Wagoner, Panic, & the Carpocalypse

Many feel it was almost as if the almighty god, Zeus, perched atop Mount Olympus had casted his angry hand upon the automotive industry on Sunday. The news, like a flash of lightening, shocked many here and around the world. How could General Motor’s 32 year veteran and CEO Rick Wagoner be stricken down without any warning? The even more shocking question, why was this done by our president? As the news of the Obama administration’s request for Wagoner’s resignation began to spread, so did these exaggerated allegations and analogies.

For instance, Michigan’s governor, Jennifer Granholm, called Wagoner a “sacrificial lamb,” a symbolic concession to public rage ordered by a president who had to look tough after being blindsided by the A.I.G. bonuses. All of the crisis aside, I’m finding its encompassing rhetoric to be very amusing. Many are completely lost and are looking at this in the wrong light. Instead of acknowledging the gravity of Wagoner’s mistakes and the necessity to remove him from his reign over GM, many are too caught up in flaming the president for his administration’s decision to request that a CEO should step down from a company, which it, nonetheless, almost destroyed.

Of the many things which bother me the most, none compares to the sympathy which Rick Wagoner has been receiving lately. After going through 17.4 billion dollars of federal aid approved by the Bush Administration, Wagoner came back to Washington and requested another 16.6 billion more. Though many thought the Obama Administration should refuse this second request, the president decided to hear them out. Pledging his allegiance to the auto industry, the president made it clear that he would do everything in his power to help them because he felt it was in America’s best interest that they survive.

After witnessing the lack of direction of both General Motors’ and Chrysler’s with the spending of their previous loan, along with their inability to adapt with foreign competitors, the president decided to be cautious with any new loan to the auto industry. Rightfully so, he decided to have the automakers present a viability plan that any new loan would be contingent on. The president gave them the deadline- the end of March, and appointed an auto task force to oversee that they restructure. This was Wagoner’s chance to prove that he still could turn things around.

Of all of Wagoner’s flaws, his biggest is his lack in tough leadership. After his ineffectiveness to negotiate any worthy concessions with the United Auto Worker’s union (UAW) in the past, it was prudent that he did so this time around. However, Wagoner refused to accept this problem. One expert told CBS News correspondent Tony Guida, that Wagoner, as recently as January, did not agree that the UAW contract was too rich. Ford on the other hand, understanding the necessity of these concessions was able to reach an agreement with the UAW in February. Wagoner justification, “Ford’s agreement wouldn’t have met GM’s needs.” Agreed, but why are GM’s needs greater than Fords’? This question can be answered by understanding the mistakes of GM management under Wagoner’s leadership.

Many of GM of problems went unaddressed. Although some of them were inherited by Wagoner, he never did much to correct it. In contrast to Ford, which only has 3 full line divisions, GM has 8. Ford understood its market share and refused to become a bloated company unlike GM, which poured its money into developing brands that destructively duplicated already existing models. Nothing changed under Wagoner’s term. Instead Wagoner became known as the guy who killed GMs electric car the EV1. He was also was known as the guy who became dependent on gas guzzling trucks and SUVs, surrendering its once profitable car market to the Japanese.

Where’s the leadership? Since 2004, GM under Wagoner has lost $84 billion, has seen its stock plummet from $70 to under $3, and has dropped its market share from 33% to 18%. Nonetheless, it still cannot come up with an acceptable viability plan for its future. President Obama said, “He will not tolerate failure,” and means it. And another thing, he himself did not fire Rick Wagoner; his administration requested that he resign. It was Wagoner himself who made the choice to step down not before negotiating a $20 million severance package from the company which he helped bring to its knees.

