Comments on: Trough Leader

By: epobirs

epobirs — Fri, 04 Jul 2008 10:10:29 +0000

Actually, it is natural that this would be the thought process of a major auto maker. Due to CAFE requirements, the big car makers were accustomed to selling their low-end models at a loss to push up the average mileage of the entire product line. Thus the losses on something like a Mercury Bobcat (mostly same as Ford Pinto and what I drove in the early 80s) were easily absorbed from the high margins on a big luxury cruiser. For decades, the only small cars that were comfortable and had good feature sets were foreign sport models that got pretty lousy mileage. Small models with good mileage didn’t have a market until the consumers really demanded it. The economy of the Prius could be easily beaten by just making a more pleasant version of the Geo MEtro and selling it for $16K.

By: Josh

Josh — Thu, 03 Jul 2008 20:00:54 +0000

I agree, Max, that it is stupid. But I don't believe for a minute that GM is the stupid party. They are well aware that merely performing the most rational and beneficial acts from an economic standpoint are not enough. They must pander to congress because congress demands and rewards such behavior. Witness the facts: Congress has already mandated the disastrous ethanol subsidies that are increasing farmland, increasing prices, and doing nothing to ease fuel shortages. Congress is toying with the idea of punishing oil companies by confiscating their "windfall profits".

Of course, congress is partly pandering to public opinion, and partly to its own members' emotional need to "get the bad guys". What's GM to do?

You can make the case the GM may be evil for playing along in this fool's game. But not stupid - they're doing it for good reasons.

Max, what does the comment about Nokia paying fines refer to? My Google-fu is weak today...

By: Solar Lad

Solar Lad — Thu, 03 Jul 2008 19:59:51 +0000

This is stupid, as anyone who ever has been to a business economics course should know ... subsidies are no market force you can plan, so in the end this plan can go wrong.

Not so much stupidity as desperation. GM was functionally bankrupt before they had sales decline this year by 50% in all of their most profitable lines; a Hail Mary play is all that they've got left.

Or all that the current management and shareholders have left, at any rate - the carbuilding will continue regardless.

By: Max

Max — Thu, 03 Jul 2008 17:36:30 +0000

This is stupid, as anyone who ever has been to a business economics course should know: Government subsidies don't last and it can turn pretty ugly in the end (see Nokia in Germany; almost 60 Millions in fines to pay).
Also, subsidies are no market force you can plan, so in the end this plan can go wrong.

On the other side, this might be a good gamble, given that f.e. VW has done a similar poject in boosting their appeal in Germany, when they released a Golf III, which actually couldn't be sold at that price with all the niffty extra technology. So, they had red numbers just to change the basic outfit in the middle of the golf lifecycle and reap in a profit afterwards (while leaving customers baffled with badly equipped basic versions).

By: Dan

Dan — Thu, 03 Jul 2008 16:27:54 +0000

Hard to believe, but GM's market cap has fallen below $6 billion. By comparison, a stock called PlanetRX.com (PLRX) - a web pharmacy - had a market cap of nearly $11 billion during the late 1990s Internet stock boom (the stock is no longer traded).

How the mighty have fallen.