Opinion by Jack Baruth
On the way out to my property in rural Ohio last week, I saw the rarest of things: an actual child-operated lemonade stand. They long ago disappeared from cities and most suburbs — most of us no longer live in a society where we will willingly accept a homemade drink from a stranger. I am ashamed to admit that I had my own querulous, City Mouse concerns about stopping — but I did, I talked to the children, I bought a drink, and perhaps I played a tiny role in creating the next generation of entrepreneurs.
Let’s say you’re a child who runs a lemonade stand. One evening, you read a survey that says something like: 22% of lemonade-stand visitors would be willing to drink cranberry juice instead, while 44% won’t consider it under any circumstances. Only 4% of customers really want cranberry juice right now. Can you imagine a situation in which you would not just switch to cranberry juice as your only offering as soon as possible but you would also actively destroy your ability to offer lemonade in the future?
I can only think of one such situation, and I bet you can, too: if mom and dad told you to do it. They know what’s best. And if your new cranberry juice stand fails spectacularly, they’ll step in and make sure you have your allowance anyways. There’s no risk, really — but if you don’t listen to them, you’ll be grounded while your friends are outside playing all summer. In a situation like that, every child knows what to do. Time to trash the lemons and break out the Ocean Spray.
That’s the situation facing American automakers right now. Replace “cranberry juice” with “electric vehicles,” and you’ll have the results from a recent study by intuit.ive. Given that most people will adopt a more progressive posture to a surveyor than they will behind closed doors, the percentage of buyers who will really consider an EV for their next vehicle is probably less than 22%.
Yet the manufacturers are “all-in” on EVs. I’ve been told privately by several senior “Big Three” engineers that future development of “ICE,” or gas- and diesel-powered vehicles, has been all but canceled. Meanwhile, brands like Cadillac are announcing an EV transition in the next five or 10 years. In Cadillac’s case, that move has been so unpopular with the dealers that 1 in 5 is planning to take a buyout and close its doors.
It’s axiomatic in this business that the dealers understand the buyers much better than the automakers do. So why would GM, Ford, and Stellantis commit to a future course of action that their own partners, who are keenly aware of what will sell in the real world, can’t abide? Obviously, they’re worried about mom and dad, played in this scenario by the United States government.
The latest statement by the Biden administration is hardly any less ambiguous than a stern lecture from one’s mother. President Joe Biden claims to have “United automakers and autoworkers around an ambitious target for 50% of new vehicles sold in 2030 to be electric.” If my contacts in the industry are any guide, that “uniting” was more like “coercing.”
The federal government has immense power to punish automakers, which at any given moment are mired in astoundingly deep and complex interactions and negotiations with a slew of alphabet agencies regarding everything from the way automotive emissions are tested to whether or not it’s allowable to dodge a long-standing import tax for commercial vans built overseas by bringing them from Turkey with seats installed, removing those seats, selling the vans without the seats, then shipping the removed seats back to Turkey for installation in another van. (Yes, that really happens.)
That’s the stick, and it’s a serious one. What’s the carrot? It comes in two sizes. The child-size serving of carrot is this: As perhaps the largest institutional customer for new vehicles, the federal authorities can turn a loser of a product line into a winner, or vice versa. One example: Because the old Grumman LLV mail truck was based on the 1982 Chevrolet S-10, General Motors was able to produce and sell an extra 140,000 S-10 chassis/drivetrain packages all the way to 1994, long after the tooling was paid off and genuine consumer interest in such a vehicle was dead.
The adult-sized carrot was hauled out when the administration “bailed out” GM and Chrysler in 2009. Everyone in the business remembers the wide range of concessions demanded in the process, and few are eager to repeat it, particularly with regard to white-collar compensation. When the automakers look into their crystal balls, they see a nightmare future of soaring fuel prices, a sagging economy, and intense government regulation. There’s going to be another bailout at some point. And it is widely believed that the terms of the bailout will be hugely influenced by how the automakers behave today.
There’s also a bit of decidedly old-tech, Gordon Gekko-style greed behind this mass genuflection to a naked and battery-powered emperor. The hard-line financial and production guidelines that Wall Street used to judge an automaker 40 years ago have been replaced by tech-bro envy and obsession with “environmental, social, and governance” investments. Tesla and Rivian combined can’t produce as many cars as the average GM line, or produce them as well, but the market-makers on both coasts never tire of throwing money on those particular fires. Can you blame the Big Three for wanting a piece of that blue-sky valuation?
Unlike the talking heads in the media, the automakers know that mass production of electric vehicles within seven years will be somewhere between a disaster and a catastrophe. The raw materials are in short supply and largely controlled by China. The technology isn’t advancing as rapidly as was hoped, particularly with regard to batteries. And the charging infrastructure won’t be remotely prepared for the onslaught of 7 million or 8 million new EVs a year.
If one of the Big Three broke ranks and abandoned the EV strategy, they would be like the prisoner who snitches in the famous “prisoner’s dilemma,” making billions of dollars selling new-generation gas cars to a line of eager customers while the competition produces showroom paperweights. But that won’t work if the government steps in at the eleventh hour and makes gas or diesel cars all but illegal through executive orders or bureaucratic action.
Consequently, the Big Three companies, along with the foreign automakers who do significant business here, are moving their engineering and production capacity to EVs while also pressuring the administration to back their play with both legal and financial incentives. At the same time, they are preparing to make their case for a full federal bailout when the EV rollout fails and customers demand the “old” cars en masse. Every automaker with a serious presence in America needs to walk lockstep into the same buzz saw at the same time, arm in arm, each hoping that they have more political clout than the competition and will therefore get better bailout terms.
The best-case scenario is that the government makes EVs mandatory regardless of how well they meet the needs of the public and then covers the automakers’ losses as a thank-you for toeing the line. That also happens to be the worst-case scenario for consumers, but let’s face it: Since 2008, there’s really been just one important customer for the Big Three, and he lives in the White House. Don’t be surprised to see your local lemonade stand switching to cranberry juice in the near future. You might not like it, but the children are just doing what mom and dad said they had to. And, of course, it’s what’s best for you, too, even if most of you don’t want it and never will.