Is Dan Akerson Driving GM Off a Cliff?

National Legal & Policy Center ^ | February 4, 2011 | Peter Flaherty

[jazusamo]

 

As Karl Marx once said, history repeats itself, first as tragedy, second as farce. In last year's epic auto chronicle, Crash Course: The American Automobile Industry's Road from Glory to Disaster, author Paul Ingrassia wrote about the catastrophic decline of the American automobile industry in the seventies:

Just as General Motors was led by financial people, Honda would always be led by engineers... Put another way, the bean counters ran GM, while the car guys ran Honda. It would make a crucial difference between Honda's success and GM's failure.

While Ingrassia has recently written that he sees a glimmer of hope in what he terms GM's great "restructuring," the fact remains it wasn't a "restructuring" at all, but the largest government seizure of privately-owned assets in history.

The reality is that GM seems to be making the same mistakes all over again. Less than two years after the government's historic $50 billion taxpayer bailout of the Detroit automaker, now forever known as "Government Motors", the troubled company installed its fourth CEO, Dan Akerson - another "finance guy" to be sure, but far more concerning to GM's long-term health, also a creature of Washington.

Akerson is a former telecom exec turned private equity guy who was installed at GM by political operatives in the Obama White House. While there's little question that Akerson has his talents, they most assuredly aren't in the car-making business (as even he is quick to admit). No, Akerson's talents are in private equity finance - or more accurately, politically-connected private equity finance.

Coming directly from The Carlyle Group, unquestionably the most politically-connected equity finance firm in the world, and one that is packed to the rafters with political has-beens - ex-regulators, Congressmen, and cabinet secretaries - Akerson's talents are an ideal fit for the busy body bureaucrats who now run Government Motors.

That's because Akerson straddles the world of equity finance (characterized by a gambler's mentality), and an "inside-the-beltway" collegiality and chumminess with the Washington know-it-alls who now arguably have the largest say in how GM makes and sells cars.

Already, the storm clouds are gathering on the horizon.

Peter DeLorenzo at the auto blog autoextremist.com wrote recently that there is turmoil building inside GM's ranks over Akerson's offensive to "put his stamp on the company, no matter what the cost." DeLorenzo suggests that GM is "on a runaway train to Hell," and that the Detroit behemoth is already "chafing under the barrage of nonsensical orders and pronouncements emanating from Akerson by the minute."

Daniel Howes of the Detroit News echoed the criticism, writing that Akerson's questionable management decisions looked like "déjà vu all over again" harkening back to the bad old days of GM's "finance- and marketing-led disasters" of the past.

Meanwhile, the influential auto reviewers at Edmunds.com sounded the alarm bell in a piece titled simply, "Is Dan Akerson Going To Run GM Into the Ground?" Akerson's recent moves and his hand-picked marketing chief's statement that GM should become "more of a marketing organization," has Edmunds seeing red: "This may sound innocuous to the average business magazine reader, but anyone who follows GM will recognize this as a disaster in the making."

Mark Rechtin of Automotive News piled on, suggesting that so far, Akerson's leadership has been defined by "hubris," panning reports that GM is planning to double Chevy Volt production from 60,000 to 120,000 units next year. Rechtin argues convincingly that even with the generous federal tax credit of $7,500, the Volt's steep $41,000 price will make it impossible to sell so many units. All this, despite the fact that the Volt - which Akerson touts as the "soul" of the new GM, isn't even making money for GM - since it costs upwards of $40,000 to build each car. Indeed, leave it to Government Motors to spend tens of billions of taxpayer dollars producing a product that doesn't make any money.

While criticism of Akerson may seem unfair - after all, he's only been at the helm for four months - the decision to hand the wheel to a politically-connected "finance guy" with zero manufacturing or auto experience is emblematic of GM's larger problem. Thanks to the huge $50 billion government bailout and $7,500 federal tax credits which effectively subsidize the cost of its hybrid-electric vehicles, Government Motors can afford to gamble again... with taxpayers money of course. That's the hazardous part of "moral hazard."

But should this really be any surprise? When the Feds become your company's largest single shareholder, the painstaking process of building cars, the engineering expertise and knowhow that's required, and the "sixth sense" that all good auto execs have in spades, all take a back seat to the political whims of Washington. It's no longer about what consumers want, it's about what Washington bureaucrats decide they need.

The whole process of building cars inevitably becomes politicized. And that's why Washington insider Dan Akerson's appointment as CEO has worried so many. Yes, GM may struggle along for a few years. It may even be profitable in the short term, but at what cost over the long term?

For Washington, the answer is irrelevant. When the business of making cars becomes political, it will be at the whim of the political cycle - subject to huge gambles with taxpayer money, short-term thinking, and run by Washington insiders. It will be up to future Administrations to once again pick up the pieces after Government Motors fails - again.

[jazusamo]

The Volt isn't going to save GM.

[A_Tradition_Continues]

Does the Volt have the travel range to even get to the cliff?

[wk4bush2004]

“Does the Volt have the travel range to even get to the cliff?”

The Volt goes an average of 35 miles on electricity alone and then it goes between 300-350 additional miles on gasoline, averaging 35-40 MPG.

The Volt is an interesting car, but it is far too expensive for the average American family and our national power grid won’t be able to handle all of the electric cars plugging into it.

[Mr. Lucky]

Ford built almost 120,000 Edsels before they pulled the plug. Is there a book on whether Volt is over or under?

[jazusamo]

I doubt they’ll even be close to selling 60,000 this year so their plans for 120,000 next year has to be wishful thinking.

