Govt. Behind GM Push for Electric Cars?

I was a guest last night on Fox Business Network to talk about GM’s push for electric cars. Here is my post about the Chevy Volt “bait and switch” that I reference in the interview:Many reports have surfaced recently confirming the “bait and switch” strategy of General Motors whereby consumers are lured into showrooms to view the much-hyped Chevy Volt only to be switched to a Chevy Cruze. Edmunds’ Insideline quotes GM North American President, Mark Reuss, as stating that the Volt’s “technical halo” is a more important benefit to GM than sales of the vehicle itself. The article goes on to confirm that Reuss believes that production of a Cadillac version of the Volt will spur sales of conventional Caddy vehicles as well. None of the articles that I have read on the subject question the ethical issues of a corporation receiving taxpayer funds to produce “green” vehicles only to have that money go towards benefiting sales of conventional vehicles.

The cost to taxpayers on green vehicle production has been in the billions of dollars as grants and low interest loans have been issued in order to ramp up production of electric or hybrid vehicles, like the Chevy Volt. The promised return was that these vehicles would reduce greenhouse gases and save our planet from global warming while at the same time creating scores of green jobs. The conversion to electrified vehicles by the masses would also supposedly lessen America’s dependence on foreign oil. Now it seems that the green-based strategy at GM has more to do with raising sales of vehicles other than the ones taxpayers paid to produce.

GM has recently announced that it would not be adding a second shift to produce the Chevy Volt. So much for the claims that demand is exceeding the ability to manufacture the vehicles. If demand for the Volt was so strong, wouldn’t GM proceed with plans for a second shift? What about those green jobs the taxpayers were promised? GM continues to blame production constraints for low sales of the Volt, while at the same time they decide to limit that same production. And how honest is GM being with the numbers they are providing regarding available Volts for sale?

My search for new Volts on today revealed 3,014 vehicles advertised for sale nationwide. This is up from 1,287 vehicles listed when I searched last month. GM claims there are only hundreds of Volts at dealerships available for sale, due to demand exceeding supply. I believe that many states have laws regarding the marketing of motor vehicles that require dealerships to actually have the cars that are advertised in stock. If GM is telling the truth about low Volt availability, perhaps some state attorney generals should be looking into the possibility that GM dealerships are doing something illegal by advertising Volts that are not really for sale. Or GM can confirm the true numbers of Volts available for sale.

In other “something is rotten in Denmark” news, Consumer Reports has given the Volt a recommended rating. This story was quickly touted on multiple websites. Typically, a new vehicle without a long track record on reliability would not receive this recommendation. Of course, the Volt is anything but typical. Although the competing all-electric Nissan Leaf received a higher score on tests, the Leaf did not get a recommended rating. The reason? Even though the Leaf has sold almost twice as many vehicles as the Volt, there was not enough data on reliability for Consumers Reports to recommend the Leaf. How can the long term reliability of the Volt be rated when less than 4,000 have been sold to date?

The Chevy Volt’s divisive nature has more to do with the fact that taxpayers have been asked to pay for green initiatives that are having a poor record of return on investment than on the quality of the vehicle itself. I expect that there will be about one to three thousand consumers in any given month that would be willing to pay the high price for a Volt. The number would be much less if taxpayers weren’t subsidizing each sale with a $7,500 tax credit. To add insult to taxpayer injury, GM has stated that it is the “affluent” consumers that are benefiting from the credit. Should the wealthy really be getting $7,500 each for buying a $40,000 car that most of us can’t afford?

Sales of Chevy Volts to government agencies (whose GM purchases increased 26% in September) and crony corporation, GE, are also expected to ramp up. GM has set the bar so low during the first year that even an eventual low rate of monthly sales in the low thousands will be touted as a great success. The question now isn’t about whether or not consumers who purchase Chevy Volts are satisfied. It is about whether or not taxpayers should be paying billions of dollars to subsidize so-called green vehicles like the Volt, particularly if the money received by corporations like GM is going towards a strategy that attempts to bait consumers into showrooms only to increase sales of conventional vehicles. END POST

Here is a transcript of the interview itself:

Liz MacDonald: Washington’s pushing them. GM is making more of them. General Motors unveiling its all-electric Spark vehicle today. Now, it’s smaller than the Chevy Volt – the electric-gas hybrid that so far, you know what, not sparking a lot of interest on car lots. Former GM bondholder Mark Modica says it looks like the government is behind the wheel on this move. Mark, welcome. We really appreciate you coming on. Mark, first up, I want to lay it out for the viewer.

