Relevant and even prescient commentary on news, politics and the economy.

… And Whom Would President Romney Pay Off? Do Tell!

Car sales “are growing so fast that Detroit can barely keep up,” according to an AP report published this evening bearing a Detroit dateline.  “Three years after the U.S. auto industry nearly collapsed, sales of cars and trucks are surging. Sales could exceed 14 million this year, above last year’s 12.8 million.”
The report says that as a result, carmakers and their suppliers are adding shifts and hiring thousands of workers around the country.  Most of the added jobs in the upper Midwest are for the Big Three carmakers and their suppliers. 

That’s the good news.   But two of these carmakers, and many of the suppliers in the Midwest and elsewhere in the country, would have collapsed in 2009 but for the government bailout of those two carmakers.

So the good news is really bad news, Romney told Fox News today, in sticking to his anti-bailout stance.  “The president ‘was paying off the people that supported him and that, by the way, are trying to get him re-elected,’ Romney said,” according to the AP report.

What?  No longer a Detroit-would-have-been-better-off-without-the-bailout claim?  Just an Obama-was-paying-off-the-UAW-and-only-incidentally-saved-the-US-auto-industry-and-hundreds-of-thousands-of-jobs defense? 

I dunno.  This doesn’t sound to me like a winning complaint for the general election.  Especially since the obvious question is: And whom will you be paying off as president, Mr. Romney?

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BREAKING NEWS: Bain Capital Wanted to Lend GM and Chrysler Money For Their Managed Bankruptcies!***

**This appears to be incorrect. It was based on a story that CNBC has now updated. It was “Bain Consulting,” not Bain & Co., that advised the government on re-financing the automobile companies. — klh

Ah!  Mystery Solved! Yesterday,in my post, “Crony Capitalism On A Grand Scale“—the title of the post borrowed from an op-ed piece by Romney in yesterday’s Detroit News characterizing the auto bailouts that way—I noted that Romney seems unaware that both companies filed for bankruptcy.  Romney says, as apparently he says often when forced at gunpoint to explain his opposition to those bailouts, that he was for the idea of “managed bankruptcy” for both companies, and never actually acknowledges that that is what happened.  Much less that these bankruptcies were “managed,” and therefore were able to emerge from bankruptcy as ongoing enterprises rather than as pieces of physical assets, machinery and the like, for a Bain Capital-owned company in the process of being restructured, to scavenge and resell.

This was a mystery to me. Sure, Romney regularly makes up facts to match Tea Party of Club for Growth ideology.  But in Michigan,everyone—everyone—knows that GM and Chrysler went through formal bankruptcy proceedings.  In court. How, I wondered, did he expect to get away with pretending that these companies didn’t go through managed bankruptcies?

Ah! Mystery solved! In an ABC News report last night by Chris Bury (a genuine news reporter,not a pundit disguised as one, and a long-ago favorite of mine from back when he was reporting for Nightline), illustrates the impact of the bailouts on Michigan’s economy, which is suddenly resurgent.  And in the report, which is today’s Yahoo News highlighted ABC NEWS video, explains what Romney means by “managed bankruptcy.”

Turns out, he means, best as I can tell anyway, that private equity firms lend the corporation the money to get through bankruptcy, in exchange for ownership of the company after its emergence from bankruptcy.  In the case of GM and Chrysler, many tens of billions of dollars.  In an op[ed in the New York Times back then, he described the managed bankruptcy he had in mind as one in which the government would guarantee private loans, but it would not itself provide the financing.  Which raises the question of how, exactly, this would have saved the government money, since the companies are repaying the government the loans to the extent possible.

But it also raises the question of Romney’s recommendation that the government play Russian Roulette with the auto industry.  Bury’s report points out that Bush Administration officials who put together the initial bailout legislation recognized, as did the Obama administration officials who took over, that the chance was nil that private equity money in such large sums would be forthcoming.  And why he conflates ideology with fact, even when the stated fact is baldly nonsensical. “If(automakers) get the bailout … you can kiss the American automotive industry goodbye,” Bury’s report quotes Romney as saying in that New York Times op-ed.  Destroying the industry by saving it?