[truthguy]

The Volt is an interesting car, but it is far too expensive for the average American family and our national power grid won’t be able to handle all of the electric cars plugging into it.

EREV technology is the future of the automobile. The Volt is expensive because it's the first of its kind. Remember how expensive the first computers, portable phones, Wall TV's were. My late grandfather remembered when you had to be "rich" to own a motor car. That was before Henry Ford's Model-T. When gas gets to $5-6/gal (sooner than most believe), cars like the Volt will make real sense. The pressure on the Grid will be gradual. We won't have millions of cars on the grid overnight. We will have time to upgrade our grid (something we have to do anyway).

And BTW, I don't thing we have a national power grid. We have regional area grids if I'm not mistaken.

[paul51]

since it costs upwards of $40,000 to build each car. Indeed, leave it to Government Motors to spend tens of billions of taxpayer dollars producing a product that doesn't make any money.

It's the old 'we lose money on every car but we make it up on volume' strategy.

[TheBattman]

We don’t WANT a “national power grid”. Such a grid would then fully invoke “interstate commerce” on 100% of EVERYTHING - Period. Those states who passed “homegrown guns” laws to stick their tongue out at the Feds... Too bad, because with a national power grid, all power is “interstate” - thus even the minute details of the local town are “hooked in” to the “national grid”.

[paul51]

cars like the Volt will make real sense

I doubt it. We are better off burning carbon fuels to move autos than burning carbon fuels to produce electricity to move cars. It's as good an idea as CFL bulbs. Now, if we were ever to start building nuclear power generating plants and producing abundant and cheap power, it may look different but that is not happening.

[businessprofessor]

“EREV technology is the future of the automobile.”

If it is the future, we better be prepared for many restrictions on personal travel. In the winter time, it is not much more than a very expensive traditional auto. In the peak summer months, I suspect that air conditioning will also substantially reduce the battery capacity. I do not think that economies of scale will reduce the prices of EVs due to the reliance on rare earth minerals. I see cartels forming around the production of rare earth minerals.

I am not optimistic about the grid and power generation. The rats have us on the road of forced conservation, unreliable power generation (rolling blackouts in Texas due to wind power failures), and much higher electric rates. The rats are trying very hard to prevent the construction of new baseload power generation plants.

[B Knotts]

EREV technology is the future of the automobile.

No, it isn't. It's inefficient, wasteful and expensive.

The energy density is too low for electricity stored in batteries to be practical as a vehicle power source. And carrying two propulsion systems is ridiculously inefficient.

I suppose you could put electric tracks in the roads. Hopefully, no one would accidentally step on them.

[pgkdan]

EREV technology is the future of the automobile.

I'll believe that when I see it.

[Darksheare]

The Volt is garbage.

[Ruy Dias de Bivar]

***The Volt is expensive because it’s the first of its kind***

Anyone remember the electric VANGUARD CITICAR? I saw a car lot full of them in Tulsa OK back in 1976! Where are they today?

[Palmetto Patriot]

The Volt is an interesting car, but it is far too expensive for the average American family and our national power grid won’t be able to handle all of the electric cars plugging into it.

There are additional costs and problems involved in operating a plug-in hybrid.

You must have an electrician modify your home to accomodate the Volt's charging system, that is, unless you live in an apartment and park your car on the street. I don't know what you would do in that case.

It takes about 8 hours to charge the vehicle, meaning it cannot be driven for 1/3 of the day while it is plugged in.

Batteries do not perform as well in cold weather, reducing the car's range on batteries. Further, running the heater while driving on electricity drains the battery, unlike a gas powered vehicle which relies on heat from the engine.

It takes longer to charge the batteries in cold weather as well.

I do not know what the lifetime of the Volt's batteries is rated at, but a couple of years ago, I heard that hybrid batteries must be changed at 100,000 miles at a cost of around $10,000. While you might say that you would be ready to get rid of the car before then, this would severely impact the resale value of the car. Who would buy it, knowing that in 10 or 20,000 miles you would have to spend an additional $10,000?

You might say that you could always use the gasoline engine, but, then, what's the point of having the plug-in electric engine in the first place.

In my mind, owning a Volt is an idea that is stupid on steroids.

[taildragger]

No, it isn't. It's inefficient, wasteful and expensive.

I lost touch with my engineer gnome on the project. Another gnome with a competitor notes, they did it, it is the real deal, i.e. An extended range electric more so than a Hybrid. But it weighs a ton, what an oinker, 3870 lbs if my memory is correct for what is about the size of the Chevy Malibu.

The good news is, they have made great gains in electric drive trains, but we still need a major breakthrough in batteries and or capacitor technology. Litium Ion is good, but we still need so much more...

[gibsosa]

bfl

[bert]

You are thinking within the box. To enjoy an electric car, think outside the box.

Think of a solar charging station or a deployable solar shade recharger. Then there is a wind generator on the garage roof or that can rise up out of the trunk while parked.

It’s all out there just waiting for discovery

[TwelveOfTwenty]

EREV technology is the future of the automobile.

I'll put that statement on the possible side of maybe. The idea has potential, but more breakthroughs are needed to make it feasible for the average driver.

And if those breakthroughs are in fuel cells or something else, the EREV's reign as the car of the future may be short.

But I'm with you. Green technology - if not this then something else - will get better, just as the gas engine did.

[Rashputin]

"EREV technology is the future of the automobile."

No, it isn't. Saying "the automobile" when you really mean some limited form of "personal transportation" doesn't make EREV any more realistic. Everything being promoted as an improvement in our energy future is really something that ties the individual more tightly to centralized systems, not something that makes the country "greener" or to makes life better for anyone.