Planet Gore

Government Motors’ Choice: Green Cars or Greenbacks?

Should it happen, the General Motors/Treasury proposal to give majority control of America’s biggest automaker to the federal government would put Washington in the awkward position of being both owner and regulator.
“At some point,” says Michigan economist Pat Anderson, “Legislators would realize that the only way they can make the company profitable is by making cars they don’t like.”
The quickest way for government to nurse a nationalized GM back to health is by playing to its strengths of manufacturing big cars and trucks. But standing in the way are the government’s own egregious CAFE laws which will force automakers by 2020 to make a vehicle fleet that averages 35 mpg — a mandate that drives up production costs (an estimated $85 billion) at the same time it forces automakers to manufacture cars that customers don’t necessarily want. Other perverse clauses in fuel mileage laws include the “two-fleet” rule that requires small cars be built in the U.S. to satisfy UAW demands — even as such cars could easily be manufactured more profitably abroad.
Anderson believes this untenable conflict will ultimately convince Treasury that Washington’s equity share must be short-lived.
However, there is a second scenario — that Congress will try to have it both ways. In their determination that GM make the “right” products, Democrats will offer more aid, effectively handicapping GM competitors such as Ford that must make CAFE-compliant fleets without government help.
Anderson again predicts that reality will forestall this scenario: American taxpayers are already showing themselves to be impatient with auto bailouts, never mind an endless gravy train. Still, the rapidly mounting complications of federal involvement in the auto industry is a reminder of why Washington should never have crossed the Rubicon in the first place.

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