Home' Trinidad and Tobago Guardian : April 10th 2014 Contents APRIL 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG21
When Mary Barra took the wheel at General Motors
in January, she inherited a company in good shape.
Five years after bankruptcy, its profits were exceeding
expectations and its share price was rising.
Nonetheless, the new boss s to-do list was long:
fixing GM s money-losing European arm, keeping up
momentum in China amid signs of a slowdown and
rejuvenating the product line. Barra s predecessor, Dan
Akerson, warned her that she would also face "curve
The first has arrived sooner than she may have
What in mid-February appeared to be a routine
recall of about 800,000 older models, linked to a faulty
ignition switch, has turned out to be anything but. The
number of cars recalled has leapt to more than 2.6
million. The company s inept handling of a safety prob-
lem that first became apparent a decade ago now is
linked to the deaths of at least 13 motorists.
Called before Congress on April 1 to answer for GM s
failings, Barra said that she was "deeply sorry," but
insisted that the post-bankruptcy "new GM" was not
like the "old GM," which had failed to deal with the
ignition switches for years. Politicians and the public
alike want to know how such a problem could have
remained unaddressed for so long.
Cars are becoming ever more complex machines,
with thousands of mechanical and electronic parts.
Recalls are not uncommon. Last year it happened to
22 million vehicles in America, compared with 18 million
in 2012. In fact, GM was one of only three brands that
recalled fewer vehicles than it sold. Niggling problems,
such as squeaks or rattles, that do not affect safety are
more common still. They may be fixed at a routine
service, and the owner may never know.
The growing number of recalls is testament to an
improving system for picking up faults, but it is com-
plicated. Dealers must record replacements of parts
under warranty. The carmaker needs to spot the trend,
recognise it as a problem and then determine whether
or not it is a design fault that requires wholesale replace-
ment. It relies on accurate recording of every warranty
replacement in every region, says Andrew Bergbaum
of Alix Partners, a firm of consultants.
This system appears to have broken down at "old
GM" Barra needs to find out why.
At the heart of the matter is a widely used ignition
switch that has a tendency to slip from the "on" position
to "off" if a driver uses a heavy keychain or bounces
down a rough road. A modification was made in 2008
to prevent the problem, which can lead to the engine
shutting off, disabling the air bags. Despite a growing
list of crashes and deaths, however, GM failed to order
a recall for a component that would have cost a few
dollars at most.
This is odd. Most carmakers want to identify and
fix problems speedily, despite having to bear the cost
of buying and fitting a new component. A small part
can do great harm if bad publicity leads to reputational
corrosion, lost sales and litigation, which in America
can include hefty punitive damages. Appearing to put
profits before safety also is liable to batter a firm s
shares, as GM has discovered.
So far Barra has handled the situation well. She
seems to have acted as soon as she found out that
something was awry, and she has borrowed strategies
from Toyota, which was forced into recalling more than
10 million vehicles in 2009 and 2010 after worrying
instances of "unintended acceleration."
GM, like Toyota, has appointed a worldwide safety
czar to cut through the bureaucracy that may have
delayed action on the faulty switch. In a frenzy of
housecleaning, GM has recalled another two million
vehicles in America alone.
GM looks set to accept moral, if not legal, respon-
sibility. The terms of its exit from bankruptcy give
immunity to lawsuits for injuries arising beforehand.
@2014 The Economist Newspaper Ltd. Distributed by the
New York Times Syndicate
What's bad for
hard. Perhaps 10 bcm could come from
Norway. Shares in Statoil, Norway s state
energy company, have jumped by 7 per cent
since the revolution in Ukraine, notes John
Olaisen, an analyst at ABG Sundal Collier,
a Norwegian bank.
What about gas from farther afield?
