Car Recovery Czar Ed Montgomery Comes to Michigan

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In a little noticed detail from Monday’s verdict on the auto industry, Obama named Ed Montgomery Director of Recovery for Auto Communities.

Today, the President appointed Ed Montgomery, former Deputy Secretary of the Labor Department and current Dean at the University of Maryland, to become Director of Recovery for Auto Communities and Workers. Dr. Montgomery has more than 25 years experience working on issues related to worker training and local economic development and has worked first hand with State and local government agencies and nonprofits in Michigan and Ohio on strategies to revitalizing areas hit by job loss.

In his new role, Dr. Montgomery will bring all parties – workers, firms, unions, other private sector employers, community-based organizations, state and local governments, and foundations – to the table to maximize communication and cooperation and to develop innovative strategies for relief and recovery. He will ensure that communities and workers can take full advantage of all available resources and to ensure that the funds are distributed quickly, efficiently and equitably He will work with the Administration, relevant Governors and Congressional leaders to launch new executive and legislative initiatives to support these distressed communities and help them retool and revitalize their economies. He will identify and pursue all possible opportunities, including for example,
initiatives to:

  • Maximize the effectiveness of Recovery Act funds for new and more diverse economic development for new jobs, business and industry through various means including local infrastructure, housing, education and new industry.
  • Deploy rapid response unit to communities facing plant closings to both meet immediate needs and to develop strategies for new job growth.
  • Extend Trade-Adjustment-Assistance (TAA) to the auto industry, including retraining, healthcare extensions, income support and wage insurance.
  • Attract major defense, research, green industry and other project to the region. Channel Workforce Investment Act (WIA) and other emergency grant funds to the region.
  • Work with stakeholders to develop new legislative efforts to direct emergency support to affected communities and regions, and bring new jobs and economic opportunities to these areas. 

Today, Montgomery met with Governor Granholm (and, after this presser, with Detroit Mayor Ken Cockrel) to talk about the needs of Michigan’s blighted auto communities.

Montgomery strikes me as a good choice. Unlike Steven Rattner, Montgomery has the background to understand Michigan’s issues (and once taught at MSU), and the bureaucratic chops to actually do some good.

As he explained in the video above, his wife’s family is an auto family. Read more →

Fire Ken Lewis for the $3 Billion in Merrill Lynch Bonuses

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I’ve been meaning to point to Andy Stern’s call to give Ken Lewis, CEO of Bank of America, the same treatment Obama gave Wagoner–the boot.

Both Rick Wagoner and Ken Lewis sunk large public companies — putting thousands out of work and toppling the American economy — while accepting billions in taxpayer bailouts. Yet only Wagoner got a pink slip. It’s time for Treasury Secretary Geithner to replace Ken Lewis as CEO and let real reform take hold at Bank of America.

And Change to Win’s petition calling to fire Lewis. 

But this tidbit–courtesy of Howie–will really make you want to oust Ken Lewis.

In its last days as an independent company, Merrill gave performance-based bonuses exclusively to employees earning $300,000 a year or more and holding a rank of vice president or higher, according to their financial statements. $3.62 billion was handed out to these executives – a sum equal to 36.2 percent of the $10 billion in taxpayer funds that were allocated to Merrill as part of the Troubled Asset Relief Program (TARP) before the bonuses were paid.

The company had been failing as a result of misadventures in the now infamous mortgaged-backed securities market which began crumbling with the decline of home values as the bubble burst.

The performance bonuses were determined by Merrill’s compensation committee on December 8, 2008, before Merrill revealed that it lost $15 billion in the final three months of 2008, unusual timing according to court documents filed by New York Attorney General Andrew Cuomo in an ongoing suit against Merrill’s former CEO.

In prior years, Merrill paid performance bonuses of this type after the end of the year, in January or February of the next year.

[snip]

The questionable timing and the amounts of these bonuses were not revealed to Bank of America shareholders when they voted to acquire Merrill. These facts raise questions about what government officials knew about the bonuses and when they knew it, according to Kucinich’s letter. 

$3.62 billion would keep all of GM in business for a month or two. Read more →

Nate Sez: It’s about Legacy Costs

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picture-92.png

Nate, who is more of a Michigander than I am, drew this not-pretty picture of GM’s operating margin over the last half century. He explains that this picture shows that GM has been using health care and pension promises to put off the time it registers these real costs on its balance sheet as a way to get the benefit of labor but put off paying the true costs of it.

GM was willing to cut its employees some very attractive deals in the 1950s through the 1980s — provided that they took them in the form of retirement benefits rather than salary, which wouldn’t hit GM’s books until much later and which until 1992 weren’t even required to be carried on its balance sheets all, making its financial statements (superficially) more appealing to its shareholders. That health care costs have risen so substantially in the United States have made a bad matter worse.

