The Gray Lady Calls for a Gas Tax

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The NYT has done some really crappy ass reporting on the auto crisis. But, credit where it’s due, they’re now calling for a gas tax (h/t Atrios). And their editorial not only advocates for what I consider a smart policy, but they hit the key issues: that it’s not enough to force manufacturers to build energy efficient cars.

Yet for all the conditions attached to it, the multibillion-dollar aid package for Detroit’s carmakers approved by the White House (with Mr. Obama’s support) fails to address one crucial question: Who will buy all the fuel-efficient cars that Detroit carmakers are supposed to make?

The danger is that too few will, especially if gasoline prices remain low. Therefore, it might be time for the president-elect and Congress to think seriously about imposing a gas tax or similar levy to keep gas prices up after the economy recovers from recession.

They even note that Richard Shelby’s beloved foreign manufacturers have an incentive to make gas guzzlers, too.

Furthermore, even if the government managed to convert General Motors, Chrysler and Ford to the cause of energy efficiency, cheap gas could open the door for a competitor — Toyota, perhaps? — to take over the lucrative market for gas-chuggers, leaving Detroit’s automakers eating dust once again.

Of course, the editorial doesn’t point out something equally important: that politicians aren’t going to back this policy no matter how necessary, since it’ll be politically unpopular.

But kudos to the NYT for pointing out that the pols in DC have work of their own to do if they’re serious about their stated objectives for the auto industry.

Bob Corker’s “Screw the Seniors” Plan

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Journalists are now figuring out something we’ve been pointing out for some time: Bob Corker’s "plan" to "fix" the auto industry is not so much a plan to fix anything, but a plan to screw retirees.

Retirement health care for as many as three-quarters of a million Americans will be placed at high risk if conditions proposed as part of auto rescue loans are enforced by the incoming Congress and Obama administration, labor experts say.

At issue is a condition of the federal loans that calls for General Motors Corp. and Chrysler LLC to use company stock or the equivalent to pay half, or $10.5 billion, of the cash owed to a union retiree health-care trust.

Because of my tempermental Toobz connection, I’ll let you click through to read the rest.

But note several things that still aren’t noted in the story: first, the Chrysler has no stock. Which would sort of make the VEBA payment in stock utterly ridiculous, if it weren’t already obvious that Bush didn’t give Chrysler enough to restructure, he only gave it enough so it’ll go out of business on Obama’s watch instead of his own (at a cost to you of $4 billion), so I guess when he said "stock," he meant that Chrysler retirees ought to consider themselves lucky if GM is forced to eat Chrysler so GM can give Chrysler $10 billion in GM stock which will be–by then–approximately 10 billion shares. 

All of which ought to make two things clear. Bob Corker’s "plan" was never intended to work. Yet while he pushed a plan that really couldn’t work, Corker saw that as an opportunity to beat up on a bunch of seniors, perhaps for some gratuitous fun. 

Bob Corker: taking seniors’ pensions and health care away, all in the name of a successful business plan. Happy Holidays, America’s seniors!!

Did McCain/Palin Obstruct Justice in the Johnston Case?

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h/t mark fairbanks alaska flickr/dkos

h/t mark fairbanks alaska flickr/dkos

It seems that Sarah Palin has a newsworthy scandalette for every holiday. For Thanksgiving she was preening in front of a turkey slaughter; for Christmas, she is smack dab in the middle of a felony controlled substances investigation. The New York Times reports on the investigation of Sherry Johnston, the mother of Bristol Palin’s supposed fiance:

Johnston is the mother of 18-year-old Levi Johnston. Gov. Sarah Palin announced in September that her 18-year-old daughter Bristol was pregnant and Johnston was the father.

Authorities say the case began in the second week of September — a couple of weeks into Palin’s campaign as Republican vice presidential candidate — when drug investigators intercepted a package containing 179 Oxycontin pills. That led to the arrest of the suspects, who agreed to be informants.

According to the affidavit, Johnston sent a text message to one informant Oct. 1, writing: ”Hey, my phones are tapped and reporters and god knows who else is always following me and the family so no privacy. I will let u no when I can go for cof.”

Ten days after Johnston said there wasn’t enough privacy for a drug sale, she texted again to set up a meeting at a store, according to the affidavit. The document says the informant received $800 to make a purchase, meeting investigators later with 10 pills of 80-milligram Oxycontin.

A second purchase was made the following day, authorities said. This time the informant wore a hidden camera and a microphone.

