Your neighbor Charlie has a gambling problem. You loan Charlie $100. Charlie promptly loses the money at a local casino. If you loan another $100 to Charlie, what do you think he’ll do with the money?
Of course, this is a criticism of the federal government’s recent bailouts. The government gave money to people and institutions that had failed — as a result of greed, arrogance, sloth — or simple stupidity. If you give these people and businesses more money, what do you expect to happen?
For the last week, the Obama administration has been celebrating the success of a bailout, with General Motors launching a “successful” Initial Public Offering. I’ve written previously on this blog how the GM IPO was a terrible deal for American taxpayers. But according to Obama, the IPO is proof that GM is ready to turn the corner, and become a successful, profitable business that does not rely on taxpayer subsidies.
Well Mr. President, I’m sorry to rain on your parade. But I’ve got two words, which prove that General Motors is just as inept as ever.
The Volt is General Motors’ electric car. In reality, it’s a hybrid car, because in some situations, the Volt uses a gas engine. It is also a small, unremarkable sedan.
And the base price? Wait for it . . . .
Will anyone buy a Volt for this price?
Bill Visnic, a senior editor at Edmunds’ AutoObserver.com, is skeptical. According to NPR, Visnic says that for the Volt, “cost is going to be an impediment. Like a lot of people, Visnic is concerned about the Volt’s whopping price tag: $41,000. Volt owners can apply for up to $7,500 in tax credits.”
“And as Visnic points out, it’s a four-seat sedan — not a large car.”
“For the same money, he says, ‘you can buy an entry-level Mercedes sedan; you can buy any number of nice Audis.’”
What would you rather own? A Mercedes? Or a Volt?
Or how about a Prius?
The base price on the Toyota Prius hybrid is about $23,000 to $29,000.
For the price of The Volt, you could buy a Prius, and have enough left over for a downpayment on a house. What sounds like a better deal to you — a Prius and a house — or a Volt, and no house.
But the Prius example begs an important question. If Toyota can build its Prius hybrid car for about $23,000 to $29,000, why the heck can’t General Motors do it? I mean, all GM would have to do is copy the Prius, change a few details, and give the GM knock-off a new name. How hard could that be? Doesn’t that make sense, as opposed to trying to sell a competing car that costs $12,000 to $18,000 more than the Prius?
Now are you starting to get some idea about why General Motors needed a bailout in the first place?
Even President Obama seems to realize that no one will want to buy a Volt for $41,000. But Obama wants to encourage the use of this environmentally friendly car, and prove that his multi-billion dollar bail-out of General Motors was a good idea. So each time someone purchases a Volt, they will receive $7,500 in tax credits. In other words, every time someone buys a Volt, we the taxpayers must pony up $7,500. Note that even with this outlandish subsidy, the Volt still costs more than the Prius.
The Volt subsidy is nothing more than an ongoing and never-ending bailout. Every time someone buys a Volt, the government effectively will pay another $7,500 to General Motors.
What kind of a business model is this?
Now do you understand why so many of us Americans want to cut taxes? As soon as we give the government our tax dollars, the government blows the money on something outrageously corrupt and/or stupid. Like pissing away our money to subsidize an over-priced car that can’t possibly complete with other cars on the market. The Volt subsidy is incredibly stupid — even by the low standards of President Obama.
Such is the fate of bailouts. If a corporation is mismanaged to the point of bankruptcy, it’s not hard to guess what they will do with our bailout money. They’ll blow it on something stupid.
Like The Volt.
So just like your neighbor Charlie with the gambling problem, we can expect to see General Motors coming back to the government again, asking for just one more bailout.
Will we do it again? The victory of conservative deficit hawks in a number of recent congressional elections gives me some reason to hope. Having made a bad decision to bailout General Motors, maybe we wont make the same mistake twice.