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Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Is General Motors manipulating its sales numbers?

Is General Motors manipulating its sales numbers?

Are General Motors' sales a lot worse than they seem? Is GM recording inventories that it is sending to dealers as "sales"? What sales there are seems to be sales to the government. Is GM really government motors? From "The Truth about Cars":
A lawsuit filed by a Florida investor against General Motors over the age-old practice of “channel stuffing”, or sending inventory to dealers and recording it as a “sale”, so that revenue numbers can be pumped up while the vehicles languish on dealer lots. The practice of channel stuffing is universal in the auto industry, but in this case, the consequences are much broader. . . . While General Motors is touting their 32 percent year-over-year increase in sales, a closer look at the numbers reveals a couple of things. According to Bloomberg, inventory for full-size trucks was at a 135 day supply, as GM ostensibly cranked out profitable pickups and sent them off to dealers across the land, allowing them to book sales of their most lucrative vehicles just in time for the half-way mark – and coincidentally (or not), government purchases of GM vehicles rose 79 percent in June. Retail sales were up a mere 8 percent, while fleet sales rose by 36 percent. . . .
GM protected from product liability claims over old cars

GM protected from product liability claims over old cars

I think that there are too many product liability suits, but what would the reaction be if a Republican was responsible for this?  I have mentioned this in my op-eds on this topic, but it is nice to see this getting more coverage.  From the WSJ:

A General Motors Co. (GM) lawyer demanded the widow of a car-crash victim drop a plan to seek punitive damages from the auto maker, even though the company's government-brokered overhaul doesn't bar plaintiffs from going after such legal penalties.The GM lawyer in a March 3 email told a lawyer representing the widow of a man killed in a GM-made U-Haul truck that GM couldn't be sued for punitive damages in the case. Other lawyers say that assertion stretches beyond what they believe is GM's legal exposure in product-liability cases. Even so, after receiving the email, the widow's lawyer abandoned plans to make a claim for punitive damages against GM.
Punitive damages are intended to punish corporations and others for reckless or intentional wrongdoing, such as selling products despite knowledge of their dangerous defects. Their goal is to deter future wrongdoing by the defendant or others poised to engage in misconduct.
The dispute highlights questions now arising over how much legal protection GM and Chrysler Group LLC have in certain product liability cases following 2009 government rescues that exceeded $70 billion. A bankruptcy judge allowed Chrysler to immunize itself from new punitive-damage claims arising from alleged manufacturing defects in vehicles sold before its restructuring. Chrysler's immunity was the subject of a Page One article in The Wall Street Journal on April 5. . . .

Newest piece at National Review Online: Obama and GM Cook the Books

My newest piece at National Review starts this way:

Would you hire President Obama as your financial adviser? Three years ago his administration invested more than $100 billion in taxpayer money to bail out General Motors. On Tuesday, the entire company, not just what the government owns, was worth less than $34 billion. By anyone’s definition, that investment is a glaring failure. Yet over the last few days the Obama campaign, in a $25 million marketing blitz, has flooded the airwaves with ads in battleground states, claiming the bailout should be counted a rousing success.
Unfortunately, assertions that “all loans have been repaid to the federal government,” that the bailout “saved more than one million American jobs,” that “U.S. automakers are hiring hundreds of thousands of new workers,” that GM is again the “number-one automaker” — all are based on creative accounting. . . .
Prediction: France's economy will worsen relative to the rest of the EU

Prediction: France's economy will worsen relative to the rest of the EU

With Krugman and other Democrats claiming that austerity policies have been the problem in Europe, we will soon have a big test.  Just like Germany's and Poland's policies have been a big test that restraining government spending has worked well and Greece, Spain, and Portugal have provided excellent tests for the opposite, France will now provide another test.  Does raising government spending, increasing deficits, taxing the wealthy sound familiar?


