Big Trouble for Obama’s GM

Mickey Kaus Columnist
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Obama’s going to run on this bailout? Really? GM’s make-or-break compact Chevrolet Cruze, hyped as a “home run,” is actually “headed for flopsville,” according to Edward Niedermeyer of Truth About Cars. He has the damning chart. Cruze sales were great at first, when its competitors from Honda and Toyota had been crippled by the Japanese earthquake and tsunami.  …

 [t]he Cruze seemed to show that the “new” GM was capable of selling smaller cars on their merits, rather than as afterthoughts to more profitable truck, SUV and large car offerings. And indeed, through the first half of this year, it seemed that the Cruze was something of a roaring success, regularly outselling its segment competitors. But then, in June, when production shifted from 2011 models to 2012 models, something changed: sales started to slow, and inventories started to rise. As Cruzes began piling up on dealer lots, GM trimmed production moderately, but still, inventories began to grow out of control. Clearly something was going wrong

P.S.: Sorry, McArdle (scroll for “Cheap Date No. 1”). …

P.P.S.:  It’s not that hard to think of a reason why Cruze sales might have crumped (apart from the renewed production of Honda Civics and Toyota Corollas). The Cruze had significant early reliability problems. People who buy small cheap cars typically can’t afford breakdowns. Word gets around. Corrective efforts by GM may have fixed the Cruze glitches, but at this point in the launch it could be too little too late. That’s the story of GM (and the UAW, for that matter).  …

P.P.P.S.–Now he tells us: Even cars with relatively low sales volumes can be profitable, of course, if costs are in line with prices. But that may not be the case with New GM, which is saddled with a union contract preserving existing UAW members’ pre-bankruptcy wage rates.  Speaking in Detroit, Obama’s auto czarlet Steve Rattner admitted that Obama hadn’t asked the UAW to give up enough in the bailout. (Gee, that’s not what I recall him–or Obama–saying at the time.) Video here. From the Detroit News:

Yet Rattner acknowledged that American automakers still have substantially higher labor costs than their foreign competitors — a gap he wishes the task force had done more to close.

“We asked all the stakeholders to make very significant sacrifices,” he said. “We should have asked the UAW to do a bit more. We did not ask any UAW member to take a cut in their pay.”

In this sense, GM’s subterranean stock price is an accurate reflection of Obama’s, and Rattner’s, failures. “If the government sold its remaining GM stock today,” notes the News, “taxpayers would lose about $16.5 billion.” … Update–Non-Walkback Walkback: Rattner has posted a “clarification” of his remarks that only reiterates them.  (“[W]e might have asked ALL of the stakeholders in the auto companies to make deeper sacrifices in order to preserve jobs and the profitability of these companies for the future.”) The “clarification” is Rattner’s denial that he has a “desire to see auto workers (or anyone else) take a pay cut.” Well, who does–unless it’s neccessary to “preserve jobs and profitability”? Preserving  jobs and profitability was supposed to be what the taxpayer-financed bailout was all about.  And there were plenty of people at the time telling Obama he wasn’t asking for enough sacrifice from the UAW and others. Looks like they were right. … Is there an opening for Mitt Romney here (‘Under my plan we would have asked for that sacrifice’ … etc..)?

More: GM initially portrayed the Cruze’s declining sales as a good sign, because the company cut production rather than push the surplus inventory out the door with profit-sapping incentives. The press bought it. Then GM stopped production again …

Mickey Kaus