Starkman: EPA's Takeover of Detroit's GM and Ford

April 18, 2023, 9:56 PM

The writer, a Los Angeles freelancer and former Detroit News business reporter, blogs at Starkman Approved. This column first appeared on his blog. 

By Eric Starkman

The job of CEOs is to determine the strategic direction of the companies they oversee. That’s why they are paid the big bucks, or as is the case with GM CEO Mary Barra and Ford CEO Jim Farley, mega bucks. Barra’s 2022 compensation hasn’t yet been disclosed, but she earned $29 million in 2021. Farley last year was paid $21 million, when Ford racked up a $2 billion loss.

Barra and Farley aren’t very good at their jobs. Electric vehicles are deemed the future, and GM sold a mere 40,000 last year. Barra promises that by mid-century she will be selling more electric vehicles than Elon Musk, but indications are Wall Street isn’t sold. GM’s stock price closed today at $35, five dollars less than what the shares traded for when Barra assumed command nine years ago.

Farley became CEO in August 2020 and was given a mandate to improve Ford’s dismal quality control. Ford last year issued a record 67 recalls; while some of those recalls involved vehicles assembled prior to Farley becoming CEO, late model vehicles were also impacted, including the electric Mustang, which Ford proudly assembles in Mexico.

What Barra and Farley have in common is a professed love and commitment for electric vehicles. Barra loves them so much that by 2035, GM will only produce electric vehicles. Farley also wants to churn out EVs as fast as possible, and the company has already electrified is popular F-150 pickup.

Decades Behind

Unfortunately, GM and Ford are two decades behind Tesla, which has been singularly focused on manufacturing electric vehicles since 2003. The lack of experience shows, as one would be hard pressed to argue GM’s and Ford’s transition to EVs is going smoothly.

GM in 2021 was forced to spend $1 billion to recall all its Chevy Bolts because of battery fire risks. The company last year had to stop selling and manufacturing its high margin electric Hummers while it figured out a potential problem with water seeping into the battery pack. GM aims to produce 36,000 electric Cadillac Lyriqs in the U.S. this year, 9% lower than its original target. GM’s first Ultium Cells’ battery plant in Ohio took longer to get up and running because the company misjudged the time required to train employees and it took longer than expected to assemble the battery pack.

Barra has talked up a storm about GM’s driverless taxi Cruise business but Wired recently reported that problems with the company’s autonomous vehicles are more pervasive than publicly known. Wired’s findings support a warning from someone claiming to be a Cruise employee who sent a letter to California regulators cautioning the company’s autonomous vehicles weren’t yet ready for prime time. Federal regulators are conducting a probe.

Jim Farley

Ford also has stumbled with its EV conversion. In addition to its half dozen or so Mustang recalls, Ford was forced to halt manufacturing of its electric F-150 Lightnings because one mysteriously erupted in fire in a holding lot, torching other nearby vehicles. Ford initially said no recalls would be required, then recalled 18 of the vehicles.

Farley has admitted that Ford still hasn’t figured out the fine points of EV manufacturing.

“To say I’m frustrated is an understatement,” Farley told analysts. “We left about $2 billion in profits on the table that were within our control.”

One must learn to walk before breaking into a run, so it would seemingly make sense to give GM and Ford some breathing room to master EV manufacturing and have a fighting chance to compete with Tesla.

Hard Sprint

Michael Regan, who oversees the Environmental Protection Agency, thinks otherwise. Regan maintains that GM and Ford need must not only learn to run but break out into a hard sprint.

Regan last week proposed rules that would effectively require over 60 percent of auto sales to be electric by the end of the decade, up from the current level of about 5.6 percent. That’s up from the Biden Administration’s initial target that EV sales constitute 50 percent of total sales by 2030, which many considered unreasonable to begin with.

Readers who rely on the entrenched media for their news, particularly NPR, are forgiven if they believe Regan’s aims are reasonable and doable. The entrenched media’s coverage was supportive of Regan’s bold plans.

“The (Biden) administration is going to make history,” NPR quoted Margo Oge, a former EPA official and the chair of the board of the International Council on Clean Transportation. Oge made her comments at a press conference organized by the Environmental Defense Fund, an advocacy group whose assumptions are baked into the EPA’s projections.

