auto

Obama To Visit Big Three Auto Plants In Michigan, Illinois Next Week

July 23, 2010

WASHINGTON — President Barack Obama will visit U.S. auto plants in Michigan and Illinois next week to highlight his administration’s decision to rescue General Motors and Chrysler last year and revitalize the U.S. auto industry. Obama plans to use trips to General Motors and Chrysler plants in Detroit on July 30 and a Ford assembly plant in his hometown of Chicago on Aug. 5 to discuss the progress in the U.S. auto industry following the government-led bankruptcies of GM and Chrysler. White House press secretary Robert Gibbs said Friday that Obama will acknowledge the decisions to save GM and Chrysler were unpopular with many Americans but necessary to save hundreds of thousands of jobs and help rebuild the auto industry for the future. “The president believes that the decisions that we made around the auto industry are a parable for where we are economically. We had to make some tough and even unpopular decisions but those decisions are laying a new foundation for economic growth and a brighter future,” Gibbs said. GM and Chrysler received tens of billions of dollars in federal aid to undergo swift bankruptcies last year and have begun to show signs of rebounding. GM, which is majority-owned by the government, posted a quarterly profit in May and has repaid nearly $7 billion in loans from the U.S. government while preparing for an initial stock offering that could further repay taxpayers. Chrysler, which was placed under control of Italian automaker Fiat as part of its bankruptcy, posted a $143 million first-quarter operating profit. It has made sales gains during the spring and summer months. Ford did not receive federal aid, and announced a second quarter profit of $2.6 billion amid sales that far outpaced the rest of the industry. It was Ford’s fifth straight quarterly profit. Obama has tried to sell the administration’s work with the auto industry as one of the success stories of his recovery program. Obama will visit GM’s Hamtramck plant, which is gearing up to make the Chevrolet Volt rechargeable electric car. The plant is one of nine plants that the automaker will keep open during the typical two-week summer shutdown to boost production of popular models. In nearby Detroit, Obama will tour the Jefferson North Chrysler plant. It recently added a second shift of production, adding about 1,100 jobs to the plant. Workers there recently launched the new 2011 Jeep Grand Cherokee. The following week, Obama will tour the Chicago plant where Ford is building the new Explorer sport utility vehicle. The redesigned SUV, which will be revealed on Monday, is expected to show major improvements in fuel efficiency. The president will also raise money for Democrat Alexi Giannoulias, the Illinois state treasurer who is seeking Obama’s old Senate seat. Giannoulias has been outpaced in fundraising by Republican Mark Kirk, a congressman from Chicago’s northern suburbs.

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Max Bergmann: The Other Side of the World Cup

July 11, 2010

With today marking the end of the World Cup, assessing the legacy of the World Cup for South Africa can now begin. In other words, will this event attract more investment and usher in greater economic growth that can begin to make a dent in the huge levels of poverty. South Africa is a country of dualities. It is a country with a dark past, yet judging by the World Cup it has a bright future. It is a country that is the richest of sub-Saharan Africa, yet is plagued by poverty and an exorbitantly high rate of HIV/AIDs. It is country that struggles with crime, yet is one of the most friendly and warm countries I have experienced. While South African cities, like Port Elizabeth, where I stayed, have beautiful beach fronts and safe neighborhoods, on the outskirts sit black South African townships that mainly developed during apartheid. It is in these townships were the challenges confronting South Africa are clearly visible. Government neglect and denial of the AIDS crisis has led to a public health catastrophe, where in some townships 40 percent struggle with HIV/AIDs. Unemployment is also rampant and estimated to be as high as 80 percent in some areas. City services like electric, water, sewer are often absent, as are quality access to education. Government corruption, negligence, and incompetence are problems – as they are everywhere – but the scope and size of the challenge in arresting poverty is so huge and resources are so stretched that narrowing the two worlds of South Africa will be a long term process dependent on continued economic growth. Critics of hosting the World Cup have noted the absurdity in spending millions in constructing beautiful new stadiums – many of which will go unused after the World Cup – when so many live in poverty. Yet while the long term economic benefits remain unclear, it is certain that this tournament has done a tremendous amount in giving the world a different view of a more prosperous Africa. And in that is one of the keys to tackling poverty – creating a virtuous circle of growth that attracts significant foreign investment into the country. Large global companies have long been investing in South Africa – as it is Africa’s most vibrant economy – and while the jobs and training provide direct benefits many have also become important players in anti-poverty efforts. I was fortunate enough to have traveled to South Africa for the World Cup in a program through Volkswagen and was able to see the impact first hand. Volkswagen has a major auto factory outside Port Elizabeth – one of the World Cup hosts cities – where they employ about 7,000 people. As one of the largest companies in the region, Volkswagen invests millions annually in social investment projects of all types. The types of projects vary considerable. VW invest in local seamstresses from a nearby township, whose entrepruenerial spirit led them to pool their activities and produce reusable grocery bags for use at the South Africa’s largest grocery chain. They are building an education center for children in an impoverished township and contributing to the Ubuntu education fund , which seeks to provide an educational learning center for orphaned and disadvantaged kids after schools. Some projects come from the initiative of VW, on others VW invests in programs that are already up and running and are looking for capital. VW has also long been involved in soccer. They own a club in the German Bundesliga – Wolfsburg – which started from VW autoworkers, and they sponsor other clubs such as DC United and clubs in the South African league. VW also invests in soccer in South Africa through the “A Chance To Play” initiative . The South African government due to budget restrictions largely abandoned spending on arts and sports as part of their school curriculum. A ‘Chance To Play’ helps provide sports competition, but also ensures that anyone that participates in the program is also taught about HIV/AIDs. The program therefore is not just about sports, but about providing a safe alternative for children to spend their time while simultaneously important life lessons at the same time. Now VW, and companies like it, often claim, perhaps legitimately, that it is making such investments due to altruistic concerns. But there is also a cold hard capitalist logic to reinvesting in the communities in which they have such an out-sized presence. Henry Ford for instance, not one for altruism, greatly increased his employees wages so that they too could buy cars. For companies doing business in countries with strong democratic institutions, ensuring that the local community has a favorable view of the company is a clear strategic interest. There is a real interest in consumer based companies – ie companies that are dependent on people to buy things – to help make those people richer. And Volkswagen doesn’t just export its cars from the port at Port Elizabeth – it sells the most cars to the South African market and is looking to grow further. To do so, it is dependent on South Africans getting richer. But whatever the motivation, VW’s investments are creating positive social outcomes, that while not filling the gap by any means, are providing services and opportunities to many who would otherwise not get them. For instance, VW has emphasized worker training and health. In a country with such a high HIV/AIDS rate ensuring proper medical care and treatment is a must. VW has a clinic within its factory and requires employees to visit. This is also not altruism. Autoworkers have to be trained and the longer workers they are there the more valuable they become – it is bad business not to take care of the health of people you have spent money and years investing in. Volkswagen is also a among a number of other auto companies in South Africa and their presence, while in many ways due to cheaper labor than they would find in Germany and convenient shipping routes to markets in the east and west, is also due to the stability and strength of South Africa’s democracy. While labor might be cheaper in South Africa, it is by no means the cheapest source of labor on the continent and the country also has very robust labor unions. There has long been a fear that global companies would continue to search for countries with cheaper and cheaper labor and weaker and weaker regulations. While this is no doubt the case for some industries, for capital intensive industries that are dependent on a skilled work force, the key is stability. Car companies that build capital intensive factories are investing for the long haul and need to be assured of a level of political and economic stability. Therefore stable democratic countries that have relatively strong institutions are a must for many large multinationals. No one doubts that VW’s first focus is on making a profit for its shareholders. But what is in a company’s core interest can be interpreted broadly (or narrowly) and Volkswagen chooses the broader interpretation, as do most companies that believe they are going to be around for a while.

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Unions, Consumer Groups Rally Behind Wall Street Reform

June 25, 2010

Consumer advocates, labor unions and progressive advocates of Wall Street reform are hailing passage of the bill by the conference committee early Friday, even as analysts warn that it fails to solve the problems of bank size and interconnectedness that led to the financial crisis. Given the complexity of financial regulatory reform, progressive observers looked to key leaders to gauge the value of the proposals under discussion. Among others, the group included Elizabeth Warren, a Harvard professor and head of the congressional panel overseeing the bailout; Heather Booth, the director of Americans for Financial Reform; Richard Trumka, the president of the AFL-CIO who has made confronting Wall Street a central part of his union’s mission; and Kathleen Day, a former Washington Post business reporter now with the Center for Responsible Lending. All of them are out with statements celebrating the final bill, though with some reservations. The AFL-CIO put its statement out under the name of the director of the office of investment, Daniel Pedrotty. “This is a David and Goliath victory of working people against the big banks and Wall Street,” he said. “While it’s not perfect, this legislation is a giant step to changing the rules of the game that caused the economic crisis.” Elizabeth Warren’s statement comes as she is routinely floated as the best candidate to head the Consumer Financial Protection Bureau. “It has been more than 20 months since the largest financial crisis since the Great Depression, and we are still living under the same set of rules we had in place before the meltdown. Thanks to the leadership of President Obama, Chairman Frank, and Chairman Dodd, that’s about to change. Members of the House-Senate conference committee and their staffs worked through the night to produce the strongest set of Wall Street reforms in three generations. They created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print. For the first time, there will be a financial regulator in Washington watching out for families instead of banks,” said Warren. Warren didn’t mention in her statement that the CFPB won’t have the power to regulate lending by auto dealers, an often predatory practice involving the second-largest purchase a consumer typically makes. The Pentagon battled the auto dealers over the carve-out, arguing that soldiers are being ripped off so routinely that it is damaging military readiness and national security. The auto dealer lobby is chest thumping. Ed Tonkin, chairman of the National Automobile Dealers Association, said that the carve-out was “a testament to the hard work of all of the auto dealers and dealership employees around the country who made sure that the merits of the issue were heard. Their grassroots efforts truly made today’s victory possible.” Day praised the creation of the bureau but chided Congress for buckling to the auto dealers. “House and Senate conferees reached a historic agreement to create a consumer protection agency that is truly independent from the lenders it will oversee: It will have a single director nominated by the president and confirmed by the Senate; funding that is largely insulated from meddling by industry lobbyists; and the tools and scope needed to ensure most lenders operate under one set of common-sense rules. That’s a win for families, small businesses, taxpayers and the economy,” she said. “Auto dealers — whose lending record is rife with unfair, deceptive practices, especially for people of color and military personnel — should not have been exempted from oversight.” Day was more enthusiastic about tight mortgage lending rules that survived in conference. Originally passed by the House as Miller-Watt-Frank, after lead sponsors Brad Miller (D-N.C.), Mel Watt (D-N.C.) and Barney Frank (D-Mass.), the legislation bans a number of abuses that helped fuel the crisis. Brokers can no longer be rewarded for steering borrowers into dangerous loans, among other reforms, and the CFPB is empowered to rein in deceptive and abusive practices. Stabilizing mortgage lending would go a long way to stabilizing the financial sector, said Miller. “It’s hard to believe what went on in the mortgage market in the last decade, and that so many members of Congress just parroted the talking points of lobbyists defending the indefensible. The financial crisis began with millions of Americans trapped in subprime mortgages that they couldn’t pay, when they qualified for prime mortgages that they could,” Miller told HuffPost. “If these rules had been in place we would never have had the foreclosure crisis, the financial crisis or the Great Recession.” Booth, of Americans for Financial Reform, a coalition of unions, consumer groups and progressive organization, “hailed” the legislation. “We see landmark legislation when it comes to consumer protection, offering all of us an independent watchdog on our side. For the first time, the $600 trillion derivatives market will be transparent and have to maintain capital to back up its bets — a move that was once inconceivable. The adoption of the Volcker Rule represents a major change of direction, stopping banks from using insured deposits to support speculative activity. We see big steps in the right directions when it comes to hedge funds and private equity, as well as improvements for investors to have a voice,” she said. “Americans for Financial Reform calls for members of Congress to support this bill and move to final passage immediately. This is a big step forward, and a first step towards the further changes we need to make sure Wall Street serves Main Street and not vice versa.”

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Eric Rodriguez: Latino Consumers Have Much to Celebrate in New Banking Bill

June 25, 2010

Early this morning, lawmakers finalized the banking reform bill. The “Restoring American Financial Stability Act of 2010″ is a great victory for consumers, who will now have vastly improved protections against predatory lending. The bill also contains very strong and much-needed foreclosure assistance. This is an historic piece of legislation that will change financial markets for the better. The one unfortunate blemish was Congress caving to the will of auto dealers and exempting them from new federal oversight. In a momentary lapse back into politics as usual, lawmakers shielded a loosely regulated industry from accountability. This occurred over strenuous objections from President Obama, the Pentagon, independent community banks, civil and consumer rights organizations, Congressman Gutierrez (D-IL), and many others who know all too well how auto dealers have exploited Latinos and other consumers seeking to finance their car purchases. Communities of color are most frequently targeted by abusive lenders in the auto industry and the National Council of La Raza (NCLR) pledges to work with regulators, consumer advocates, and the industry to end discrimination and exploitation in auto dealer financing. That said, on balance, there is much to celebrate about this legislation. We congratulate our champions on several major victories: Consumer Financial Protection Bureau (CFPB) The creation of a CFPB is unprecedented. This bureau will be entirely devoted to protecting families from predatory loans and other unsound financial products. It will be autonomous and have the authority to write and enforce rules. This is the cornerstone of true consumer rights. Money Transfers New disclosures included in the legislation will create a more transparent process for wiring money abroad. Tens of billions of U.S. dollars are sent every year by American residents to their relatives overseas. In fact, immigrants from Mexico alone sent over $17.3 billion home in 2009. These same remitters also spent an estimated $948 million in fees and other costs getting it there. New protections championed by Congressman Gutierrez and Senator Akaka (D-HI) will create a disclosure that displays the true cost of the remittance and the value received. Foreclosure Assistance Two provisions stand as real boosts for those struggling with foreclosure , as experts estimate that more than 2.3 million Black and Latino households will lose their homes to foreclosure between 2009 and 2012 and approximately two million Blacks and Latinos have lost their jobs since the recession began. The first includes a bridge loan program for unemployed homeowners while they look for a job. The second is an infusion of funding for a Neighborhood Stabilization Program (NSP) that allows states to purchase and redevelop foreclosed homes. A solid NSP can also help generate employment in hard-hit areas. Mortgage Protection Reckless and deceptive lending has severely impacted Latinos and other communities of color. For example, Latinos are 30% more likely than Whites to receive a high-cost loan when purchasing their home. They are also more likely to receive loans with high-risk features. The bill includes comprehensive mortgage reform and antipredatory lending measures essential to combating abusive lending practices that played a key role in the economic crisis. Financial Counseling Funds will be infused into community-based organizations that offer financial counseling. They will help families open bank accounts, build credit, identify an affordable car loan or credit card, and recover from a foreclosure or bankruptcy. This service is critical to helping consumers recover and avoid disastrous products in the future. Safe Bank Accounts Low-income, minority, and underbanked families will have access to safe and affordable bank accounts. Currently, many Latino consumers rely on fringe financial products such as payday and car title loans to pay their bills and otherwise make ends meet. Approximately 19.3% of Latinos and 21.7% of Blacks are unbanked, compared to only 3.3% of Whites. The bill will provide grants to help families connect to bank accounts and provide alternatives to payday loans.

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Financial Reform Conference: Auto Dealers Beat Obama, Win Exemption From Consumer Protection Agency

June 22, 2010

WASHINGTON (AP) — In the end, the political clout of 18,000 auto dealers scattered nationwide was too much even for President Barack Obama. House and Senate negotiators putting final shape to a sweeping overhaul of Wall Street regulations all but agreed Tuesday to exclude auto dealers from the oversight of a consumer financial protection bureau. “The political reality is that those of us who have fought against an auto dealer carve-out can’t prevail,” Representative Luis Gutierrez, D-Ill. The House bill approved last December contained an exemption for auto dealers, among others, from lending regulations issued by the proposed consumer agency. The Senate did not, but the sentiment was there. In a 60-30 nonbinding vote last month, senators called for the auto dealer loophole. Under a compromise offered by Senate Democrats Tuesday, auto dealers would still be covered by federal truth-in-lending rules that would have to conform to regulations adopted by the consumer agency. The Federal Reserve, which oversees truth-in-lending regulations, could adopt different rules but would have to explain its decision. At the same time, the Federal Trade Commission would be given authority to write new rules for auto dealers under accelerated procedures. But the bottom line would be that auto dealers would be exempt from direct supervision by the consumer financial protection bureau. The exclusion would not apply to auto dealers that provide their own financing, such as Carmax, or to giant auto lender GMAC. The Senate compromise, if accepted by House negotiators, would be one of President Barack Obama’s most high profile losses in his efforts to overhaul Wall Street regulations. The main contours of the House and Senate bills generally match the administration’s goals, but Obama has personally lobbied against efforts to carve auto dealers out of the consumer agency’s jurisdiction. The administration has even made a national security case, arguing that military personnel have been especially prone to predatory lending schemes by car dealers. Auto dealers have used their high visibility in their local communities to fight inclusion in the bill. They say they only process the loans and then turn them over to other lending institutions to administer and service. The National Auto Dealers Association continued to press for the House exclusion, objecting to the Senate proposal’s requirement that the Fed’s truth-in-lending rules hew to those issued by the consumer agency and that the FTC be given the authority to write auto dealer rules on a fast track. The discussion on excluding auto dealers is one of many negotiations under way in a joint House-Senate panel that is working out differences between the House and Senate bills. Panel members must still iron out some of the most difficult differences, including how to regulate the complex securities known as derivatives and how far to go in restricting the investment activities of banks. On Tuesday, Rep. Barney Frank, the joint committee chairman, and Senate Banking Committee Chairman Christopher Dodd prodded the panel to conclude its work by Thursday in time for Obama’s appearance before the Group of 20 nations in Toronto this weekend. “It would be a grave error for the U.S. to do things where we could be gamed by other countries,” Frank, D-Mass., said. Treasury Secretary Timothy Geithner made a similar point while testifying before the Congressional Oversight Panel, an independent committee established to look over Treasury’s financial rescue fund. Geithner stressed the need for the United States to shape a consensus on international financial regulations. “The reforms Congress is about to enact will be a good model for the world and will give us enormous credibility in trying to, again, pull the world to those higher standards,” he said.

