At least the GM bailout has them in the right direction now....

[sickdsm]

http://www.realclearpolitics.com/articles/2011/02/05/when_government_motors_fails_again_108733.html

"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."

[RandomGuy]

http://www.realclearpolitics.com/articles/2011/02/05/when_government_motors_fails_again_108733.html

"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."

Time for some accounting 101.

Fixed costs = costs incurred required to make just one unit. Building a factory, paying for a minimum amount of electricity, etc.

Variable costs = Dependent on number of units made, i.e. materials costs.

Mixed = things with aspects of both.

When people talk about "efficiencies of scale" a good part of that is the interaction between these costs and how it affects the cost of each new unit.

Let's look at a simplified, arbitrary version to see how this affects the OP.

60,000 units cost $40,000 each, or say $2,400,000,000
Cost broken down:
Direct Labor 600,000,000 (variable)
Materials 900,000,000 (variable)
Utilities 200,000,000 (mixed, but more variable than fixed)
Overhead 300,000,000 (fixed)
Depreciation 400,000,000 (fixed)
Break that down into per unit costs, and just use totals

Total per unit costs that are variable:
$28,333
fixed:
$11,667
Total: $40,000

Double production.
Variable per unit costs:
$28,333
Fixed:
$5,833
Total cost:
$34,167

If you formerly sold the car for $41,000, you can now offer the same car for $38,000, and still make a good profit.

These figures are fairly arbitrary. I pulled most of them out of my ass, but they do illustrate a fairly important and basic principle.

My take away is that the gentleman who wrote the linked article in the OP, despite his blathering on about what is "marxist" and what is not, doesn't seem to understand one of the more basic underpinnings of capitalism.

He has assumed that per unit costs stay the same. Based partly on that underlying assumption, he has concluded that the CEO of a multi-billion dollar company is a flaming marxist because of that company's partial government stake.

To paraphrase one I. Montoya: "You keep reading these things. They do not mean what you think they do."

[sickdsm]

I understand spreading fixed cost over more units. That's pretty much how I make my living. I also tend to put more money into what is making me the most money already, don't you?


IMO GM is trying to make their version of the ipod/imac.

[RandomGuy]

I understand spreading fixed cost over more units. That's pretty much how I make my living. I also tend to put more money into what is making me the most money already, don't you?


IMO GM is trying to make their version of the ipod/imac.

That depends on corporate strategy.

Given that people tend to stick to companies over their lifetime, it would make a good deal of sense to make some vehicles that give you an "in" with a target audience. You accept low margins where you must, in order to capture market share over a longer run.

If, as most car companies, oil companies, and analysts in general, believe that oil will get more and more pricey as time goes by, gaining a market share on such a product line now, will pay off big time as the market segment for ueber-efficient cars grows.

Ramping up production also has the effect of moving you down the learning curve, both in R & D and worker knowledge.

There are lots of reasons for offering products at temporarily low margins which have nothing to do with being a "marxist".


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


The only real evidence for the assertion is this one example, that has quite a few quite plausible explanations and justifications beyond "they did it to make people in Washington happy".

The other thing is that the guy making his point, heard it from a guy who heard it from a guy, who heard it from a guy.

The RealClear politics guy got his facts from Automotive news,
http://www.autonews.com/article/20110124/BLOG06/110129935/1261

who, in turn, read an article on Bloomberg.com:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a3KDIWhmfhOk
THAT article does not say that GM wants to make 120,000 Volts in 2012.

What it actually says:


General Motors Co. Chief Executive Officer Dan Akerson plans to double the 2012 production capacity for the Chevrolet Volt to 120,000 as he works to boost the plug- in hybrid´s sales, said two people familiar with the matter.

Volt output this year may increase to 25,000 from an original plan of 10,000, Akerson said earlier this month. GM now is working with suppliers to raise 2012 capacity from an earlier target of 60,000.

It may not build that many if parts aren´t available or demand isn´t strong enough, said the people, who didn´t want to be named because the plans are private. Akerson, who became CEO in September, wants to sell more of the $41,000 Volt and is pushing to use its Voltec gasoline- electric drive system for models sold by other GM brands.

Akerson has said he wants GM to have more fuel-efficient models ready for a possible increase in oil prices to $120 a barrel. "We want to stay sharply focused on technology," Akerson told analysts at Deutsche Bank´s Auto Industry Conference in Detroit on Jan. 11. "We don´t want to be caught flat-footed as we were in 2008." .