Change in such a substantial industry is very tough to accomplish. General Motors would not have been able to make these decisions on their own. The status quo and the bureaucracy in place would not have allowed for it. The auto task force knew this and was justified in removing GM’s CEO and some of its board members. I have always believed that a change of corporate culture is necessary for the auto industry. Please do not spite the government’s attempt to do what it needs to do to ensure our investment of auto industry is protected. For those who believe that Wall Street is off the hook, I would pay close attention in the future, because this administration hears what you are saying. Lastly, put your fears to rest and have faith in the American auto industry. It is clear that the Obama administration is committed to it. Through bankruptcy or not, consumers and suppliers will be protected, and automakers will emerge better and stronger.


http://www.nytimes.com/2009/04/05/opinion/05rich.html

http://www.nationalpost.com/cars/story.html?id=1486200&p=1

http://www.news.com.au/heraldsun/story/0,21985,25295720-664,00.html

http://www.nationalpost.com/cars/story.html?id=1486200


http://www.cbsnews.com/stories/2009/03/29/business/main4901201.shtml

http://www.autonews.com/article/20090330/COPY/303309918/1178

http://online.wsj.com/article/SB123540074568747921.html

http://www.nashvillecitypaper.com/news.php?viewStory=66893

Gas Survey

What is the most you would pay for gas? For instance, what if gas prices rose to $5, to $7, or even $10+ a gallon? Would you still use your car as much as you do now or would you look for any other alternative possible for transportation?

I’ve always wondered what would be the breaking point for Americans to start abandoning their cars. No, I am not wishing this or advocating this on our country. However, I do want entertain this idea for a variety of reasons.

For example, it is interesting to note that the US finds its ranking in the least expensive bracket for their average of gas prices. “Out of 155 countries surveyed, U.S. gas prices were the 45th cheapest, according to a recent study from AIRINC, a research firm that tracks cost of living data- CNN.” Nonetheless, the US is ranked number 1 in oil consumption, consuming 20,680,000 barrels of oil a day (Nationmaster-2007 statistics).

These shocking numbers drive one to seek for more answers. The main one being, “what is reasoning behind the disparity of gas prices from country to country? Specifically, why does a country such as Venezuela charge 12 cents for a gallon opposed to the Netherlands which charges up to an all time high of $10 a gallon?

Differing gasoline prices are a reflection crude oil prices, processing and distribution costs, local demand, the strength of local currencies, local taxation, and the availability of local sources of gasoline (supply)-Wikipedia. Particularly, the variation in prices often comes from whether or not gas is taxed or subsidized by ones government.

Typically, gas is heavily taxed in places where it is less abundant or nonexistent as a natural resource. Furthermore, heavy gas taxes are also frequently levied to support strong social programs such as those which are plentiful among many nations of throughout the European Union. For instance, unlike the US many of these countries use funds acquired from gas taxes to help finance education and health care for their citizens.

On the other hand, countries which subsidize gas are usually those which have a large surplus due to it being among some of their primary resources. Oil rich countries such as Venezuela, Iran, Saudi Arabia, Indonesia, Egypt, Malaysia, and Mexico are among the few which subsidize the price of gasoline. Their cheap prices are a reflection of this. However, subsidizing gas has often been argued that it cripples its citizens and nevertheless, is not helping the environment in any fashion. Venezuela for example, is facing a rising cost in its national debt due to the money it loses on subsidizing its gas. “Venezuela is paying a price for cheap gasoline. State oil company Petróleos de Venezuela is footing an $11 billion a year bill for underwriting and subsidizing the fuel. That's nearly double its 2007 net income of $6.27 billion-Business Week.” Furthermore, now that Venezuela is moving toward socialism, how else are they going to afford any social programs to help their citizens? Many think that they should start subsidizing less and start exporting more.

Still, the question remains. How is the US getting away with such low gasoline prices? No, they don’t have national health care but this new administration wants one. They also don’t pay as much as Europe for their education, but still are continuing to cut it around the country. Even though the US has some oil reserves of its own they are starting to import it more and more as time goes by. Finally and most importantly, the US is largest consumer of oil in the world. So what gives?

One thing is certain; these prices are going to change in the future, whether you like it not. As the number one consumer of fuel, the US cannot remain out of balance with the rest of the world for very long. Besides, this amount of consumption is no good for the environment. Eventually, the cheap price we pay for is going to hurt us in the long run.