Interesting. This little sting was percolating the entire post convention portion of the election. Sounds like they had Johnston cold from the first controlled sale, which if the article is correct, appears to have been made on October 11, and certainly by the following day when they made the second controlled transaction. A skeptic might think that it was ripe for arrest during the election, like say anytime after October 12; and might wonder why it was extended into late December for arrest.

Well, gee whiz, lookee here! From the Washington Post:

The trooper’s affidavit indicates that Sarah Palin’s candidacy factored into the investigation, with state officials delaying execution of a search warrant until this month, when Johnston was "no longer under the protection or surveillance of the Secret Service."

Who could have ever predicted this? I wonder what role John McCain and Sarah Palin played in this admitted political delay? What role did the Read more →

George Bush Spent $4 Billion to Kill Chrysler–on Obama’s Watch

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I’m convinced. George Bush just spent $4 billion (of your money) to kill Chrysler.

In his speech announcing the auto relief, Bush claimed he didn’t want to leave the auto crisis to his successor:

… there’s too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies. My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession. And it would leave the next President to confront the demise of a major American industry in his first days of office.

He implied he had provided enough to GM and Chrysler to give them three full months to stave off bankruptcy.

First, they will give automakers three months to put in place plans to restructure into viable companies — which we believe they are capable of doing. 

Yet he also described giving them enough money to enter bankruptcy in orderly fashion.

Second, if restructuring cannot be accomplished outside of bankruptcy, the loans will provide time for companies to make the legal and financial preparations necessary for an orderly Chapter 11 process that offers a better prospect of long-term success — and gives consumers confidence that they can continue to buy American cars.

But he didn’t give Chrysler enough to stave off bankruptcy. 

Bush gave Chrysler $4 billion, all on December 29. Just one payment. Unlike GM, Bush is not giving Chrysler a second and third chunk of money after the new year (GM will get $4 billion on December 29, $5.4 billion on January 16, and $4 billion on February 17).

That already suggests that Bush doesn’t imagine Chrysler will be around after the New Year. Furthermore, that $4 billion is $3 billion less than Chrysler said it needed to remain viable (and to pay its suppliers). 

Now, it’s possible that Bush gave those amounts anticipating that GM would eat up Chrysler. After all, Bush actually gave GM more than what it asked for. GM had asked for $4 billion in December, another $4 billion in January, and $2 billion in February (with the possibility of coming back for another $8 billion later next year). Read more →

The Cerberus Mysteries Deepen

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I don’t mean to alarm you. But I’m getting more and more worried about Cerberus’ role in the auto relief signed last Friday.

First, as plunger noted, Cerberus just suspended the ability of its investors to withdraw from its fund.

Cerberus Capital Management CBS.UL plans to pay 20 percent of year-end withdrawals in cash and suspend the remaining withdrawals for investors in its Cerberus Partners fund, television network CNBC said on Tuesday.

[snip]

We believe it is necessary to suspend withdrawals in part so as to [sic] to unduly increase the illiquidity of the fund for remaining investors and to permit the fund to take advantage of the buying opportunities currently available in this depressed market on a limited basis,

Now, since I’m not an investor in Cerberus, this doesn’t affect me directly. But I am rather troubled that Cerberus took this move just days after the Federal government loaned $4 billion to a Cerberus subsidiary without requiring that Cerberus reveal any of its financial data publicly. Turns out, we all only had to wait a few days to get a sense of their financial status … and it’s not good.

Then, there’s the continued, seemingly universal uncertainty about Cerberus’ role in the loans to Chrysler and GM. 

Press reports are conflicted over the terms that Cerberus agreed to in return for the assistance. While the Wall Street Journal reported over the weekend that Cerberus had agreed to backstop the loan by having Chrysler’s financial services subsidiary pay the government its first $2 billion in earnings or dividends, the New York Times said that guarantee applied only if the subsidiary was sold.

It’s unclear whether Chrysler Financial is currently profitable or pays dividends, since Cerberus hasn’t publicly disclosed such information. Nor has Cerberus said whether Chrysler Financial or any of its assets are for sale. It has also not disclosed who potential buyers for the finance sub might be.

The terms of the government loan, as published on the Treasury Department’s website, specify that Cerberus could make taxpayers whole for losses of up to $2 billion on the facility. But those terms are prefaced with the phrase, “to the extent permissible under existing agreements.”

“What does that mean?” asked William Bratton, a law professor at Georgetown University, who added that the “vague” wording made it sound as if the agreement depended on waivers from Cerberus’ lenders. Read more →

Does Bob Nardelli Work for Cerberus or Chrysler?

