Will GM weather the storm?
Close to the brink, car giant calls for higher petrol prices.
Rick Wagoner, the boss of the world’s biggest car maker, General Motors - the parent brand to Holden - says the chances of his company surviving the automotive industry crisis is good but “it’s not 100 per cent”.
In an interview with a group of journalists overnight, he also said the current dip in the cost of fuel is making it difficult to force motorists into more economical vehicles.
Last year, sales of new vehicles in North America fell to their lowest level since World War II as the car business felt the full brunt of the global economic meltdown.
Now Detroit’s Big Three car makers are faced with two dilemmas: they need to weather the current storm at the same time as they need to spend what little money they have on expensive fuel-saving technology that car buyers aren’t yet prepared to pay a premium for.
“Obviously [the chance of survival] is not 100 per cent but I think the chances are very good,” Wagoner said. “This is an extraordinary set of circumstances that we are in and the economy is in. I hope we don’t have to see this sort of thing happen again.”
GM has until March 31 to show the US Congress a viable business plan and a detailed explanation of why the company should be saved – if it is to receive further financial assistance. It has already received $US13 billion from the US government just to keep the company afloat for the next two months.
The head of GM’s product development, Bob Lutz, said legislating strict fuel economy targets, as the US government has done, in order to turn buyers away from thirsty vehicles, was like “trying to solve the obesity epidemic by only making small clothes”.
In an earlier interview with journalists Lutz stopped short of calling for higher taxes on petrol, but it is clear the low cost of petrol is making it more difficult for the car industry to move forward. In his separate interview, Wagoner was more direct.
“I’m going to let politicians make the call on [higher petrol taxes] but I would simply observe that almost every other country in the world has a fleet that has better fuel economy than the US, and almost none of them have regulations on manufacturers,” Wagoner says. “What happens is there are petrol taxes and people respond rationally to that.”
Wagoner said the government needed to create customer incentives for economy cars – and disincentives for gas guzzlers.
North America has among the cheapest petrol in the developed world. The price of petrol is a little more than half cost in Australia, and about a third of what it is in Europe.
The average price of petrol in North America this week is equivalent to US64 cents per litre. A year ago it cost a little more than $US1. The state and federal taxes there amount to just 12 cents per litre of petrol, and 14 cents per litre of diesel, less than 20 per cent of today’s average retail price.
In Europe, government taxes account for almost two-thirds of the cost of fuel, while in Australia about half the current retail price is soaked up by petrol tax (38 cents) and the GST (10 per cent of the total sum).
“If the US Government wants us to move away from the reliance we have on petroleum then … they will have to take the lead role,” Wagoner said. He also suggested that it could be done by subsidising expensive research and development of new fuel-saving technologies, which would make the cars more affordable and bring them to showrooms faster.
For the time being Wagoner has voluntarily declined his multi-million dollar salary in lieu of a $1 annual wage, and sold or cancelled the lease agreements on GM’s five corporate jets.
When asked what he was going to spend his one dollar on, he replied: “Yeah, my kids.”
