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Automaker Bailout Sold on Empty Promises

Posted By Nicolas Loris On November 12, 2009 @ 11:37 am In Economics | Comments Disabled

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 [1]:

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 [2]“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 [2]“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 [2], 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 [3],

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.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/11/12/automaker-bailout-sold-on-empty-promises/

URLs in this post:

[1] reports: http://content.usatoday.com/communities/driveon/post/2009/11/620001133/1

[2] believes that : http://www.reuters.com/article/GCA-GreenBusiness/idUSTRE5A605N20091107?pageNumber=1&virtualBrandChannel=11604

[3] writes: http://www.washingtontimes.com/news/2009/apr/03/the-benefits-of-failure/

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