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Obama's Energy Lunacy

Until the enlightened Age of Obama, the free enterprise system was pretty easy for manufacturers to understand. Identify a market, build a product that market wants to buy at a price they’re willing to pay, and rake in the profits. Unfortunately for corporate America and the taxpayer, the proverbial monkey wrench has been thrown into the works by Mr. Obama and his economic advisors -- whose only advice seems to be to wreck the economy by spending as much money as possible.

I’ve been following the dim fortunes of the Chevy Volt for some time (here, here, here, here, and here). The Volt is an electric pseudo-hybrid compact with a $41,000 manufacturer’s suggested retail price (MSRP) -- currently selling for as much as $65,000. To “incentivize” the Volt, the Obama administration is providing a $7,500 tax rebate for each sale, a tax rebate it is planning to turn into a direct, point-of-sale rebate in the near future. After all, cash for clunkers was so economically stimulating, this gesture should make Volt sales explode. (Considering the tendency of lithium-ion batteries to do, more or less, just that, this may not be the most encouraging analogy.)

The Volt’s abysmal all-electric range is supplemented by a weak gasoline engine that requires premium fuel. Charging requires up to 12 hours, but may be halved for an additional $2,000 (installation costs not included) for a special 220V home “fast charger.” Depending on the kind and quality of home wiring, installation costs may be daunting. The charger draws so many amps that considerable rewiring may be required, and proud Volt owners may not be able to use any other high-amp appliances (vacuum cleaners, microwave ovens) while their Volt is charging. Remember that the Volt’s only potential claim to real-world practicality -- apart from green street cred -- is its high-tech electric drive system which promises unlimited gasoline-free miles. Consider that there is no actual charging infrastructure out there in the real world -- not that this will matter in parts of the country that experience actual winter. Cold has the unfortunate effect of rapidly draining and even disabling batteries.

The fictional GM executive wasn’t kidding. Volt sales volume is abysmal, and while GM won’t admit it, even at $41,000 MSRP it is almost certainly losing money on every car. In a genuinely free market, this should not be surprising. After all, for something between $33,500 and $57,500 (that’s minus the $7500 tax rebate), plus more than $2,000 for a charger (installation not included), anyone can be the proud owner of a car that will likely get no better mileage than many conventional vehicles which cost tens of thousands of dollars less. Who could resist that siren song? As it turns out, just about everyone.

Who are the proud Volt owners? Young first-time car buyers? No. Young families? Unlikely. Buyers of limited means? Certainly not. The premium prices being forked over suggest that Volts are the exclusive province of green types and/or the wealthy who can afford as much as $65,000 for a novelty car with no advantage over conventional vehicles available at a fraction of the price.

Pre-Obama businessmen would likely think GM’s decision to put the Volt into production is sheer lunacy, and they would be right. It would surely seem to them that in trying to recover from bankruptcy, GM is plunging headfirst back into bankruptcy. Why else would it build a car featuring not-ready-for-prime-time technology, a car with a tiny to all-but-non-existent potential market?  Surely they would consider this to be a shocking, inexplicable display of ignorance or of contempt for the principles of free enterprise? Of course -- unless the principles no longer apply.

Just four years from now, Mr. Obama has mandated a CAFE average of 35.5 MPG for all manufacturers. The current average achieved is 22.2 MPG. It is not possible, with current technology, to say nothing of customer preferences, to reach this absurd goal. Only the production and sale of huge numbers of “advanced technology” vehicles will allow GM to avoid huge fines for failing to engineer technologically ignorant wishful thinking.

In GM, taxpayers have a corporation partially owned by the government of Barack Obama. GM management surely understands the wishes of Mr. Obama and his bureaucrats, and the consequences for ignoring them, despite Obamaite claims to have no role or influence in daily operations. What else explains a company trying to recover from bankruptcy by making, at great cost, a product with no real market that can only succeed in the long term with the development of a nationwide charging infrastructure that no one is lining up to build? It seems clear that one power most satisfying for the Obama administration is the ability to pick winners and losers, to award friends and punish enemies. Why not also assume the power to mandate and make manifest markets where none previously existed?