Nate’s absolutely right about the systemic issue underlying GM’s woes.

But I’d add another point. While his not-pretty picture doesn’t show when this happened, we know that sometime around the time when GM’s operating margin first hit zero, GM began to face stronger competitors domestically: the Japanese. And for the first decade and more after the Japanese started competing in the US, GM was competing against companies the bulk of the labor for which received cheaper health care and pensions in Japan. And even as Japanese companies opened factories in the US, it took decades before their first employees retired, meaning the Big 2.5 were paying pensions for two generations of retirees, while Japanse transplants were paying nothing, yet, in pension costs. All other factors being equal (they weren’t, but just pretend they were), that meant it has always been a lot easier for Japan to make a profit off its cars, partly because Japan pays for health care differently than we do, and partly because they entered the US market relatively recently.

In addition to making it easier to make a profit on a car, this makes it a lot easier for Japanese companies to make investments in their cars pay off.

That means that the Japanese–who in the early years were competitive with the US on hybrid technology–could forecast the profitability of the technology and decide it made sense, whereas the US companies would make the same calculations and decide it didn’t make sense. Read more →

Bob Corker: “Bust the UAW Already, Obama!!!”

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Bob Corker was one of the people in Congress who refused to include auto dealer concessions to GM and Chrysler in restructuring negotiations last year. As such, he–and his cowardice–bears significant responsibility for neglecting one third of the concessions that needed to be made from automaker stakeholders; the Obama Administration has, for the first time, addressed dealer concessions in today’s announcement.

In addition, Corker’s purportedly brilliant bailout compromise last year (which amounted to "bust the UAW") included none of the bankruptcy-like legal authority to cramdown bond-holder debt. Partly as a result (and partly because of a sweetheart deal Corker’s buddies at Cerberus got), GM had no leverage to convince bond-holders to take the haircut they need to on its debt.

Nevertheless, Corker wasted no time in bitching about Obama’s announcement today.

“Firing Rick Wagoner is a sideshow to distract us from the fact that the administration has no progress to announce today,” said Corker, a Republican. “The administration is hoping the media and the public will stay focused on Wagoner and fail to notice that negotiations have not progressed since December.”

[snip]

“The administration is pursuing much of what we pushed for in December, but the delay of several months has increased the severity and sent billions of taxpayer dollars down the drain,” Corker said. “Now any investment is likely unrecoverable.”

Corker, you see, is hoping everyone will stay focused on his showboating, and not notice that Corker left several key elements off the table last year out of political expediency. Corker’s also hoping you ignore that Bush basically used Corker’s plan when he pushed through the Christmas Eve bailout–so if this plan has failed, it is Corker’s plan that failed. 

I guess Corker, who just a few weeks ago, was attacking draconian laws directed at just one class of people…

People out around this country, that have a right to be outraged, should also understand that if we do draconian things through laws, where we pass laws just to target a very few people, that they could be the very next person. 

…is sad that he wasn’t able to pass a draconian law that targeted a very few union workers. I guess Bob Corker is just impatient for someone to bust the UAW.

Though not impatient enough to recognize that the Administration’s criticism of GM’s focus on SUV’s and crossovers may jeopardize the new Traverse assembly in his state.

With the White House taking a harder line with automakers and insisting on more aggressive restructuring plans, Corker also predicted that members of Congress will begin “kowtowing … to curry favor with the administration” to keep auto plants in their states open. Read more →

Obama Moves GM and Chrysler Towards Bankruptcy

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Let me start by saying I’m non-plussed by the call for Rick Wagoner’s head. I think Wagoner was making the right moves recently, but he was also responsible for years of inaction. So I’m not sorry to see him gone. In any case, Obama is forcing out the entire board of GM, so Wagoner would have had to go anyway.

That said, here’s what Obama seems to be announcing today:

  • Chrysler will be forced into a marriage with Fiat in the next month or be denied any additional aid–which will surely put it into bankruptcy
  • GM (which failed to get the required concessions from the UAW and bond-holders) will have 60 days to come up with a new, more aggressive turn-around plan
  • At the end of 60 days, the government may require a "quick rinse" bankruptcy (one month) to get GM’s stakeholders to take their losses

Thus far, it’s tough to tell whether this is a good plan or not. As far as Chrysler, they can’t survive alone. So the forced marriage gives it one chance to avoid bankruptcy that otherwise seems inevitable. I don’t think Fiat will take the deal, so I expect Chrysler to enter bankruptcy within the next month.

As for the GM plan, they are finally talking about dealer concessions (which a "quick rinse" bankruptcy would help, too), which was the element that everyone had thus far ignored. And some of this tough love with GM seems to be a logical next step given bond-holders’ intransigence since December. GM had been, thus far, unable to get its bond-holders to accept the losses they had told GM, in November, they would take, so Obama is threatening to use a court to make them do so–followed by UAW concessions.