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King Inherits UAW Pushing for Payback After Cuts of Up to $30,000 a Worker

June 15, 2010

By Keith Naughton and Jeff Green June 15 (Bloomberg) — Bob King , the next United Auto Workers leader, inherits a union that gave up thousands of jobs and billions in benefits to save the U.S. auto industry. His legacy will rest on how workers are rewarded in the recovery. King, 63, the nominee of the UAW bloc that has controlled the Detroit-based union since 1946, is slated to succeed two- term President Ron Gettelfinger , 65, in an election tomorrow. The electrician with a law degree, who rose through the ranks in 40 years at the UAW, is set to take over a union that has declined to 355,000 members from 1.5 million in 1979. The UAW shift coincides with signs of recovery in the industry. General Motors Co. posted a net profit and Chrysler Group LLC made money on an operating basis in the first quarter, less than a year after each emerged from bankruptcy. The union helped convince President Barack Obama to provide an $85 billion taxpayer bailout to those automakers, taking concessions to put their labor costs on par with foreign automakers’ U.S. plants. “Bob is facing a very, very difficult job because there will be tremendous pressure on him to roll back the concessions,” said Gary Chaison , a labor professor at Clark University in Worcester, Massachusetts. “He’s got to walk a very fine line to reverse some of what was lost and keep some in place for the promise of a brighter future.” UAW workers have each given up $7,000 to $30,000 in concessions in the last five years, King said last month. The union surrendered raises, bonuses, cost-of-living adjustments and agreed to a two-tier wage system where new hires make about $14 an hour, half what hourly production workers are now paid. Returning Benefits As head of the union’s bargaining with Ford Motor Co., King filed a grievance in January after the automaker reinstated raises, 401(k) matches and tuition assistance for salaried workers. Dearborn, Michigan-based Ford has since restored tuition benefits for its 41,000 hourly workers and King is pressing for more. “UAW members at GM, Ford and Chrysler and throughout the supplier sector have made the sacrifices to keep these companies viable,” King said at a Ford factory in Ypsilanti, Michigan, on May 24. He declined to be interviewed for this story. UAW labor costs, including wages and benefits, have fallen from $75 an hour to about $55, equal to Toyota Motor Corp. ’s U.S. workers. The union has about 113,000 members at Detroit- based GM, Ford and Chrysler, which is based in Auburn Hills, Michigan. “Bob’s going to make sure our members are not forgotten as these companies rebound,” said UAW director Rory Gamble, who runs King’s former Detroit region and has known him 25 years. “But we’ve got to make sure these companies are viable, so there’s going to be a lot of caution in how we go after this.” ‘Vilified’ Union Part of the caution will stem from managing the UAW’s public standing. “The current perception of the UAW is one of the lowest of any union in America,” said analyst David Cole of the Center for Automotive Research in Ann Arbor, Michigan. A so-called jobs bank in which auto workers received almost full pay while on indefinite layoff “became the flag by which the union was vilified,” Cole said. The union doesn’t receive credit for giving up that jobs bank or other reforms, he said. “Bob has to get out front and tell the world it’s a different union than it used to be,” Cole said. “Otherwise, it will continue to decay.” King, the son of a former Ford industrial relations director, has been painted by challengers in the union as going too easy on the company. More than 70 percent of Ford workers rejected additional concessions in November that King endorsed. Ford earned $2.7 billion last year after three years of losses. Critics in Union “We can’t just take at face value when these companies cry poverty,” said Gary Walkowicz , a UAW official from King’s home factory in Dearborn, who is making a self-described symbolic run against him for president. “Workers really disagreed with giving up those concessions when Bob King asked them. It showed there’s a disconnect between the membership and the leadership.” In the next round of contract bargaining in 2011, King has to work toward restoring raises while ensuring the automakers put new models into U.S. factories, said Sean McAlinden , economist at the Center for Automotive Research. “As the market comes back, the automakers will be adding workers by the thousands,” McAlinden said. “If he holds the line on canceling too many concessions, he’ll get growth. Otherwise, the companies will say, ‘We’ll build up Mexico like you wouldn’t believe.’” Business Case King prepares business cases to show managers that hiring more workers at UAW plants can be profitable, said Bernie Ricke, president of UAW Local 600 in Dearborn, who has been at the Ford bargaining table beside King since 2003. “He’s usually very measured, though I’ve seen him pound the table a few times.” Billionaire investor Wilbur Ross negotiated against King on a contract for his International Automotive Components Group, the world’s largest automotive carpet supplier. King studied IAC’s books and discussed findings with managers before bringing the information to union leaders and rank and file members. The new contract, which cut pay and benefits, passed by 80 percent. “He’s the prototype for the kind of labor leader who is needed in this modern world,” Ross said in an interview. “His challenge is to preserve manufacturing in the United States at the same time maintaining a standard of living for the worker. It’s a delicate balance.” King last year approached Ross for help in organizing auto suppliers to support the U.S. cash for clunkers program that funded government subsidies for vehicle trade-ins. They built a coalition of about 50 suppliers across the U.S., and the program eventually helped sell 677,081 cars. From the Sickbed King comes to the table with an “intense” work ethic, Gamble said. He’s been seen working two mobile phones at a time in Ann Arbor, where he lives with his wife and three children. (He also has two adult daughters from his first marriage). The night before stomach surgery last year, King called Gamble from his hospital bed at 11:30 p.m. to check on Ford’s plans to transfer workers among plants. After surgery King was right back on the phone, hoarse from a tube in his trachea, Gamble said. “He could barely talk and I said, ‘Bob you need to get well, man,’” Gamble said. “He was relentless.” He took a similar approach to his schooling. After studying religion and philosophy at College of the Holy Cross in Worcester, King graduated from the University of Michigan in 1968 with a degree in political science. He did a two-year tour in Korea with the U.S. Army and then went to work for Ford in 1970 at the Rouge factory complex in Dearborn that Henry Ford built in the 1920s. In 1972, King began an electrician apprenticeship while earning a law degree in his off-hours. Rapid Rise “While he was still an apprentice, the journeyman skilled tradesmen elected him as their union committeeman, which was unheard of,” Ricke said. “He had to work weekends to finish his apprenticeship.” Raised Catholic, King draws a link between the labor movement’s mission and social justice. At a UAW convention in California in 1989, he bused reporters to a shanty town in Tijuana, Mexico, to show them the squalor surrounding U.S. companies’ border factories. He took a group of labor leaders to El Salvador in 1990 to monitor union elections. King’s greatest challenge may be finding a way to build on his earlier efforts to increase the UAW’s ranks . While leading bargaining efforts a decade ago, he helped diversify the membership by organizing graduate students and casino workers. Johnson Controls King also led a strike at Johnson Controls Inc. in 2002 where he convinced the supplier to sign a neutrality agreement allowing the union to organize its other U.S. plants. Ford, one of JCI’s largest customers, also said it wouldn’t object to the UAW representing workers at the auto supplier. That set a precedent that enabled the UAW to sign up 25,000 auto parts workers that year, according to labor professor Harley Shaiken of the University of California at Berkeley. “Bob King leveraged the good relationship the UAW had with Ford into a broader reach with its suppliers,” Shaiken said. “It was innovative and strategic.” King also reaches out to other unions seeking new strategies for signing up members. “He actually believes in grassroots organizing, which I think came from our organizing backgrounds,” said Leo Gerard , president of the United Steelworkers union, who consults with King on strategies for boosting membership and considers him soft-spoken but “tough as nails.” About 350,000 of the 850,000 Steelworkers in the U.S., Canada and the Caribbean work on products that end up in autos. The UAW can’t keep shrinking and expect to hold the clout that moved a president to rescue GM and Chrysler, Shaiken said. “He’s facing an unprecedented crisis; the status quo is not tenable,” Shaiken said. “To survive the union has to go forward, and Bob needs to be a transformational leader.” To contact the reporters on this story: Keith Naughton in Detroit at Knaughton3@bloomberg.net ; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net

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Consumer Spending Slows — And The Economic Recovery Is Expected To Slow

June 11, 2010

WASHINGTON — Americans are pulling back on their spending, a trend that could slow the economic recovery if it continues. A sharp drop in retail sales revenue for May shows that shoppers remain cautious, and it could lead economists to curtail their expectations for growth. Analysts cautioned against overreacting to Friday’s Commerce Department report. It could signal a return to modest growth after two unusually strong months fueled by tax refunds, rebates for energy-efficient appliances and higher gas prices. The 1.2 percent plunge in sales revenue was the largest drop in eight months. But excluding three of the most volatile sectors – autos, building materials and gasoline station sales – the figures actually rose one-tenth of a percentage point in May. And figures for some industries can vary depending on how they are calculated. For example, Commerce said auto sales fell 1.7 percent in May, but the industry itself has reported gains of 3.7 percent for the same period. They differ because the auto industry measures strictly sales volume of new cars; the government looks at revenue for cars, auto parts, tires and other products across the industry. “Both reports are right. They are just tracking different things,” said David Wyss, chief economist at Standard & Poor’s in New York. Economists remain concerned that spending won’t pick up in months ahead. Households are still facing near-double-digit unemployment. Private employers are not hiring fast enough to bring that number down. Anxiety has gripped the stock market, partly because of the European debt crisis. Any sustained pullback by shoppers could threaten the recovery because consumer spending accounts for 70 percent of economic activity. The overall economy, as measured by the gross domestic product, grew at an annual rate of 3 percent in the first three months of this year. Much of that resulted from a 3.5 percent expansion in consumer spending – the best showing for this category in three years. Some economists cautioned that estimates of growth for the current quarter might have to be scaled back. The sharp decline in retail sales “is a reminder that households are not going to be the engine of growth for some time,” said Paul Dales, U.S. economist for Capital Economics. Contributing to the weakness is a shortage of hiring. Most economists don’t expect the unemployment rate of 9.7 percent to fall much in the coming months. “Our own view is that the labor market recovery will be a grudging one, that consumers will enjoy only modest gains in wages and salaries for some time and that consumer spending growth will therefore prove disappointing,” said Joshua Shapiro, chief U.S. economist at MFR Inc., an economic consulting firm in New York. The decline in May retail sales revenue was the largest since the figures fell 2.2 percent in September. The government did revise up slightly the April performance to show a gain of 0.6 percent for the month instead of the originally reported 0.4 percent increase. Pulling the May number down was a 9.3 percent drop in building materials. But that came after two strong months for the industry. Another key factor was a 3.3 percent drop in gasoline station sales, which were affected by lower gas prices. Department store sales fell 1.8 percent. Sales in the broader category of general merchandise stores, which includes big retailers such as Wal-Mart, fell 1.1 percent. The Federal Reserve reported Thursday that Americans’ wealth rose in the first three months of the year. But since the first quarter ended, stock prices have tumbled, reducing their wealth. Household wealth is vital to the economy because consumers tend to spend according to how wealthy they feel. The fragile stock markets have caused people to spend less freely than they typically do during economic recoveries. In the meantime, consumer spending will likely remain modest. Retail store chains have posted two straight months of sluggish revenue gains compared with a terrible spring last year. Target Corp. posted a small gain in May that was below internal forecasts. And department store chain J.C. Penney Co. and many teen merchants including Abercrombie & Fitch Co. and American Eagle Outfitters Inc. reported declines in revenue at stores open at least a year. “I don’t think the bottom is falling out of the economy,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “But the key going forward is going to be improving incomes. We will have to see better private employment numbers than we did last month.” ___ AP Auto Writer Dan Strumpf in New York contributed to this report.

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Robert Creamer: Big Banks Make Desperate Last Ditch Effort to Weaken Wall Street Reform

June 11, 2010

Everyday Americans have made big progress advancing legislation to rein in the recklessness of the big Wall Street Banks that led to the economic collapse and cost eight million Americans their jobs. Now we have to win one final battle to get a tough bill that will hold Wall Street accountable signed into law. Conferees from the House and Senate began meeting yesterday to merge their Wall Street reform bills. The big Wall Street Banks are pulling out every stop in a last ditch effort to cut tough provisions from the bill. An army of their lobbyists has descended on the Capitol. It’s up to us to stop them. Their best hope is darkness. The big Bank lobbyists would love to stick a shiv in important provisions of the bill as quietly as possible somewhere in a back room. Unfortunately for them, the Democratic leadership has done everything it can to make quiet back room dealing difficult. They plan to televise proceedings of the conference for all the world to see. Both Senate and House bills include strong provisions — though in general — the Senate bill is tougher. The Senate bill will be used as the template of the conference. The battle involved is basically a zero sum game. Everyday Americans will benefit if the final measure includes the strongest provisions of both bills. Wall Street — having concluded that a bill cannot be stopped — wants the weakest bill possible. Three broad issues are really at stake: The desperate need to rein in the unrestrained greed-fueled recklessness that caused the financial system to collapse and cost 8 million Americans their jobs. The size and political power of Wall Street — and the entire financial sector — relative to the real, productive economy. The ability of the new Consumer Financial Protection Bureau to protect consumers from financial abuse. These issues will be fought out over a range of specific provisions, but three battlefields are especially noteworthy. 1). Wall Street is apoplectic over the Senate provision — sponsored by Senator Lincoln of Arkansas – that would require them to separate their derivatives trading from normal banking operations that receive access to the cheap funds from the Federal reserve that are available to commercial banks. Derivatives are basically bets that the price of an underlying asset will go up or down. And they get complicated. A derivative can be a bet on a bet on a bet. While some businesses use derivative contracts to hedge their risk, most derivative trading is basically gambling. The premise of the Lincoln provision is simple: speculative activity like trading in derivatives should be separated from the normal activities of banking. This was the case for over 50 years under the Glass-Steagall Act that was passed after the financial panic that lead to the Great Depression. But Glass-Steagall was repealed after heavy lobbying from the geniuses on Wall Street in the late nineties, and that lead to an explosion of speculative derivatives trading by a narrow group Wall Street banks that grew “too big to fail” and ultimately brought down our economy. So it makes enormous sense to resurrect a wall between the economically productive activity of bankers that allocate credit to businesses, entrepreneurs, and homeowners on the one hand and gamblers and speculators on the other. True banking, after all, involves evaluating the soundness of businesses, the underlying value of collateral, the credit worthiness of individual customers. Speculation involves betting on the movements of markets. Sometimes speculators bet that the market will go up. Other times, speculators bet that the value of the underlying asset will drop — they bet on failure and collapse. Not a good idea to combine these two functions in the same institutions — especially when banks have access to favorable credit terms from the Federal Reserve that are intended to provide rock bed soundness to the American banking system. Wall Street claims this provision will cost them billions of dollars — that derivatives trading will move off shore. In fact, of course, many other countries are moving to rein in – and in some cases ban — some of these forms of derivative trading. The fact of the matter is that restrictions like the Lincoln provision will help prevent another financial collapse precipitated by the recklessness of the multi-million dollar bonus crowd and its “too big to fail” bailout aftermath. What’s more it will also seal off one more way the Wall Street has managed to sop up increasing amounts of money from the real economy. 2). The second provision that has Wall Street squealing like stuck pigs is Senator Durbin’s provision to limit the interchange fees the big Bank credit card operations can charge retailers. Credit card fees of all sorts — including interchange fees paid by retailers when customers use credit cards — are a major means through which the financial sector has siphoned off money from the real economy. Bank profits in the first quarter of this year soared to $18 billion, of which almost 87% ($15.6 billion) went to the big Banks who benefit from much lower cost of funds they can lend than their smaller competitors. When it comes to the credit card portion of their business, there is no real competition. The top three issuers control 52.82% of the consumer market (JPMorgan Chase 21.22%, Bank of America 19.25% and CitiBank 12.35%). Add American Express (10.19%) and Capital One (6.95%) – and it becomes clear that five firms control almost 70% of American’s credit card market. On the merchant processing side, the same is true. Eighty percent of the market is controlled by the top 10 banks. Competitive pressures do not prevent big Banks from charging huge interchange fees to merchants for the privilege of taking their bank cards. And then the big banks make money coming and going. They extract $48 billion per year from interchange fees alone and then turn around and get the consumer to pay an annual credit card fee plus 15% to 29% in interest annually on funds that the big Banks borrowed at an astounding .9% in the first quarter (that’s less than one percent) — the lowest rate since the FDIC has been keeping records. And then what does Wall Street do with the money? According to a report by New York Attorney General Andrew Cuomo, employees at nine banks that received money from the TARP bailout received a combined total of $32.6 billion in bonuses. As the Wall Street Journal reported, the bonuses included, “more than $1 million apiece to nearly 5,000 employees — despite huge losses that plunged the U.S. into economic turmoil.” During the period 1973 to 1985, the financial sector never earned more than 16% of domestic profits. This decade, it has averaged 41% of all the profits earned by businesses in the U.S. In 1947, the financial sector represented only 2.5% of our gross domestic product. In 2006, it had risen to 8%. In other words, of every 12.5 dollars earned in the United States, one dollar goes to the financial sector, much of which, let us recall, produces nothing. Wall Street’s expansion is one big reason that most of America’s economic growth during the last decade flowed into the hands of investment bankers, stock traders and partners in firms like Goldman Sachs. The Center on Budget and Policy Priorities reports that fully two-thirds of all income gains during the last economic expansion (2002 to 2007) flowed to the top 1% of the population. And that, in turn, is one of the chief reasons why the median income for ordinary Americans actually dropped by $2,197 per year since 2000. Time to cut off one more siphon that the big Banks use it to extract money from the pockets of everyday Americans — and the real economy — and transfer it into the hands of Wall Street Bankers. Lobbyists for the big Banks say that if Congress includes Durbin’s interchange fee provisions the costs will be born by everyday people. If that were so, the big Banks wouldn’t be lobbying so hard to prevent it from being included in the final bill. 3). A third area where special interests will seek to weaken the bill is by carving out exemptions from coverage by the new Consumer Financial Protection Bureau. In particular the auto dealers are trying to convince Members of Congress that they should not be subject to consumer protection requirements when they make or arrange auto loans. Think of the chutzpa. Auto loans are the number one source of consumer complaints to the Better Business Bureau and auto dealers think they — of all people — should be excluded from the consumer protection law? Any Member of Congress who would fall for that wins the gullibility of the year award. You wouldn’t want to rely on someone that gullible to help you shop for a used car, much less write the laws of the land. Robert Creamer is a long-time political organizer and strategist, and author of the recent book: “Stand Up Straight: How Progressives Can Win,” available on amazon.com .

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Gary Rivlin: Portrait of a Subprime Lender: Allan Jones, Payday King

June 6, 2010

It was at the end of a long day, the first of two we would spend together, that Allan Jones, the pioneer of the $40-billion-a-year payday industry, shared with me his views on race. His town, Jones told me, has just enough blacks to put together a decent basketball team — but not so many the good people of Cleveland, Tennessee need to worry about crime. “That’s why I can leave my keys in the car with the door unlocked,” he explained while driving me around Cleveland. I started to muster a response but he cut me off. “You don’t like what I’m saying,” he said, “but I’m just telling you the way it is.” The next day we met as planned at the offices of Check Into Cash, a chain of 1,200 payday lending stores that earns Jones more than $20 million in after-tax profits each year. I was only sorry that I didn’t visit on a Thursday. That’s when a black man named Randy Jarrett, who does odd jobs for Jones’s various companies, shows up to shine the shoes of the company’s top people. “Everyone else acted as if it were completely normal for the male managers to take their shoes off every Thursday afternoon,” a former employee told me. Making the scene even more degrading was the offensive nickname some of the executives had given Jarrett. “They’d stand out in the hall while their ‘Little Chocolate Man’ shined their shoes.” I’m not sure of the importance of Jones’s benighted views on race. As the first to spot (in 1993) the huge fortune that could be made making high-priced, small-denomination loans to the working poor, he’s the closest thing the industry has to a founder. And there are those, including the people at the Center for Responsible Lending, who believe the payday lenders target black and Latino communities — a business version of racial profiling. But, me, I’m of the school that says that payday lenders are no different from a Great White Shark: they’ll feast on any shade of fish they can catch. How is it that there are as many payday stores in the country as there are McDonald’s and Burger Kings? Part of the answer is that they have become ubiquitous wherever there’s a concentration of people barely scraping by , whether they reside in an aging first-ring suburb or live in a rural community that has seen its economic base crumble. Similarly, hanging around inside Jones’s world even for a couple of days gave me a glimpse of his views on gender. More women than men use payday loans (all those single moms living on the economic edge, among other reasons) but how relevant is it that a sidekick of Jones’s, who everyone calls Doughball (friends since childhood, on the Jones payroll for nearly as long), hardly wins himself a Gloria Steinem Award for his solution to the small financial bath Jones was taking at the local barbershop he owned. Jones had tried giving the place the old time feel of Floyd’s on The Andy Griffith Show , his all-time favorite TV program, but it was at a post-work drinking session that Doughball diagnosed the problem for the big boss. “I said to him, ‘Forget all this theme-ing stuff, just hire female barbers with big titties.’” With a laugh, Doughball added that because Jones listened to him, “it’s made a nice little profit ever since.” If nothing else, the story reveals Jones to be a CEO willing to push ethical boundaries, at least if it means more money in his pocket. There’s no doubting the relevancy of Jones’s views on money. Prior to arriving in Cleveland, I wondered how this small-town debt collector who barely made it through high school had turned a clever idea into a small empire that has rewarded him with hundreds of millions of dollars in profits , I had my answer after listening to his constant bellyaching about his supposed money woes. It was over lunch on our second day that I asked Jones how much would be enough. He responded by telling me how much critics of payday have hurt his bottom line in recent years. Losing Ohio after a particularly bruising ballot initiative fight at the end of 2008 would cost him at least $1 million in profits, he complained — and that didn’t include the other store closures he had endured following recent political defeats in Oregon and New Hampshire. He then kicked himself for failing to move into Europe a few years back when he had his chance. “I could really use that money now,” Jones told me. His money was so tied up in jets and yachts and real estate and cars (a $300,000 Maybach, a vintage Rolls, a vintage Bentley ) and horses, he moaned in an oh-woe-is-me-voice that was growing all-too-familiar, that he still hadn’t finished the driveway to the giant home he had built for himself modeled on the Biltmore, the stunning French chateau that a prior robber baron, George Vanderbilt, had built for himself a century earlier. “People get the wrong idea of how much money we make in this industry,” Jones said. He was especially worried given hard economic times. “Defaults are definitely up,” he told me during those two days we spent together in early 2009 — and that would cost him more profits still. But Jones is not a man to stand idly by while there are revenue leaks sprouting all over his payday empire. He has added check cashing services at his stores and they are now also offering money-wiring services through Western Union. He even started offering what are called auto title loans, despite the moral misgivings he had expressed about these loans that use a person’s car as collateral. “The fact you’d take a man’s car if he can’t pay you back, that’s not right,” he told me back then. By the time Jones added the auto title loan to his money-making repertoire, at least in those states where it was legal, Jones was no longer returning my emails or phone calls. But in a way I already had his explanation in my notes. That he was now resorting to offering auto title loans was the fault of all those consumer advocates who were fighting to cap the rates payday lenders could charge. “What do you expect us to do,” he had asked in Cleveland, “when you take away a man’s right to make a living?”

