He looked nervous. He curled up the corners of his two hole cards, aces. He eased them back down on the table and scanned the other players. Nancy Pelosi had a stack of chips totaling $25 billion and he wanted all of them. No, he needed all of them. Desperately. The other three, all Japanese, sat expressionless behind their dark glasses. At every hand all they said was “Call”. No raise. No drama. Very cool. Very dangerous.
He looks again at the four cards on the table. Nothing to help him there. He needs another ace. He needs the ace he calls the Volt. Pelosi turns to him. “So, what’s your plan?” He swallows hard, trying hard not to show it and says, “All in,” and pushes his remaining chips into the center of the table. The dealer burns another card and then peels off the “river.” And we’ll be right back for the final outcome of tonight’s game.
GM on the Precipice
That must be how Rick Wagoner feels. It seems he’s betting everything on the Chevy Volt. If he draws that ace, he’s a hero. If not, he’s history. So what are his chances?
If that’s all he’s got, they’re pretty long odds. The Volt is not due to hit the showroom floor until 2010, and at a whopping $40,000 per copy. Not a bad price for a Cadillac, but for an untested electric car with a 40 mile range? That’s a tough sell. Even at that, the $40,000 might not be profitable, just break even. But, there will be a tax credit of $7,500 to help take the sting out of it.
Without Bankruptcy
Without a major revamping of their cost structure that can probably only be achieved through the bankruptcy courts, GM is still carrying $2,000 per vehicle in labor costs that its competition doesn’t have. And what about those three players to his right in the dark glasses, do you think they are standing pat? Although very low key, it is reported that Toyota, Nissan and Mitsubishi are all planning to introduce electric cars in the same time frame. If they do that and they also have the $2,000 per vehicle edge, it will be very bad for GM and any bailout will go down the drain.
The other factor is the way the Japanese do strategic planning. They typically do not look to just the next quarter. They are known for developing 50 and 100 year plans. That is not a typo. So if they introduce a vehicle they will do it for the long haul. Believe it or not the Toyota Prius has been on the market for seven years already. The Japanese are not afraid to introduce a pretty good model and then continuously improve it and if they believe the direction is right, they are willing to wait for the results. The Big Three, on the other hand tend to have a shorter planning horizon. Witness Ford’s announcement that it intended to build 250,000 hybrids and then did a market survey when gasoline was about $2.30 per gallon, and decided that they should not go forward. When gas prices took off they were caught flatfooted while Toyota was selling Priuses at a premium and they couldn’t make them fast enough.
New Administration, New Congress, New Energy Policy
Then there is the energy issue. Putting more and more electric cars on the road is a good idea and a way toward energy independence. However, the new administration and the incoming Democratic Congress want to kill the coal industry. Coal currently generates 49% of our country’s electricity and when it comes to coal reserves, the U.S. is to coal what Saudi Arabia is to oil. But the new incoming chairman of the House Energy committee, Henry Waxman of Beverly Hills, California, is more determined than ever to implement a green agenda and kill coal.
So what do you replace the coal with? Oil? Gas? Nuclear? On the campaign trail, I heard Barack Obama and Joe Biden mumble some things about nuclear being okay, but it was hardly a ringing endorsement. Do they think for a minute that wind or solar are anywhere near replacing coal? So, they actually plan to reduce our electric generating capacity by 49% and then not only replace it but grow it to be able to handle all these electric cars. Where’s that plan?
If you don’t have enough electricity, you can’t charge up your electric cars. If good old supply and demand does its usual thing, the price of electricity should skyrocket and I can tell you first hand that in New York, it’s not cheap right now. If electricity skyrockets, whatever manufacturing is left in New York and other rust belt areas will be pulling up stakes left and right and heading south. If that population follows the jobs, does that mean more votes for the red states and a shift in Congressional seats as well?
The Democrats better re-think that plan if they want to stay in power.
