22 March 2012

Driving Suspicions of Crony Capitalism Among Carmakers

The Chrysler Corporation has engaged in a new marketing campaign which catches the eye.  During their TV ads, there is a chyron on the upper right hand part of the screen which shows a logo with their new tag line “Driving America”.  This catchy slogan reinforces the nation’s third largest automotive manufacturer while diminishing the fact that the Obama auto bailout facilitated Fiat’s controlling interest in the  Chrysler Corporation.

What is really remarkable, however, is the insignia for the “Driving America” campaign.  It looks like a kissing cousin of the Obama 2008 Campaign logo.  Was this just coincidence or was it coerced?  This is the problem with crony capitalism.  When money starts streaming from to government to corporations, there is the uncomfortable question about political payback.  Moreover, it gives the government leverage on corporations to offer products that are political pet projects that are turkeys in the marketplace.

During the Super Bowl, Fiat Chrysler spent $14 million in television advertising.  That was normal for the automaker.  But what was truly unusual was the Clint Eastwood “Half Time in America” ad. This was a long two minute ad.  Considering that ads during the game cost $3.5 million per 30 second ad, this was a costly ad buy, albeit at lesser half time rates.  The ad touted Chrysler’s rebound with America’s improving economy.

The "Half Time in America" ad was strange for several reasons.  Why would a corporation would only allot a few seconds of this long ad buy to prominently placing its trademark or its products?  These bits of branding were at the end which could easily be excised if the video was repurposed.  To that end, there was controversy when the Chrysler ad was briefly pulled from the Internet the day after the game by a copywrite claim by NFL Properties.  When is it that the NFL protects their sponsors ads?  Moreover, the USA Today convened panel of SuperBowl ad viewers were told not to rate ads during half time because they did not count, but we were encouraged to give our ratings for “Half Time in America”.  This raises suspicions that it might have been polling for the Presidential campaign and that this long PSA might be repurposed to play in stadiums in the fall.

Another American automaker that enjoyed the Obama Administration’s largess in the Auto Bailouts of 2009 was General Motors.  The Obama Administration not only saved GM from the clutches of Chapter 11 bankruptcy, Obama’s auto czar also cancelled long standing dealership contracts without due process of law, which had hints of political motivation. But President Obama even fired the old President of G.M., which was no where in the TARP legislative vehicle.  Famous automotive executive Bob Lutz was also forced out of GM as he voiced concerns that the industry was becoming over-regulated which would force him to design vehicles to please government regulators.  Moreover, Lutz dared to voice skepticism about global warming.

In return for the stash of cash and the ability to restructure, it seems like GM pushed their electric car, the Chevy Volt, in an aspirational sales strategy rather than respecting market forces.

The fact that G.M. had an electric vehicle was no surprise.  General Motors had long been participants in the public-private Partnership for New Generation Vehicles cooperative, which sought to bring diesel-electric vehicles that received 80 MPG to the market by 2003.  Additionally, it also produced the General Motors EV-1 to comply with California’s Zero Emission Vehicle Mandate. So from 1996-1999, G.M. leased around two thousand EV-1s mostly in Los Angeles, Phoenix and Tucson.  But after several years G.M. concluded that electric cars were unprofitable, so they exited the market by cancelling the leases and crushed all of the vehicles. Green dreamers wondered “Who Killed the Electric Car?”.

Green dreams are the hallmark of the Obama Administration’s energy policy.   General Motors had showed off a Chevrolet Volt concept car at the International Automotive Show of 2007.  G.M. produced a production model in September 2008 which differed significantly from the concept car in aerodynamic design and twinning it with another production car to keep costs “down” The electric Chevy Volt costs $40,000 and can run for 40 miles just on electricity, whereas the Chevy Cruze costs $20,000 and gets mileage of about 40 mpg.

 After the hope for change coming from Washington, G.M. committed to large scale production of the Chevy Volt.  Those in charge of GM believed that they would sell 10,000 vehicles in Year One and 45,000 vehicles in Year Two.  Well, those sales forecasts might be what former Federal Reserve Chairman Alan Greenspan would call irrational exuberance.  G.M. only sold 7,500 units the first year. These sales may have been assisted a commitment by General Electric (another beneficiary of government largess) to purchase up to 12,000 Volts for fleet vehicles.  But now G.M. is scaling back production of the Chevy Volt to reflect real not imaginary demand, as only 3% of car sales are hybrids despite the hefty $7,500 government rebate. G.M. stopped building Volts for five weeks in early March because it had a surplus of 6,300 cars in stock.  Inquiring minds want to know if G.M. now stands for Government Motors.

Maybe there is a concise political science description when governments tell corporations how to conduct their business. Any suggestions?

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