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Robert Reich: Why Obama Should Put BP Under Temporary Receivership

May 31, 2010

It’s time for the federal government to put BP under temporary receivership, which gives the government authority to take over BP’s operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public will know what’s going on, be confident enough resources are being put to stopping the gusher, ensure BP’s strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the president is ultimately in charge. If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs, in order to keep them financially solvent, it should be able to put BP’s north American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history. The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what’s necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would unambiguously be working in the public’s interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. As a result, the public continues to worry that a private for-profit corporation is responsible for stopping a public tragedy. Five reasons for taking such action: We are not getting the truth from BP. BP has continuously and dramatically understated size of gusher. In the last few days, BP chief Tony Hayward has tried to refute reports from scientists that vast amounts of oil from the spill are spreading underwater. Hayward says BP’s sampling shows “no evidence” oil is massing and spreading underwater across the Gulf. Yet scientists from the University of South Florida, University of Georgia, University of Southern Mississippi and other institutions say they’ve detected vast amounts of underwater oil, including an area roughly 50 miles from the spill site and as deep as 400 feet. Government must be clearly in charge of getting all the facts, not waiting for what BP decides to disclose and when. We have no way to be sure BP is devoting enough resources to stopping the gusher. BP is now saying it has no immediate way to stop up the well until August, when a new “relief” well will reach the gushing well bore, enabling its engineers to install cement plugs. August? If government were in direct control of BP’s north American assets, it would be able to devote whatever of those assets are necessary to stopping up the well right away. BP’s new strategy for stopping the gusher is highly risky. It wants to sever the leaking pipe cleanly from atop the failed blowout preventer, and then install a new cap so the escaping oil can be pumped up to a ship on the surface. But scientists say that could result in an even bigger volume of oil — as much as 20 percent more — gushing from the well. At least under government receivership, public officials would be directly accountable for weighing the advantages and disadvantages of such a strategy. As of now, company officials are doing the weighing. Which brings us to the fourth argument for temporary receivership. Right now, the U.S. government has no authority to force BP to adopt a different strategy. Saturday, Energy Secretary Steven Chu and his team of scientists essentially halted BP’s attempt to cap the spewing well with a process known as “top kill,” which injected drilling mud and other materials to try to counter the upward pressure of the oil. Apparently the Administration team was worried that the technique would worsen the leak. But under what authority did the Administration act? It has none. Asked Sunday whether U.S. officials told BP to stop the top-kill attempt, Carol Browner, the White House environmental advisor, said, “We told them of our very, very grave concerns” about the danger. Expressing grave concerns is not enough. The President needs legal authority to order BP to protect the United States. The President is not legally in charge. As long as BP is not under the direct control of the government he has no direct line of authority, and responsibility is totally confused. For example, listen for the “we” and “they” pronouns that were used by Carol Browner in response to a question on NBC’s “Meet the Press” Sunday (emphasis added): “We’re now going to move into a situation where they’re going to attempt to control the oil that’s coming out, move it to a vessel, take it onshore ….We always knew that the relief well was the permanent way to close this …. Now we move to the third option, which is to contain it. If [the new cap on the relief well is] a snug fit, then there could be very, very little oil. If they’re not able to get as snug a fit, then there could be more. We’re going to hope for the best and prepare for the worst.” When you get pronoun confusion like this, you can bet on confusion — both inside the Administration and among the public. There is no good reason why “they” are in charge of an operation of which “we” are hoping for the best and preparing for the worst. The president should temporarily take over BP’s Gulf operations. We have a national emergency on our hands. No president would allow a nuclear reactor owned by a private for-profit company to melt down in the United States while remaining under the direct control of that company. The meltdown in the Gulf is the environmental equivalent. This post originally appeared at RobertReich.org

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Steve Parker: Breaking – Toyota halts sales of 2009, 2010 Lexus LS

May 25, 2010

In another potential PR nightmare for Toyota, the company has announced that a steering problem has halted sales of their 2009 and 2010 luxury flagships, the LS 460 and the gas/electric hybrid LS 600h. On Friday, Toyota recalled 11,500 of the cars, including nearly 4,000 in the US. Today, Lexus stopped selling both models. Toyota, through their Lexus luxury channel, say they have no solution to the problem, an admitted electronics problem that can cause steering wheels to fall out of alignment for a few seconds at a time. Owners of the two models have been told to park their cars until the company develops a fix, which Toyota says should happen sometime in late June. According to the Los Angeles Times, which broke the initial unintended acceleration story, owners of the cars — which have a starting price of about $65,000 for the LS 460 and $108,000 for the hybrid LS 600h — will be receiving official notice of the recall in the mail next month. Lexus’ LS 400h hybrid sedan starts at $108,000. The sales stoppage and recall cover cars equipped with the company’s variable gear ratio steering system that’s an option on the LS 460 and standard on the LS 600h. Sales stoppages over safety concerns are rare in the auto industry, but in January Toyota ordered dealers to stop selling eight of its best-selling models after reports of unintended acceleration. That sales halt, called because the company had no remedy for the problem, lasted about two weeks. The Lexus sales stoppage is expected to last longer. Toyota does not have a solution to the Lexus problem, which can cause the steering wheel to get stuck in a turned orientation even though the car is going straight. The steering wheel, however, can still be used to steer the car. How should Toyota handle this one? They have absolutely blown it so far with their alleged cover-up of the unintended acceleration (UA) problems. The company eventually stopped sales of eight models and recalled some six million cars worldwide for what Toyota said was a sticky throttle cable. Many still insist that the UA trouble stems from an electronics glitch in the company’s “drive by wire” system, and several US government agencies and contracted firms are involved in finding an electronics problem. Now, with an admitted so-far-unfixable steering dilemma which is purely electronic, we say there will, and should, be more pressure on Toyota to stop worrying about their image and focus on finding and fixing these problems. Are we right? Is Toyota spending more time ducking the truth and not working on unintended acceleration and other problems?

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Treasury’s TARP Estimates Depend On Stock Prices Rising

May 21, 2010

WASHINGTON — The Treasury Department indicated Friday it expects taxpayers will lose billions less from the financial bailouts than earlier estimated. The problem is, its revised forecast assumes Treasury’s shares of bailed-out companies are gaining value despite this week’s plunge in stock prices. Treasury predicts the bailouts will cost taxpayers $105.4 billion, according to a letter to lawmakers from Assistant Secretary Herb Allison. That’s down $11.4 billion from a February projection by the Obama administration. Most of the expected cost savings depend on Treasury’s ability to profit once it sells its stakes in Citigroup Inc., General Motors and Chrysler, Allison wrote. Treasury received those investments in exchange for pumping billions into the companies to rescue them. Treasury’s analysis is based on market conditions as of March 31. That was weeks before a European debt crisis roiled global markets. The broad tumble in stock prices makes Treasury’s projected gains appear far less likely. For example, Allison notes that Treasury’s shares of Citigroup were worth $4.05 on March 31 – 80 cents more than Treasury paid for them. But by Thursday’s close, Citigroup shares were trading at $3.63. At that price, Treasury’s gain is only 38 cents per share. If Treasury sold all its shares at Thursday’s price, its estimate would undercount the cost of the bailouts by $924 million. Treasury is one of several agencies that have produced conflicting estimates of the bailouts’ cost. The Congressional Budget Office said in March that the final cost would be $109 billion. That was well below the White House budget office’s number. The new forecast assumes Treasury’s stakes in the automakers will be worth more than earlier estimates because the auto industry has begun to recover. Still, the biggest bailout losses will come from the rescues of the automakers and insurance giant American International Group Inc. Administration programs to help homeowners avoid foreclosure also will cost billions. Treasury has made more money than it expected on dividends, fees and other proceeds from banks that took bailout money.

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Chrysler Loan Leads To $2.1 BILLION Loss For Treasury

May 17, 2010

WASHINGTON — The Treasury Department said Monday it will lose $1.6 billion on a loan made to Chrysler in early 2009. Taxpayer losses from bailing out Chrysler and General Motors are expected to rise as high as $34 billion, congressional auditors have said. Treasury said Monday that Chrysler repaid $1.9 billion of a $4 billion loan, which was extended before the company filed for Chapter 11. The government hopes to get another $500 million from the company that emerged from bankruptcy, Chrysler Group LLC. Treasury officials said that the government had no plans to boost its stake in the new Chrysler to cover those losses. It also acknowledged another $1.9 billion in potential losses from a separate loan that had been made to the company that went through bankruptcy proceedings. It indicated slim hopes of recouping much if anything from that separate $1.9 billion loan. The original $4 loan was made in January 2009, when the Bush administration was scrambling to rescue Chrysler, GM and their auto financing arms. The Congressional Budget Office estimated in March that the government’s $85 billion bailout of the automakers would cost taxpayers $34 billion. Much of it will depend on how much the government recovers from its eventual sale of nearly 61 percent of GM and about 10 percent of Chrysler. GM has said it could conduct a public stock offering later this year. Chrysler officials have said a public stock offering is not likely before 2011. The Treasury Department made the announcement about the loss from Chrysler on a day when GM reported its first quarterly profit in nearly three years. That moved GM closer to a stock offering that would repay at least part of the $43 billion it owes the government. Chrysler Holding is the parent company of the old Chrysler. It is owned by private equity firm Cerberus Capital Management. Cerberus bought Chrysler from Daimler AG in 2007. Chrysler came close to running out of money at the end of 2008, so the U.S. government stepped in, authorizing $15.5 billion in aid and appointing Fiat SpA to run the new Chrysler after it emerged from bankruptcy protection. The old Chrysler’s assets, along with its finance arm, became Chrysler Holding. Treasury said it has received repayments of $3.9 billion to date, including the $1.9 billion repayment and a $1.5 billion loan paid off by Chrysler Financial. Chrysler also assumed $500 million of Old Chrysler’s debt, reducing the debt to the government. ___ Associated Press Writers Ken Thomas in Washington and Dee-Ann Durbin in Detroit contributed to this report.

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GM Is Said to Weigh Returning to Automotive Financing, May Buy Back GMAC

May 11, 2010

By David Welch and Katie Merx May 11 (Bloomberg) — General Motors Co. may return to the auto-lending business more than three years after selling control of GMAC LLC, according to three people familiar with the company’s plan. GM may buy back the GMAC business, start a new finance company or form a partnership with banks and other lenders, said the people, who asked not to be identified because the plans are private. Having its own finance arm could increase the automaker’s profit and give its dealers competitive leasing and loan offers. Chief Executive Officer Ed Whitacre wants to establish an in-house lender before taking the Detroit-based automaker public again as soon as the fourth quarter of this year, said one of the people. GM repaid government loans last month, and having an initial public offering will allow the U.S. to reduce its 61 percent stake in the automaker. “The IPO is going to be more of a success if they can sell more vehicles than they have been selling,” said Rebecca Lindland , an analyst at IHS Global Insight in Lexington, Massachusetts. “They should be able to do that if they can be more aggressive in their financing. Having their own finance company would certainly help.” Whitacre has his management team exploring all options, the people said. Acquiring Detroit-based GMAC, now known as Ally Financial Inc., would give GM a ready-made lending operation. To acquire those operations, the automaker would have to execute a deal with the U.S. Treasury, which owns 56 percent of GMAC. Tom Wilkinson, a GM spokesman, declined to comment. Automotive Lending GM would probably want to acquire only the automotive business, said Mark Wakefield, a director at Southfield, Michigan-based turnaround firm Alix Partners, which is winding down the bankrupt old GM, now called Motors Liquidation Co. GM probably wouldn’t want GMAC’s mortgage business, which was called ResCap until the company changed names, he said. It made $175 million in the first quarter after losing $17.3 billion from 2007 through 2009. “The cleanest way to do this is to buy only the auto finance business and leave ResCap, Ally Bank and the commercial warehouse-lending business alone,” said Wakefield, who isn’t directly involved in the matter. An Ally spokeswoman, Gina Proia , called the potential acquisition of its auto-finance business by GM “speculation.” “Our position is that if we are supporting our manufacturers and customers, then the relationship works,” Proia said. GM sold 51 percent of GMAC to private equity firm Cerberus Capital Management LP in 2006 when the automaker ran low on cash and since has had to rely on outside lenders. One complicating factor: If GM owns more than 10 percent, the lender would have to relinquish its bank holding company status and wouldn’t have access to the Federal Reserve’s discount window for cheap funds. All parties would also have to work out a solution with Chrysler Group LLC, which has a contract with Ally for its dealers, Wakefield said. Borrowing Rates A GM-owned finance arm would have to borrow on the open market to lend to car buyers and dealers. The funds could come at higher interest rates until GM proves that it is a sound investment, Wakefield said. “It would take a while to convince the market that GMAC is safe and sound,” Wakefield said. “It will take a while to claw their way to a borrower rate that is competitive.” Russ Shelton , owner of Shelton Pontiac Buick GMC Inc. in Rochester Hills, Michigan, said dealers would welcome an in- house finance arm at GM. “Probably the biggest missing piece for GM is financing,” Shelton. “Getting a customer financed today is the hardest thing, even if they have good numbers. I think we could probably overcome some of that with a captive finance arm.” To contact the reporter on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net .

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Bob King, UAW Leader: Workers Should Share In Profits If Automakers Recover

May 11, 2010

DETROIT — The man expected to become the next president of the United Auto Workers says workers should share in the profits if the auto industry recovers. But he also wants to make sure Detroit automakers stay competitive. UAW Vice President Bob King said Tuesday that unionized workers each gave up $7,000 to $30,000 per year in concessions to General Motors Co., Ford Motor Co. and Chrysler Group LLC as the companies ran into financial problems last year and in 2008. The union, he said, made tremendous sacrifices that helped all three automakers through a crisis, working with company management to make the automakers competitive. But often after a crisis passes, management forgets about the sacrifices, King told an auto industry conference at the Detroit branch of the Federal Reserve Bank of Chicago. If U.S. auto sales return to pre-recession levels of around 16 million per year, King said all three will see “astronomical” profits. “Equality of sacrifice, there’s got to be equality of gain,” he told the group. “It’s our responsibility to make sure that in that turnaround, our members are treated fairly.” King would not talk about the possibility of further concessions to the companies when contract talks take place next year. He said much of what will be discussed depends on the economy at the time and will be decided by the membership. The UAW, though, faces a challenge of making sure the automakers’ fixed costs are competitive globally, he said. Ford borrowed billions to stay afloat, while GM and Chrysler were forced to take billions in government aid and go through bankruptcy protection last year. Ford already is profitable, while Chrysler reported a first-quarter operating profit and GM is expected to show a profit when it reports earnings next week. Union workers will not have job security, King said, if companies don’t have enough money to invest in new products, innovation and quality. King also called for congressional hearings on monetary and trade policies and their impact on manufacturing. He said the Obama administration, while better on the issue than other recent administrations, still doesn’t have a full policy on manufacturing. He said the government should not allow companies to move jobs out of the country, including Toyota Motor Corp., which King said is sending much of its manufacturing footprint back to Japan. In 2000, the automaker made 57 percent of the cars sold in the U.S. in the United States, but that is now headed below 40 percent. “No other country in the world would allow Toyota to do what they’re doing in moving their manufacturing footprint out of the United States,” he said. Toyota denied that figure. Spokeswoman Mira Sleilati said that last month, 68.2 percent of the Toyota vehicles sold in the U.S. were produced in North America, which includes facilities in Canada and Mexico. That was up from 60 percent last April, she said. Sleilati didn’t immediately have U.S. manufacturing figures available. Last month Toyota closed the New United Motor Manufacturing Inc. plant in Fremont, Calif., costing 4,700 UAW workers their jobs. The plant was a joint venture with GM, which pulled out last year after filing for bankruptcy protection. Toyota’s remaining U.S. factories are nonunion. Toyota made the Corolla sedan and Tacoma pickup at the plant but said in August that without GM, it could not sustain the factory. Sleilati said the company is ramping up production in Texas and Canada to make up for the closure of the California plant. Some Corolla production has gone back to Japan, but only temporarily, she said. King was nominated in December by UAW leaders to replace President Ron Gettelfinger, who is retiring next month. An election will be held in June at the union’s convention in Detroit.

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Tony Greenberg: Where’s My Flying Car… and an Efficient IT Market?

