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Is General Motors Headed Back to Square One?

Posted By Mike Brownfield On July 6, 2011 @ 12:30 pm In Economics | Comments Disabled

[1]

A glut of unsold trucks sits on General Motors dealers’ lots. Two auto plants in Indiana and Michigan stand idle [2], and it appears that the taxpayers aren’t out of the woods yet. GM still faces serious problems, being made worse by impending regulations.

The Detroit Free Press reports: [2]

“Supply of Silverados has ballooned to 6 1/2 months’ worth at the dealership, a figure [GM dealership manager Mark] Frost calls “a little scary.” The automaker, 33% owned by the U.S. after its 2009 bankruptcy, has 280,000 Silverado and GMC Sierra pickups on dealers’ lots around the country. If sales continue at June’s rate, that would be enough to last until November.

After GM’s truck inventory swelled to 122 days’ worth of average sales, the company said 100 to 110 would be normal going forward for such a large and complex line of vehicles, compared with 60 to 70 days for most models.”

Compare those numbers to those of Ford Motor Company—which has a 79-day surplus of trucks—and GM’s numbers from 2002 to 2010, which averaged 78 days. The outlook isn’t good, says [2] analyst Peter Nesvold:

It’s unbelievable that after this huge taxpayer bailout and the bankruptcy, that we’re right back to where we were,” said Nesvold, who has a “hold” rating on the stock. “There’s no credibility.” In a research note, he asked: “Is GM falling into old, bad habits?”

Meanwhile, the American taxpayers are left holding the bag. More from The Free Press [2]:

GM shares have declined 7.3% through Friday from their $33 initial public offering price in November. The U.S. Treasury Department, which still holds more than 500 million GM shares, is waiting until at least August for another stock sale, a person familiar with the planning said last month.

With the economic recovery continuing in low-gear, a rebound in truck sales might not be likely. And that’s more bad news for U.S. automakers, which depend on sales of trucks—as opposed to smaller vehicles—because of their higher profit margins. Chrysler recently enjoyed a boost in profit [3] just for that reason—its newly redesigned Jeep Grand Cherokee was a consumer hit.

The Obama Administration’s Environmental Protection Agency is about to make life even more difficult for automakers. It’s continuing a push for higher fuel economy standards in order to drive consumers to smaller vehicles—and that will cost consumers while leaving Chrysler, GM, and Ford twisting in the wind. Heritage’s Diane Katz explains [4]:

The stricter fuel-efficiency standards [5] require automakers to attain a fleet-wide average fuel economy level of 34.1 mpg [miles per gallon] by model year 2016 for passenger cars, light-duty trucks, and medium-duty passenger vehicles.… The re-engineering required for compliance will add $1,000 or more to the sticker price of passenger cars.

Those costs would soar even higher under a 62 mpg standard proposed for 2025, which would further drag down auto sales—leaving more vehicles sitting on lots and more workers sitting on the sidelines.


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

URL to article: http://blog.heritage.org/2011/07/06/is-general-motors-headed-back-to-square-one/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/GM-headquarters-10-04-071.jpg

[2] stand idle: http://www.freep.com/article/20110706/BUSINESS01/107060348/Lots-GM-trucks-lots

[3] boost in profit: http://content.usatoday.com/communities/driveon/post/2010/11/chrysler-profit-jeep-grand-cherokee-forecast/1

[4] explains: http://www.foundry.org/2011/03/15/the-epa-is-fueling-nonsense/

[5] fuel-efficiency standards: https://email.heritage.org/exchweb/bin/redir.asp?URL=http://www.foundry.org/?p=14863

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