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The NYT has caught onto something we’ve been discussing over the weekend: Cerberus is apparently trying to use the bridge loan as a convenient means to ditch Chrysler (pity for Cerberus it’s not in Nebraska, where it could just leave Chrysler at a hospital under that state’s safe haven law). Their story includes a detail that adds to questions I’ve been mulling about Bob Nardelli’s role in all this.

Cerberus officials lobbied the White House last week to prevent the private equity firm from being held responsible for the Chrysler loans if the automaker cannot repay them, according to people with knowledge of the talks who declined to be identified because the discussions were private.

But Chrysler executives, who are responsible for the day-to-day operations of the company, were shut out of the discussions, those people said.

[snip]

A Chrysler spokeswoman, Lori McTavish, declined to comment Sunday on whether Mr. Nardelli had played a role in final loan negotiations with the White House.

I started wondering about which company Nardelli works for last night, when I read this line from Chrysler’s beg to Congress.

Mr. Nardelli receives an annual salary of $1 from Chrysler.

This appeared in a document dated December 2: a few weeks after John Tester had asked Nardelli whether he would be willing to take a $1 salary (Nardelli said he would, with no hesitation, but didn’t say he was getting just $1), but before last week’s loan on which that $1 salary was premised. Given the way that Cerberus’ and Chrysler’s interests appear to be diverging wildly, I started wondering who actually employed Nardelli. Has he always been paid $1 by Chrysler, and $11 million by Cerberus, which would make a bit of sense, since he’s basically been pursuing Cerberus’ goal of repackaging Chrysler so it can be sold off (or, alternately, left in a hospital in Nebraska).

But there is reason to believe that Nardelli is being put in the untenable position of representing Chrysler’s interests while Cerberus works to undermine his efforts. Who can forget, for example, the moment when Bob Corker told Nardelli that Cerberus was unwilling to invest any money in Chrysler. That appeared to be news to Nardelli. And, consider the way that Chrysler’s beg largely consisted of proof that bankruptcy would be the most expensive outcome for the US. Read more →

The No-Fail Business Model Fails

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Richard Shelby and Bob Corker like to squawk about how the Big Two and a Half have a failed business model as compared to the wonderful Japanese automakers.

Funny. I thought successful business models were profitable.

Toyota Motor will lose money in its core automaking business for the first time in 70 years this fiscal year, the company said Monday, in a sign of how the global economic crisis is hurting even the mightiest carmakers.

I raise this not to gloat over Toyota’s misfortune, but to point to some of the issues behind Toyota’s setbacks this year. Of course, there’s the collapse in the US auto market, which, because it’s so large, devastates everyone’s global success.

They have also suffered from the recent steep declines in United States auto sales. In November, Toyota saw its sales drop 33.9 percent and Honda Motor 31.6 percent, faring just slightly better than G.M.’s 41 percent decline.

This is a particular problem for Toyota, because the US is usually its most profitable market (by comparison, I’m guessing that China remains GM’s most profitable market).

The carmaker’s sales in the U.S., traditionally its most profitable market, plunged 34 percent in November.

[snip]

“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad. 

Go here for more details about everyone’s dismal November.

Then, there’s particularly strategic decisions that exposed Toyota to a greater degree than other Japanese manufacturers–notably, its attempt to expand its market share in one of America’s traditionally most profitable segments.

Toyota has been seen as the most vulnerable of Japan’s big automakers because it had been investing heavily in new products, including a full-sized pickup truck for the United States market, just when auto sales started to fall.

But I thought only those failed business model American companies built trucks?!?! Toyota idled its Tundra plant for three months this year, and backed off its attempts to cut into the F150 and Silverado market share.

Finally, though, with the weakness of the Euro and dollar compared to the yen, Toyota’s now on the wrong side of globalized currency exchange, Read more →

Cerberus Still Seeking to Privatize Profit, Pass on Risk?

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quaylegmcrop.jpg

Cerberus appears to be seeking to capitalize on the woes of the auto industry to do two things: first help its Republican buddies break the UAW, and after doing so, pawn off its unwanted "investment" in Chrysler onto the same union. I’m not sure I understand all the steps in this process, yet, but here are three data points.

Cerberus Protects Client Retirees But Not Chrysler Retirees

Let’s start with Cerberus’ statement on Friday in response to the bridge loan announcement. It celebrates the bridge loan as an opportunity to wring concessions from two stakeholders: bond-holders and union labor.

In addition to this, Cerberus believes that concessions by all relevant constituencies will be required to facilitate a full restructuring and recapitalization of Chrysler. In order to achieve that goal Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to affect the restructuring. Unless Chrysler’s labor costs can achieve parity with the foreign transplants, and without the restructuring of Chrysler’s debt, Chrysler cannot be restored to long-term health and the government loan will be unlikely to be fully repaid.