Meanwhile, an editorial in today’s Washington Post* says,in complaining about Obama’s proposal to raise taxes on bailed-out banks in order (the editorial says) to cover the auto bailouts:

TARP was the price the country paid for a public good — financial stability — that the country needed. It’s inconsistent for the president to hail the bailout of one private industry —autos — while playing politics with the bailout of another — banking — that was and is no less necessary to a modern economy. It compounds the inconsistency to demand that the latter pay for the former.

Apparently the [Post]’s editorial board thinks GM and Chrysler caused the housing bubble and sold subprime mortgage-backed securities.

*The sentence has been corrected to say that the editorial is in today’s Washington Post. Originally, the sentence said incorrectly that the editorial is in today’s Wall Street Journal.


***Yup.  Definitely incorrect.  See my above post on the subject. 

As I just wrote in response to a comment, I’m still sorta dismayed that the title of my post was treated, even by a PR firm representing (I guess) Bain, as a representation of fact rather than as the sarcasm that it pretty clearly was.  

Oh, well.

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Government sponsored enterprises

by Beverly Mann

I Beg to Differ (in Part), Mr. Will

A few days ago I posted a post on my blog that responds to George Will’s claim in his weekend Washington Post column that the auto bailout was a privatization of profits but a socialization of losses. The full post, which is at Annarborist, and is called I Beg to Differ (in Part) Mr. Will, George Will says:

In 1994, Bill Clinton proposed increasing homeownership through a ‘partnership’ between government and the private sector, principally orchestrated by Fannie Mae, a “government-sponsored enterprise” (GSE). It became a perfect specimen of what such “partnerships” (e.g., General Motors) usually involve: Profits are private, losses are socialized.

—“Burning Down the House,” George F. Will, Washington Post, June 30

Will’s column discusses a new book by Getchen Morgenson and housing-finance expert Joshua Rosner that Will says “will introduce you to James A. Johnson, an emblem of the administrative state that liberals admire.” Johnson, for those of you who (like me) don’t instantly recognize the name, headed Fannie Mae during (I guess; Will doesn’t specify the dates) during the 1990s and early 2000s. He says the book details how Johnson and a few others, acting under the guise of compassion, used the government’s backing of Fannie and Freddie loans and the public policy of encouraging homeownership, to hugely enrich themselves.

Will writes:

Morgenson and Rosner report that in 1998, when Fannie Mae’s lending hit $1 trillion, its top officials began manipulating the company’s results to generate bonuses for themselves. That year Johnson’s $1.9 million bonus brought his compensation to $21 million. In nine years, Johnson received $100 million.

Fannie Mae’s political machine dispensed campaign contributions, gave jobs to friends and relatives of legislators, hired armies of lobbyists (even paying lobbyists not to lobby against it), paid academics who wrote papers validating the homeownership mania, and spread “charitable” contributions to housing advocates across the congressional map.

But he also suggests, if I understand correctly, that it was Johnson and the other Fannie and Freddie folks, rather than the Wall Street crowd, who instituted the concept of securitized mortgages and credit default swaps—and (inferentially) then caused European banks to spur, say, the Irish housing bubble, which, last I heard, was not funded in any part by Fannie and Freddie. And he wrote the quote that opens this post, in which he claims that the government’s bailout—loans, most of which have been repaid—to GM and Chrysler have resulted in merely private profits. Unlike, y’know, the very substantial tax breaks given to oil companies.

The estimates about the number of jobs saved by those bailouts ranges from about 500,000 to (ultimately; i.e., indirectly) 1.5 million. Will is saying, in other words, that the federal government has no legitimate business involving itself so directly in the preservation of, or for that matter, the creation of jobs, because, after all, job preservation and job creation are private, not public, financial gains. The proposition is preposterous and relies upon the sleight of hand that only company and shareholder profits count as “profits”—a conceit that is likely to be seen for what it is, in places like Michigan, Indiana and Ohio. Assuming, of course, that Will is read in such places, or that some other wingnut picks up the argument and runs (literally, may) be with it there.
(Please, please, Paul Krugman. Respond to Will’s bizarre claim. You’re the only one who could do this and who has a wide enough readership for it to matter. We both know that no response to this type of canard will be forthcoming from the White House. Ever. Okay, well, at least until 2017.)