May 2, 2010

Why America Loses the King of IT Throne If We Don’t Change Trust is a double-edged sword. If you trust in the right things and the right people, you can accomplish much more than you ever could alone. In falling for myths and liars, you fail not only yourself, but also all those who trusted you. Today’s subject is how our misplaced trust eats away at the crown jewels of American industry — putting IT services on the same complacent path that greatly contributed to the last mainstay of the country’s wealth: auto manufacturing. As Michigan faces 20% unemployment and draws its lifeblood from government bail-outs, the U.S. auto industry is facing its mortality without taking us back to the Jetsons’ future. Instead of flying Deloreans, we got the Canyonero. The story is a long one, but if you leaf back a bit before Chapter 11, you’ll find misplaced trust highlighted and triple-underlined. The UAW and Big 3 trusted in their eternal entitlement to our pocketbooks and banded together to fight challenges to their complacency such as tougher mileage standards and free trade. Consumers trusted that American ingenuity will find a way as long as we kept buying domestically. Voters cheerfully approved import quotas to mask the stench of stagnation and trusted that if what was good for GM wasn’t good for the country, it was at least good for Detroit. And everyone trusted that the worst thing was for this failure to be exposed and corrected, hence the subsidies, protections and bailouts that continue to this day. The question is, will our IT world — at least the B-to-B side of it — see the same fate before we see a truly impartial market for it? I hope not, but if we don’t want to see Silicon Valley turn into Detroit, we need to sharpen our instincts and stop trusting IT industry myths. As with the auto industry, these myths sprout on all sides: • Sellers trust that 3 layers of schmoozers and regular injections of Fear Uncertainty and Doubt will keep their cash cow accounts profitable indefinitely, so they can put innovation on the back burner • CFOs and CEOs trust IT to build a competitive advantage but put sourcing of IT services on par with procurement of paper clips • Buyers trust in strategic partners, magic bullets, and mystical quadrants despite years of disappointment And just as with the car industry, the biggest fear is not failure, but being exposed — exposed as having spent too much or hitched your trailer to the wrong vendor or having fallen behind someone who was too small or too foreign to be a real threat. But although some people have trouble remembering it, being fooled once is okay. So in that spirit, I’ll cop to my mistakes first. I entered the IT business in co-location in ’96 with Exodus. Starting from 25 people, we became the darling of industry and analysts once we hit $600 mm and 3,500 people in less than 3 years, to be followed shortly by a spectacular collapse into Chapter 11. ranted, we changed the game and the assets became some of the most important data centers in IT today. I then took another roller coaster ride on the buy side, helping build a forerunner to Hulu and YouTube called the Digital Entertainment Network, which blew $72M in just over a year before imploding. Right concept, wrong time, wrong combination of people. In both places, I saw layers upon layers of inefficiency, waste, and hype centered around how IT was bought, sold, and provisioned. I thought we could do better, which is why I started RampRate, which has lasted longer than the last 2 gigs combined. So here I am 10 years later with the same pursuit of a fluid trustworthy market. I think we can get our heads on straight and avoid the auto industry’s fate, but we still need to slay some dragons, which is why I’m compiling the master list of IT myths that we’ll need to overcome. If you want to add to the pile, or learn from mistakes of others instead of your own, or, for that matter, tell me why the good times will never end, come on down. Tony can be reached at www.tonygreenberg.com . or Tony Greenberg’s Blog: The Technologist’s Guide to Wine, Spirits, Trust and Tech http://bit.ly/b64QDY

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Janis Bowdler: Setting the Record Straight: Why Auto Dealers Do Not Need Carve-Outs

April 28, 2010

Auto dealers arrived on Capitol Hill yesterday seeking special carve-outs from the proposed “Restoring American Financial Stability Act of 2010″ (S. 3217) . This banking reform bill aims to put an end to the reckless practices of Wall Street and the abusive and discriminatory tactics by financiers of all stripes. In their search for a loophole, auto dealers claim that the bill will restrict affordable car loans and result in fee hikes. The dealers’ concerns, itemized in a press advisory issued by the National Auto Dealers Association on April 26, patently ignore clearly stated rules in the bill. Before more misinformation is propagated, we need to set the record straight. The auto dealers are urging senators to avoid over-regulating their dealerships, burdening them with redundant laws, and ultimately limiting consumers’ credit options. These concerns are unfounded. A key feature of the “Financial Stability” bill is to consolidate the consumer protections currently scattered across several federal agencies under one roof by creating a Consumer Financial Protection Agency (CFPA). The CFPA would be charged with monitoring the financial marketplace and structured to react quickly to new tricks, scams, and abuses. In the case of auto dealers, the CFPA would not regulate the sale of a car or financing when the borrower obtains their financing from their bank or credit union. Dealers would only be subject to regulation―as they are now―when they affect the terms and conditions of auto loans. The bill would not impose onerous new regulations, but give the CFPA the authority currently held by the Federal Trade Commission (FTC), the primary regulator of most auto dealers: the power to address unfair or abusive lending practices wherever they occur. This would ultimately save the consumer money, not limit their credit options. While not much will change for auto dealers in the way of rules, the CFPA promises to indentify and stem abusive trends that have cropped up in the loosely enforced rules of today. Of all industries, auto dealers could use another cop on the beat. They are consistently the top source of consumer complaints to the Better Business Bureau and state and local consumer protection agencies. As in the mortgage industry, predatory and abusive financing practices have occurred throughout the auto market. Such abuses are especially prevalent among borrowers of color. Research shows that similar to home loans, Latino and African American borrowers are charged unnecessary mark-ups much more frequently than their White peers. The “Financial Stability Act” will improve matters for consumers and ultimately lenders alike. Having authority over all lending entities, such as auto dealers, a strong CFPA would streamline and reward better practices and contribute to stabilizing the market. Exemptions for special-interest groups would carve out major players who have committed some of the biggest offenses in stripping our families of their honest dollars. Click here for more information.

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Toyota, VW, Nissan `Unsustainable’ Growth in China Risks Auto Overcapacity

April 26, 2010

By Bloomberg News April 26 (Bloomberg) — Toyota Motor Corp. , Volkswagen AG and Nissan Motor Co. are raising production capacity and sales forecasts in China, betting vehicle demand will continue to grow even if the government scraps car-buying incentives. Volkswagen, the biggest foreign carmaker in China , will invest 4.4 billion euros ($5.9 billion) in plants and new models by 2012, while Nissan aims to boost capacity in the nation almost 70 percent, the companies said April 23 at the Beijing Auto Show. Toyota and Hyundai Motor Co. are also building new factories in China, the world’s largest vehicle market. The automakers are competing for market share as Volkswagen estimates the growing wealth of China’s 1.37 billion people may raise the nation’s auto demand as much as 20 percent this year. Nissan predicts growth may slow next year as China has signaled it may end a tax break for small cars, and industry consultants JD Power & Associates and IHS Global Insight say carmakers risk building too many plants. “China’s motorization is reaching the masses,” said Takanobu Ito , Chief Executive Officer of Honda Motor Co., Japan’s second-largest carmaker. “Even after the tax break ends, demand shouldn’t drop very much.” China’s vehicle sales growth this year will exceed Honda’s original estimate of 10 percent, Ito said at the auto show. Xu Changming, a research director at China’s State Information Center, said last week demand may rise about 17 percent to 16 million vehicles, down from 46 percent last year. Tax Break The government is likely to raise consumption tax to 10 percent next year for cars with engines no larger than 1.6 liters, after cutting the rate to 5 percent in 2009 and raising it to 7.5 percent this year, Xu said. Last year’s reduction, which helped Chinese auto demand surge past the U.S. for the first time, resulted in “unsustainable” growth, he said. Even if the tax break is phased out, “there is a fear that amid all of this investment and stellar growth, the vehicle market could start to overheat,” Paul Newton , a London-based auto analyst at IHS Global Insight, wrote in a research note last week. “The carmakers vying for market share in China may not want to admit it, but this risk is becoming a very real concern.” GM, Toyota General Motors Co., the largest automaker in China, plans to increase sales in the nation to 3 million vehicles by 2015 from an estimated 2 million this year. The company and its local partners sold 1.83 million units in China last year. “Every time the government changes their policy, it will have some impact,” Kevin Wale , president of Detroit-based GM’s China business, said at the auto show. “But the underlying demand is increasing at a very fast rate.” At the moment, “we don’t have enough cars and we can’t build enough cars,” he said. Government policy changes are too unpredictable to be reflected in planning, Toyota’s Executive Vice President Takeshi Uchiyamada said at the show. “The speed of changes to government policies is faster than our development of new engines and new cars,” Uchiyamada said. The company, based in Toyota City, Japan, is basing its strategy on “significantly high” demand for small-engine compact cars, he said. Ghosn’s Expansion Toyota’s 2010 sales in China may exceed an 800,000-unit target, said Masahiro Kato , president of the company’s local unit. A new Toyota plant in Changchun, Jilin province, will start production in late 2011 or early 2012 and have a yearly production capacity of 100,000 vehicles, he said. The new plant will likely build Corolla vehicles and the automaker may also introduce a new low-cost car in China, Kato said. Toyota rose 3.4 percent to close at 3,690 yen in Tokyo trading today, gaining the most in seven weeks after Nikkei English News reported on April 24 that the company may post a full-year operating profit. Nissan, Japan’s third-largest carmaker , aims to raise output capacity in China to 900,000 vehicles a year by 2012 from 535,000 now, Chief Executive Officer Carlos Ghosn said at the show. The company is planning further increases even as Ghosn said industrywide sales growth in the nation may slow to between 10 percent and 15 percent next year. “Nissan is going the right way,” said Takeshi Miyao , an analyst at auto consulting company Carnorama in Tokyo. “It’s important for each automaker to gain share now. Later is too late.” Volkswagen, BMW The Yokohama-based automaker, which will begin selling its Leaf electric car in China next year, aims to boost sales in the nation 12 percent this year to 850,000 vehicles. Winfried Vahland , head of Wolfsburg, Germany-based Volkswagen’s China operations, estimates the Chinese auto market may grow between 15 percent and 20 percent this year, compared with the company’s previous estimate of 10 percent to 15 percent. “We’re a bit more optimistic now” than at the beginning of the year, Vahland said. The company, which plans to add production capacity at its Nanjing and Chengdu plants in China, aims to match or exceed market growth this year, Vahland said. It will reach a sales rate of 2 million vehicles a year in the nation “far earlier” than its 2018 goal, he said. Norbert Reithofer , Chief Executive Officer of Bayerische Motoren Werke AG, said an end to tax breaks for small cars won’t affect local growth plans for the Munich-based company, the world’s biggest luxury-vehicle maker. “We will expand very dynamically in China even if the government takes that action,” Reithofer said. Capacity expansion “will always” lag behind sales growth, he said. Hyundai Motor BMW intends to deliver 120,000 BMW, Mini, and Rolls-Royce vehicles in China in 2010, a 33 percent increase from last year and 20 percent more than a previous projection, he said at the Beijing auto show. The company and its rival Daimler AG, which aims to raise local sales by around 40 percent to at least 100,000 vehicles this year, are rolling out sedans developed exclusively for Chinese buyers. Hyundai Motor Co. , South Korea’s largest carmaker, is adding a third plant in China that will increase its local capacity by 50 percent to 900,000 vehicles a year by 2012. The foreign automakers’ expansion plans are matched by their local counterparts. Beijing Automotive Industry Holding Co., the carmaker that bought technology from Saab Automobile, is building three passenger-vehicle plants, two commercial- vehicle factories and one engine factory, adding 1.3 million units of production capacity to ease a shortage, President Wang Dazong said in an April 22 interview in Beijing. Geely Beijing Auto expects to boost sales 21 percent this year to 1.5 million vehicles, Wang said. The company’s deliveries surged 61 percent to 1.24 million last year. Zhejiang Geely Holding Group Co. , which bought Sweden’s Volvo Cars last month, aims to build a Volvo factory in China, according to the company. Even if the tax break is phased out, “there is a fear that amid all of this investment and stellar growth, the vehicle market could start to overheat,” Paul Newton , a London-based auto analyst at IHS Global Insight, wrote in a research note last week. “The carmakers vying for market share in China may not want to admit it, but this risk is becoming a very real concern.” GM, Toyota Fears that automakers’ investments would lead to too much production capacity in China have been proven wrong before. Nissan’s Ghosn and Volkswagen both said in 2003 that overcapacity in the nation was a concern. At the time, Honda predicted China’s auto sales might exceed 10 million in 2010. Still, excess inventories may force carmakers to offer incentives to buyers as early as this year, and the companies may suffer from overcapacity within five years, according to JD Power & Associates. With the surge in factory investment, JD Power estimates local plants may produce at 66 percent of capacity by 2015. An 80 percent level is traditionally required to cover fixed costs, according to the company. Carmakers will offer incentives, eroding their profit, as vehicle sales growth in the nation may slow this year to about 12 percent, Finbarr O’Neill , president of JD Power, said in an April 20 interview in Beijing. Industrywide sales may total 14.5 million vehicles this year, he said. “We see a pile-up of inventory at dealerships and actually a decline in transaction prices,” he said. “When you have too much inventory on the ground, you have to put cash in the trunk.” — Makiko Kitamura , Tian Ying , Stephanie Wong , Andreas Cremer , Stephen Engle in Beijing with assistance from Yuki Hagiwara and Takako Iwatani in Tokyo. Editors: Ian Rowley , Terje Langeland To contact Bloomberg News staff for this story: Tian Ying in Beijing at +86-10-6649-7571 or ytian@bloomberg.net ; Makiko Kitamura in Beijing via +81-3-3201-8482 or mkitamura1@bloomberg.net

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Philip G. Baker: Toyota Still Covering Up

April 24, 2010

This past week we brought our 2009 Toyota Highlander Hybrid to our local Toyota dealer for an unexpected recall. Just a few weeks earlier we were assured that the car was not on the recall list. Now, we were told, our floor mats needed replacing and the accelerator pedal needed modifying. Toyota couldn’t explain the sudden change which, by itself, doesn’t inspire a lot of confidence that it knows what it’s doing. Even though it was impossible for the mats to interfere, Toyota insisted on replacing them, saying it would make our car safer. It seems like the company has taken a page from TSA, trying to make us feel better without addressing the real issues. In an earlier post I noted that it seemed to me that Toyota was covering up and not acting in the best interests of their customers by coming forward with what it knew. But, as I noted, that was a gut instinct, knowing what engineers know, and observing Toyota’s strange behavior. But now there’s irrefutable evidence that Toyota has been covering up. Contradicting earlier testimony about when it learned of the acceleration problem, documents turned over to NHTSA revealed that a group VP Irving Miller wrote to another staff member in January about accelerator pedal defects, saying “The time to hide on this one is over. We need to come clean.” And today Toyota agreed to pay a $16.4 million fine for not notifying NHTSA of pedal problems within the five days of learning of them, even though they were already making repairs for the same problem on cars in Europe. Earlier this month NHTSA announced they will have a group of NASA scientists and engineers conduct its own investigation to determine if the problems of sudden acceleration could be related to the electronics or software, as some experts believe, and as Toyota denies is the cause. That’s a positive step, because NHTSA doesn’t yet have the in-house expertise, and chose not to rely solely on Toyota’s statements. It’s unfortunate that they have to do this, because within Toyota there’s surely a group of engineers that already have those answers. With this problem festering for years, there had to be internal studies, extensive testing and detailed reports; Japanese technology companies and engineers are smart, very thorough and detail-oriented. So another year will go by, more accidents will occur, and more deaths will likely result, all because Toyota is unwilling to disclose everything it knows. This doesn’t surprise those who have dealt with Toyota. An investigation conducted by the Associated Press and appearing in the Los Angeles Times and Japan Times this past week, notes that “Toyota has routinely engaged in questionable, evasive and deceptive legal tactics when sued, frequently claiming it does not have information it is required to turn over and sometimes even ignoring court orders to produce key documents.” But what do mechanics think, those that work on these cars every day? I asked three experienced auto mechanics, including the owner, with a large independent foreign and domestic auto repair facility in Encinitas, CA. The facility has 14 bays and 11 technicians, specializing in the repairs of Japanese, German and American automobiles, and equipped with much of the same equipment that dealers use for their service and diagnosis. They’ve come across one car with unintended acceleration, a 2008 Toyota Rav4, but were unable to get it to reoccur. But all three believe the problems being reported by consumers to be very real. From their experiences, customers are reluctant to bring in their cars to correct a problem unless it’s real. They believe that among the many that have complained about this issue, most have likely experienced it. But they noted that often these problems are elusive to find. In spite of this, the shop’s owner thinks Toyota makes some of the most reliable cars. He owns several as part of his auto rental business, and plans to replace them with Toyotas. He thinks Toyota should modify the software so that applying the brakes will automatically disable the accelerator. That would provide a fail-safe feature that would allow drivers to easily recover if unintended acceleration did occur. This is a feature found on many German cars, including Mercedes, BMW and Audi, but few of the other makes. All three believe there’s a real possibility that there can be a software or electronic glitch that Toyota has either failed to acknowledge or hasn’t discovered. Because it occurs so infrequently, they don’t think it’s likely to be reproduced in the few hours of analyses Toyota has been conducting following some of the recent incidents. The only way it can be reproduced is to take cars that have failed and subject them to hundreds of thousands of miles of testing, including doing it under extreme conditions. For now we’ll just have to wait and watch as the lawsuits and investigations go forward. My bet is the real story behind unintended acceleration has yet to be fully revealed. But in spite of Toyota’s years of efforts to suppress it, the truth will come out.

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Fiat Names Elkann Chairman as It Revives Plan to Spin Off Automaking Unit

April 20, 2010

By Sara Gay Forden and Tommaso Ebhardt April 20 (Bloomberg) — Fiat SpA named Agnelli family heir John Elkann to become chairman as Italy’s biggest carmaker prepares to spin off the auto unit from truck and tractors. Elkann , 34, will replace Luca Cordero di Montezemolo in the top position, the Turin-based company said today. Fiat has revived a plan to separate the car division, according to two people with knowledge of the matter, who asked not to be identified prior to an announcement. Elkann, the grandson of former Chairman Giovanni Agnelli , is currently Fiat vice chairman and head of the family’s holding company. With a separation of the auto operations, Chief Executive Office Sergio Marchionne would have an entity to facilitate future alliances, and a share sale would generate cash to expand. The unit accounted for 56 percent of 2009 sales. “The spinoff is very positive for Fiat as it helps to bring out the value from the Italian carmaker,” said Karim Bertoni , who helps manage $18.5 billion at Geneva-based Banque Syz & Co. “That’s why shares are moving up.” Fiat rose 89 cents, or 9.3 percent, to 10.42 euros in Milan, the most in a year, valuing the carmaker at 12.4 billion euros. Shares of the Agnelli family’s Exor SpA, Fiat’s largest shareholder, gained 7.2 percent to 13.93 euros. Banks have been asked for funds to help finance the spinoff, which the company may announce tomorrow and complete before the end of the year, another person said. A Fiat spokesman declined comment. Largest Survive Marchionne has said only the largest carmakers will survive in the long term and has sought to grow Fiat through acquisitions. Fiat bought a 20 percent stake in Auburn Hills, Michigan-based Chrysler LLC in June, helping the third-largest U.S. carmaker emerge from bankruptcy. The CEO unsuccessfully bid last year to buy General Motors Co. ’s Opel unit in Germany. Fiat Automobile, not including Fiat’s Chrysler stake, is worth about 6.5 billion euros ($8.5 billion), or 53 percent of Fiat’s market value, said Stephen Pope , chief global strategist at Cantor Fitzgerald in London. Elkann, a native New Yorker who was raised in the U.K., Brazil, France and Italy, is vice chairman of Fiat and chairman of the Agnelli family holding company Exor SpA , which controls 30 percent of Fiat. He was designated by his grandfather to succeed him as the leader of the family’s businesses. Montezemolo, who will remain chairman of sports-car maker Ferrari SpA , said today his resignation is unrelated to a possible spinoff. No one will replace Elkann as vice chairman, Fiat said. New Chrysler Models Chrysler is refreshing most models, including the Jeep Grand Cherokee. New Chrysler 300s and Dodge Chargers will use the first platform developed jointly with Fiat , which plans to begin selling its 500 subcompact in the U.S. Marchionne has said Chrysler may have an IPO after 2010. Marchionne told reporters at the Geneva auto show March 3 he would resolve the question of whether Fiat plans to spin off its auto unit at the presentation of its new business plan tomorrow. Montezemolo said the same day a spinoff wasn’t on the table. Fiat derives its revenue outside of autos from units including truckmaker Iveco SpA and CNH Global NV , an agricultural and construction machinery maker. The separation of its auto unit from the truck making and agricultural machinery units could also be achieved by spinning off CNH, one of the people said. The Agnellis are one of Italy’s richest families, holding a 59 percent stake in Exor, whose investments include Fiat and Juventus Football Club SpA. Elkann says he was left with control of the family’s business assets when his grandfather, Giovanni Agnelli II, died in 2003. Elkann has carried on the patriarch’s sporting lifestyle, spending 2.5 million euros of his own money to buy a racing yacht named Ericsson 3. He’s using the sailboat to enter an Italian team in the Volvo Ocean Race 2011-2012. Elkann decided to buy the racer in 2009 after a nine-day venture across the Atlantic Ocean with his skipper, Giovanni Soldini, on the Stealth, a black yacht that Gianni Agnelli had built. To contact the reporter on this story: Sara Forden in Milan at sforden@bloomberg.net ; Tommaso Ebhardt in Milan at tebhardt@bloomberg.net .

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Robert Guttman: Financial Meltdown: Who Should Pay?