Which leaves me with these questions, for now:

  • When is Obama going to restructure Citi and AIG this radically?
  • To what extent was the last minute Bush deal with Cerberus in December (which allowed GMAC to shed its mortgage-related debt and become a TARP recipient) responsible for the bond-holders intransigence?
  • Will we see any reporting about the sanctity of contracts today, purportedly the excuse for not withholding the AIG bonuses? AIG’s CDS counter-parties are the exact equivalent of the GM bond-holders; on Thursday Geithner talked about the importance of AIG meeting its obligations. And UAW’s workers are the equivalent of AIG’s bonus recipients except the former didn’t screw up the company. 
  • Will Obama recognize Read more →

Where’s the Guy Who Doesn’t Know $hit about Wall Street?

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Steven Rattner doesn’t know shit about cars.

Or at least he didn’t a month and a half ago. And then, President Obama decided he was the single best person in the country to lead the auto task force–to assess the state of the auto industry, figure out whether letting one or both of the failing companies go under, and if not, how to bring them out of their doldrums.

Frankly, I’m unconvinced Rattner was the guy to assess and guide the auto restructuring–mostly though because he seems to have gotten picked because he’s a schmoozy insider with a great talent for self-promotion. But I do appreciate this qualification of Rattner’s:

"What I bring to this is the advantage of no preconceived notions. I don’t come with an embedded view," Rattner said in an interview, calling the job "the most complex challenge I’ve ever had to deal with."

And here’s another "qualification," pitched by his buddy Steven Weisman:

"He may not have had a particular history of interest in the auto industry, but he would bring the ability to ask basic questions and try to get basic answers and drive toward the agreement on a solution."

Sean McAlinden, who does know the auto industry, reports that at least Rattner has been learning quickly.

Now like I said, I’m not convinced having someone who is totally ignorant about an industry is the best person to come in and try to rescue it. But at the very least, having someone as ignorant as Rattner go through the process of learning about the auto industry may help Obama to rethink his significant preconceived notions about why the auto industry is in trouble and what to do about it. 

I realized today–as I was doing a radio interview about AIG bonuses with Nancy Skinner, also in MI–how dramtically different Obama’s approach to assessing and resolving the finance industry (the folks who, after all, caused many of the more urgent woes of the car companies). 

Obama’s first instinct in assessing the auto industry was to bring in someone who was completely ignorant of the industry, to ask questions. Read more →

More Whines from AIG

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Funny. I never heard any UAW employees whine like this when they were falsely accused of ruining the domestic manufacturing industry because they demanded a completely fictional $75/hour.

One A.I.G. executive, who spoke on the condition of anonymity because he feared the consequences of identifying himself, said many workers felt demonized and betrayed. “It is as bad if not worse than McCarthyism,” he said. Everyone has sacrificed the employees of A.I.G.’s financial products division, he said, “for their own political agenda.”

Getting Their Kicks: The American-Saudi Go Around Come-Around

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Despite a decent amount of negativity roiling around the socio-political scene lately, on a fine Saturday night right here in the ole USA, this gives me a lot of heart somehow:

Then, with a scream of revving engines, it begins: a yellow Corvette and a red Mitsubishi go head to head, racing down the road at terrifying speeds, just inches apart. Shouts go up from the sidelines, and another pair of racers shoot down the road, and another.

This may be the most popular sport of Saudi youth, an obsessive, semilegal competition that dominates weekend nights here.
…
For Saudi Arabia’s vast and underemployed generation of young people, these reckless night battles are a kind of collective scream of frustration, a rare outlet for exuberance in an ultraconservative country where the sexes are rigorously segregated and most public entertainment is illegal. They are, almost literally, bored out of their minds.

“Why do they do it?” … “Because they have nothing else to do. Because they are empty.”

Despite all the shrieking of teh military-industrial class, the iron curtain fell and the cold war subsided because of information, lifestyle and ethos penetration into the supposed enemy. Thing was, they were not the enemy, they were people just like us. And so the walls came down. The Rolling Stones, Beatles and Beach Boys had as much, if not far more, to do with the victory as military might (not to mention the start of the internet and satellite teevee).

The United States government and tunnel visioned world press were too slow to figure out what was really up the first time, and lo and behold, they are biting off on the same steel fisted bunk again. It is cultural progression that is softening the underbelly of yet another clash of the civilizations. Who’d a thunk it? Who will realize it?

Then the car leaps forward, accelerating furiously, and breaks into a sudden skid, spinning around, nearly colliding with a concrete barrier and leaving thick black marks on the pavement. A stifling smell of burnt rubber hangs in the air.

It is not the bombs. It is La Bamba.