Two or three weeks ago, Newsweek ran a lengthy article by Bill Clinton listing 14 proposals for job creation. (Oh, for the days when the Democrat in the White House had some actual ideas, some energy, and the willingness—the eagerness, in fact!—to discuss his policy proposals, in detail and concertedly, with the public.) One of them concerned one of the Obama administrations (very) few policy ideas: Substantial tax credits and outright loans to green-tech startups, which resulted in an increase in America’s share of worldwide production of batteries for battery-powered cars from 2% to 20% before until our dear leader quietly—why raise this issue publicly during negotiations when it’s just so much easier to simply give the Republicans what they want—caved, er, negotiated away this law during last December’s budget white-flag waving, er, compromise. Clinton, of course, suggests that this program should be brought back, immediately, and expanded to other types of industries.

Won’t happen, of course. Well, maybe in 2017.

As for Johnson and his ilk, hopefully there’s still time, statute-of-limitations-wise, to prosecute these folks. And hopefully, the Morgenson and Rosner book will cause enough pressure for that to happen. And I agree with Will completely that one of the most despicable aspects of what happened with Fannie and Freddie was the fraudulent claim of compassion. Wonder, though, whether Will would agree with ME that the Repubs’ genuine compassion for, say, oil company execs and shareholders is just as unseemly, in its own way. Nah.

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Accounting for Scott Sumner

Robert Waldmann

This whole post is after the jump as my accounting is not ready for prime time.

Scott Sumner thinks he is the first to note that the cost to the US government of bailing out the big banks is more likely to be a profit than a cost. Clearly he doesn’t read angry bear much, as I have been predicting that for months.

His accounting strikes me as very odd. Last I hear, the total cost of bailouts (including GSEs, AIG, GM and Chrysler) was predicted to be $87 billion. This does not include the cost of the FDIC honoring its contracts which was not discretionary and not a bailout by any normal use of the word.

Now Sumner reports the good news that the cost not including GM and Chrysler will be only 158 billion ?!?

Huh what happened ? First I think he forgot about roughly 125 billion when he wrote “Last time I wrote on this subject the eventual cost to the government from bailing out the big banks was estimated at a negative $7 billion–in other words a profit to Uncle Sam of $7 billion.” I believe that when he wrote “the government” and “uncle Sam” he meant “The Treasury”. Uncle Sam also has this little organization called the Federal Reserve Board. Last I heard it was predicted to make a profit of 125 billion out of its bailout efforts. Not all of that involved big banks, but I just don’t believe that the government made only 7 billion out of its direct interactions with big banks. In any case, the 125 billion (or probably more now) seems to have escaped Prof. Sumner’s notice entirely.

The news which he reports is that the current guess is that the cost of bailing out AIG is going to be about zero. That is, the amount AIG owes is roughly equal to the expected present value of future repayments.

Sumner gets his huge loss overall because he describes the cost of bailing out Fannie and Freddie as “$165 billion and rising.” I believe this is the amount they owe the Treasury minus zero. Sumner argues that big banks and AIG were OK investments and GSEs weren’t because in one case he includes expected discounted repayments and in the other he decides they are zero.

It is worth noting that the GSE rescue involved loans at 10% per year and the GSE debt is not equal to money transferred from the Treasury to GSEs plus the interest the Treasury paid on that extra debt. Oh no. It is the amount transfered plus penalty interest rates charged on that amount.

Basically, I beleive that Sumner did not stick to a consistent definition of “cost” and redefines the word so as to generate meaningless numbers which confirm his prejudices.

Also he doens’t understand the extent of the US government and thinks it is just the department of the Treasury.

One of us is profoundly confused.

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Goldman Does Something Good

The lower the fee, the more money raised by the IPO that actually goes to pay back the taxpayer.

Doesn’t change that Michael Moore’s analysis of GM is likely much more true than not (especially the likely reasons for the abrupt sidelining of Ed Whitacre), but every little bit helps.