Is that a statement of someone taking his marching orders from Washington, or someone trying not to repeat strategic mistakes of the past?

[sickdsm]

And you believe from GM's track record that this is a good idea?


I know what you're saying about people tending to stick to companies over a lifetime. Not so true anymore after the GM bailout, I can say that firsthand. If it was true, GM wouldn't have had any problems.




BTW, you basically elaborated on my "IMO GM is trying to make their version of the ipod/imac" comment.

[RandomGuy]

And you believe from GM's track record that this is a good idea?

I know what you're saying about people tending to stick to companies over a lifetime. Not so true anymore after the GM bailout, I can say that firsthand. If it was true, GM wouldn't have had any problems.

BTW, you basically elaborated on my "IMO GM is trying to make their version of the ipod/imac" comment.

Is it a good idea for a company that got caught flat-footed with few high-efficiency models to ramp up production capacity of high-efficiency models?

Yes, I think that is a good idea.

Given that the ipod is one of *the* single most profitable products put out by *any* company in the last 10 years or so, that isn't a bad thing to shoot for.

[sickdsm]

Given that the ipod is one of *the* single most profitable products put out by *any* company in the last 10 years or so, that isn't a bad thing to shoot for.


You'd rather they be Barry Bonds and try to hit a home run? I'll take Joe Mauer and win with singles. Honda and Toyota had a lot of great cars when they had to overcome the stigma of being "Jap Crap". I really can't think of one auto maker that is at where there at bc of one great vehicle. VW maybe with the original Beetle? Ford with the Model T? Still had to reinvent with quality vehicles.

[sickdsm]

.

[MiamiHeat]

I hate the Ipod.

it wasn't original. It's a fucking MP3 player. I had one in 1998. It's old tech.

The only thing Apple did was slap a trend on it and make it a trendy, "fad" thing to buy. Also, I guess the "new generation" influx of internet users around 2002-2004 never heard of an MP3 before.

but fuck, i don't know why but it gets me when people try to put apple as if they invented something awesome. all they did was repurpose and existing product with the equivalent of air jordan shoes type fashion trend.

[boutons_deux]

FLASHBACK: Republicans Warned That GM Rescue Was ‘Road Toward Socialism,’ ‘Predictable’ Disaster

Rep. John Boehner (R-OH): “Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multi-national corporation to economic viability?” [6/1/09]

Sen. Richard Shelby (R-AL): “It’s basically going to be a government-owned, government-run company. …It’s the road toward socialism.” [5/29/09]

RNC Chairman Michael Steele: “No matter how much the President spins GM’s bankruptcy as good for the economy, it is nothing more than another government grab of a private company and another handout to the union cronies who helped bankroll his presidential campaign.” [6/1/2009]

Sen. Jim DeMint (R-SC): “Now the government has forced taxpayers to buy these failing companies without any plausible plan for profitability. Does anyone think the same government that plans to double the national debt in five years will turn GM around in the same time?” [6/2/09]

Rep. Tom Price (R-GA): “Unfortunately, this is just another sad chapter in President Obama’s eager campaign to interject his administration in the private sector’s business dealings.” [6/2/09]

Rep. Lamar Smith (R-TX): The auto company rescues “have been the leading edge of the Obama administration’s war on capitalism.” [7/22/09]

Rep. Trent Franks (R-AZ): When government gets involved in a company, “the disaster that follows is predictable.” [7/22/09]

According to the Center for Automotive Research, “if the government had not invested in the automotive industry, up to 80,000 automotive jobs would have been lost, and General Motors alone would have lost one million units of sales in 2009. Once Chrysler and GM emerged from their ‘orderly’ bankruptcies, the growth of automotive sector employment has been strong, with 52,900 workers added since July 2009. Had GM and Chrysler not successfully emerged, those jobs would have been permanently lost.”

http://thinkprogress.org/2010/11/18/gm-flashback/

[sickdsm]

Most everything original never took off.

Inventors and entrepreneurs usually aren't the same people.

