It looks like GM is continuing to focus on the top line, sales, in deference to the bottom line, profits. Actually they don’t seem all that focused on the bottom line either, but that’s besides the point. We’ve described the lunacy of this phenomena before. Actually GM may now be pursuing an even more bizarre strategy.
GM’s leaders are not nuts, and yet to pour hundreds of
millions into a race to launch an electric car, the Chevy Volt,
guaranteed to lose money on every unit sold, begins to seem a peculiar
strategy for a company in dire liquidity straits. With each hectic advance in the development process,
the expected sticker price to consumers has gone up. At last leakage, GM is
saying now the Volt may need a sticker price of $45,000.
Seeing "GM" and "leaders" in the same sentence is a new one. So what are they thinking?
GM executives are not nuts. They justify the costs and
risks of the Volt as a way of changing GM’s image in the minds of
consumers and politicians. To commit a pun, the Volt is GM’s vehicle
for making a bailout of GM politically acceptable.
The company has already started signaling it expects
Washington to provide a whopping $7,000 tax credit to Volt purchasers.
In Europe and the U.S., under whatever fuel economy and emissions
regulations prevail, GM also expects special favoritism for the Volt.
The goal is to re-enact the flex-fuel hoax, in which GM receives extra
credit for making cars that can burn 85% ethanol, even if they never
see a drop of such fuel.
Let the arm-twisting begin.
CEO Rick Wagoner last week laid out the case to Barack Obama personally
for turning GM into a ward of the state, by way of direct and indirect
subsidies to support a transition to "alternative" fuel vehicles. GM
has done yeoman’s work getting its structural costs (i.e., labor) in
line, but shareholders should note that a big part of the company’s
turnaround gamble consists also of eliciting favor once again from
Washington after a period in which the domestic auto makers were
nothing but whipping boys on Capitol Hill.
Yes, it’s just too hard to focus inward to drive efficiencies by leveraging the knowledge and creativity of your employees. Why go to all that work when you can simply become a ward of the state?