Mark Modica: Thank you.

Liz MacDonald: When GM was restructured, what happened to your bond investment in GM?

Mark Modica:  Well, we were basically subordinated to the more politically powerful UAW. Typically, bondholders would have been put at the head of the line but contract law was kind of trampled and we were put at the bottom of the list and more favored groups like the UAW got the majority of GM. I sold mine at a loss but you know, we’re moving on now and just watching GM and it seems like it’s being run as you had said as a government-run industry.

Liz MacDonald: GM says, look it, we want to be the greenest carmaker in the world. We want to unseat Toyota. We want to beat Nissan. We want to basically have the best green cars in the world. What’s wrong with that?

Mark Modica:  Well, it seems like that’s a political goal and not an economic goal. This is a publicly-traded company that should have obligations to its shareholders. These cars aren’t making money for the shareholders or for GM. They’re saying they want to compete with the Nissan Leaf. The car sells about a thousand cars a month. They should be competing with cars like the Ford Fusion or Hyundai Sonata which sell about twenty thousand a month. We’ve seen the Volt and that’s not selling a lot of vehicles. And worst of all, these cars are being produced at the expense of the taxpayer. They were given grants and low-interest loans from the Department of Energy to produce these cars. And on top of that, purchasers of the vehicles get seven thousand five hundred dollars in tax subsidies when each of these things are sold.

Liz MacDonald:  Mark isn’t there a fundamental problem with the electric cars and that is you could be driving around in a blizzard and all of a sudden, the battery goes out because the battery can be drained and it can go cold in a blizzard. Then what do you do? I know there’s maybe a gas backup with the Volt but with the, if an all electric vehicle comes out, I mean, would you want to buy it because of that?

Mark Modica:  Well, that’s one of the issues. The bottom line is the technology is just not there to make these things feasible without a lot of taxpayer subsidies. The government should just get out of the industry, let GM make cars that the consumers want and that are profitable. Trying to force these electric vehicles out there before neither the public is ready for them and the electric grid isn’t ready for them and they’re not going to sell a lot. Now, I wrote a piece today on the National Legal and Policy Center site…

Liz MacDonald:  Right.

Mark Modica: …talking about another thing that GM is doing with the Volt. They’re actually using the car to help sell Chevy Cruzes. So the taxpayer investment that went into producing the Volt with the promise of green jobs, saving the planet from global warming…

Liz MacDonald:  Right.

Mark Modica: …and lowering foreign fuel dependence, that money was spent to basically lure customers into showrooms to switch them to a Chevy Cruze. So the volt’s not selling and they’re selling the Chevy Cruze.

Liz MacDonald:  All right. Let’s hold on to that thought for a second. I want to quickly address though this issue about what you brought up quickly about the pressures being put on the electrical grid in this country which is already very fragile and also the issue that electricity is made from coal and that spews out a lot of pollution into the air…

Mark Modica: Absolutely.

Liz MacDonald:  …versus fossil fuels like oil and gas – just as much or more?

Mark Modica: Oh, absolutely. That seems to be something people aren’t paying attention to. On top of that, the lithium ion battery production and disposal is a problem itself. There has been studies that show that the Volt is not even as green as an internal combustion engine because of the battery, the lithium battery issue.

Liz MacDonald:  OK, Mark we’ve got to leave it there. Mark Modica, thank you so much. The former GM bondholdernot liking the GM push to be green. Appreciate it sir. Thank you so much for your time.

Mark Modica: Thanks a lot.

Mark Modica is an NLPC Associate Fellow.