Free Markets, Free People
Here’s how markets work. From Toyota:
It said today it will not release its proposed mass-market mini e-car, the eQ. The reason: there’s no demand for it, not while battery technology is failing to provide comparable range to a tank of petrol. The natural gas boom in the US has seen prices of the fuel plummet, in turn reducing the cost of electricity generated by burning it. The Japanese car maker said today it will release 21 hybrid gas-electric models in its line-up by 2015.
“The current capabilities of electric vehicles do not meet society’s needs, whether it may be the distance the cars can run, or the costs, or how it takes a long time to charge,” said, Uchiyamada, who spearheaded Toyota’s development of the Prius hybrid in the 1990s.
Here’s the market not working because of government intrusion (and ownership):
Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts.
Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce.
It currently costs GM “at least” $75,000 to build the Volt, including development costs, Munro said. That’s nearly twice the base price of the Volt before a $7,500 federal tax credit provided as part ofPresident Barack Obama‘s green energy policy.
A pity these things have to be continually pointed out. But, of course, it won’t stop those who want government to decide what we should be driving instead of consumers and think subsidies will foster that desired behavior.
Two non-partisan government agencies — the Congressional Budget Office in Washington, D.C. and Parliament’s Select Transport Committee — conclude that during the next decade at least, the giveaways will have little impact on sales of plug-in hybrid and all-electric vehicles, or on gasoline consumption and greenhouse-gas emissions. Their main beneficiaries: affluent purchasers who’d buy the vehicles anyway.
“… during the next decade at least …?” Love that caveat, don’t you? They never work if it is something consumers don’t want. See current example for proof. In the case of the market, it’s moved on … and much faster than government can react. As usual, government has backed a loser.
The frenzy over shale gas deep under Ohio and other states has the makings of a different kind of rush on the nation’s highways. Businesses, cities, metropolitan transit systems and even school districts across the nation are edging toward a switch from diesel and gasoline to natural gas. Converting cars and light trucks to use either gasoline or natural gas is expensive. And heavy trucks designed specifically for natural gas also cost more than conventional diesels. But at current prices, engines that can run on natural gas cut fuel bills in half or better.
And GM has the Volt. You have to laugh at the fact that the central planners invariably always get it wrong.
You’d have think we’d have learned that by now, wouldn’t you?
But open the same amount of federal land to fossil fuel exploration and exploitation?
The Obama administration will open public lands in six Western states to more solar projects as part of a solar energy road map it publicized Tuesday.
The Interior Department set aside 285,000 acres in Arizona, California, Colorado, Nevada, New Mexico and Utah for the initiative. Firms can apply for waivers to develop projects on an additional 19 million acres.
Imagine 19 million acres covered in solar installations. That won’t have any environmental impact on eco-systems, will it?
And if it does, well, they’ll just “waiver” them, because, you know, this is a favored industry. Regulation? Yeah, most likely not at all as stringent as those applied to those old “dirty” fuels.
Which brings us to an ironic point. Remember in years past when we fought against the dumping of government subsidized products from other countries on our shores.
Guess what? We’re now the target for much the same argument:
China’s Commerce Ministry said Friday that it is investigating possible solar equipment subsidies by the U.S. and South Korea and their impact on Chinese manufacturers, widening a trade spat at a time of oversupply and weakening demand for solar power equipment.
The ministry has launched an anti-dumping and anti-subsidy probe into polysilicon imports from the U.S., as well as an anti-dumping probe into imports from South Korea, it said in separate statements on its website.
Yes I know, China is as hypocritical as they come, but, apparently, so are we.
It’s called crony capitalism (or as mentioned previously, venture socialism). Again government, using your money, is subsidizing an industry that can’t make it alone because in reality there’s no market demand for their product. By subsidizing them, government is socializing their losses. This administration has heavily subsidized the domestic solar industry (and even then we see industry business failures right and left) and is forcing a product on the market to satisfy a political agenda even when alternate and more viable (but unfavored) products are available much more cheaply.
The administration has since approved 17 major solar projects on public lands producing about 6,000 megawatts of power, Salazar said.
“We have made huge strides in the last three-and-a-half years, but we realize we are only at the beginning of this effort and that there’s a lot more to do,” Salazar said. “I have no doubt that the United States will lead the world in solar energy development.”
My guess is those 17 solar projects will end up on more acreage than has been approved by the administration for oil exploration.
“Huge strides”? Not in any market sense. What he’s talking about is the administration making “huge strides” in forcing a product into a market that is not in demand by that market, ignoring the environmental impact of such projects (even while being more restrictive on fossil fuel development) and generally playing the “central planning” game. Government knows better than you and the markets about what we need, or didn’t you know that?