In related news, it’s Economists (and the NYT) 0, Market 1 (h/t for the latter link, Don Marron).*

*I don’t believe Andrew was the only economist gulled by Niedermayer’s tripe. For instance, Brad DeLong also linked to it, and was an early detractor of the plan for it. But it should be noted that Niedermayer’s ignorant review was thoroughly dissected by “melly mel” long before Andrew discovered that he had “missed” it.

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Evaluating Cash for Clunkers: The Case of the Missing Denominator

by Tom Bozzo

An AP story (via Felix Salmon) based on an analysis of “Cash for Clunkers” transactions is circulating with the non-news that a number of the transactions involved trades of gas-guzzling trucks for only modestely less gas-guzzling trucks. Here’s the lede:

The most common deals under the government’s $3 billion Cash for Clunkers program, aimed at putting more fuel-efficient cars on the road, replaced old Ford or Chevrolet pickups with new ones that got only marginally better gas mileage, according to an analysis of new federal data by The Associated Press…

The single most common swap — which occurred more than 8,200 times — involved Ford F-150 pickup owners who… trade[d] their old trucks for new Ford F-150s. They were 17 times more likely to buy a new F-150 than, say, a Toyota Prius….

Whoa now. It isn’t until the 6th paragraph that readers are told the analysis involves more than 677,000 transactions, so the most common swap accounts for just 1.2 percent of cash-for-clunkers transactions. The seventh paragraph finally deigns to mention the average fuel economy statistics: 15.8 mpg for the traded clunkers, 24.9 mpg for the purchased vehicles — if you invert the mpgs, that’s a 36.5% reduction in fuel consumption at the means.

Salmon for whatever reason reckons this makes cash-for-clunkers the administration’s worst policy initiative yet, which brings a lolcritter to mind. Even William Buiter granted in an otherwise cranky post that, under conditions clearly met by the program (i.e. a temporary incentive that’s big enough), the programs are “bound to work” as Keynesian stimulus which arguably the administration hasn’t pursued in sufficient quantity. [*]

More below the jump.

None of this is news because the ability to trade old trucks for slightly more fuel-efficient new trucks was a widely reported feature of the enacted program design, which was biased towards the stimulus end of things, given the truck-heavy product lines of the domestic three. Participants could get $3,500 for a 1 mpg improvement in a light truck-for-light truck trade. Still, program participants generally used the credits for something better than 2 mpg improvements. Here’s the full distribution of differences between the old- and new-vehicle MPGs as reported in the CARS public transaction database:

mileage_diff | Freq. Percent Cum.
-3 | 4 0.00 0.00
-2 | 5 0.00 0.00
-1 | 20 0.00 0.00
0 | 116 0.02 0.02
1 | 9,961 1.49 1.51
2 | 37,486 5.61 7.12
3 | 31,130 4.66 11.78
4 | 36,584 5.47 17.25
5 | 50,526 7.56 24.81
6 | 56,730 8.49 33.30
7 | 50,187 7.51 40.80
8 | 49,397 7.39 48.19
9 | 41,127 6.15 54.35
10 | 62,020 9.28 63.62
11 | 71,757 10.74 74.36
12 | 47,101 7.05 81.41
13 | 38,482 5.76 87.16
14 | 26,377 3.95 91.11
15 | 16,205 2.42 93.53
16 | 10,801 1.62 95.15
17 | 5,433 0.81 95.96
18 | 3,019 0.45 96.41
19 | 1,478 0.22 96.63
20 | 896 0.13 96.77
21 | 1,530 0.23 97.00
22 | 475 0.07 97.07
23 | 1,576 0.24 97.30
24 | 1,016 0.15 97.46
25 | 870 0.13 97.59
26 | 717 0.11 97.69
27 | 361 0.05 97.75
28 | 333 0.05 97.80
29 | 141 0.02 97.82
30 | 95 0.01 97.83
31 | 64 0.01 97.84
32 | 5,504 0.82 98.67
33 | 1,965 0.29 98.96
34 | 2,401 0.36 99.32
35 | 2,276 0.34 99.66
36 | 1,223 0.18 99.84
37 | 680 0.10 99.94
38 | 303 0.05 99.99
39 | 60 0.01 100.00
40 | 7 0.00 100.00
Total | 668,439 100.00

The distribution is a bit bimodal, with peaks at 6 and 11 mpg improvements; the latter is the most common swap in mpg improvement terms, or to borrow the AP article’s reporting style, that’s around 9 times more common than F-150 for F-150 trades. Fuel economy improvements of more than 30 mpg over the trade-in vehicle (roughly, trading a very large truck for a Prius) are more common than F-150 for F-150 trades. The 1 mpg minimum improvement likewise was not overly common at 1.51 percent of transactions.

