Repayment Myth

Me and a couple of my buddies, financial analysts both of them, had a laugh when Obama claimed the GM bail out wasn't going to 'cost a dime.'

Governments don't make sound economic investments. They make political investments.

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Aside the stupidity of bailing out a failed company, Obama is banking on GM's rebirth through green policies. A high risk indeed. If taxpayers are going to be "repaid" then the return on investment needs to be quick and high. Forget the money already loss due to favorable write-offs that already has "investors" in the hole.

But he's hardly alone. From Der Spiegel:

"The seemingly wondrous properties of the electric car are being touted in Germany and elsewhere. In the United States, it is officially described as a "zero emission vehicle" -- words that reflect a dream too good to be true. Although the electric car has no emissions, the electricity to charge the batteries has to be generated somehow: through solar, wind or hydroelectric power, through nuclear power or in coal power plants. An electric car can be more or less environmentally friendly, depending on what makes up a country's energy mix.



"We have a perception problem," says Bosch CEO Franz Fehrenbach. According to Fehrenbach, if the industry says that a mid-range car will consume only 3 liters of diesel per 100 kilometers (77 mpg) in a few years' time, this generates little enthusiasm. For an electric car, however, "you get a massive round of applause," even though the carbon footprint of the 77-mpg car with an internal combustion engine is "smaller than that of an electric car."

The German Automobile Club (ADAC) has calculated that a Smart with a diesel engine emits 86 grams of carbon dioxide per kilometer driven. An electric Smart with its battery charged with electricity from coal power plants is responsible for 107 grams of CO2 emissions. In other words, its carbon footprint would be bigger, at least in China, where more than 80 percent of electricity is generated in coal power plants. But if the batteries were charged with electricity from sources based on the current German energy mix, the emissions would drop to only 71 grams."

"...Without government subsidies, electric cars are virtually unmarketable. France offers customers an incentive of €5,000, China offers €6,500 and the United States offers €5,500 (see graphic)."


"...According to a study by Deutsche Bank, about 5 million electric cars could be registered in the European Union in 2020, which would still only amount to 2 percent of all cars. "But even this proportion can only be attained," the study states, "if the costs of electric cars come down dramatically in the next few years."


Similar fate awaits the Volt. Even if they attain the units sold touted by Obama, it will be nowhere near enough to repay anything.

"We want the battery technology, and we're working on it at full speed," says VW CEO Martin Winterkorn, "but it's important to tell people the plain truth." The costs are still too high, the ranges too short and the charging times for batteries too long. Safety is also a concern, at least with the controversial lithium-ion batteries. Laptop and mobile phone makers have already had to recall some of their products because of a risk that the batteries could catch fire and explode."


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If the Germans say it, then it must be...true.

Classic case of the ideal outrunning the reality.