Thursday, December 16, 2010

An American Problem

At the time of the auto industry bailout, it sure sounded encouraging when President Obama announced that we were ushering in an era of "creating new jobs, unleashing new prosperity and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy-independent future.”

So, how's that working out, Mr. President?

Oh, of course.

But at least something is being sold, right?
In particular, what Mr. Obama called his “one goal” — having Detroit “lead the world in building the next generation of clean cars” — is nowhere near being achieved. While the idea of improving G.M.’s and Chrysler’s fuel efficiency was doubtless a politically popular justification for the bailout, American consumers have not embraced the goal with equal fervor. Sales of fuel-sipping compact and subcompact cars have actually dropped this year, while pickup and sport utility vehicle sales grew by double-digit percentages.

Woooo hoooo! It may not be green, and it may not be next-generation as promised, but at least sales are up! That has to be a good omen. But... who is buying?
Another troubling trend is an increase in fleet sales — the delivery of huge numbers of units to corporations and government agencies. While fleet sales improve short-term volume, the profit margins are slim and the practice can hurt long-term sales as consumers come to view the models as unsexy “fleet queens.” And Detroit has gorged on such sales in 2010, with some 32 percent of all vehicles from the Big Three sold through October going to fleet operators. Furthermore, a quarter of all the hybrids built by Detroit since President Obama took office have been bought by federal agencies, showing that enthusiasm for Detroit’s hybrids is limited somewhat to government fleet buyers.

In addition, even when it comes to the trucks and S.U.V.’s that Americans actually do want to buy, the bailed-out automakers are building vehicles faster than they can be bought. Inventory levels at both companies have ballooned this year, to the point where G.M. now has nearly three months’ worth of sales sitting on its lots...

Feeling better yet about the success of these bailouts?
Allowing new cars to pile up on lots may well be the most deadly of Detroit’s new-old bad habits, as the practice not only artificially inflates sales numbers (which, ridiculously, are booked upon production, not when a vehicle is driven off the lot), but also lead to yet more incentives, fleet sales, subsidized leases and subprime lending.

Sigh. I keep looking for a silver lining in this piece, but I'm not seeing it.

I know, I know, we can't expect a 180° turnaround in two years after decades of behavior, but overall this does not look at all like any lessons have been learned. In fact, it reminds me of the state we're in politically: a lot of promises about change, efficiency, and a brighter future while bending over backwards to maintain the status quo.

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