April 15, 2010

“. . . It is critical to understand that the recent financial crisis was not a natural disaster. It was a man-made economic assault. People did it. Extreme greed was the driving force. It will happen again unless we change the rules,” stated the Chairman of the Senate Permanent Subcommittee on Investigations Carl Levin, Democrat of Michigan. Looking into the reasons for the subprime mortgage crisis that brought the American economy to a financial meltdown, Senator Levin has hit the nail on the head when he says the financial crisis was not a natural disaster but that “people did it.” After reading his testimony at his hearings entitled Wall Street and the Financial Crisis: The Role of High Risk Home Loans and having just finished reading the excellent new book by Michael Lewis The Big Short: Inside the Doomsday Machine, I am wondering why not one person seems to have paid for this financial crisis by being charged with a crime such as fraud. During the savings and loan financial crisis during the 1990s, which was not as big as today’s financial meltdown, we did send some people to prison for their corruption and scandal for ruining that sector of the economy. Charles Keating, owner of Lincoln Savings & Loan, served time in prison for fraud and conspiracy in the 1990s. He became the name associated with the savings and loan scandal. Today we hear talk of reform, new regulations, curbing Wall Street, putting derivatives outside the reach of our banks, and helping stop foreclosures, but why has no one been prosecuted for this financial meltdown that will rank next to the Great Depression as one of the worst economic times in American history? Who will be the Charles Keating of today’s economic disaster? As Senator Levin correctly points out this was “a man-made economic assault” and “extreme greed was the driving force”. Senator Blanche Lincoln, Democrat of Arkansas, has brought up some good suggestions about reforming the big banks and not letting them “gamble” with our money — let them return to being banks and not gambling casinos. There really should be more of an outrage across America. The other night, on the CBS Evening News there was a story about how prosecutors didn’t have enough evidence to put one of AIG’s traders on trial. The American taxpayer has given this firm nearly $200 billion. What have we gotten in return and who will pay for their gambling spree? The American taxpayer has helped keep part of the U.S. auto industry alive and workers at their jobs. Where is the outrage against the auto executives who so destroyed an industry that America once owned? It may sound naïve but in a capitalist society where there are winners and losers, there are also laws to protect the consumer and taxpayer. So far no one has been punished for the financial meltdown and there needs to be accountability. At the Washington Mutual Bank hearings it appears none of the bank executives had even heard of subprime mortgages. This is a disgrace especially since Washington Mutual Bank has been the largest bank failure in U.S. history. Even a former financial icon like Robert Rubin at Citi seemed to be oblivious to what his massive bank was doing in the way of subprime mortgage loans. Is anyone going to take responsibility to this man-made economic disaster? Is anyone going to be charged with crimes? Surely this all did not happen by accident. What about the government regulators who weren’t doing any regulating? Have any of them lost their jobs? America has been brought to its knees financially and no one has accepted responsibility and no one has been charged for any illegal activity in bringing on this meltdown. It is a disgrace and needs to be remedied soon. It is good and fine to talk of reforming Wall Street in the future but who will pay for bringing our financial system down today?

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Joe Costello: The American Economy and the American Dream

April 5, 2010

The American economy has undergone tremendous changes over the past several decades. Presently, we are in an acute phase of a chronic condition that has been festering for years. In the past 18 months, trillions of dollars have gone to Wall Street and the mega-banks, while state and local governments continue to slash their budgets, and millions have lost their jobs. The LAT has a must read piece regarding devastating cuts to public transit and their impact, not in LA, but in Georgia. Clayton County is majority black abutting Atlanta. The bus service is going to be canceled, according to the article: A large number of suburban working poor may now be stranded: A survey of riders in April 2008 found that 65% of them do not have access to a car. In a survey last month, 3 out of 4 said they may lose their jobs when the buses stopped rolling. Can you imagine people in the US not having a car, and not having a car living in a suburban area? Why don’t they have a car? They can’t afford it. Why, isn’t a car an essential aspect of the last half of the 20th century American Dream? The article further states: Since 1995, public transportation use is up 31%, more than twice the U.S. population growth rate, according to the American Public Transportation Assn., the nonprofit that represents the nation’s commuter systems. Last year, Americans took 10.2 billion public transit trips. People didn’t increase their public transit use out of environmental concern, no, solely for economic reasons. Two years ago, when gasoline was plus $4 a gallon, and with every wisp of news the economy is strengthening the price heads quickly back, public transit use greatly expanded. Thinking we’re going to rebuild the auto-industry at 35 mpg is stupid, whether looked at from an environmental, economic, or war and peace perspective. Public transit is the last thing we should be cutting — we should be doing just the opposite, investing more, yet: In a survey of 151 (public transit) member agencies released Thursday, the association found that about 9 in 10 of them reported flat or decreased local and state funding. Nearly 3 in 5 had already cut service or raised fares. Understand, when the economy fails tens of millions of people on an essential element like transportation, it is failing grandly. So, when you see all the anger being vented, remember what really underlies it: an American economy that increasingly works for fewer and fewer people. Eldrin Bell, a black Commissioner of Clayton County put it best, “I’ve lived with racism, But this is a new one — it’s called classism. I’ve never seen anything like it.” When class becomes permanently entrenched in America, that will truly be the death of the American Dream.

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Chrysler in Hibernation Means Marchionne May Have to Wait on Fiat Spinoff

March 11, 2010

By Sara Gay Forden March 11 (Bloomberg) — Fiat SpA , the Italian carmaker that helped Chrysler Group LLC emerge from bankruptcy, may wait to turn around the U.S. business before deciding on a share sale or spinoff for its automotive division. The Italian company’s stock has risen 19 percent this month on speculation that Chief Executive Officer Sergio Marchionne may carve out Fiat’s biggest unit as a new company. Fiat executives have so far sent mixed signals about whether an initial public offering of the division will take place. A separation of the auto manufacturing operations, which generated 56 percent of Fiat’s revenue last year, would give Marchionne an entity to facilitate future alliances, and a share sale would generate cash for international expansion . The maker of Puntos and Ferraris must show progress at Chrysler, of which it owns 20 percent, before convincing investors to buy shares in the unit, said Royal Bank of Scotland analyst Jose Asumendi . “Fiat has too much on its hands right now to think about a possible spinoff,” said London-based Asumendi, who advises holding Fiat’s stock. “The priority is to resurrect Chrysler, make it profitable and repay its government loans.” Fiat Automobile, not including Fiat’s 20 percent stake in Chrysler, is worth about 5.9 billion euros ($8 billion), or 53 percent of Fiat’s market value , said Stephen Pope , chief global equity strategist at Cantor Fitzgerald in London. “Get the U.S. strategy right and in six years time, Fiat Auto could be worth 20 percent more.” Holding Pattern Fiat derives the remainder of its revenue from units including truckmaker Iveco SpA and CNH Global NV , an agricultural and construction machinery maker. Marchionne plans to detail on April 21 in Turin, Italy, how Chrysler, which he also runs, will improve Fiat’s profitability through shared sales efforts and technology. The CEO is trying to shore up both companies as government incentives to buy new cars end in Europe and Chrysler’s U.S. market share lags a 10.5 percent target for 2010. Chrysler is “in a year of hibernation” and talk of a separate Fiat Auto is “premature,” Kristina Church , an analyst at Barclays Capital, wrote in a March 8 note. Barclays upgraded Fiat to “equal weight” from “underweight” in part because the shares may benefit from the speculation. Fiat’s surge this month is more than triple that of the Bloomberg World Auto Manufacturers Index , which includes Fiat and has risen 5.4 percent. Ford Motor Co., the only major U.S. carmaker that didn’t take a government bailout, has jumped sevenfold in 12 months and is up 28 percent since the beginning of the year, compared with a 10 percent decline by Fiat. Partial Sale That recent share gain might persuade executives to press ahead with a share sale sooner rather than later, said Pierre Bergeron , a credit analyst at Societe Generale SA in Paris. The company’s perceived value is unlikely to rise soon because Fiat and Chrysler offer a weak product lineup in a challenging U.S. market, he said. A partial sale or spinoff this year, of a 30 percent stake, could give Fiat additional options for consolidating its debt, Bergeron said. Fiat could also sell more after that, he said. A spinoff “is not dead,” Marchionne told reporters March 3 in Geneva. A day earlier, Chairman Luca Cordero di Montezemolo told Bloomberg News that he didn’t foresee a share sale. ‘Conjecture’ Responding to a request from Italy’s stock market regulator, Fiat said March 6 that media reports about an IPO or spinoff are “conjecture” and that it isn’t planning any “extraordinary transactions.” A company spokesman declined to comment further yesterday. Marchionne said last year that the creation of a separate auto company may take several years. Fiat will be held back this year by declining car sales, pricing pressure and industry overcapacity, Barclays’s Church wrote. Fiat makes about 2 million cars annually, while Chrysler manufactured 1.3 million last year. That’s short of Marchionne’s contention that to survive as a global automaker , a company needs production of at least 5 million vehicles. Last year, the carve-out speculation centered on Fiat’s bid for General Motors Co.’s Opel because a purchase could have given Fiat the scale Marchionne says is necessary to survive. GM eventually decided to keep the European operations. Marchionne needs to show success with current strategic plans before he considers creating one automotive group, analysts at Goldman Sachs Group Inc. led by Stefan Burgstaller said March 8 as they added Fiat to a “conviction buy” list. Dodge Chargers, 300s Fiat acquired the 20 percent stake in Auburn Hills, Michigan-based Chrysler in June as part of a plan to help the U.S. carmaker emerge from bankruptcy. The Italian company can lift the holding to 35 percent in increments by meeting targets such as building an engine in the U.S., and can win control after government loans are repaid. Chrysler is refreshing most models, including the Jeep Grand Cherokee. New Chrysler 300s and Dodge Chargers will use the first platform developed jointly with Fiat, which plans to begin selling its 500 subcompact in the U.S. in early 2011. Marchionne has said Chrysler may have an IPO after 2010. Tesla Motors Inc., the Palo Alto, California-based producer of a $109,000 electric Roadster, filed in January for an initial public offering to raise as much as $100 million. Detroit-based GM, which emerged from bankruptcy July 10, could hold an IPO by late 2010, Chairman Ed Whitacre has said. Fiat may have earnings before interest, taxes, depreciation and amortization of 4.26 billion euros this year, a 14 percent increase from 2009, according to the average estimate of 26 analysts surveyed by Bloomberg. Chrysler had Ebitda of $200 million in 2009’s third quarter and posted a sales gain in February, its first in 26 months. Bondholders One hurdle to a separate Fiat Auto is how the carmaker will apportion its bonds, according to Alessandro Frigerio , a fund manager at RMJ Sgr, which oversees about 100 million euros and owns Fiat shares. Fiat’s bonds totaled 11.4 billion euros at the end of 2009, according to its annual report . “It’s a complicated transaction that has to satisfy both the bondholders and the shareholders,” Frigerio said. “The transaction is also very much tied to how things go at Chrysler, which is still in the preliminary stages of the restructuring.” To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net

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Fiat May Need to Convince on Chrysler Before Seeking Automotive Unit IPO

March 11, 2010

By Sara Gay Forden March 11 (Bloomberg) — Fiat SpA , the Italian carmaker that helped Chrysler Group LLC emerge from bankruptcy, may wait to turn around the U.S. business before deciding on a share sale or spinoff for its automotive division. The Italian company’s stock has risen 19 percent this month on speculation that Chief Executive Officer Sergio Marchionne may carve out Fiat’s biggest unit as a new company. Fiat executives have so far sent mixed signals about whether an initial public offering of the division will take place. A separation of the auto manufacturing operations, which generated 56 percent of Fiat’s revenue last year, would give Marchionne an entity to facilitate future alliances, and a share sale would generate cash for international expansion . The maker of Puntos and Ferraris must show progress at Chrysler, of which it owns 20 percent, before convincing investors to buy shares in the unit, said Royal Bank of Scotland analyst Jose Asumendi . “Fiat has too much on its hands right now to think about a possible spinoff,” said London-based Asumendi, who advises holding Fiat’s stock. “The priority is to resurrect Chrysler, make it profitable and repay its government loans.” Fiat Automobile, not including Fiat’s 20 percent stake in Chrysler, is worth about 5.9 billion euros ($8 billion), or 53 percent of Fiat’s market value , said Stephen Pope , chief global equity strategist at Cantor Fitzgerald in London. “Get the U.S. strategy right and in six years time, Fiat Auto could be worth 20 percent more.” Holding Pattern Fiat derives the remainder of its revenue from units including truckmaker Iveco SpA and CNH Global NV , an agricultural and construction machinery maker. Marchionne plans to detail on April 21 in Turin, Italy, how Chrysler, which he also runs, will improve Fiat’s profitability through shared sales efforts and technology. The CEO is trying to shore up both companies as government incentives to buy new cars end in Europe and Chrysler’s U.S. market share lags a 10.5 percent target for 2010. Chrysler is “in a year of hibernation” and talk of a separate Fiat Auto is “premature,” Kristina Church , an analyst at Barclays Capital, wrote in a March 8 note. Barclays upgraded Fiat to “equal weight” from “underweight” in part because the shares may benefit from the speculation. Fiat’s surge this month is more than triple that of the Bloomberg World Auto Manufacturers Index , which includes Fiat and has risen 5.4 percent. Ford Motor Co., the only major U.S. carmaker that didn’t take a government bailout, has jumped sevenfold in 12 months and is up 28 percent since the beginning of the year, compared with a 10 percent decline by Fiat. Partial Sale That recent share gain might persuade executives to press ahead with a share sale sooner rather than later, said Pierre Bergeron , a credit analyst at Societe Generale SA in Paris. The company’s perceived value is unlikely to rise soon because Fiat and Chrysler offer a weak product lineup in a challenging U.S. market, he said. A partial sale or spinoff this year, of a 30 percent stake, could give Fiat additional options for consolidating its debt, Bergeron said. Fiat could also sell more after that, he said. A spinoff “is not dead,” Marchionne told reporters March 3 in Geneva. A day earlier, Chairman Luca Cordero di Montezemolo told Bloomberg News that he didn’t foresee a share sale. ‘Conjecture’ Responding to a request from Italy’s stock market regulator, Fiat said March 6 that media reports about an IPO or spinoff are “conjecture” and that it isn’t planning any “extraordinary transactions.” A company spokesman declined to comment further yesterday. Marchionne said last year that the creation of a separate auto company may take several years. Fiat will be held back this year by declining car sales, pricing pressure and industry overcapacity, Barclays’s Church wrote. Fiat makes about 2 million cars annually, while Chrysler manufactured 1.3 million last year. That’s short of Marchionne’s contention that to survive as a global automaker , a company needs production of at least 5 million vehicles. Last year, the carve-out speculation centered on Fiat’s bid for General Motors Co.’s Opel because a purchase could have given Fiat the scale Marchionne says is necessary to survive. GM eventually decided to keep the European operations. Marchionne needs to show success with current strategic plans before he considers creating one automotive group, analysts at Goldman Sachs Group Inc. led by Stefan Burgstaller said March 8 as they added Fiat to a “conviction buy” list. Dodge Chargers, 300s Fiat acquired the 20 percent stake in Auburn Hills, Michigan-based Chrysler in June as part of a plan to help the U.S. carmaker emerge from bankruptcy. The Italian company can lift the holding to 35 percent in increments by meeting targets such as building an engine in the U.S., and can win control after government loans are repaid. Chrysler is refreshing most models, including the Jeep Grand Cherokee. New Chrysler 300s and Dodge Chargers will use the first platform developed jointly with Fiat, which plans to begin selling its 500 subcompact in the U.S. in early 2011. Marchionne has said Chrysler may have an IPO after 2010. Tesla Motors Inc., the Palo Alto, California-based producer of a $109,000 electric Roadster, filed in January for an initial public offering to raise as much as $100 million. Detroit-based GM, which emerged from bankruptcy July 10, could hold an IPO by late 2010, Chairman Ed Whitacre has said. Fiat may have earnings before interest, taxes, depreciation and amortization of 4.26 billion euros this year, a 14 percent increase from 2009, according to the average estimate of 26 analysts surveyed by Bloomberg. Chrysler had Ebitda of $200 million in 2009’s third quarter and posted a sales gain in February, its first in 26 months. Bondholders One hurdle to a separate Fiat Auto is how the carmaker will apportion its bonds, according to Alessandro Frigerio , a fund manager at RMJ Sgr, which oversees about 100 million euros and owns Fiat shares. Fiat’s bonds totaled 11.4 billion euros at the end of 2009, according to its annual report . “It’s a complicated transaction that has to satisfy both the bondholders and the shareholders,” Frigerio said. “The transaction is also very much tied to how things go at Chrysler, which is still in the preliminary stages of the restructuring.” To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net

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Facts Trounce Vapors in Health-Care Olympics: Margaret Carlson

February 26, 2010

Commentary by Margaret Carlson Feb. 26 (Bloomberg) — It “could be pure theater,” Vice President Joe Biden said the day before the health-care summit at the White House debuted. Thanks, Joe, for repeating a Republican talking point like a lovable but irascible child who tells the neighbors precisely what mommy and daddy warned him not to say to anyone. At the opening of the bipartisan confab yesterday, President Barack Obama respectfully disagreed, saying he was looking for ways to proceed together and not engage in “political theater.” It was the Washington version of the Olympics, a performance with a difficulty of 10, a ticking clock and a chance of salvaging the bronze in a race in which the gold was lost in the opening trials long before. The president started strong. Basic courtesy demanded that Republicans rise when he entered. Around the room he went looking magnanimous, a word here and there, a man-hug to Senator (and doctor) Tom Coburn of Oklahoma, one of the Republicans he’s bonded with. As hard as Republicans worked to reduce the home-court advantage, they couldn’t. Obama’s the president and they’re not. He called them Eric, John and Mitch. They called him Mr. President. House Republican Leader John Boehner of Ohio tried to level things by dictating the shape of the table as if the forum were the 1973 Paris Peace Accords, the Democrats the Viet Cong and whoever sat at the head of it were in charge. Shape of Table Exactly what shape would the table have to be to make people think Boehner was president? Republicans complained about being in Blair House instead of the White House, about the room being too small, about Obama’s new proposal being too short, the old bill too long (Virginia Representative Eric Cantor stacked it in front of him to make that point). Then there was the rank injustice that, counting the president’s opening statement, Democrats got more talking time. All this grumbling before any real differences were discussed. There was a repeated exchange over whether premiums would rise or fall under Obama’s plan. Using facts, Obama said they wouldn’t rise. Using vapors, Republicans insisted they would. They wouldn’t answer the question of whether this meant they were rejecting the nonpartisan Congressional Budget Office analysis they cite when it buttresses their position. Lexus or Honda The CBO reported that premiums would stay about the same, or slightly decrease. To say some people might upgrade their policy and pay more is to confuse a consumer durable with insurance. I might buy a Lexus instead of a Honda if I get a better job, or the cost of a Lexus came down, but that doesn’t mean someone raised my auto costs. When Obama turned the floor over to Senate Minority Leader Mitch McConnell of Kentucky, he wisely turned the microphone over to the more congenial Senator Lamar Alexander of Tennessee. When he ran for president, the placid Alexander’s trademark was an exclamation point after his name to connote the excitement he lacked. Since becoming chairman of the chamber’s Republican Conference, Alexander has taken on a much sharper edge. Renounce, he told Democrats, any idea “of jamming” a health- care bill “through in a partisan way.” By that, he means the use of reconciliation, a process allowing legislation to pass with 51 votes rather than a supermajority of 60, which Republicans have demanded for almost every bill since Obama was elected. Reconciliation Reversal Republicans have used reconciliation more than 20 times in recent years, including to push through legislation such as President George W. Bush’s tax cuts. Now they say it’s tantamount to fascism. Alexander also warned the president to lower his expectations. “If you are waiting for Mitch McConnell to roll in a wheelbarrow in here with a 2,700-page Republican comprehensive bill, it’s not going to happen,” he said. This goes to the Republican demand that the president start over on health care with a blank page, perhaps to decrease the disadvantage of having nearly a blank one themselves. Starting over is code for quitting. Fixing the massive dysfunction in an industry that accounts for 17 percent of the U.S. economy requires specificity and legislative language. A several- thousand-page bill isn’t a bad thing. Only once did the president show frustration. Citing a variety of “special deals” and “special interests” that he said were catered to in the Democrats’ health-care legislation, Senator John McCain of Arizona, Obama’s opponent in the 2008 presidential election, said, “What we got is a process that you and I both said we would change in Washington.” ‘Election Is Over’ Obama might have been hungry (it was close to lunchtime). Maybe there came a limit to his professorial tolerance. The president dropped his polite pose. “We are not campaigning anymore,” he said. “The election is over.” McCain shot back with his trademark nervous laugh, “I am reminded of that every day.” There was no “you lie” moment yesterday, but plenty of rudeness. As the meeting ground on, the president was stuck listening to speakers who treated facts as malleable. If they think premiums will go up, they will. If they deny an essential fact of insurance as Democratic whimsy — that the bigger the pool, the wider the risk is spread, the lower premiums will go – — it must be so. Not that nothing was accomplished. The viewing audience learned that Republicans must say no to Obama because they want to say yes to the insurance giants, to let them merrily roll along without meaningful federal regulation, you know, like Wall Street has for the past ten years. What could possibly go wrong with that? ( Margaret Carlson , author of “Anyone Can Grow Up: How George Bush and I Made It to the White House” and former White House correspondent for Time magazine, is a Bloomberg News columnist. The opinions expressed are her own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: Margaret Carlson in Washington at mcarlson3@bloomberg.net