While NPR recently took umbrage with Elon Musk labeling the organization “state affiliated,” its story on Regan’s plans included a photo of Vice President Kamala Harris charging an electric vehicle.

Few Challenge

In the current climate, daring to question an accelerated conversion to electric vehicles immediately invites charges that one is “anti-climate” and “anti EVs,” so few have the courage to challenge Regan’s plans. One brave soul is Patrick Anderson, a Michigan economist who follows the auto industry and drives an electric Chevy Bolt so he can’t be dismissed as being an EV opponent. “The EPA’s proposed rule cites press releases (yes, press releases) and statements by advocacy groups as evidence that this transformation is feasible,” Anderson posted on his LinkedIn page. “This is an extremely weak basis for ordering an entire industry to close down assembly lines and shutter factories while planning to build vehicles that have not yet been designed.”

Anderson was particularly bothered by the EPA’s flimsy analysis to support its goals.

“Remember when government officials instructed you to ‘Follow the science’? The EPA has an improved version: ‘Trust the press releases,’” Anderson posted.

“You might like electric vehicles. You might think that the EPA should push for lower emissions from vehicles. I happen to agree with you on this and will be driving my own BEV today. However, the law requires regulations to be based on evidence, logic, and sound economic analysis. Tallying up press releases–which appear to be the EPA’s primary basis for claiming feasibility–is clearly not what the law requires.”

Another issue with the EPA’s EV sales targets is a pesky challenge to assure sufficient availability of public chargers.  

Amaiya Khardenavis/Wood Mackenzie

Biden’s goal was to have 500,000 chargers in place by 2030, but according to Amaiya Khardenavis, an EV charging infrastructure analyst at Wood Mackenzie, that wouldn’t be nearly enough if Biden’s 50 percent of EV sales target was accomplished. Khardenavis calculated that 1.5 million public chargers, or three times as many public chargers would be required.

Khardenavis told The Hill he hadn’t yet done a revised analysis on the EPA’s proposal but said it would most assuredly require even more than 1.5 million public chargers.

Chargers require a reliable grid, but it’s far from certain that America’s is sufficient to support a massive increase of EV sales. Power grid operators are increasingly warning about the instability of their grids due to an over-weighting of wind and solar power, which have inherent limitations.

“The coming grid disaster is the number one danger to US manufacturing, hands down,” Jim Vinoski, a Grand Rapids, MI-based manufacturing consultant and Forbes contributor, posted on his LinkedIn page. In response to a proposal from Michigan Democrats requiring utilities to use 100% carbon free energy by 2035, Vinoski advised state manufacturers to relocate.

“Producing stuff successfully relies heavily on reliable power, and this coming beyond-idiotic mandate will further destroy our already-crumbling electrical systems,” Vinoski said.

It’s understandable that the EPA’s Regan doesn’t sweat the details. His bio reveals that he is a career civil servant who has never run a business, let alone an automotive company. Prior to his nomination as EPA Administrator, Regan served as the Secretary of the North Carolina Department of Environmental Quality (DEQ). Earlier he served as Associate Vice President of U.S. Climate and Energy, and as Southeast Regional Director of the Environmental Defense Fund.

Michael Regan

Regan’s proposal reveals the EPA is only concerned with the U.S. environment. The mining of metals and minerals required to build EVs and batteries is wreaking environmental havoc in the Congo, Indonesia, Brazil, and elsewhere but the EPA doesn’t appear to care. Stellantis NV CEO Carlos Tavares has warned that volume projections for battery-powered electric vehicles likely far outstrip the capacity to mine and process minerals to meet skyrocketing demand for batteries so there’s no time to require improved and safer processes.

As well, China controls the supply chain required to build electric batteries and Regan’s proposal doesn’t address how the U.S. auto industry can secure their own reliable sources.

GM’s Barra and Ford’s Farley have been understandably silent about criticizing Regan’s ambitious goals. The Biden Administration and Michigan Gov. Gretchen Whitmer, who has designs on the White House, have heavily subsidized GM’s and Ford’s EV businesses. That’s the downside of GM and Ford becoming wards of the government – it emboldened a bureaucrat to dictate the direction of the businesses.

Reach the writer at Confidentiality is assured.

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