For the moment, we are already starting to see some of its effects. For one, with cheap gas prices automakers have no motivation to producing anything that is fuel efficient or environmentally friendly. Consumers also have no motivation to stay away from big hunky gas chugging polluting SUVs and trucks. March’s Motor Trend Magazine’s article describes this trend in its article, Prius or Pickups. They say that with gas prices down consumers are going back in full force to purchasing SUVs again.

So, what do you think? My last post described how a strong national policy with emission standards is one way of starting a change toward the development and purchasing of better cars. Is raising gas taxes or Europeanizing the US another solution? Proponents such as Democrats Al Gore and House Representative John Dingell suggest that higher gas taxes should be enforced through a carbon tax:

“A carbon tax is a form of pollution tax. It levies a fee on the production, distribution or use of fossil fuels based on how much carbon their combustion emits. The government sets a price per ton on carbon, then translates it into a tax on electricity, natural gas or oil. Because the tax makes using dirty fuels more expensive, it encourages utilities, businesses and individuals to reduce consumption and increase energy efficiency. Carbon tax also makes alternative energy more cost-competitive with cheaper, polluting fuels like coal, natural gas and oil- Howstuffworks.”

This wouldn’t raise gas prices to a European standard overnight. According to Dingell’s plan, it would be progressive, slowly raising taxes in little increments annually. Another solution that is favored by politicians is a cap and trade scheme:

“Cap-and-trade schemes are the most popular way to regulate carbon dioxide (CO2) and other emissions. The scheme's governing body begins by setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member firms that do not have enough allowances to cover their emissions must either make reductions or buy another firm's spare credits. Members with extra allowances can sell them or bank them for future use. Cap-and-trade schemes can be either mandatory or voluntary- Howstuffworks.”

Again, what do you think? Are either of these resolutions viable for you and the automotive industry? Will it be what the US needs to push itself toward the next generation of technology and a clean environment? Or do you have another answer? Unlike many of my views on US policy and the automotive industry I cannot make up my mind on this one. For the moment, I am enjoying gas prices too much at what they are right now to be able decide the next move on this one. I need your help, because I know sooner or later this way of living will not last.

US. Gas Prices Vs. Europe



US. Gas Prices and Tax Differentials Vs. the World (Click to enlarge)



Wikipedia Numbers:

Country/Territory
US$/gal

Venezuela (Caracas)
0.19
Turkmenistan
0.3
Nigeria (Lagos)
0.38
Iran
0.42
Saudi Arabia (Riyadh)
0.45
Kuwait (Kuwait City)
0.79
Qatar (Doha)
0.83
Bahrain (Manama)
1.02
Egypt (Cairo)
1.21
UAE
1.4
Brunei
1.48
Trinidad and Tobago
1.82
Mexico (Mexico City)
2.35
Indonesia
2.46
North Korea
2.69
Malaysia
3.18
China
3.94
Russia (Moscow)
3.97
Pakistan
4.01
Colombia
4.05
Honduras
4.05
United States
4.06
Thailand
4.58
Philippines (Cebu)
4.62
South Africa
4.66
Chile
4.81
Ukraine
5.03
India (NOIDA)
5.15
Canada
5.49
Sri Lanka
5.53
Australia
5.6
Dominican Republic
5.72
Brazil (São Paulo)
6.02
Japan
6.06
Singapore
6.06
Uruguay (Montevideo)
6.06
New Zealand
6.13
Estonia
6.78
Romania (Bucharest)
7.0
Cyprus
7.08
Slovenia
7.08
Switzerland (Zurich)
7.12
Croatia
7.38
Greece
7.38
Guatemala
7.38
South Korea
7.38
Hungary
7.51
Poland (Krakow)
7.8
Israel
7.95
France
8.06
Spain (Madrid)
8.1
Hong Kong
8.33
Monaco
8.33
Belgium (Brussels)
8.44
Iceland
8.52
Sweden
8.71
United Kingdom
8.74
Italy
8.78
Portugal
8.78
Finland
8.9
Germany
9.2
Denmark (Copenhagen)
9.31
Eritrea
9.58
Netherlands
10.11
Turkey
10.14
Norway (Oslo)
10.37
Sierra Leone
18.43



For a very comprehensive look at world numbers check this out Also look at each map to see which countries subsidize or tax gasoline

(Note to convert to gallon price- Multiply liter price by .03785412)

California Secedes from the Union

Hey California I have idea… Why don’t you become the capital of the United States? Or even better, why don’t we change our country’s name to the United States of California? That way when you impose your own emissions regime over the rest the country, you won’t look so bad. Though regulating your state’s auto emission standards may look like a good idea on paper, it will not make the changes you are hoping for and it will further damage the economy of the rest of the country.

