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Cobalts for Clunker: How We Roll

10:14 AM, Apr 2, 2014 • By GEOFFREY NORMAN
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The new CEO of the new General Motors testified yesterday before Congress and said that she is “deeply sorry” about the company’s negligence in selling cars that came standard with a flaw that could kill you. The company knew. A government regulatory agency knew. And if the administration of President Obama did not know, then one is inclined to wonder why not and go to the only possible explanation, which is incompetence. The administration rescued the company from bankruptcy, after all, using billions of taxpayer dollars. Should it not have taken a careful look at what the money was buying?

Car GM

The administration considers the GM bailout a success story of the sort it celebrated yesterday when the sign-up period for the Affordable Care Act ended and some seven million people had enrolled. There had been a lot of patch jobs put in place along the way. The employer mandate was dropped. First, it turned out that “you can keep your plan” wasn’t true and then … well, we’ll make some exceptions. All in all, a vast and ongoing jury-rig.

Which is the way of big government.  It makes it up as it goes. Tries a little of this and some of that. Uses force when, as usual, the right tool isn’t handy. Or doesn’t exist. Or perhaps because force is just government's tool of choice.

But getting back to the bailout of GM and the automobile industry.

There were a lot of moving parts in the administration’s intricate exercise of state capitalism. If GM was to be rescued, then people were going to have to buy the cars it was making. So, a plan was needed that would get consumers out of the cars they were already driving. The Washington brains are good with plans and big programs and came up with something called, cleverly, “Cash for Clunkers.”  You brought your old car in to a dealer who poured sodium silicate into the crankcase and then ran the engine until it seized up.  The car, which might have been running fine and good for another 100,000 miles was now junk. You got some very lavish price credits toward the purchase of a new car. 

Some 700,000 vehicles were destroyed by this program. It might have been good, temporarily, for GM but it was bad for people who needed good transportation but couldn’t afford the price a new GM product, for mechanics who worked on old cars, and others in what had always been a robust used-car market.

As Car & Driver reported some of the 700,000 destroyed vehicles were pretty cool rides to include some made by BMW and Mercedes. It was, in short, a massive exercise in the destruction of wealth. 

Still, when the dust settled, lots of people were driving around in brand new Chevy Cobalts and the president declared this a good thing when he visited a plant where the Cobalts were made and touted Cash for Clunkers as:

… good for automakers, consumers, and our environment, and the Chevy Cobalt that you build here was one of GM's most sought-after cars under that program. Dealers across the country started running out of it and needed you to build more.

Well, those Cobalts are now being recalled in legions and Danielle Ivory and Rebecca R. Ruiz of the New York Times are reporting that:

Long before the Chevrolet Cobalt became known for having a deadly ignition defect, it was already seen as a lemon. Owners complained about power steering failures, locks inexplicably opening and closing, doors jamming shut in the rain — even windows falling out.

Meanwhile, Ms. Barra is testifying that:

"This is an extraordinary situation. It involves vehicles we no longer make, but it came to light on my watch, so I'm responsible for resolving it. When we have answers, we will be fully transparent with you, with our regulators and with our customers.”

No estimates on exactly when this will be occurring.

Also: GM has hired Ken Feinberg, the man who spent several years handing out BP money to settle claims from the Gulf oil spill. This is the equivalent of pleading guilty to everything and begging the court for mercy ... whatever the price.

And GM stockholders are wondering if the government knew when it dumped its shares.

One suspects we are in for a similar ride with the latest Washington clunker, the one that was celebrated yesterday at the White House.

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