Business World Blog

So Nancy Pelosi and Barack Obama officially have themselves a car company now. There’s a lot of speculation going on about what will happen. Personally, I think there’s a lot of overreaction.

I do believe GM is going to overdue it on the small car front. When I think of any reason to buy a GM car, I generally think of a cadillac, camaro, or perhaps a truck. Basically, something that’s a specialty vehicle that’s cool. I don’t think of small and efficient. Apparently, GM is going full board on that front…to the point of probably overdoing it.

Right now, that Chevy Volt looks like a flop in the making. The car will likely cost between $30-$40k.  No one has that type of money, and if you do, you don’t mind gas prices, even if they are $5 a gallon by then.

I also don’t think the federal government will be able to subsidize GM into profitability. Obama’s approval rating is already deteriorating. He is also using a lot of political capital for projects such as health insurance, green standards, and education issues. They won’t have the leverage to push us into a full-scale protectionist trade war to save GM (and destroy the economy), so tariffs on foreign operators are likely out. Massive government discounts will likely be out as well. Not only as a political capital issue, but with the budget deficit exploding, both Republicans and blue dog democrats are going to turn a deaf ear to pleas to give out money to car buyers.

In short, I don’t see GM really doing that much. I just think it’ll shrink. It’ll continue to lose market share since it won’ t deliver what people actually want. I don’t think the government will be able to force us into buying GM cars…I just see a slow bleed. By 2016, GM will be taken over by a competitor or a private capital firm will take it over and shake things up.