Automobiles

Ford vs. GM and the Auto Bailout Experiment

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Public policy rarely offers opportunities for anything resembling a controlled experiment. But the auto bailout comes close to one. And President Obama should pause and ponder its results thus far before he makes the alleged post-bailout success of GM the centerpiece of his re-election campaign. 

Most people would agree that any reasonable definition of success for a company that has received a $65 billion-infusion in taxpayer money shouldn't just be whether it has stopped bleeding red ink for a few years. Heck, even Mike Tyson might have maintained a positive bank balance for a while after this kind of moolah. Success should be defined as whether the aid has positioned the company to compete successfully in the marketplace, something that I recall President Obama himself said when he forked over the money.

By this definition, compare the results of Ford and GM for the last quarter. Both are based in Detroit. They face similar taxation levels. Are saddled with similar labor union issues. But GM received a bailout and Ford didn't. Yet, according to a recent Wall Street Journal story:

  • GM made $1,962 on every vehicle it produced in North America during the first quarter of this year. Ford, by contrast, made $3,150, a third more per vehicle.
  • GM's North American operating profit rose 31% to $1.7 billion with margins improving to 7 % from 5.6% a year ago. Ford's profits, rose 16% to $2.1 billion, giving it a profit margin of 11.5 %.
  • GM's U.S. market share fell nearly two percentage points from a year ago, to 17.2% whereas Ford's fell about 0.8 to 16.8%.

In other words, Ford made $800 million more than GM despite the fact that it has a smaller market share and has major debt-service costs that GM doesn't because its bailout from Uncle Sam came in the form of equity, not a loan.

Why is Ford doing better than GM? Essentially, because it is far ahead of GM in reducing its global "platforms." This means that it'll be able to assemble more cars on fewer platforms, cutting its manufacturing costs and boosting its efficiency. This has allowed it to re-design its most profitable product, the gas-guzzling, greenhouse-gas emitting F-series pick up trucks that libs hate but American car drivers love. GM's redesign of its comparable products, GM's Silverado and GMC Sierra pickups, by contrast, is languishing.

But the good news is that the GM has made giant strides in perfecting the spontaneously combusting, Obama-pet Chevy Volt. So what if it has sold less than 8,000 units even though  buyers get a $7,500 tax break courtesy of Uncle Sam on their first Volt? Its sales are irrelevant, insists former GM products head Bob Lutz maintains. What matters – and what Volt's benighted critics are ignoring, as per Lutz– is that the Volt is the "most technologically advanced car on the planet."

Yeah, and so was the Telharmonium when it was built. Remember that one? No? I didn't think so.

I don't have a problem with technology for technology's sake or art for art's sake – but, for Pete's sake, let GM build its useless white elephants on its own dime.