Here are some articles on topics that we will hear more about:


From the Financial Times:

. . . . François Hollande, the Socialist candidate who leads the presidential race after the first round of voting last week, wants to impose a tax rate of 75 per cent on income above €1m and at the launch of his bid in January said: “My true adversary in this battle has no name, no face, no party ... It is the world of finance.”Inquiries from French clients had risen by roughly 40 per cent since the speech, says David Blanc, a partner at Vestra Wealth, a London-based wealth manager.
“I have definitely seen strong interest in what could be done to protect assets both for people resident in France but also for French nationals who are UK resident,” said Mr Blanc, a former UBS executive.
The prospect of a Gallic diaspora of high earners was backed up by Knight Frank, the property agent, which said numbers of French web users searching online for its prime London properties online in the past three months had risen 19 per cent compared with the same period last year. The equivalent figure for Europe as a whole fell 9 per cent.
“The election seems to have pushed a growing number of wealthy French to consider their options for where they are likely to base themselves in the future,” says Liam Bailey, head of research at Knight Frank. . . . 
From the UK Independent:

France will be waking up today to its first Socialist President for 17 years – and bracing for radical change. There are all kinds of reasons why one might fear a François Hollande presidency, especially if you are a prosperous French person.The 57-year-old Socialist has openly admitted that he "does not like the rich" and declared that "my real enemy is the world of finance". This means taxing the wealthy by up to 75 per cent, curtailing the activities of Paris as a centre for financial dealing, and ploughing millions into creating more civil service jobs.Add an explicit threat to renegotiate the euro pact to replace austerity with "growth-creating" spending, and you have one of the most vehemently left-wing programmes in recent history.German Chancellor Angela Merkel – the woman at the centre of the Franco-German economic powerhouse which has dominated Europe – was at one stage even threatening to campaign for her conservative ally, Nicolas Sarkozy, against Mr Hollande.Caution is justified, though one thing Mr Hollande will not repeat is the disastrous tax-and-spend policies introduced by France's last Socialist President, François Mitterrand, in 1981. He was soon forced into a humiliating U-turn, and into sharing power with the right as the Communists quit his cabinet in protest. . . .

Not as radical as Mitterrand? Well, who in the US is advocating these types of policies?

Will Greece continue to repudiate any notion of fiscal responsibility and continue the Keynesian path it has been on?  Can the anti-bailout parties in the EU form a minority government with some help from the Communists on issues with which they agree?  From Reuters:
Greece's Left Coalition called on Sunday for an anti-bailout coalition, saying the country's general election showed that austerity policies had been soundly defeated and a peaceful revolution ushered in.
The Communist KKE - which believes Greece should abandon the euro - immediately rejected Tsipras's call for a leftist alliance.
"Mrs Merkel needs to understand that austerity policies have suffered a huge defeat," said Left Coalition leader Alexis Tsipras, referring to German Chancellor Angela Merkel. . . .



New Op-ed in the Philadelphia Inquirer: "U.S. money given to GM has been a bad investment"



The print version of my new piece starts this way:
If you invested more than $100 in a company, would you be happy if your shares were worth only $35? By anyone’s definition that investment would have been a terrible failure.
Yet, that is how the federal government’s investment in General Motors looks. The federal government has put in well over $100 billion into shoring up General Motors, but the entire company, not just what the government owns, was worth only $35 billion on Friday.
GM sales have bounced around, rising in March and then falling in April, but investors’ best guesses for what future sales will be are already in GM’s stock price. And surprisingly, a recent Rasmussen poll shows that support for the bailout has been rising and now 44 percent of likely voters say that the bailout was good for America.
The money the government spent adds up quickly: $50 billion in TARP bailout funds, a special exemption waiving payment of $45.4 billion in taxes on future profits, an exemption for all product liability on cars sold before the bailout, and $360 million in stimulus funds. Other money of which it is harder to quantify GM’s share includes the $15.2 billion Cash for Clunkers program and the $7,500 tax credit for those who buy the Chevy Volt. And all those costs don’t even include the billions taken from GM’s bondholders by the Obama administration. . . .

