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Archive for December, 2008

Green is Not Enough

Cash and internal restructuring are not enough to save GM.  What will it take?

First, someone (other than management) must have the legal authority to unilaterally write down debt and re-write labor contracts.  A bankruptcy court is the usual scheme, but the atmospherics around that scare everyone.  Congress should empower an oversight board of bankruptcy, turn-around and non-detroit auto experts to do what a bankruptcy judge can do.

Second, higher gas prices are a must.  GM will be under political pressure to build more Green cars than the market requests.  This can only succeed if the cost of gasoline is artificially kept above a certain floor.  Without higher gas prices, consumer demand will rapidly shift away from Green, and GM will be left holding the bag.  We need a gradually rising floor tax on carbon-based motor fuels.  Start at $2/gallon today, and rise towards $4 in 6 years.  That will move Detroit faster than any C.A.F.E. standard.

Recall, too, that Saudia Arabia is not going to sit still, either, while we attempt to break their monopoly.  Look for a flood of cheap oil.  It’s already begun.  In the 1970’s, the Saudis successfully scuttled a drive towards energy independence, and they’ll do so again, unless we make it impossible with a tax that puts non-oil energy at a competitive advantage.

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