Sort of reminds me of those new light bulbs they forced on us which are now being found to cause skin damage due to UV light leakage.
But hey, I’m just a prole, what do I know?
Oh, and here’s where you have to read between the lines. Note the spin involved in this sentence:
The areas selected in the plan minimize “resource conflict,” Salazar noted, meaning they avoid regions where solar development would edge out exploration for other natural resources.
What that also means is the administration has successfully exempted up to 19 million acres of federal land from fossil fuel exploration.
The plan released Tuesday would expedite solar project approval while cutting some up-front costs for developers, Steve Black, counsel to the Interior Department, said Tuesday.
Translation: The favored industry will get favored treatment all paid for by your dollars (or borrowed ones, most likely).
Environmental groups? Forget about it. You haven’t a chance on this one. You’’ll be steamrolled just like the rest of the country. Save your money and effort for something you can tie up and delay – anything to do with fossil fuels. You know, the life blood of our commerce?
Yeah, concentrate there. The administration will be glad to help.
And there is more. Shikha Dalmia details it at Reason:
The Treasury Department yesterday revised its loss estimate for the Government Motors bailout from $14.33 billion to $23.6 billion, thanks to the company’s sinking stock price. GM’s Sept. 30 closing price, on which the new estimate is based, was $20.18, about $13 less than its December IPO price and $35 less than what is needed for taxpayers to break even.
The $23.6 billion represents a 25 percent loss on the feds $60 billion direct “investment” in GM. But that’s not all that taxpayers are on the hook for. As I explained previously, Uncle Sam’s special GM bankruptcy package allowed the company to write off $45 billion in previous losses going forward. This could work out to as much as $15 billion in tax savings that GM wouldn’t have had had it gone through a normal bankruptcy. Why? Because after bankruptcy, the tax liabilities of companies increase since they have no more losses to write off.
This means that the total hit to taxpayers, who still own about a quarter of the company, could add up to $38.6 billion. That’s even more that the $34 billion on the outside I had predicted in May.
You’ll remember we were vociferously against the bailout, saying the company should proceed through normal bankruptcy despite the absurd nonsense being spread about the effect of bankruptcy on jobs and the like. Had that been done, a much more stable and lean GM would have emerged. And taxpayers, meaning government, wouldn’t still own 25% of the company – in fact the government wouldn’t own any of it. Nor would unions.
The effect of government intrusion has been to worsen the company’s outlook. Again Dalmia explains the reason that the political priorities of the Obama administration will lead the company into even more troubled financial waters:
Although GM will never, ever make taxpayers whole, taxpayer losses could be mitigated if GM’s stock price rises before the Treasury sells its remaining equity, something it was supposed to do by year-end but has postponed under the circumstances. But right now at least the prospects of a serious upward move in GM’s stock don’t look too good for reasons at least partly beyond GM’s control.
GM actually has been doing quite well in North America and China with profit margins of 10 percent, among the best in the industry. How long that will last is an open question. That’s because GM’s new competitors are not Toyota and Honda that share its cost structure but Hyndai and Kia that have a far leaner one. These companies concentrate on the small car market and don’t offer a full product line so GM and Ford’s most profitable vehicles—those evil, gas-guzzling, greenhouse-gas emitting SUV’s and pickup trucks—are somewhat insulated from the downward price pressure. But the greens and Obama administration want GM to reorient its product mix away from big cars and toward money-losing hybrids and electrics, something that could well put GM back in a hole.
But that’s part of the administration’s long-term strategy for ruining GM. The company’s big weak spot right now is Europe for two reasons: One, thanks to political pressure and labor resistance, it hasn’t been able to address its bloated cost structure there. Two, Europe’s economy is imploding, weakening car sales.
That’s right, government is steering the company in which it owns 25% of the stock, to orient in a direction that is bad business, but as far as the administration is concerned, good politics.
There’s a reason central planning always fails. It’s because it ignores market demand. Central planning’s core belief is it can anticipate accurately the public’s demand and produce products it will buy. See the Chevy Volt. Then see the Chevy Tahoe.
As Dalmia points out, the market for small cars is very competitive. But the sector that GM has an advantage in is politically unpopular with the party the administration represents (note again the party ideology running the agenda and not what is good for the company or the country). So the government attempts to focus the company in a direction away from its most profitable business and toward the politically acceptable but unprofitable small car sector.
Another in a long line of lessons on how central planning always fails. This particular example also points out that when ideology is left to dictate the direction of a business instead of the market the likelihood of failure goes up exponentially.
And when the strategy fails it will not be a “market failure”. It will again be government doing its usual lousy job of picking winners and losers. We, of course, end up being the ultimate losers when it makes its picks.