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Obama Says He’s `Fierce’ Advocate of Business, Rejecting Corporate Critic

February 11, 2010

By Mike Dorning and Julianna Goldman Feb. 11 (Bloomberg) — President Barack Obama said he and his administration have pursued a “fundamentally business- friendly” agenda and are “fierce advocates” for the free market, rejecting corporate criticism of his policies. “The irony is, is that on the left we are perceived as being in the pockets of big business; and then on the business side, we are perceived as being anti-business,” Obama said in a Feb. 9 interview in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands tomorrow. “You would be hard-pressed to identify a piece of legislation that we have proposed out there that, net, is not good for businesses,” he added. He predicted that legislation he will sign this year would cut corporate taxes by about $70 billion. Obama took office at a time of turmoil in the economy, responding with an interventionist agenda that included a bailout of the auto industry and a $787 billion stimulus plan. Those moves drew fire from Republicans in Congress, while many executives objected to his efforts to overhaul health care and impose new regulations on the financial industry. Still, since his term began, the Standard & Poor’s 500 Index of stocks has risen more than 25 percent and the economy rebounded from a 6.4 percent decline during the first three months of last year to 5.7 percent growth in the fourth quarter. Boosting Exports In an effort to make U.S. exports more attractive, Obama set a year-end objective for persuading China to allow the value of its currency to rise. “My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy,” Obama said. He said his administration is “going to have some very serious negotiations” with China that are “going to be bumpy.” China has held its exchange rate with the dollar steady since July 2008. Obama discussed a range of economic issues in the 35-minute interview with editors and reporters. He said he would press for passage this year of free-trade agreements with South Korea, Panama and Colombia, though he cautioned that “different glitches” must first be negotiated with each country. He dismissed the idea of expanding the payroll tax break he proposed for small businesses to larger companies. And he offered a less-than-optimistic forecast for the legislative prospects of the “Volcker Rule” he embraced last month to bar commercial banks from proprietary trading. ‘Dysfunctional’ Washington “Whether we can get it through Congress is always a question because, as we have seen throughout this year, we have a political process in Washington right now that is a little dysfunctional,” Obama said. He declined to give an opinion on Toyota Motor Corp. ’s handling of its automobile recall, using the opportunity to argue that the bailout of General Motors Co. and Chrysler Group LLC has worked. He cited the improved financial position of General Motors, whose chairman and chief executive officer, Ed Whitacre , predicted on Jan. 6 would turn a profit this year. “GM and Chrysler aren’t out of the woods yet, but there is an enormous opportunity for us to rebuild a U.S. auto industry that, absent our intervention, might not have been there, at least with those two companies,” Obama said. The auto bailout, he said, is “a very politically unpopular decision that was made that, from my vantage point, is pro-business.” Meeting Immelt, Cote As Obama defended himself against charges he is isolated from business, a number of CEOs sat outside in the West Wing lobby: General Electric Co. ’s Jeffrey Immelt and Honeywell International Inc. ’s David Cote were among those waiting for a meeting with White House Chief of Staff Rahm Emanuel and energy coordinator Carol Browner to discuss climate-change policy. Obama, succeeding a Republican president who stressed reducing regulation and cutting taxes on investment income, has come in for repeated criticism from business groups. The U.S. Chamber of Commerce has been a frequent sparring partner, joining battle over Obama’s health-care overhaul plan, climate-change legislation, support for a new consumer financial protection agency, and backing for legal changes making it easier to unionize workers. Early in the Obama administration, bondholders objected to pressure from the White House to accept discounts on Chrysler debt. Hedge-fund manager Clifford Asness of AQR Capital Management publicly accused Obama of “bullying” creditors. Fighting Bank Tax Wall Street has chafed at Obama’s targeting of bonuses given to bank executives and fought a White House plan announced last month to recover the cost of the financial industry bailout with taxes on large banks. Perceptions that Obama is unfriendly to business are widespread in the investment community. In a Bloomberg poll in January, 77 percent of U.S. investors surveyed said they see the president as anti-business. In the interview, Obama offered an explanation for one charge often leveled by those who portray him as removed from the realities of managing a business: that he is the first president in decades not to include a major corporate CEO as a member of the Cabinet or inner circle. “It just has to do with who the particular individuals were who were needed at a time of crisis,” Obama said. “I thought it was very important to have Larry Summers and Tim Geithner as two of my key economic advisers early on because they had gone through significant global economic crises before.” ‘Spillover Effect’ Obama attributed feelings that he’s unsympathetic to business in part to “a spillover effect” from public criticism he has leveled at large banks. He also cited instances when he has clashed with specific industries such as insurance companies over his health-care plan, energy companies over climate change, and banks over a financial-regulatory overhaul. Still, he argued, in each case the proposal benefited American businesses as a whole. “You have got some pretty significant, well-funded industry interest groups who are adamantly opposed, and they have got a lot of sway,” Obama said. With the Oval Office fireplace lit in the background, Obama continued a vigorous defense of his record on business issues, circling back to the topic even as aides repeatedly told him time was up and that his economic team, including Geithner, Summers and Christina Romer , was waiting to brief the president. Modifying Tax Proposal He volunteered that he had made “modifications” to his proposals on taxing multinational corporations in response to criticism. He said his plan to repeal President George W. Bush’s tax cuts for families making more than $250,000 a year isn’t “punitive” and is a means to “deal with debt and deficits in a realistic way.” He said his economic policies had helped pull the country back from financial turmoil as he entered office and “created an environment in which businesses can be profitable.” “We are pro-growth,” Obama said. “We are fierce advocates for a thriving, dynamic free market.” To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net ; Julianna Goldman in Washington at jgoldman6@bloomberg.net .

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Obama Says He’s `Fierce’ Advocate of Business, Rejecting Corporate Critics

February 10, 2010

By Mike Dorning and Julianna Goldman Feb. 11 (Bloomberg) — President Barack Obama said he and his administration have pursued a “fundamentally business- friendly” agenda and are “fierce advocates” for the free market, rejecting corporate criticism of his policies. “The irony is, is that on the left we are perceived as being in the pockets of big business; and then on the business side, we are perceived as being anti-business,” Obama said in a Feb. 9 interview in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands tomorrow. “You would be hard-pressed to identify a piece of legislation that we have proposed out there that, net, is not good for businesses,” he added. He predicted that legislation he will sign this year would cut corporate taxes by about $70 billion. Obama took office at a time of turmoil in the economy, responding with an interventionist agenda that included a bailout of the auto industry and a $787 billion stimulus plan. Those moves drew fire from Republicans in Congress, while many executives objected to his efforts to overhaul health care and impose new regulations on the financial industry. Still, since his term began, the Standard & Poor’s 500 Index of stocks has risen more than 25 percent and the economy rebounded from a 6.4 percent decline during the first three months of last year to 5.7 percent growth in the fourth quarter. Boosting Exports In an effort to make U.S. exports more attractive, Obama set a year-end objective for persuading China to allow the value of its currency to rise. “My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy,” Obama said. He said his administration is “going to have some very serious negotiations” with China that are “going to be bumpy.” China has held its exchange rate with the dollar steady since July 2008. Obama discussed a range of economic issues in the 35-minute interview with editors and reporters. He said he would press for passage this year of free-trade agreements with South Korea, Panama and Colombia, though he cautioned that “different glitches” must first be negotiated with each country. He dismissed the idea of expanding the payroll tax break he proposed for small businesses to larger companies. And he offered a less-than-optimistic forecast for the legislative prospects of the “Volcker Rule” he embraced last month to bar commercial banks from proprietary trading. ‘Dysfunctional’ Washington “Whether we can get it through Congress is always a question because, as we have seen throughout this year, we have a political process in Washington right now that is a little dysfunctional,” Obama said. He declined to give an opinion on Toyota Motor Corp. ’s handling of its automobile recall, using the opportunity to argue that the bailout of General Motors Co. and Chrysler Group LLC has worked. He cited the improved financial position of General Motors, whose chairman and chief executive officer, Ed Whitacre , predicted on Jan. 6 would turn a profit this year. “GM and Chrysler aren’t out of the woods yet, but there is an enormous opportunity for us to rebuild a U.S. auto industry that, absent our intervention, might not have been there, at least with those two companies,” Obama said. The auto bailout, he said, is “a very politically unpopular decision that was made that, from my vantage point, is pro-business.” Meeting Immelt, Cote As Obama defended himself against charges he is isolated from business, a number of CEOs sat outside in the West Wing lobby: General Electric Co. ’s Jeffrey Immelt and Honeywell International Inc. ’s David Cote were among those waiting for a meeting with White House Chief of Staff Rahm Emanuel and energy coordinator Carol Browner to discuss climate-change policy. Obama, succeeding a Republican president who stressed reducing regulation and cutting taxes on investment income, has come in for repeated criticism from business groups. The U.S. Chamber of Commerce has been a frequent sparring partner, joining battle over Obama’s health-care overhaul plan, climate-change legislation, support for a new consumer financial protection agency, and backing for legal changes making it easier to unionize workers. Early in the Obama administration, bondholders objected to pressure from the White House to accept discounts on Chrysler debt. Hedge-fund manager Clifford Asness of AQR Capital Management publicly accused Obama of “bullying” creditors. Fighting Bank Tax Wall Street has chafed at Obama’s targeting of bonuses given to bank executives and fought a White House plan announced last month to recover the cost of the financial industry bailout with taxes on large banks. Perceptions that Obama is unfriendly to business are widespread in the investment community. In a Bloomberg poll in January, 77 percent of U.S. investors surveyed said they see the president as anti-business. In the interview, Obama offered an explanation for one charge often leveled by those who portray him as removed from the realities of managing a business: that he is the first president in decades not to include a major corporate CEO as a member of the Cabinet or inner circle. “It just has to do with who the particular individuals were who were needed at a time of crisis,” Obama said. “I thought it was very important to have Larry Summers and Tim Geithner as two of my key economic advisers early on because they had gone through significant global economic crises before.” ‘Spillover Effect’ Obama attributed feelings that he’s unsympathetic to business in part to “a spillover effect” from public criticism he has leveled at large banks. He also cited instances when he has clashed with specific industries such as insurance companies over his health-care plan, energy companies over climate change, and banks over a financial-regulatory overhaul. Still, he argued, in each case the proposal benefited American businesses as a whole. “You have got some pretty significant, well-funded industry interest groups who are adamantly opposed, and they have got a lot of sway,” Obama said. With the Oval Office fireplace lit in the background, Obama continued a vigorous defense of his record on business issues, circling back to the topic even as aides repeatedly told him time was up and that his economic team, including Geithner, Summers and Christina Romer , was waiting to brief the president. Modifying Tax Proposal He volunteered that he had made “modifications” to his proposals on taxing multinational corporations in response to criticism. He said his plan to repeal President George W. Bush’s tax cuts for families making more than $250,000 a year isn’t “punitive” and is a means to “deal with debt and deficits in a realistic way.” He said his economic policies had helped pull the country back from financial turmoil as he entered office and “created an environment in which businesses can be profitable.” “We are pro-growth,” Obama said. “We are fierce advocates for a thriving, dynamic free market.” To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net ; Julianna Goldman in Washington at jgoldman6@bloomberg.net .

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Metro-Area Unemployment: December Data Show Unemployment Worsened In Most Cities And Counties

February 2, 2010

WASHINGTON — Unemployment rose in most cities and counties in December, signaling that companies remain reluctant to hire even as the economy recovers. The unemployment rate rose in 306 of 372 metro areas, the Labor Department said Tuesday. The rate fell in 41 and was unchanged in 25. That’s worse than November, when the rate fell in 170 areas, rose in only 154 and was unchanged in 48. The metro employment numbers aren’t seasonally adjusted and can be volatile. Many of the increases were due to seasonal factors. For example, Ocean City, N.J., which bills itself as “America’s Greatest Family Resort,” saw its unemployment rate jump to 16.4 percent in December from 14.8 percent the previous month. That’s double the 8 percent it reported in July, even though the nation’s economy was in worse shape then. Ocean City is one of the 19 metro areas that reported unemployment rates of at least 15 percent. Twelve of those are in California and three are in Michigan, the department said. Joblessness topped 10 percent in 138 metro areas, up from 125 in November but below last year’s peak of 144 areas in June. Improvement in the auto industry, meanwhile, saw unemployment rates drop in the metro areas around Detroit and Warren, Mich. Automakers and auto parts companies have recalled workers in recent months as they seek to replenish inventories depleted by the “Cash for Clunkers” program, which caused a jump in car sales in August. The Detroit area saw unemployment fall to 15.7 percent from 16.4 percent, while the Warren area reported a drop to 14.3 percent from 14.8 percent. While still high, the rates are down about 2 percentage points from last fall. Steve Cochrane, a regional economist at Moody’s Economy.com, said it isn’t clear if the gains are sustainable once the auto companies have rebuilt their inventories. “There are no guarantees the unemployment rates won’t go up again,” he said. The U.S. economy benefited heavily in the fourth quarter from inventory changes. Companies ramped up production and reduced inventories less in the October to December period, which accounted for about two-thirds of the 5.7 percent growth in the economy during that period. Nationwide, the unemployment rate was 10 percent in December, unchanged from the previous month, as employers shed 85,000 jobs. The Labor Department will report January figures on Friday, and economists expect a gain of 5,000 jobs and a slight increase in the unemployment rate to 10.1 percent. In the past year, unemployment rose in almost all of the 372 metro areas tracked by the report, except one: Troubled Elkhart, Ind., saw its jobless rate fall to 14.8 percent in December 2009 from 16 percent a year earlier. Unemployment in Elkhart and the surrounding region in northern Indiana soared during the recession after many recreational vehicle manufacturers laid off workers and in some cases closed their doors. President Barack Obama visited Elkhart twice last year. Recently, the area has attracted several electric car manufacturers, including Think North America, a subsidiary of Norwegian-based Think Global. The company plans to sell electric cars in the United States later this year. Think North America said last month it will open a factory in Elkhart in a former RV plant, potentially creating 415 full-time jobs by 2013. The lowest unemployment rates are in the upper plains states, with Fargo, N.D. reporting the nation’s lowest rate, at 4 percent, followed by Grand Forks, N.D., and Lincoln, Neb., at 4.1 percent each. The highest rate is in El Centro, Calif., with 27.7 percent, followed by Merced, Calif., at 19.8 percent. El Centro is heavily agricultural and has many seasonal farm workers that are frequently unemployed. Its jobless rate is down from 33.1 percent in August.

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Toyota Falls as Quality Image May Be `Finished’ on Halt of Sales, Output

January 27, 2010

By Alan Ohnsman and Mike Ramsey Jan. 28 (Bloomberg) — Toyota Motor Corp. fell in Tokyo trading, headed for a fifth day of declines amid concerns that a widening vehicle recall and a U.S. sales halt for its top- selling models may have permanently tarnished its reputation. The shares dropped as much as 4.7 percent to 3,530 yen and traded at 3,555 yen as of 9:19 a.m. local time, bringing their decline to 15 percent since Jan. 21, when Toyota announced a recall of 2.3 million vehicles after finding a pedal flaw linked to unintended acceleration. Toyota’s “reputation for long-term quality is finished,” Maryann Keller , senior adviser at Casesa Shapiro Group LLC in New York, said yesterday in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.” The company said yesterday it would expand a U.S. vehicle recall to Europe, a day after announcing it would suspend the sale and production of models that account for more than half its U.S. deliveries, including Camry and Corolla cars. Losing its reputation for quality would undercut a decades-long campaign to promote reliability and safety that helped Toyota become the world’s largest carmaker and No. 2 in U.S. sales. “We don’t know how long the sales halt will last, which makes the stock unattractive,” said Hiroichi Nishi , an equities manager at Nikko Cordial Securities Inc. in Tokyo. Toyota’s American depositary receipts fell the most in more than a year yesterday, and General Motors Co. added incentives to woo owners of the U.S. autos being recalled to fix the pedal flaw. ‘Severe Ramifications’ U.S. sales of eight models are being suspended after last week’s recall, and five North American plants are being idled, Toyota said Jan. 26. That followed a 4.3 million-unit recall in 2009 for a related problem tied to floor mats. “This is going to have severe ramifications for Toyota,” said John Wolkonowicz , an analyst at IHS Global Insight in Lexington, Massachusetts. “The Teflon seems to have evaporated.” Two Toyota recalls in three months compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect. While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller , U.S. group vice president for corporate communications. Weekly Fallout Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda . “He is certainly aware of the issue,” Miller said. Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year. Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models. U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included. ‘Short-Term’ Sales Stopping sales of some models will cut Toyota’s offerings as U.S. consumers begin returning to dealer lots after last year’s slump. Toyota posted a 32 percent gain in December U.S. deliveries, topping the industry’s 15 percent increase, and will report January totals on Feb. 2. On Feb. 4, Toyota will release earnings for its fiscal third quarter ended Dec. 31. Wolkonowicz, the Global Insight analyst, said the fallout for Toyota may not end soon. The U.S. was Toyota’s largest market through 2007, contributing half or more of global operating income. Toyota trails only GM in U.S. sales and surpassed the Detroit-based automaker’s global total in 2008. “This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” he said. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.” Toyota Probe The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead. Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons , a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said. Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota. Toyota said in a statement late yesterday that pedals using a revised design “are now in full production at CTS to support Toyota’s needs.” The company is also working with CTS to test modifications to existing pedals that will be available “as quickly as possible.” Consumer Response Toyota accounts for about 3 percent of annual sales at Elkhart, Indiana-based CTS, according to the company. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall. “This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher , senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.” Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors. “It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.” ‘Perfect as Possible’ At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early yesterday about the recall. “I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible, so they are fixing it.” News of the recalls was “scary,” said Prius owner Caroline Schkolnick, 51, of Beverly Hills, California, who was having her car serviced in Santa Monica. She reported no problems with her hybrid, which was covered by the November floor-mat recall, and said she isn’t worried about the pedals. “There were mistakes and I respect them for fixing them,” Schkolnick said. Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets. “Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.” To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net ; Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

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Toyota’s Reputation for Quality Is `Finished’ as Sales, Production Halted

