Washington’s fuelish clowns ( The Michigan View 05.05.11)

Posted by hpayne on May 5, 2011

Washington miles-per-gallon regulations do not work. Market price signals do. The evidence? April car sales.

Since 2007, when George Bush (applauded by one Senator Barack Obama) signed into law a 40 percent increase in federal fuel mileage standards mandating — mandating! — that automakers sell more small cars that average 35 mpg, the mix of vehicles in the U.S. market has gone in exactly the opposite direction. As America climbed out of the Great Recession of 2009, sedans owned a 55 percent to 45 percent market share advantage over light trucks. By February of this year, that percentage had nearly flip-flopped with SUVs outselling sedans with 53 percent of the market; sedans accounted for 47 percent sales.

Then last month it flip-flopped again. What happened? More regulation? A 50 mpg mandate? Nope. Four-dollar-a-gallon gas happened.

“Rising fuel prices have led many to rethink their vehicle of choice,” said Don Johnson, GM veep for U.S. sales.

But wasn’t Washington correct in foreseeing higher gas prices and forcing companies like GM to build electric hybrids? Aren’t Obama, John Dingell, and Jennifer Granholm vindicated in calling these the cars of the future? Nope again.

Customers flocked to GM for smaller cars in April. But they weren’t hybrids and electrics. Indeed, sales of the Chevy Volt actually dropped. And its hybrid Chevy Malibu sedan sold — wait for it — five cars. Meanwhile, Chevy sold 24,000 — that’s thousand — carbon-burning, gas-sipping Malibu sedans. And it was the Chevy Cruze — the $40k Volt’s platform-mate that sells for HALF the price — that was the General’s star soldier, selling a healthy 25,000 units. More than the vaunted Toyota Corolla. Nearly even with the legendary Honda Civic.

It turns out that Obama’s Volt is a nice — if expensive — piece of window-dressing designed to game Washington edicts. Meanwhile, actual consumers want cheap, gas-powered sedans to help them battle rising pump prices. Better yet, GM can actually make money on the Cruze thanks to its massive cuts in Big Labor benefits that have slashed the Detroit giant’s labor overhead.

Before the landmark, Democrat-defying labor agreement of 2009, it made zero business sense for GM to invest in small cars because — with labor costs at a staggering $70 an hour — the company couldn’t make a dime on them. Why did GM depend on SUVs? Because only they made a profit on Planet UAW.

Those days are gone. Labor costs are a Toyota-esque $58 an hour. But. . .

But the other lesson of the April sales figures is that the world doesn’t stand still. The Detroit Three all posted double-digit sales gains in fuel-conscious April, led by GM at 27 percent. But they were far from the market leader.

That honor goes to South Korean makers Hyundai and Kia which saw a dazzling sales increase of 40 percent — their market share humming to 9.4 percent, just shy of Chrysler’s 10 percent and Honda’s 10.8. In other words, while the Detroit Three have been using the Japanese as the competitive benchmark, they aren’t the benchmark anymore.

With labor costs at a mere $40 an hour — 50 percent lower than GM and Toyota — Hyundai is churning out very profitable SUVs and small cars with non-union, Georgia workers. That profit not only makes Hyundais and Kias cheaper than anything the Detroit Three and Japan can produce — it means more money to shovel back into R&D to make quality cars like the Hyundai Elantra.

While GM and its Washington owners were patting themselves on the back for finally making a competitive small car, Hyundai has come out of nowhere to sell its Cruze-beater Elantra at a stunning 22,000 units in April.

With gas prices, labor costs, and the Asian maulers, GM has plenty of reasons to stay a lean, mean fighting machine. Washington would do best by keeping its fat head out of the ring.

 

 

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