In addition, fuel consumption reductions and stimulus aren’t the only potential benefits from the program. While current emissions regulations hold light trucks to the same standard as cars for regulated pollutants (as of 2009, in fact, though notably not [yet] including carbon dioxide), trucks previously were allowed to meet lower emissions standards. All cars and light trucks have been held to higher standards since the mid-1990s as stricter emissions regulations have phased in. Indeed, as the following table shows, fully 30 percent of trades predate the 1994 start of the phase-in for the Tier 1 emissions regulations. New Tier 2 vehicles are much cleaner than pre-MY2003 vehicles, which account for 99 percent of Clunkers trades.

Trade_in_Year | Freq. Percent Cum.
1984 | 1,835 0.27 0.27
1985 | 9,703 1.43 1.70
1986 | 10,771 1.59 3.29
1987 | 12,171 1.80 5.09
1988 | 18,537 2.74 7.83
1989 | 23,826 3.52 11.35
1990 | 23,993 3.54 14.89
1991 | 28,036 4.14 19.03
1992 | 32,248 4.76 23.80
1993 | 41,652 6.15 29.95
1994 | 57,145 8.44 38.39
1995 | 66,363 9.80 48.19
1996 | 61,430 9.07 57.26
1997 | 65,955 9.74 67.00
1998 | 65,876 9.73 76.73
1999 | 62,441 9.22 85.95
2000 | 43,758 6.46 92.42
2001 | 29,183 4.31 96.73
2002 | 16,114 2.38 99.11
2003 | 4,472 0.66 99.77
2004 | 1,226 0.18 99.95
2005 | 254 0.04 99.99
2006 | 52 0.01 99.99
2007 | 23 0.00 100.00
2008 | 17 0.00 100.00
Total | 677,081 100.00

There’s also a cautionary lesson in here investigating large databases. In a 677,000-record dataset, there will be hundreds or thousands of errors unless the data are meticulously cleaned. The AP report takes note of the 145 transactions listed above where the mileage of the trade was no worse than that of the new vehicle, which could indicate frauds against the program if correct. Among the putative horror stories:

A driver in Negaunee, Mich., traded a 1987 Suburban that got 18 mpg for $3,500 toward a new Silverado pickup that got only 15 mpg. An Indianapolis driver traded a 1985 Mercedes 190 that got 27 mpg for $3,500 toward a new Volkswagen Rabbit that got only 24 mpg.

The article is correct based on the mpg for the trades as coded in the database. However, other information in the database suggests that the transactions actually may have involved valid fuel economy improvements. The database includes the vehicle identification number (VIN) of the trade, which provides important eligibility information on the cars when decoded.

In the case of the 1987 Suburban, to get 18 mpg it would need to be a RWD model equipped with a 6.2-liter diesel engine. That’s what the database record says, but according to the VIN, the Suburban was a 13 mpg gas-engined model. Likewise, the VIN of the 1985 Mercedes is consistent with the car being an eligible 18 mpg gas-engined 190 rather than a 27 mpg diesel 190. In both cases, the database is ambiguous as to the validity of the transactions; if the VINs are correct, then they were allowable.

The Cash for Clunkers program pretty clearly was not designed as an efficient environmental program, and there have been questions as to its efficiency as stimulus, too. However, as its costs are spread over aims of stimulus, reducing fuel consumption (which has costs external to car owners), and reducing emissions pollutants other than fuel consumption-related GHGs, it doesn’t have to be. To call it the Worst Obama Program Ever is to go overboard.

[*] Buiter, who takes the line that it’s crazy per se to destroy a portion of the capital stock, doesn’t carefully consider that automobiles don’t just magically produce transportation services; they consume other inputs and emit various wastes doing so.