January 27, 2010

By Alan Ohnsman and Mike Ramsey Jan. 27 (Bloomberg) — Toyota Motor Corp. ’s image as the highest-quality automaker may have been permanently tarnished after an accelerator-pedal defect halted sales of the models that account for more than half its U.S. deliveries. Toyota’s “reputation for long-term quality is finished,” Maryann Keller , senior adviser at Casesa Shapiro Group LLC in New York, said today in an interview. “People aren’t going to buy Toyotas, period. It doesn’t matter which model. What’s happened is sufficient to keep people out of the stores.” Losing that aura would undercut a decades-long campaign to promote its vehicles as safe and reliable, an effort that propelled Toyota to No. 2 in U.S. sales behind General Motors Co. and helped the Japanese company wrest the title of the world’s largest automaker from GM in 2008. Toyota’s American depositary receipts fell the most in more than a year, and GM added incentives to woo owners of the 2.3 million U.S. autos including the top-selling Camry and Corolla being recalled to fix a flaw blamed for sudden acceleration. Late today, Toyota extended the recall to Europe. U.S. sales of eight models are being suspended after last week’s recall, and five North American plants are being idled, Toyota said yesterday. That followed a 4.3 million-unit recall in 2009 for a related problem tied to floor mats. Those moves compounded concern that quality may have slipped after a decade of North American expansion. The company’s 1,460 U.S. Toyota and Lexus dealers and hundreds of North American suppliers are awaiting word that engineers have found a solution for the pedal defect. ‘Biggest Crisis’ “This is the biggest crisis in the auto industry since the bankruptcies of GM and Chrysler,” said John Wolkonowicz , an analyst at IHS Global Insight in Lexington, Massachusetts. “Toyota is not going to be able to contain this problem in a short period of time. It’s going to drag on and linger, unlike the bankruptcies of GM and Chrysler last summer.” While Toyota City, Japan-based Toyota is aware that its reputation for quality may be endangered, “this is a customer safety issue,” said Irv Miller , U.S. group vice president for corporate communications. Miller said he wasn’t aware whether the decision to halt production was made by President Akio Toyoda . “He is certainly aware of the issue,” Miller said. ADRs Fall Toyota’s American depositary receipts fell $7.01, or 8.1 percent, to $79.77 at 4:15 p.m. in New York Stock Exchange composite trading for the biggest decline since Nov. 6, 2008. Along with Camry and Corolla, Toyota’s recall covers the Avalon sedan and Matrix hatchback; RAV4, Highlander and Sequoia SUVs; and Tundra pickups. Also included is the Pontiac Vibe, a version of the Matrix built at a joint Toyota-GM plant until last year. Global Insight estimated that Toyota would lose 20,000 vehicle sales a week as long as it ceases selling and producing the eight models. U.S. sales of the affected Toyota vehicles totaled 998,744 in 2009, according to researcher Autodata Corp. of Woodcliff Lake, New Jersey. Global Insight’s Wolkonowicz said the models accounted for 70 percent of Toyota brand sales and about 56 percent of overall U.S. sales when Lexus is included. Quality Heritage The automaker retained the top spot in June in J.D. Power & Associates’ survey of initial quality and topped Consumer Reports’ magazine’s annual survey of automotive brand perceptions this month. Still, Toyoda already was under pressure to improve quality since he took the helm in June, and the latest setbacks probably will add to the strain as competitors including South Korea’s Hyundai Motor Co. narrow Toyota’s lead. Toyota continues to investigate the pedal-related flaw reported last week and doesn’t yet have figures on any related accidents, injuries or fatalities, said Brian Lyons , a spokesman. The company is aware of at least five deaths related to the floor mat-related recall from November, he said. Last week’s recall involved a potential flaw in pedal parts made by CTS Corp. that could, “in rare instances, mechanically stick in a depressed position or return slowly to the idle position,” according to Toyota. “We at CTS have no knowledge of any incidents, accidents or injuries that have resulted from this,” said Mitch Walorski , a spokesman for the Elkhart, Indiana-based company. He said there were eight warranty claims related to sticky pedals among millions of vehicles equipped with the part since 2005. Partsmaker’s View “We are working with their engineers and are actively working to support Toyota,” Walorski said in an interview. Toyota makes up about 3 percent of CTS’s annual sales, he said. Vehicles with pedal parts from Toyota-affiliated Denso Corp. weren’t included in last week’s recall. “This is a very rare occurrence, incidents of sudden acceleration, but because Toyota’s had made multiple actions related to it, the perceived image is they don’t have a handle on it,” said Jake Fisher , senior auto engineer for Consumer Reports. “They’ve been trying to be proactive, but that’s probably not what consumers will draw from this.” Bill Visnic, senior editor at consumer researcher Edmunds.com, said shoppers may not differentiate between the Toyota autos on the recall list with those still available on showroom floors. “It’s definitely going to put a damper on the entire atmosphere around a dealership,” he said. “This is a real test of the strength of the brand.” ‘Perfect as Possible’ At Santa Monica Toyota in suburban Los Angeles, General Manager Billy Rinker said he received about 15 customer calls early today about the recall. “We’re still selling cars,” he said, reporting that the dealership had made one sale by 10:30 a.m., against a usual daily tally of about 10 transactions. “I don’t think they lost” the reputation for quality, Rinker said of Toyota. “Toyota wants to be as perfect as possible so they are fixing it.” Toyota may be “overreacting” in suspending sales and production, said Mickey Anderson, president of Performance Auto Group in Omaha, Nebraska, which owns three Toyota stores and two Lexus outlets. “Probably, that’s the right thing to do,” Anderson said. “While this will be a burden for Toyota and the dealers, it is absolutely the most proactive way to take care of the customers.” To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net ; Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

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Kraft Bondholders Say Buffett Wrong on Cadbury, MGM Drops: Credit Markets

January 21, 2010

By Bryan Keogh and John Detrixhe Jan. 21 (Bloomberg) — Kraft Foods Inc. bonds are rallying as debt investors reject Warren Buffett’s assertion that the company’s 11.9 billion-pound ($19.4 billion) takeover of Cadbury Plc is a mistake. Kraft’s 6.875 percent notes due in 2039 climbed to a three- month high of 108.7 cents on the dollar yesterday, according to Trace data. The Northfield, Illinois-based food and beverage company’s bonds have returned 2.02 percent including reinvested interest this month, compared with 1.72 percent for an index of similar debt and 1.71 percent for the global corporate bond market, according to Bank of America Merrill Lynch index data. While Buffett said Kraft is overpaying for Cadbury by using undervalued stock to fund part of the deal, bond investors are betting the acquisition won’t jeopardize its investment-grade credit rating. Shares of Kraft have risen 2 percent since early September, just before the offer was announced. “It’s not as bad on the bondholders as it is on the equity guys,” said Mirko Mikelic , a money manager at Fifth Third Asset Management in Grand Rapids, Michigan, where he helps oversee $14 billion of fixed-income assets. “People in the bond market don’t think they’re going to want to jeopardize their BBB rating.” Elsewhere in credit markets, the extra yield investors demand to own corporate bonds globally instead of Treasuries is holding at about the lowest since December 2007 at 1.61 percentage points. Yields fell to 4.09 percent on average yesterday from 4.12 percent on Jan. 19. Credit-default swaps show investors are growing more concerned about the risk of companies failing to pay their debt. MGM Loan Metro-Goldwyn-Mayer Inc. ’s $3.7 billion term loan dropped about 5 cents on the dollar to 60.75 this month, on concern takeover offers for the maker of “James Bond” films will be lower than investors expected last month, said people familiar with the debt. NewPage Corp. bonds fell lost 17.5 cents to 69.5 cents after the Miamisburg, Ohio-based producer of coated paper said fourth-quarter sales fell and its loss widened. Nissan Motor Co.’s U.S. finance subsidiary sold $1 billion of debt, with spreads more than double what the company paid in its last sale of dollar-denominated debt in 2006. Swiss Reinsurance Co., the world’s second-largest reinsurer, says catastrophe bond sales will rise at least 43 percent in 2010. Emerging Markets Yields on emerging market bonds rose to the highest relative to Treasuries since Dec. 23 as the spread widened to 2.85 percentage points from 2.8 points on Jan. 19 and the low this year of 2.63 points on Jan. 11, as measured by the JPMorgan Emerging Market Bond Index. Spreads expanded before the World Bank issued a report saying developing Asian economies face the risk of asset bubbles or overheating as the region’s growth outpaces the rest of the world this year. China’s economy expanded at the fastest pace since 2007 in the fourth quarter, rising 10.7 percent and increasing pressure on the government to rein in credit growth. Investors have turned bullish on the U.S. while tempering their enthusiasm for China, according to a quarterly survey of investors and analysts who are Bloomberg subscribers. Greece is considered the riskiest government, followed by Argentina, Russia, Ireland, Portugal, Italy, Spain and Mexico. Kraft Bonds Rise Some Kraft bonds rose yesterday even after Fitch Ratings cut its default ranking to BBB- from BBB, citing the “the anticipated increase in financial leverage of the combined companies.” Kraft, the maker of Oreo cookies and Tang powdered drinks, said the deal will result in at least $675 million in annual savings and give it leading positions in India, Brazil and Mexico. “It’s obviously a good company to a bond investor in the sense that it’s a steady business,” said Jason Brady , a managing director at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $55 billion, including Kraft bonds. “When you start levering up to do transformative things, I think bond investors start to get kind of nervous.” The takeover creates a company with about $50 billion in annual sales, displacing Mars Inc. as the world’s biggest candy maker, according to Euromonitor data. Kraft fell 63 cents, or 2.1 percent, to $28.78 in New York Stock Exchange composite trading. “I think this deal was a mistake,” Buffett said in a Bloomberg Television interview. “Kraft was very undervalued before. I feel it’s less undervalued after doing this deal.” Investment Grade Kraft will likely keep its investment-grade ratings, Moody’s Investors Service said. Bonds rated below Baa3 by Moody’s and BBB- by Standard & Poor’s and Fitch are considered below investment grade. The company will “no doubt” sell bonds in the U.S. and Europe to help finance the purchase, Gary Jenkins , head of credit strategy at Evolution Securities Ltd. in London, said yesterday in a note to clients. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, increased 0.5 basis point to 85 basis points yesterday, according to broker Phoenix Partners Group. A rise in the index signals a decline in investor confidence. The Markit index rose for the sixth day, its longest stretch of gains since August, according to CMA DataVision prices, after China asked banks to cut lending following a record $1.4 trillion of new loans last year. Asian bond risk rose to a one-month high today, with the Markit iTraxx Asia ex- Japan index reaching the highest since Dec. 18, according to CMA. Investors are concerned that a premature tightening of credit will crimp economic growth worldwide, said Charles Himmelberg , chief credit strategist at New York-based Goldman Sachs Group Inc. ‘Important Engine’ “China has been an important engine of the global recovery,” Himmelberg said in a telephone interview. The sale by Nissan Motor Acceptance Corp. showed lingering concern about the health of the auto industry. The Torrance, California-based company sold $250 million of three-year notes to yield 195 basis points more than similar-maturity Treasuries, and $750 million of five-year debt at a 220 basis-point spread. The last time the company sold dollar-denominated debt was in 2006, when it issued $1 billion of five-year notes at a spread of 87.5 basis points, or 0.875 percentage point, according to Bloomberg data. Vanguard Health Systems Inc. plans to sell $1 billion of eight-year notes as soon as today to yield 8 percent to 8.25 percent, according to a person familiar with the offering, who declined to be identified because terms aren’t set. NewPage Loss NewPage’s $800 million of 10 percent notes due May 2012 tumbled after the maker of magazine paper said fourth-quarter sales likely fell as much as 13 percent and its net loss widened 36 percent to $57 million from a year earlier. The company, owned by New York-based private-equity firm Cerberus Capital Management LP, also said Chief Executive Officer Richard D. Willett Jr . resigned, according to a regulatory filing. Swiss Re’s forecast for increasing sales of bonds that pay when catastrophes occur matches that of larger German rival Munich Re , which earlier this month said issuance will climb to $5 billion in 2010 from about $3.5 billion last year. About $5 billion of notes expire this year, Swiss Re said. Swiss Re, the lead manager on more than half the 2009 issues, said the market may almost triple over the next five years as demand for coverage increases and the securities replace some traditional reinsurance. “The pipeline for new cat bonds is very active and the momentum of 2009 will surely continue,” Martin Bisping , head of non-life risk transformation at the Zurich-based reinsurer, said in an interview. “We expect the market to broaden.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Warren Buffett Blasts Obama’s Bank Tax, Compares It To A ‘Guilt Tax’ (VIDEO)

January 20, 2010

Speaking to CNBC at Berkshire Hathaway’s special shareholder meeting, billionaire Warren Buffett blasted President Obama’s proposed tax on the nation’s largest banks, and had some oddly optimistic words on the souring housing market. Buffett’s argument against tax, which is laid out in the below video, is that the levy unfairly punishes banks for the losses forced upon taxpayers during the bailout of the auto industry. The largest banks, Buffett said, have already paid back the government with interest. Separately, Buffett told Bloomberg that he “didn’t see any reasons why the banks should have to pay a special tax,” and questioned by Fannie Mae and Freddie Mac had not been asked to pay similar fees. (Keep in mind, however, that Buffett’s Berkshire Hathaway owns an enormous stake in Wells Fargo, and large investments in Bank Of America and Goldman Sachs, all of which would fall under Obama’s proposed tax.) Here’s Buffett: “If it’s some kind of guilt tax or something of that sort because banks were among the [firms] that were saved back in 2008, everybody was taken care of then. And the banks, basically, somebody like Wells [Fargo], it’s cost them a lot of money to be in the TARP and it was basically forced upon them. They didn’t want to take the money, but really had no choice…The government’s made a lot of money off Wells. They’ve made a lot of money off Goldman. They’ve made a lot of money off JPMorgan. And where they’re at going to lose money, at least where it’s possible they’ll lose money, is in the auto companies.” Responding to the news that new housing starts in 2009 were the worst since WWII , Buffett said, “You want to have a bad number for a while.” He added, “We had more supply than demand for three of four years in housing. Buffett’s not alone in his contention that the housing market is badly weighed down by an inventory overhang , which basically means far too many houses were built during the boom years. Buffett’s solution? Let the housing market continue to languish and build fewer houses. Or, he joked: “You could get 13-year-olds to start cohabitating and create more households that way — and I think we’d get a lot of volunteers among 13-year-olds.” Here’s more from Buffett: “We could have a cash for clunkers program on housing. If we would blow up 3 or 4 million houses today, the housing shortage would be over… if you have an inventory overhang. You have to have demand be greater than supply for a significant period of time. And we’re well on our way to that.” WATCH Buffet’s take on the housing market: WATCH the full interview: Get HuffPost Business On Facebook and Twitter !

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Google Sends Right Message to China’s Police State: David Pauly

January 19, 2010

Commentary by David Pauly Jan. 19 (Bloomberg) — Here’s hoping Google Inc. makes good on its threat to quit China. It’s time someone in the U.S. stopped coddling the Chinese police state. The American government can’t, or won’t. Though Google is late coming around as an advocate of free speech in China, it still deserves applause. The company said last week it would stop censoring its Chinese search engine, Google.cn, as the communist government dictates — and might even close the business. Google got religion after discovering that last month hackers — read Chinese government technicians — tried to access accounts of, and managed to steal information from, human-rights activists who used Google e-mail. Hackers went after at least 20 other companies’ computers, Google said. Adobe Systems Inc. , the leading maker of graphics design software; Juniper Networks Inc. , the second-biggest maker of computer networking gear; and Rackspace Hosting Inc. , which manages Web sites, said they also had been attacked. Google can exit China without hurting its stockholders, at least in the short run. The company’s revenue from China would be as much as $350 million this year, about 1.5 percent of total sales, according to a report from Citigroup Inc. Still, the potential market is huge. Some 330 million Chinese use the Internet. The company could sell its Nexus One mobile phone to the Chinese. Market Shares Google’s departure would benefit search rival Baidu Inc. no end. The Beijing-based company now has 58 percent of the country’s Internet search market against Google’s 36 percent, according to researcher Analysis International. With only 6 percent of the market left for others, Google’s U.S. competitors in China clearly could afford to thumb their noses at the police state. Yahoo! Inc. and Microsoft Corp. do business there with partners. Microsoft Chief Executive Office Steve Ballmer said he has no plans to leave the country. It’s easy to see why most companies choose Chinese profit over political stands. China is now the U.S.’s No. 2 trading partner after Canada, with 2008 transactions of $409 billion. U.S. companies manufacture there. Money managers invest there. American companies keep doing business with the communist state in the face of complaints from the auto parts, steel, insurance and electronics industries that China manipulates its currency to help its exporters, prices products at unfairly low levels and protects its home markets from competition. Look Elsewhere Perhaps U.S. companies should seek cheap labor elsewhere. The U.S. government has both economic and political reasons for not challenging a government that muzzles its people and kills them if they get too obstreperous. China has been the biggest purchaser of U.S. debt at a time when the U.S. is borrowing massively to right its economy and financial system. China held about $800 billion of Treasury securities on Oct. 31. Still, China has nowhere else to invest its huge trading gains. The U.S. won’t have to borrow so heavily if its budget deficits begin to decline. The political front may be tougher. Barack Obama’s administration needs China’s cooperation, for example, in its effort to curtail the nuclear weapons capability of Iran and North Korea. Google may eventually compromise with China. That would be a shame. Someone in the U.S. has to let the dictatorship know what we stand for. Google slamming the door as it leaves China would be a welcome step. ( David Pauly is a Bloomberg News columnist. The opinions expressed are his own.) Click on “Send Comment” in the sidebar display to send a letter to the editor. To contact the writer of this column: David Pauly in Fort Myers, Florida dpauly@bloomberg.net

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Mulally Turns Rock Star at Auto Show as Ford’s Comeback Takes Center Stage