Europe has the capacity to import much
more LNG. Its 2013 LNG imports, 45.7 bcm,
were much lower than the 2011 peak of 86.5
The problem here is inelastic supply. The
countries which export LNG cannot simply
churn out more of the stuff. The plants
which liquefy the gas cost billions of dollars,
so they tend to be running at full blast
already. Most of what they make they already
are selling, at high prices, in Asia. Japan
needs LNG to keep the lights on, having
shut down its nuclear power plants after
the Fukushima disaster. China is trying to
burn less coal because of public anger at
Europe might be able to find another 10
bcm of LNG, analysts reckon, but it would
pay about twice what Russian pipeline gas
There also is the option of generating
electricity from coal instead of gas. However,
a side effect of America s shale-gas revo-
lution is that it now exports cheap coal to
the EU, which in part is why LNG imports
have declined. Europe already is running
most of its coal-fired stations at high capac-
ity. There might be some slack, and there
also are some mothballed stations that burn
fuel oil, but there is no large pool of under-
used generating capacity.
Rather than face the economic pain that
a 30 bcm gas shortfall would impose,
Europe s leaders will focus on helping
Ukraine pay its bill. This is one reason why
prices for traded gas have barely budged
since the crisis started.
Sorting out the country s notoriously
murky energy sector will be high on the
reform agenda. Ukraine still does not have
meters at the points where the pipelines
enter from Russia, making all discussions
about quantity and price questionable.
Cuts in the energy subsidies which lead
Ukrainians to burn gas so wastefully are
sure to be required in return for money from
the International Monetary Fund. Ukraine
currently produces 20 bcm of gas. If it were
as efficient in its use as some countries are,
it could be more or less self-sufficient.
Europe also will seek to lessen its reliance
on Russia in the longer term, a challenge
made all the harder by the fact that current
trends have gas demand going up in the
decade to come. According to AT Kearney,
a consultancy, imports are set to climb from
327 bcm today to 413 bcm in 2020.
In March the EU s heads of government
gave the commission until June to produce
a plan for reducing energy dependence. That
is likely to give a push to storage capacity
and to both more and larger interconnectors.
It could strengthen requirements for coun-
tries to maintain a strategic gas reserve, and
it ought to stress energy efficiency too.
It also will look at new pipeline plans.
Technological change may help matters.
The cost of import terminals that turn LNG
into usable gas has fallen sharply, with cus-
tomers now able to rent floating facilities
when they need them, rather than building
costly ones on land. Lithuania s new $325-
million floating LNG terminal, the South-
Korean-built, pointedly named Independ-
ence, will start work by the end of this year.
In the longer term liquefaction plants which
use electric motors, rather than huge tur-
bines, look set to reduce the size and capital
costs of export terminals. That could bring
much more LNG onto the market from off-
shore fields and remote places.
Since Europe uses 31 per cent of its gas
to make electricity, it also is possible to
reduce reliance on Russia by changing gen-
erating technology. To some extent Europe s
push for renewables already is doing this,
but at the moment renewables need fossil-
fuel-fired capacity for backup, and gas is
the fuel of choice.
Better electricity interconnectors could
reduce that need for gas by making it easier
to export electricity from renewables-rich
markets such as Germany on sunny or windy
days and to import it on dark or still ones.
As with gas interconnectors, forging such
links requires a pan-European push. To
make it work on a large scale will require
new pricing strategies to compensate the
owners of fossil-fuel plants pushed off the
grid when renewable energy from other
countries flows in.
Interconnectors also can help substitute
one renewable for another. Hydropower, like
gas-fired power stations, can be turned on
easily when the wind falters, but it is not
evenly spread: Sweden and, particularly,
Norway have a great deal of it, Germany
and Benelux not so much. There currently
are plans for as many as five new intercon-
nectors from Norway to the E.U. to be built
by 2020, with a capacity of as much as 5
GW. Providing 5 GW from gas plants would
take around 10 bcm a year. Norway could
generate much more hydropower, given a
market, and, with better interconnectors, a
great deal more solar power could come up
from the south, perhaps including north
Though making a real dent in Europe s
reliance on Russian gas will take political
will, money and the best part of a decade,
merely moving in that direction will shift
the balance of power, because it will signal
a fundamental truth: In the end the Kremlin
needs its European customers at least as
much as they need Russian imports.
Oil-and-gas exports make up 70 per cent
of Russia s $515 billion annual exports and
52 per cent of its federal budget, according
to America s Energy Information Admin-
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Risks of relying on Russian gas
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