Some sources for the piece:

Under a deal struck by the UAW during GM's bankruptcy, laid-off non-union workers will not be hired back

Under a deal struck by the UAW during GM's bankruptcy, laid-off non-union workers will not be hired back

From the WSJ:
Even General Motors Co.'s Lordstown, Ohio, complex, long known for its money-losing small cars and its bad labor climate, is running 24 hours a day, with more than 4,000 workers churning out hot-selling Chevy Cruze compacts. But here in Moraine, the GM assembly plant closed for good. Despite being one of GM's most productive and cooperative factories, Moraine was closed following the company's 2007 labor pact with the United Auto Workers union. Under a deal struck by the UAW during GM's bankruptcy two years later, Moraine's 2,500 laid-off workers were barred from transferring to other plants, locking them out of the industry's rebound. The trouble with Moraine: Its workers weren't in the UAW. "We did everything we could to keep that plant open and keep our jobs," said Mitchell Wood, a 44-year-old father of two who used to attach tailgates onto sport-utility vehicles at Moraine. "But in the end, we didn't have a chance, not being in the UAW." The plight of Moraine workers highlights the extraordinary role played by the UAW during the near-collapses and bankruptcy reorganizations of GM and Chrysler Group LLC. That role remains a political flash point today. Democrats have cast President Barack Obama and the UAW as saviors of America's auto industry. Republicans call the help a taxpayer-funded giveaway to the president's union allies. . . .
"44% Now See Auto Bailouts As Good for America"

"44% Now See Auto Bailouts As Good for America"

Rasmussen Reports has a new poll out. The one sided discussion on the impact of this bailout seems to be having an impact.
American voters have disliked the government bailouts of the financial and automobile industries since day one, but they now view the auto industry bailout more positively than the one given to banks and insurance companies. Forty-four percent (44%) of Likely U.S. Voters say the government bailouts of the auto industry were good for America, a new Rasmussen Reports national telephone survey finds. Only slightly more (47%) now say the auto bailouts were bad for America. . . .
Vice President Joe Biden declares that 'General Motors is the largest corporation in the world again'

Vice President Joe Biden declares that 'General Motors is the largest corporation in the world again'

Has the bailout been really this successful? That is what Biden claimed on Face the Nation.
"Look, you know, everything that he said, the American people don't think the policies have worked. Romney argued about let — not an exact quote — but let Detroit go bankrupt. Wasn't very popular action the president took. Now they're hiring people. You know, hundreds of thousands of new people instead of losing 400,000 jobs. General Motors is the largest corporation in the world again."
See also this here.
On the broader-based Forbes list, Volkswagen weighed in at No. 24. Daimler (think Mercedes-Benz) hit No. 43. Ford and Toyota ranked No. 54 and No. 55. General Motors trailed at No. 61. . . . • No. 18 in sales • No. 70 in profit • No. 155 in assets • No. 148 in market value
Charles Krauthammer on how Romney should handle the Bain issue

Charles Krauthammer on how Romney should handle the Bain issue

Krauthammer's advice?

Charles Krauthammer: Number one. Never use the phrase net-net. It makes you sound like some cold-blooded capitalist.

Number two. Here's what I would do, a jujitsu on Obama, and say look, Obama and the government went in and tried to rescue GM and Chrysler. What did they do? They went in and they slimmed it down. A lot of workers lost their work. A lot of dealerships were closed. The Pontiac line and other lines were shut down. A lot of individual suffering. And that was the Democrats, that was the government. That was the people who supposedly are the ones who care about the workers of the middle-class. That's what you have to do when a business is about to go under and everyone is going to lose his job. You slim it down, make it efficient and productive, and then you save the jobs and then you grow it so that later on you add on to other jobs. Which is in fact what happened to some of the failing companies that the Bain Corporation invested in. . . .

A lot of Chevy Volt sales being purchased with taxpayer dollars


So sales are getting near 6,000, but even those anemic sales are due to government paying for the purchases. The numbers are even worse when you consider the massive subsidies given to produce the cars. From the Michigan Capitol Confidential:

Each Chevy Volt sold thus far may have as much as $250,000 in state and federal dollars in incentives behind it – a total of $3 billion altogether, according to an analysis by James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy. . . .

The Volt subsidies flow through multiple companies involved in production. The analysis includes adding up the amount of government subsidies via tax credits and direct funding for not only General Motors, but other companies supplying parts for the vehicle. For example, the Department of Energy awarded a $105.9 million grant to the GM Brownstown plant that assembles the batteries. The company was also awarded approximately $106 million for its Hamtramck assembly plant in state credits to retain jobs. The company that supplies the Volt’s batteries, Compact Power, was awarded up to $100 million in refundable battery credits (combination tax breaks and cash subsidies). These are among many of the subsidies and tax credits for the vehicle.