[sickdsm]

FLASHBACK: Republicans Warned That GM Rescue Was ‘Road Toward Socialism,’ ‘Predictable’ Disaster

Rep. John Boehner (R-OH): “Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multi-national corporation to economic viability?” [6/1/09]

Sen. Richard Shelby (R-AL): “It’s basically going to be a government-owned, government-run company. …It’s the road toward socialism.” [5/29/09]

RNC Chairman Michael Steele: “No matter how much the President spins GM’s bankruptcy as good for the economy, it is nothing more than another government grab of a private company and another handout to the union cronies who helped bankroll his presidential campaign.” [6/1/2009]

Sen. Jim DeMint (R-SC): “Now the government has forced taxpayers to buy these failing companies without any plausible plan for profitability. Does anyone think the same government that plans to double the national debt in five years will turn GM around in the same time?” [6/2/09]

Rep. Tom Price (R-GA): “Unfortunately, this is just another sad chapter in President Obama’s eager campaign to interject his administration in the private sector’s business dealings.” [6/2/09]

Rep. Lamar Smith (R-TX): The auto company rescues “have been the leading edge of the Obama administration’s war on capitalism.” [7/22/09]

Rep. Trent Franks (R-AZ): When government gets involved in a company, “the disaster that follows is predictable.” [7/22/09]

According to the Center for Automotive Research, “if the government had not invested in the automotive industry, up to 80,000 automotive jobs would have been lost, and General Motors alone would have lost one million units of sales in 2009. Once Chrysler and GM emerged from their ‘orderly’ bankruptcies, the growth of automotive sector employment has been strong, with 52,900 workers added since July 2009. Had GM and Chrysler not successfully emerged, those jobs would have been permanently lost.”

http://thinkprogress.org/2010/11/18/gm-flashback/

Should have let them suck it up on their own. So you'd be in favor of similar funds being appropriated for 80,000 people that employ one person?


What if they were farmers raising corn for ethanol?
:lmao

[RandomGuy]

I hate the Ipod.

it wasn't original. It's a fucking MP3 player. I had one in 1998. It's old tech.

The only thing Apple did was slap a trend on it and make it a trendy, "fad" thing to buy. Also, I guess the "new generation" influx of internet users around 2002-2004 never heard of an MP3 before.

but fuck, i don't know why but it gets me when people try to put apple as if they invented something awesome. all they did was repurpose and existing product with the equivalent of air jordan shoes type fashion trend.

Apple did a bit more than make it "trendy" they made the interface intuitive, and they backed it up with content.

Sure it was a "me too" product, but they just did it better than anybody else did.

[RandomGuy]

So you'd be in favor of similar funds being appropriated for 80,000 people that employ one person?


What if they were farmers raising corn for ethanol?
:lmao

For the first question... um, what? (probably a typo, i'm guessing)

For the second question:

I am all for fostering industry, but the problem with corn ethanol is that it is simply not economical to produce.

Invest in R & D for a sector, sure. Provide some general subsidy so that the form of ethanol that is most economical to produce can be picked by the market, sure.

But a specific subsidy for corn ethanol? No.

[RandomGuy]

Given that the ipod is one of *the* single most profitable products put out by *any* company in the last 10 years or so, that isn't a bad thing to shoot for.


You'd rather they be Barry Bonds and try to hit a home run? I'll take Joe Mauer and win with singles. Honda and Toyota had a lot of great cars when they had to overcome the stigma of being "Jap Crap". I really can't think of one auto maker that is at where there at bc of one great vehicle. VW maybe with the original Beetle? Ford with the Model T? Still had to reinvent with quality vehicles.

and if you had bothered reading the entire Bloomberg article, this was actually addressed.

Sorry if you have to get all pissy because your opinion is based on a rumor and provable political spin.

I am going to take a wild guess and guess that you have never run a multibillion dollar car company, or managed a large manufacturing company of any sort.

If you want to armchair quaterback someone who does, fine.

The one thing you have completely failed to do is show how this decision is "marxism" or dictated by Washington. The only thing you have proved is that the gentleman who wrote the OP seems to know little about manufacturing, and is willing to base his opinion on what he remembered from what he read about someone else writing about what they read.

[sickdsm]

Who's getting pissy? You're about the only one here with views that mostly oppose mine that I feel I can have a discussion with.


I'm going to take a wild guess and say you don't have much to do with ethanol? Google a few articles and get most of your info there?

[sickdsm]

I never tried to say it was directed by Washington. When did I say that???