In case one is unfamiliar with these developments, this whole debate erupted when the Bush administration initially rejected California’s waiver to become exempt from the federal emissions standard in 2007. After this happened democrats began rallying back, calling for Bush’s head. During Obama’s campaign he pledged to overturn the decision that denied the state’s waiver. However, Obama hasn’t quite lived up to his promise yet, but nonetheless has brought the issue back on the table.

On January 26, 2009 President Obama signed a Presidential Memorandum directing EPA to assess whether denial of the waiver based on California's application was appropriate in light of the Clear Air Act. On March 5th a public hearing was held to begin this discussion.

The stage is set, but the plot still has not to be determined. The hearing was just the beginning. The public has until April 6th to continue to submit their views in writing to the EPA. The EPA will consider written comments submitted during the comment period with the same weight as oral comments presented during the public hearing.

All the same, I along with the public am confused of how this type of state regulation is going to do any good for our country at this time. Yes, I understand the message that California is trying to send. However, a message of this nature should not be divided amongst states. If we really want to push for an environmental change than we must do it as a nation united not divided. During the public hearing, Democratic Senator Carl Levin argued the need for a single national standard.

“If we take advantage of the unique opportunity to bring these efforts together, we can have a strong national policy that incorporates technology innovation into the vehicles sold in the U.S. and that contributes to reducing our greenhouse gas emissions globally. The standard should be based on science and technological feasibility, and it should be written in a way that is non-discriminatory, i.e., by applying the same standard for similar size and weight vehicles regardless of manufacturer. This approach would take advantage of significant new advanced technologies that have the potential to transform the way in which people drive and that offer enormous potential to increase fuel efficiency and reduce greenhouse gas emissions”

Yes, we should get tougher on the automotive companies to produce more energy efficient cars. In many ways we are starting to. Consequently, state regulation is going to have very ill effects on the industry as a whole. It will split up auto production by the state’s differing policies and will complicate manufacturing at a time when they cannot afford any more problems. Senator Levin explains, “Auto manufacturers need predictability, stability, and adequate lead-time to meet new standards.” So, why should we further jeopardize the tax dollars that were already invested in the auto industry? If we want to combat global warming and green house gasses then we should do it in a way that is going to push automakers toward innovation but not break their backs at the same time.

If this waiver is passed it will create a fascist auto market in California. Dealers will have to pay a larger premium for their specialty cars, which will fall on to the consumer. Sales will drop even further and consumers will have less of a demand to purchase a new car. Though today’s cars are already improving in their emission technology, Californians will not want to pay the price of a state regulated car. It will have a counter-effect on pollution because California’s population will be tempted to keep their older cars longer because they will be exempted from the new laws.

In addition, California’s admission of the uniqueness of their situation brings up another interesting point. This shows that it is not just the automaker’s fault for the troubles they face. Transportation, infrastructure, and population density problems are among the many city flaws that contribute to California’s diminishing air quality. Thus, it is not right that they mandate changes that others have to make excluding while themselves away from responsibility. California needs to step up and contribute their own funds and planning to begin this resolution. For example, they could invest in the production of their own efficient cars or invest in research for the automakers. They could also fund more public transportation works that alleviate the demand for as many cars in California cities. Nevertheless, it is not their job to decide how cars are made. This is up to the government.

So what does the future hold for California and its cars? Luckily, the government is examining the opinions of the public. Hopefully, both realize the implications of these decisions. As Eric Peters of the American Spectator put it best, this will only “slam shut and nail down the coffin lid on the U.S. auto industry.”