It’s unlikely that all the companies involved in Volt production will ever receive all the $3 billion in incentives, Hohman said, because many of them are linked to meeting various employment and other milestones. But the analysis looks at the total value that has been offered to the Volt in different aspects of production – from the assembly line to the dealerships to the battery manufacturers. . . .

GM has estimated they’ve sold 6,000 Volts so far. That would mean each of the 6,000 Volts sold would be subsidized between $50,000 and $250,000, depending on how many government subsidy milestones are realized.

If battery manufacturers awarded incentives to produce batteries the Volt may use are included in the analysis, the potential government subsidy per Volt increases to $256,824. For example, A123 Systems has received extensive state and federal support, and bid to be a supplier to the Volt, but the deal instead went to Compact Power. The $256,824 figure includes adding up the subsidies to both companies.

The $3 billion total subsidy figure includes $690.4 million offered by the state of Michigan and $2.3 billion in federal money. That’s enough to purchase 75,222 Volts with a sticker price of $39,828. . . .

Rattner: "We Never Said Taxpayers Would Get Auto Bailout $ Back"


There are many things wrong with Rattner's claims. For example, Rattner misstated how much taxpayer money was put into bailing out the industry. His $82 billion number ignores the $45 billion in special tax benefits given GM, exemption for product liability, the Stimulus dollars, as well as "Cash for Clunkers." The Washington Post points to other problems.
Here is my bet: Britain's financial sector will do better than the EU's in the future

Here is my bet: Britain's financial sector will do better than the EU's in the future

For those who blame private financial institutions and not the government for the recession, the EU is offering them what they want. The problem is that they have the government to blame and more government isn't the solution. It should be a pretty simple test to see who is right. From Reuters:

At that point, the British prime minister set out two concessions he wanted in exchange for Britain's support on treaty change. "One was a safeguard on the internal market ... but that was not the problem," the official said. "Then he launched the idea on financial services."

Financial services account for about 10 percent of Britain's economy and the government has been at pains to shield the sector from regulation emanating in Brussels. Britain had shared the outlines of its thinking with some of its partners, officials said, but it hadn't circulated anything approaching a document sufficiently detailed to form the basis of discussion. For that reason, the demands were news to many of the people around the table. But it wasn't just the way Cameron went about it, it was the substance of the demands. He was effectively asking for a softening of regulation on Britain's financial sector at a time when many voters and politicians believe banks are largely to blame for the crisis Europe is suffering and want tighter regulation on the sector.

"Politically speaking, when the banks are considered the enemy and the root of all the problems we have today, Cameron's arguments were the wrong arguments at the wrong time for the wrong people," the official said. "Politically, he was dead from the start." . . .
Explaining the Fed's $7.7 trillion bailout scheme

Explaining the Fed's $7.7 trillion bailout scheme



From Bloomberg:

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year. . . .


The one complaint that I had on the segment is that he ignores all the money that was given out to foreign financial institutions.
How the US subsidies Europe through the IMF

How the US subsidies Europe through the IMF

Normally, the US share of the IMF costs are 17 percent, though it is my impression that the cost share here will be significantly higher. In any case, 17 percent of 600 billion euros is (102 billion euros = $137 billion at the current exchange rate of $1.34 to 1 Euro).

The IMF is preparing a 600 billion euro bailout for Italy in case the debt crisis worsens, Italian daily La Stampa reported citing IMF officials (via AFP).

The IMF would guarantee rates of 4 or 5 percent on the loan, far better than borrowing costs far better than the commercial debt market where yields have reached as high as 8 percent. . . .


Something earlier:

As Greece teeters on the brink of defaulting on its government debt and Italy appears a strong contender to be the fourth European country in need of a financial bailout, the head of one of the key organizations in the attempt to financially rescue Europe signaled it will very likely need to increase its bailout fund—something that the U.S. has contributed more than $100 billion to already.