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Levitt on Cash for Clunkers

by Tom Bozzo

Steven Levitt wonders aloud at the Freakonomics blog whether it could possibly be true that the CARS a/k/a Cash for Clunkers is about to run out of money, given the level of new vehicle sales in the U.S.:

The program went into place on July 24th. One week later, the program was said to be out of money.

In 2006, before the current ills of the automakers, the average number of new cars sold in a week in the United States was 125,000.

So if you believe the numbers, sales involving clunkers as trade-ins last week represented more than two times the weekly sales of new vehicles when the industry was healthy.

You have to go well into the comments thread before someone points out that pre-crisis, the number of new automobiles sold in the U.S. was more like 300,000/week — say 16 million sales/year divided by 52 weeks. As Spencer showed yesterday, second quarter sales were running around 9.5 million at a seasonally adjusted annual rate; by advanced math, that’s about 182,500 weekly sales. The difference in July vs. Q2 sales was about 1.7 million vehicles at SAAR, or 142,000/month. That would be among the greener shoots were it attributable to general economic conditions. So CARS actually could fund about two weeks’ worth of the difference between the Q2 sales rate and the pre-crisis rate. Though maybe given the recent track record of the Chicago school, being off by only a factor of 2.5 is not a bad performance.

A little more below the fold.

Consistent with reports that SUVs and pickups are getting traded in mainly on bread-and-butter cars and small crossovers, a number of high-volume models had very good months. For instance, Toyota’s Big Three (Camry, Corolla, and Prius) sold 23,413 more units in July than in June, a 39.4 percent increase. Prof. Hamilton’s auto-sales graph shows perhaps a modest June-July sales bump in the pre-crisis data. Honda, Ford, and Hyundai among others also had relatively good months by recent standards. While one of Levitt’s commenters boasts of trading a seldom-used pickup on a BMW Z4, lousy sales results from luxury makes suggest this is not a major problem (even though the $45,000 price ceiling is base price and hence relatively permissive); BMW’s sales report affirmatively cited a lack of CARS activity. [1]

So picking over the sales reports, it doesn’t seem hard to come up with 100,000 sales or thereabouts that could have been juiced by CARS, and the bottom line is that if that’s the case (and reported fuel economy improvement statistics are based off of the first 80,000 applications), then it’s perfectly possible that the program could run out of money quickly, or very quickly given a sufficient backlog of unprocessed applications.

Obviously the ordering of the program start and promulgation of the regulations is not a high point in government, but a look at the results suggests that some of the tea-partying reaction is unwarranted. Based on the reported fuel consumption difference of about 38 percent for the initial wave of applications, savings in fuel and avoided external costs from burning the fuel are on the order of $1200/year if the clunker was driven a typical amount (12,000 miles/year) with fuel at $2.50 and external costs of $1.50/gal. This is not a bad return on a $4,000 investment.

[1] Moreover, the $45,750 base price of even a “stripper” Z4 3.0 renders the model ineligible for CARS.

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Sympathy for the Car Dealers?

by Tom Bozzo

A Washington Post article suggests that car dealers may be getting a bit more sympathy than other stakeholders in the GM and Chrysler bankruptcy adventures:

The dealer complaints have resonated in a way that the objections of bondholders and others have not. Many are leaders in their local communities, where they are a source of jobs and philanthropic dollars, and they are a potential political force for disrupting the Obama administration’s effort to quickly restructure the nation’s ailing auto giants.

(It also notes that it takes in substantial advertising revenues from Jack Fitzgerald, a Washington-area dealer profiled in the article.)

As Gail Collins says in a different context, “Hell hath no fury like a middleman scorned.”

I probably shouldn’t underestimate Congress’s inclination to protect those undeserving of protection, but remember these are car salesmen, fer goodness sakes. If you wouldn’t bail Joe Carsalesman out from the jaws of the Ravenous Bugblatter Beast of Traal, then with respect to John Cardealer, keep in mind that the Cossacks work for the Czar.