Fleet Standard Fail

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jimmys-bike.jpgOne of the things Obama’s auto task force has said it will do is hammer the Big 2.5 on their fuel efficiency. Improve efficiency, they seem to be telling Detroit, and your economic woes will disappear.

Which is why this post is so interesting (h/t Consumerist).  It argues that the fleet fuel efficiency standard for Obama’s auto task force members fails to meet CAFE standards–and that’s with the vast majority of the car owners in the group driving foreign makes. Here’s the gas mileage the task force members are getting:

  • Timothy Geithner owns a 2008 Acura TSX (23 MPG)
  • Larry Summers owns a 1995 Mazda Protege (26 MPG)
  • Peter Orszag owns a 2008 Honda Odyssey and a 2004 Volvo S60 (21 MPG)
  • Lisa Jackson, EPA Administrator, owns a 2008 Toyota Prius and a Honda Odyssey minivan (33 MPG)
  • Austan Goolsbee, chief economist for the White House Economic Recovery Advisory Board, owns a 2004 Toyota Highlander (22 MPG)
  • Joan DeBoer, the chief of staff to LaHood, drives a 2008 Lexus RX 350 (20 MPG)
  • Heather Zichal, deputy director of the White House Office of Energy and Climate Change, owns a Volvo C30 (23 MPG)
  • Gene Sperling, counsel to the Treasury Secretary, owns a 2003 Lincoln LS (21 MPG)
  • Lisa Heinzerlingra, senior climate policy counsel to the head of the EPA, owns a 1998 Subaru Legacy Outback station wagon (24 MPG)
  • Dan Utech, senior adviser to the Energy Secretary, owns a 2003 Mini Cooper S two-door hatchback (25 MPG)
  • Rick Wade, a senior adviser at the Commerce Department, owns a 1998 Chevrolet Cavalier (23 MPG)
  • Jared Bernstein, Vice President Joe Biden’s chief economist, owns a 2005 Honda Odyssey (20 MPG)
  • Ray LaHood had no vehicle information.
  • Christine Romer, head of the Council of Economic Advisers, had no vehicle information.
  • Diana Farrell, the deputy National Economic Council director, doesn’t own a vehicle.
  • Carol Browner, the White House climate czar, doesn’t own an automobile.
  • Steven Chu, Energy Secretary, doesn’t own a car.
  • Edward B. Montgomery, senior adviser to the Labor Department, owns a 1991 Harley-Davidson (45MPG)

281 MPG/12 People with Cars = 23.41666 MPG average

Now, I quibble with the post’s calculation: the task force should get credit for the number of hippies on the task force–Farrell, Browner, and Chu–who have no car, and if it did, the fuel efficiency for the overall transportation would be much higher than 23.4 MPG (or would have been before these folks came to DC and started getting carted around in what may well be big Chevy Suburbans) and therefore would beat CAFE standards. 

Read more →

China Auto: Crouching Tiger, Looming Giant

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graphic by semaforoverde

graphic by semaforoverde

The turmoil in the auto business isn’t just with the American manufacturers; it is global, striking even the supposed gold standards such as Toyota and Honda. But in chaos there is opportunity, and China looks to capitalize on that. From the New York Times:

China plans to build up a ”Big 10” group of globally competitive automakers, led by General Motor Corp. partner Shanghai Automotive Industrial Corp., an industry association said Wednesday.

The plan, part of a wider stimulus package for the auto industry, is also aimed at boosting sales and production this year to 10 million units and keeping growth at about 10 percent in the next few years, according to a report posted on the Web site of the China Association of Automobile Manufacturers.
…
The plan outlined in the report dovetails with the country’s long-term strategy of consolidating numerous small regional manufacturers into bigger national auto groups, while at the same time encouraging use of more fuel efficient, lower polluting vehicles.

Foreign-brand cars still dominate the Chinese market thanks to a government policy of inviting foreign automakers to partner, as minority stakeholders, with local companies, such as Shanghai Automotive, also known as SAIC.
…
But the final goal has always been for the country to develop its own brand vehicles.

Well, yes, their goal is to develop their own brands, but their real goal is to penetrate the international market, and especially the US. The Chinese have been making noise about this for years; there was talk of bringing the primitive Chery here (by wildcat Malcomb Bricklin no less), but the cars weren’t ready for prime time and it was aborted. Make no mistake though, this consolidation is about positioning; the Chinese see the global weakness as an opening. They are right.

Back in November Marcy pondered whether SAIC and other Chinese makers were looking to scoop up the remains if Chrysler and/or GM were forced into liquidation; that is still a relevant inquiry. Anything the empowered, and Chinese government assisted, China auto groups can scoop up is gravy in their quest. Oh, and by the way, even the New York Times doesn’t believe that Cerberus has a dog long for the fight with Chrysler, with both an editorial and a story out yesterday questioning their motives. I wonder if Dan Quayle has been to the orient lately?