In a little-noticed, but very significant, development at the fall meeting of the International Monetary Fund (IMF) this weekend, IMF Managing Director Christine LaGarde distributed a document to the organization’s steering committee warning that it will need more than the $384 billion now in its financial war chest to deal with the uncertain financial situation in Europe. . . .
Unpaid Student loans top $1 trillion

Unpaid Student loans top $1 trillion

From Politico:

. . . . outstanding student loans this year will exceed $1 trillion for the first time.

In addition, the amount of student loans taken out last year was greater than $100 billion, another new record, according to USA Today, citing the Federal Reserve Bank of New York.

The $1 trillion of outstanding loans means that Americans now owe more on student loans than on their credit cards. While students have been racking up educational loans, American consumers have been paying down credit cards and home loans.

The average fulltime undergraduate student borrowed $4,963 in 2010, up 63 percent from a decade earlier, even after adjusting for inflation, the report says.

Meanwhile, with a greater loan burden, the percentage of borrowers that defaulted on their student debt also rose — from 6.7 percent in 2007 to 8.8 percent in 2009. . . .
Obama claims: "investment paid off"

Obama claims: "investment paid off"

GM hasn't paid off the $50 billion direct investment let alone the $45 billion in special tax benefits or the "Cash for Clunkers."

President Obama went on a three-pronged attack on Friday, alternately touting passage of the free-trade agreement with South Korea, recounting the success of the auto bailout and taking a veiled swipe at Republican challenger Mitt Romney for his opposition to the bailout.

Speaking at a General Motors plant in Orion Township, Mich., a plant the president said would likely have shut down without government intervention, Obama said his plan to “retool and restructure” the auto companies was “an investment in American workers.”

“One of the first decisions I made as president was to save the U.S. auto industry from collapse,” Obama said to a standing ovation.

The president recounted the administration’s narrative about how the Orion plant, which produces the Chevrolet Sonic, was set to close before government loans helped the company restructure its debt — a move the White House said saved 1,750 jobs.

“Today, I can stand here and say the investment paid off,” Obama said. “The hundreds of thousands of jobs saved made it worth it … taxpayers are being repaid, and plants like this are churning out groundbreaking fuel-efficient cars like the Chevy Sonic.” . . .


Obama continued this theme in his Saturday radio address.

I’m here in Detroit visiting workers at a GM plant in the heart of a resurgent American auto industry.

Italy debt significantly downgraded by Moody's


It apparently is pretty common for leaders of countries to bash bond rating companies when they lower a country's bond ratings. From the UK Guardian:

Italy's sovereign debt rating has been cut for the second time in as many weeks, with ratings agency Moody's citing "sustained and non-cyclical erosion of confidence" as it slashed its forecast for the country.

In a report released after US stock markets closed on Tuesday, Moody's downgraded Italy's government bond ratings from Aa2 to A2 with a "negative outlook", suggesting further cuts could be to come. The move threatens to increase Italy's cost of borrowing, and will add yet more pressure to European finance ministers now wrestling with a financial crisis that has spread across the continent.

Italy's prime minsiter Silvio Berlusconi criticised Moody's rival Standard & Poor's when it cut Italy's credit rating last month, saying the ratings agency's action was "dictated more by newspaper stories than by reality". . . .


Look at Greece's interest rate:

Greece misses deficit target

Greece misses deficit target

Any bets on whether even the current estimate for 2012 will prove estimate? This is a black hole for the EU and the US.

Greece will miss a deficit target set just months ago in a massive bailout package, according to government draft budget figures released on Sunday, showing that drastic steps taken to avert bankruptcy may not be enough.

The dire forecasts came while inspectors from the International Monetary Fund, EU and European Central Bank, known as the troika, were in Athens scouring the country's books to decide whether to approve a loan tranche. Without that installment, Greece would run out of cash as soon as this month.

The 2012 draft budget approved by cabinet on Sunday predicts a deficit of 8.5 percent of gross domestic product (GDP) for 2011, well short of the 7.6 percent target.

The 2012 deficit is set to meet a nominal target of 14.6 billion euros, but at 6.8 percent of GDP it falls short of a target of 6.5 percent, because the economy will shrink further.

"Three critical months remain to finish 2011, and the final estimate of 8.5 percent of GDP deficit can be achieved if the state mechanism and citizens respond accordingly," the Finance Ministry said in a statement. . . .
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