GM: Producing Cars (And Losses) Nobody Wants

I’ve written a lot about government waste and inefficiency, but the argument in favor of the electric car could be one of the worst I have heard.

Reuters just came out with a story that General Motors (NYSE:GM) is losing $49,000 per Volt sold. This is not overly surprising, as a new product often loses until scale is developed. However, this loss is well more than the car’s base price of $39,000.

The fixed costs will come down, but whether they will come down enough to make a profit remains a legitimate question.

However, let’s look at the costs to the taxpayer. I wrote in December of 2011 about a JD Power analyst showing that 90% of buyers of the electric car would have bought it anyway, even without the $7,500 government green subsidy.

This means that for every car sold, nine are subsidized for no reason.

Very simple math: we subsidize 10 cars at $7,500 each, for a total of $75,000. Since 9 of these 10 cars would not have needed a subsidy this means we subsidize each extra electric car sold at $75,000 per car.

In what alternate universe except the US government does this work?

GM is a bailout favorite and a political football, and the company obviously feels the pressure to produce this car that few want and on which they lose a ton of money. In turn, taxpayers lose a lot of money as well, a lose-lose for everyone.

The government is doing what it does best: picking winners and losers -- and doing it very badly.

I would offer a potential solution to get to scale. I believe in the electric vehicle and alternative fuels -- but I don’t believe you should waste taxpayer money on cars that don’t make money and that consumers don’t want.

There are millions of vehicles that are either owned or controlled by the U.S. government from their own fleet, or fleets that must register with them. Examples would include taxis, public transportation, school and municipality fleets as well as many others.

Instead of a subsidy on a few cars, mandate that when fleets are replaced they must be with replaced alternative-fuel vehicles -- electric, hydrogen, natural gas, etc. This way scale is achieved rapidly without subsidies and free markets determine the winners based on legitimacy, not political favors.

The central fueling location of fleets takes away the problem of a lack of infrastructure for many things like natural gas, and could encourage employees who work at these central locations to change their personal vehicle to natural gas or whatever the fleet is using for fuel. A natural market growth would occur.

We should get away from fossil fuels -- perhaps it is a bridge of natural gas to electric or hydrogen -- however, we will never know as long as our government is willing to make a political move to subsidize a car that loses money and that few want.