article in World Net Daily, if you think we're going to run out of oil any time soon. If this got nearly as much press as the theory of the greenhouse effect, we wouldn't be in the mess we're in now. People are being badly misled.
      http://www.wnd.com/news/article.asp?ARTICLE_ID=38

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