While Fitzgerald suggests he’s been targeted for criticizing GM and Chrysler for weak product, it’s worth remembering that dealers have played their own role in the decline of the Domestic Three. And a central irony is that the terminated dealers’ biggest problems stem in no small part from dealer-friendly state franchise laws that among other things helped shield these dealers from certain forms of competition. More below the jump.

For instance, terminated dealers in Wisconsin are subject to state laws which prohibit them from selling “new” cars without a franchise agreement; absent an ad hoc reprieve from the state, they’d be forced to hold onto unsold inventory until the model-year turnover when they could legally sell the cars as “used.” This is a particularly pressing issue for Chrysler dealers as their termination date is June 9. Now who do you suppose would (ordinarily) want to keep non-franchisees from selling “new” cars? Pick a state and you can almost certainly find franchise laws intended to insulate car dealers from competition but which may boomerang on dealers ejected from the club.

Dealers also shoulder some of the blame for the current market’s coolness to the Detroit automakers. Those of us of an age to remember family loyalties to particular domestic makes may also remember that their automotive nadir was also a dealer-service nadir. GM, in particular, implicitly acknowledged this through the Saturn dealership model, with its customer service aspirations styled on Japanese makes and low-pressure sales approach. That must have done a pretty good job of reforming widely detested sales practices and lousy after-sales service, since it’s hard to pin Saturn’s goodwill and modest early success on its cars. (My receptiveness to “oh but early Saturns really were wonderful” arguments is tempered by 2-1/2 years of living with my wife’s late ’96 SL1, which admittedly wasn’t remotely as bad as my mother’s long-deceased ’85 Buick [the car which drove her to Hondas].)

It’s been a measure of how screwed-up GM is that Saturn now has a sensible lineup of decent cars (which could be further improved by reference to GM’s latest European models) and the closest thing to a rationalized dealer network in the GM brand family, yet seems never to had the chance afforded GM’s more damaged traditional brands that had, pre-crisis, much lower sales to boot.

We’re encouraged to feel a little sympathy for small businessmen whose lots were stuffed with cars using what sound like high-pressure sales tactics. Some of the reported sales methods sound like they’re somewhere between ‘bullshit promises‘ and mild deception. Then again, it’s car dealers on the other end of the transactions. Should they not be able to resist pitches of the “I gotta meet my quota and we’ll remember you for helping” form?

My problem with “travesty” theories of the Chrysler and GM bankruptcies is that they tend to lose sight of the basic situation that the automakers are well and truly busted, and that the next best alternative to the “travesty” is liquidation in a highly unfavorable market. There’s especially little reason to believe that New Chrysler has a future with all of its legacy franchise agreements dragged along.

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Why Wagoner?

Tom Bozzo

1. Well, duh.

2. In the NYT, William J. Holstein’s case for Wagoner should be read as damnation by faint praise. Promoting efficiency and quality improvements is laudable enough, but hardly the sort of vision thing that merits a U.S. CEO salary. Bob Lutz’s product-development record is mixed in part due to Lutz’s contempt for greenery and faulty assumptions that SUV demands were not price-sensitive, and in more significant part because GM’s management was full of pound-foolishness as important product developments (e.g. marketable compact cars) were underfunded when the company more-or-less had money. The company can easily go bankrupt building bulletproof Buick Lucernes. And, troublingly, GM has persisted in futuremortgaging despite the availability of government aid.

3. Nevertheless, my question is, why not the more obvious choice of Chrysler’s Robert Nardelli? If GM management has been years late and billions short, Chrysler’s Cerberus-hired management has shown no public signs of elementary competence. Where GM’s product plans are questionable (Cadillac station wagon?), Chrysler’s are an intergalactic void unless you’re very optimistic about its ability to bring its electric showcars into production or eagerly anticipating Americanized Fiats. As a major net beneficiary of the housing bubble and poster-child for CEO excesses, Nardelli is perfectly cast for the scapegoat role, not least because he’s substantively more deserving of sh*t-canning as Wagoner.

The concern of course is that someone(s) on the Obama team think Nardelli is more deserving of forbearance than Wagoner because of his private equity bosses. I’m not saying that’s true, but if it were, then I’d want to play poker against whomever can’t see that Cerberus Capital Management has been exploding myths of the power of patient private capital and by most indications wants out.

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