As seems to be true of all Republicans talking about concessions from stake-holders, Cerberus fails to mention any concessions from dealers, a critical requirement for any successful restructuring.

But what I like best about Cerberus’ statement (as in, like not at all) is the way it excuses its unwillingness to put any Cerberus money into Chrysler by appealing to America’s retirees.

Cerberus’ investors are comprised of pension and retirement plans (including funds invested for teachers, organized labor and municipal employees), charitable and educational endowments, fund-of-funds, and individual family savings. Cerberus is, therefore, entrusted with the life savings of many retirees, teachers, municipal workers and ordinary citizens.

As I’ve suggested, one of the two ways the UAW can meet Bob Corker’s Cerberus’ demands is to agree to allow Chrysler to renege on its promises to Chrysler retirees.

In short, Cerberus is pleading that it may require UAW retirees to give up their pensions because it must protect the pensions of other retirees. For some reason, Cerberus must have thought that logically inconsistent argument would nevertheless be more persuasive than admitting it might demand UAW retirees to give up a piece of their retirement so as to protect the current earnings of John Snow and Dan Quayle.

Read more →

Republican Bad Faith Negotiation, Again

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If you need any more proof that the Republican attempt to break the UAW a week ago Thursday was really just a political stunt, read this article. In it, Republican after Republican attacks Bush for providing relief to the auto industry. That includes four of the Republican Senators who–Bob Corker has assured us–would have supported his "compromise" deal from last Thursday:

John McCain:

John McCain is leading the way, saying it is “unacceptable that we would leave the American taxpayer with a tab of tens of billions of dollars while failing to receive any serious concessions from the industry.” 

John Kyl:

“I’m very disappointed,” said Sen. Jon Kyl (R-Ariz.). “The president justified his action with a false choice: it’s either this plan or abrupt liquidation of the companies. The White House seems to think that the industry didn’t have time to deal with the problem or prepare for an orderly bankruptcy, which is false.”

Judd Gregg:

“These funds were not authorized by Congress for non-financial companies in distress,” Gregg said, “but were to be used to restore liquidity and stability in the overall financial system of the country and to help prevent fundamental systemic risks in the global marketplace.”

Mitch McConnell:

“I have strong objections to the use of Troubled Assets Relief Program (TARP) funds for industry specific bailouts. And I do not support this action,” McConnell said. “But since the administration has chosen to use these funds to aid the automakers, it is important that the date-specific requirements on all the stakeholders be enforced.” 

Yet this is virtually the same bill, with one caveat: that the manufacturers, "can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations."

In other words, the Republicans are pissed because the President’s plan allows the auto manufacturers to "deviate" from Bob Corker’s demand that the UAW lower wages below that of Japanese manufacturers’ workers by the end of the year if the manufacturers can make a business case to do so.  

These Republicans are pissed that GM and Chrysler don’t have to cut costs even if there’s a good business reason not to do so!!!

Not surprisingly, these Republicans are not alone in disavowing Bob Corker’s plan. Read more →

President Bush: Employees of American Companies Must Get Paid Less than Employees of Foreign Companies!

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The President of the United States just dictated that American corporations pay their employees significantly less than the employees of foreign owned manufacturers. And/or, he dictated that American corporations pick the pocket of their senior retirees.

That’s the take-away of the bailout plan, which is basically the Bob Corker plan dressed up, through sleight of hand, as a majority-supported legislation. As Bush notes, some of this bailout was supported by a majority of the House, at least. 

Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:

  • Firms must provide warrants for non-voting stock.
  • Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
  • Debt owed to the government would be senior to other debts, to the extent permitted by law.
  • Firms must allow the government to examine their books and records.
  • Firms must report and the government has the power to block any large transactions (> $100 M).
  • Firms must comply with applicable Federal fuel efficiency and emissions requirements.
  • Firms must not issue new dividends while they owe government debt.

Yet then Bush throws in the demands that Republicans made–without noting that this was basically an ideological ploy to break the union, all the while demanding that employees of American-owned companies make significantly less than the employees of Japanese-owned companies.

Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:

  • Reduce debts by 2/3 via a debt for equity exchange.
  • Make one-half of VEBA payments in the form of stock.
  • Eliminate the jobs bank. Work rules that are competitive with transplant auto manufacturers by 12/31/09.
  • Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.

In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.

Remember, the measure the Republicans were using to measure "wages that are competitive with those of transplant auto manufacturers" was the lizard lie number–the $73/hour, Read more →