January 14, 2010

By Keith Naughton Jan. 14 (Bloomberg) — Ford Motor Co. Chief Executive Officer Alan Mulally , whose company gained market share in the U.S. last year while his domestic rivals went bankrupt, is the toast of the North American International Auto Show this week. At the opening press conference Jan. 11, Mulally walked onto a stage in Detroit’s Cobo Arena, where the rock band Kiss recorded a live album in 1975. On a screen above him, a globe covered with positive Ford headlines from 2009 spun while Mulally spoke of Ford’s “ growth in every region around the world.” The audience filling the red vinyl seats roared. Ford swept the show’s awards for car and truck of the year and unveiled the Focus compact. The car, which Mulally plans to sell worldwide, attracted throngs of media and auto executives. At Ford’s 54,000-square-foot exhibit, which covers almost a quarter of the convention floor, U.S. House Speaker Nancy Pelosi huddled with Mulally amid red and silver Focus models, while a velvet rope kept reporters at bay. “We’re not talking about just surviving,” Mulally said during a Jan. 11 filet mignon dinner with reporters at the MGM Grand Detroit casino. “I came to Ford to help turn around a global and American icon.” Mulally’s star turn comes after a year of moves that set Ford apart from its domestic rivals — avoiding a bankruptcy and federal bailout. The company began the month by posting its first annual gain in U.S. market share since 1995 and the best sales growth in December among its peers. ‘Relentless’ Mulally, 64, came to Ford after a 37-year career at Boeing Co. , where he managed development of the 787 Dreamliner. When asked at the MGM Grand dinner about watching the wide-bodied jet’s televised maiden flight last month, Mulally couldn’t speak for a bit and his eyes filled with tears. “It’s like ingenuity at its finest,” he said, likening the 787 project to Ford’s redesign of the Taurus and Fusion sedans. “He’s making good progress on the products; there’s a lot of buzz about the Focus,” said Jeremy Anwyl , CEO of researcher Edmunds.com of Santa Monica, California. “Mulally is relentless. He’s got a laser-sharp focus on a simple vision that he just drills into the organization.” Investors and car buyers are responding to Mulally’s leadership, driving up Ford shares more than fourfold in the past year to the highest level since 2005. Shares fell 19 cents, or 1.6 percent, at 4 p.m. in New York Stock Exchange composite trading. For December, the automaker reported a 33 percent sales rise, while GM’s deliveries fell 6 percent. ‘One Ford’ Three months after he arrived at the Dearborn, Michigan- based automaker in 2006, Mulally signed off on a plan by Executive Chairman Bill Ford Jr . and then-Chief Financial Officer Don Leclair to borrow $23 billion. They put up all major assets, including the Ford name, as collateral. Mulally called it “the world’s largest home-equity loan” and it enabled Ford to avoid the bankruptcies that befell the predecessors of General Motors Co. and Chrysler Group LLC last year. Mulally instituted a plan to focus Ford on fixing its namesake brand and take advantage of its global scale to build cars to be sold worldwide. He called the strategy “One Ford” and gave his executives laminated wallet cards to drive home his tenets of working together, accepting reality and developing new models that buyers really wanted. Surprise Profit The CEO must still grapple with an automaker that hasn’t earned an annual profit since 2005 and lost a record $30 billion from 2006 to 2008. Though Ford earned a surprise $997 million profit in the third quarter, Mulally has said the automaker won’t be “solidly profitable” until 2011. Ford’s bet on small cars, bringing the Fiesta subcompact and the Focus from Europe this year, is risky because U.S. consumers have yet to embrace diminutive models like buyers elsewhere who pay more for fuel. U.S. sales of compact and subcompact cars fell 20 percent in 2009. “There’s a tremendous amount of challenge in bringing small cars into this market,” said Rebecca Lindland , an analyst at IHS Global Insight in Lexington, Massachusetts. “You really have to push a lot of volume to make a profit.” Mulally’s biggest challenge now may be to keep his managers grounded as outsiders deify him, said Jeffrey Sonnenfeld , senior associate dean of the Yale University School of Management in New Haven, Connecticut. ‘Sugar-Free Environment’ “Mulally’s biggest risk is managing expectations as people create a messianic image of him,” Sonnenfeld said. “Others can create unrealistic expectations. And he can’t let his people get caught up in the idea of infallibility.” At meetings with direct reports every Thursday morning, Mulally demands attention to the auto market — it fell to the lowest in almost three decades last year — and to each other. He banned BlackBerrys and pounces on anyone caught texting, say Ford executives. “It’s a sugar-free environment,” President of the Americas Mark Fields said of the weekly meetings. “He has brought us all together and he has focused us.” The Thursday meetings “keep us humble,” said Jim Farley , global marketing chief. “Every week we’re reminded of what another competitor is doing in India and Oklahoma. It begs the question of what have you done for the company lately?” Mulally succeeded as an outsider in Detroit because “there was no grandiosity when he came in, there was just a sense of energy and enthusiasm,” said Sonnenfeld, who runs Yale’s Chief Executive Leadership Institute. “He’s not some swashbuckling Iacocca type. He’s the ultimate team builder, fortifying the institution.” ‘Defining Moment’ Under Mulally, Ford has slashed its North American workforce in half, closed factories and converted plants from making sport-utility vehicles to building smaller autos like the Focus. He sold Jaguar, Land Rover and Aston Martin and is near a sale of Volvo to China’s Zhejiang Geely Holding Group Co. “I would like to be remembered for contributing to refocusing Ford on Ford,” Mulally said, adding he has no plans to retire. Mulally said he considers his “defining moment” at Ford his appearance before congressional committees in late 2008, where lawmakers derided him and his fellow U.S. auto chiefs for flying in private jets to Washington to beg for a bailout. “This is a very personal issue for me because I was the one there, doing it,” Mulally said. Americans “want companies to be successful. We don’t want to nationalize companies.” Flash of Ire Forgoing federal aid attracted new buyers and gave the company credibility with Wall Street, Mulally said. He became angry when a reporter at the Jan. 11 dinner asked if Ford avoided a government-backed bankruptcy simply to prevent negative “public relations.” “What kind of question is that?” he said, folding his arms across his chest and scowling. “We were not making a big PR play, we were running a business. I believe the American public appreciates we are running a healthy business.” It was a rare flash of ire from the CEO, who went on to cite Ford’s disadvantages against government-funded U.S. rivals that wiped obligations from their balance sheets in bankruptcy. “We’re paying a little bit more interest because we have more debt ,” Mulally said. “But when we get back to profitability, we’ll pay back that debt and get rid of that disadvantage.” Debt Load Standard & Poor’s rates Ford B- , six steps below investment grade, because of its high debt load and uncertainties about the execution of Mulally’s comeback plan, the New York-based rating agency said in a Dec. 23 note. “There are a number of risks that remain that are not in Ford’s direct control, such as the health of the U.S. and European economies,” said Gregg Lemos Stein , an S&P credit analyst. “We also question whether Ford’s share gains from 2009 are sustainable now that the crisis has passed and its competitors are out of bankruptcy.” The company’s 7.45 percent notes due July 2031 have more than tripled in the last year to 93 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Mulally posted his first back-to-back quarterly profits at the automaker Nov. 2. Ford may earn $2.35 billion this year, based on the average of five analysts surveyed by Bloomberg. After a speech Jan. 12 at the Automotive News World Congress in Detroit, Mulally was asked for the biggest lesson he learned from the past year. “Have a plan before the s— hits,” he said as the audience laughed and applauded. To contact the reporters on this story: Keith Naughton in Detroit, at Knaughton3@bloomberg.net ;

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Ellen Friedman: Encouraging Charitable Efficiencies: More Productive Than Discouraging Nonprofits

January 12, 2010

The nonprofit sector is a sector of innovation, creativity, and people for the common good. More than 14 million Americans – 11 percent of American workers – are employed by or volunteer full-time in the nonprofit sector; more than the financial industry and the auto industry combined. In a recent article entitled, “Charities Rise, Costing U.S. Billions in Tax Breaks,” Stephanie Strom of the New York Times raises concerns about an out of control nonprofit sector that is flooding the IRS with frivolous new applications to establish new public charities that will deprive the federal budget of billions of dollars. There are plenty of reasons for concern about the federal budget, but singling out the nonprofit sector in this way overlooks some important points. Not only is this sector working on innovative ways to make the world a better place and connecting people with a sense of common good , nonprofits also contribute billions in tax revenue through employee payroll alone. Moreover, in an age of dwindling public resources, when the role of government in addressing social problems is feverishly debated, the American public is taking matters into their own hands. This heightened wave of community activism, volunteerism and social entrepreneurship needs to be celebrated, not discouraged. In a time when Facebook and Twitter make broadcasting your ideas and passions part of daily life, we should not be surprised that communities are finding new ways to match their values with their time and pocketbooks. Is there potential waste in creating thousands of new nonprofits every year? Undoubtedly yes, but the problem is not people’s motivations. The problem is that not enough people know about the alternatives to establishing nonprofit organizations; alternatives like fiscal sponsorship and donor advised funds that exist to create greater efficiencies and cost-effectiveness for charitable activities. If you’re raising funds for your favorite cause, you don’t have to go through the hassle of establishing and managing a brand-new nonprofit. Instead, talk to your local community foundation or a grantmaking intermediary like Tides to create a donor advised fund or a collective giving fund. If you’re looking to fill a need in your community, look to fiscal sponsorship as a solution instead of creating a brand-new nonprofit. Fiscal sponsors, such as Tides, provide their projects with all of the financial, human resources and governance infrastructure of a well-managed nonprofit, allowing activists and social entrepreneurs to focus their attention on the content and mission of their work, not the administrative and regulatory details. If we want to create greater capacity for the IRS to monitor nonprofit activity, improve efficiency in the charitable sector, and continue to support the social innovation and dedication of the American people, we need to raise the visibility – and availability – of these alternative structures. The nonprofit sector and the IRS could be well-served by partnering to create a referral pipeline between those with passion, ideas and access to resources and those organizations able to manage and administer charitable activity most effectively.

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China Overtakes U.S. as World’s Biggest Vehicle Market as Sales Climb 46%

January 11, 2010

By Bloomberg News Jan. 11 (Bloomberg) — China supplanted the U.S. as the world’s largest auto market after its 2009 vehicle sales jumped 46 percent, ending more than a century of American dominance that started with the Model T Ford. The nation’s sales of passenger cars, buses and trucks rose to 13.6 million, the fastest pace in at least 10 years, according to the China Association of Automobile Manufacturers. In the U.S., sales slumped 21 percent to 10.4 million, the fewest since 1982, according to Autodata Corp. China’s vehicle sales have surged since 1999 as economic growth averaging more than 9 percent a year has helped automakers including General Motors Co. and Volkswagen AG compensate for slumping demand in the U.S. and Europe. The market will likely remain the world’s largest, even as sales slow this year on a reduction in tax cuts, according to Booz & Co. “China is becoming the center stage of development for the 21st century global auto industry,” said Bill Russo , a Beijing- based senior adviser at Booz & Co., which advises automakers. “Economic growth has directly translated into growth in automobile sales.” December sales of passenger cars, trucks and buses rose 92 percent to 1.4 million. For the whole of 2009, passenger-car sales rose 53 percent to 10.3 million. ‘Rising Challenges’ “The incredible growth rate last year is not going to be repeated in 2010,” said Yu Bing , an analyst at Pingan Securities Co. in Shanghai. “Automakers will face rising challenges in China this year with slower demand growth and increasing competition.” China’s government last year halved the sales tax on new vehicles to 5 percent and offered 5 billion yuan ($732 million) in cash to replace old ones, insulating the country from slumping global demand. The Chinese government announced plans on Dec. 10 to scale back the measures, including raising the tax on new vehicles with engines of 1.6 liters or smaller to 7.5 percent. Vehicle Ownership China’s vehicle ownership climbed to 51 million by the end of 2008 from 1 million in 1977. Per capital disposable income for Chinese households increased 46-fold in nominal terms during the period, also making the country the world’s biggest markets for products such as cell phones, beer and microwave ovens. GM and Volkswagen have targeted growing Chinese demand to compensate for slumping sales in the U.S. and Europe. GM, the biggest overseas automaker in China, said on Jan. 4 that its Chinese sales rose 67 percent last year to a record 1.83 million vehicles. Shanghai General Motors Co. sold 727,620 cars last year, an increase of 63 percent. GM sold 1 percent stake in Shanghai GM in December to partner SAIC Motor Corp. , China’s largest domestic automaker. The $84.5 million deal will leave GM with a 49 percent stake in the venture. Sales at SAIC-GM-Wuling Automobile Co., China’s largest minivan maker, rose 64 percent to 1.1 million vehicles, accounting for about 60 percent of GM’s China sales. The minivans are sold for as little as $4,000 each. China Investment Ford Motor Co. is spending $490 million on a third plant in China, while Volkswagen plans to invest 4 billion euros ($5.7 billion) in the country by 2011. Seoul-based Hyundai intends to build a third Chinese factory as it aims to boost local capacity by 50 percent to 900,000 vehicles a year by 2011. China had 117 automakers at the end of 2008, according to the automobile association, raising the possibility of overcapacity. Automakers should “keep their heads cool” to prevent expanding production beyond demand, Chen Bin , who oversees regulation of China’s auto industry at the National Development and Reform Commission, said last year. Henry Ford introduced the Model T in 1908 as the world’s first automobile affordable for a mass market. The car was produced at the Piquette Plant in Detroit, helping the city become synonymous with the auto industry. GM, also based in the city, grew into the world’s largest automaker. The U.S. has since lost out to Asian carmakers producing cheaper and more fuel-efficient models. Toyota Motor Corp. ended GM’s 77-year reign as the biggest automaker in 2008. General Motors Corp. and Chrysler also both filed for bankruptcy as the worst recession since the Great Depression sapped auto sales. — Tian Ying . Editor: Patrick Harrington , Neil Denslow To contact Bloomberg News staff for this story: Tian Ying in Beijing at +86-10-6649-7571 or ytian@bloomberg.net

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Send Us Your Questions For Ford CEO Alan Mulally!

January 8, 2010

Send us your questions for Ford CEO Alan Mulally! What’s the future of the American car industry? Will manufacturing jobs return to Detroit? Can American car companies out-innovate their foreign rivals? Will the government need to repeat its wildly popular “Cash For Clunkers” program to get auto sales moving again? When will the auto industry make a wholesale commitment to alternative vehicles? We’ll be selecting the best HuffPost reader questions and asking them to Ford’s CEO directly. Leave your questions in the comments section! Ford, the only U.S. automaker to avoid taking government funds during the financial crisis, has been on a roll lately (we apologize for the bad pun). At the Consumer Electronics Show in Las Vegas, Ford CEO Alan Mulally is promoting the company’s new Sync technology, which brings Internet connectivity to new vehicles. Among other things, the new features will include iPhone-like apps for your dashboard . And in bold fashion, Mulally predicted that Ford will turn a strong profit in 2010, which will likely be fueled in part by its explosive growth in China, where sales soared 44 percent in 2009. In the past year, Ford’s stock has been on fire and has been one of the top performing stocks in the S&P 500 . Helped by smart — and timely — borrowing in 2006 , Ford has been able to stay afloat while its Detroit competitors have largely floundered. Mulally, who took the helm at Ford in 2006, has been adamant that his company won’t continue to make the mistakes that have long plagued American car companies. In the comments section below, suggest your questions for Ford CEO Allan Mulally. We’ll choose the best four to ask him on Monday.

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Video: Zhang Says China Auto Market Growth on `Tangible’ Demand: Video

December 28, 2009

Dec. 29 (Bloomberg) — Yale Zhang, a director at CSM Asia in Shanghai, talks with Bloomberg’s Caleb Goddard about the outlook for the auto industry in China. (Source: Bloomberg)

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Mark Horvath: An American Heartbreak: From Earning $90,000 each year to the Streets

December 22, 2009

From earning $90,000 each year to the streets, James is a story of American heartbreak. Working in the auto industry and as an electrician, James seemed to be living on top of the world. He accepted an early buyout, took the chance to go back to college, and graduated only to find no opportunities. Shelters and abandoned buildings became home to James until he connected with a band of local churches that opened their doors to him and provided him with a daily allowance of two bus passes. More recently, James has been provided with clothing, shelter and a checking account from a program. Fortunately, he finally is beginning to see light at the end of a dark tunnel. Asked what he would do if were granted three wishes, James humbly and perhaps surprisingly, acknowledges that he has everything he needs. Imagine how many more stories could end with hope and promise like James’ if we each devoted ourselves to truly solving the issue of homelessness. James from InvisiblePeople.tv on Vimeo . Special thanks to Solid Ground .

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Liddell’s `Catch-the-Wave’ Style May Presage Ascent to General Motors Helm

December 22, 2009

By Dina Bass, Keith Naughton and David Welch Dec. 22 (Bloomberg) — Chris Liddell ’s to-do list as General Motors Co. ’s chief financial officer includes repaying $6.9 billion in government debt and leading an initial public offering. He also may end up running the biggest U.S. automaker. “If he performs as advertised, he’s probably got a terrific shot at becoming the CEO,” said Joseph Phillippi , president of AutoTrends Consulting in Short Hills, New Jersey. Liddell, a newcomer to the auto industry from Microsoft Corp. , faces the challenge of resurrecting the finances of a company that lost $88 billion from 2004 until filing for bankruptcy reorganization on June 1. He will be tasked with taking public again the Detroit-based carmaker that is 61 percent owned by the U.S. As CFO at Microsoft from 2005 to last month, Liddell oversaw the world’s largest software company’s first debt offering this year as well as its first job cuts in January. He reduced travel costs by limiting employees flying business class, and he brought in capital expenditures at 23 percent less than budget in the most recent fiscal year. “Chris likes big, bold challenges,” said Bill Koefoed , Microsoft’s general manager of investor relations. “Chris isn’t about riding the wave, he’s about trying to catch the next wave.” He runs triathlons, has completed an Ironman and does yoga. A Ferrari driver, according to Koefoed, Liddell has an engineering degree from the University of Auckland and a Master’s in philosophy from Oxford University. Once a director of the New Zealand Rugby Union, Liddell, 51, brought a former captain of his homeland’s All Blacks rugby team to speak to finance executives and workers, said Koefoed, who worked for Liddell since the end of 2008. Before Microsoft Before joining Microsoft in 2005, Liddell was finance chief at International Paper Co. , the world’s largest paper maker. He was previously CEO at Carter Holt Harvey Ltd., a forestry company in New Zealand, and worked as an investment banker at Credit Suisse First Boston. That link with the finance industry may help Liddell when he needs to take GM public, Phillippi said. GM Chairman and CEO Ed Whitacre and the company’s board liked Liddell’s experience as finance chief at two large companies, one focused on industry and the other on consumers, according to a person familiar with the board’s deliberations. The directors also were attracted by his international background and his knowledge of GM’s worldwide operations, said the person, who asked not to be identified because the discussions were confidential. Board Impressed GM’s board and Whitacre started talking to Liddell in November, when the CFO search intensified. He met with several board members as GM pared down the list of candidates, the person said. Liddell wasn’t hired as a CEO-in-waiting and the search for a leader will continue, the person said. GM declined to comment beyond the company’s statement yesterday, said Chris Preuss , a spokesman. He didn’t respond to e-mails yesterday requesting interviews with Liddell and Whitacre, 68. Microsoft added 16 cents to $30.52 yesterday in Nasdaq Stock Market trading. The shares have jumped 57 percent this year. Hiring Liddell gives GM an opportunity to bring in “fresh blood without a whole lot of controversy,” said Rebecca Lindland , an analyst at IHS Global Insight in Lexington, Massachusetts. Liddell’s background as an engineer and executive at an industrial company will bring a fresh perspective, said Maryann Keller , senior adviser with consulting firm Casesa Shapiro Group LLC in New York. “It’s a different mindset,” Keller said. “He will understand about making things. He has the credentials to move the company in the right direction.” Market Share Whitacre has said GM must break its reliance on profit- killing rebates to buy U.S. market share. The automaker’s year- to-date U.S. share fell to 19.7 percent last month from 22 percent for the same period in 2008, even as incentives averaged $4,300 on each vehicle, according to researcher Edmunds.com. That’s $1,000 more than at Chrysler Group LLC. As finance chief at Memphis, Tennessee-based International Paper, Liddell was an architect of a plan to sell about a third of the company for $11 billion to focus on production of uncoated office paper and corrugated shipping containers, CEO John Faraci said. “Chris was an advocate about not being incremental about what we were going to do,” Faraci said yesterday in an interview. He has known Liddell since 1996, when he hired Liddell to be CFO of Carter Holt Harvey. “Chris is a play-to- win guy.” Outsider’s Eye Liddell was an outsider when he was hired by Microsoft, and he hired outsiders, too. In 2006, he recruited Frank Brod from Dow Chemical Co. to be chief accounting officer. What made that notable was Liddell’s decision to hire from beyond the technology industry, said Bruce Jaffe , who served as a vice president. “He is a very hard-charging guy who makes good decisions and is not afraid to change things and shake things up,” Jaffe said. “He was very much a proponent of relooking at the entire capital structure and making the company more capital efficient — there were no sacred cows for him.” In May, Liddell oversaw Microsoft’s $3.75 billion bond offering, after years of shareholder requests. Analysts and investors at the time credited him with helping executives such as CEO Steve Ballmer warm to the idea. The company earned the top AAA rating from Standard & Poor’s. ‘Articulate a Vision’ “The one thing he did was articulate a vision of where he wanted to go, and he was disciplined,” said Brent Thill , an analyst who follows Microsoft at UBS AG in San Francisco. “He understands how the street works and the importance of being approachable.” At Microsoft, Liddell helped turn the company around when software sales plummeted in the recession. Now Koefoed, who spoke to Liddell about the GM position, says he views his new job as attacking “arguably one of the biggest challenges that exist in North America.” “This is a huge opportunity to — in Chris’s words — reengineer the whole auto industry, make it successful and bring it back to life in North America,” he said. To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net ; Keith Naughton in Southfield, Michigan, at Knaughton3@bloomberg.net ; David Welch in Southfield, Michigan, at david_welch@businessweek.com

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General Motors Will Shut Sweden’s Saab After Sale Talks With Spyker Fail

December 18, 2009

By Katie Merx and Ola Kinnander Dec. 18 (Bloomberg) — General Motors Co. said it will shut the money-losing Saab unit after talks collapsed on a sale to Spyker Cars NV , the second failure in less than a month to keep the 72-year-old Swedish brand alive. GM and Skyker, a Dutch maker of $235,000 sports cars, faced “certain issues” that couldn’t be resolved, according to a GM statement today. Saab is expected to satisfy debts including supplier payments, and the unit will honor warranties and provide service and spare parts, GM said. Closing Saab caps more than a month of reshuffling of GM’s European operations. On Nov. 3, the Detroit-based automaker reversed plans to sell the Opel unit and opted to keep it, and Koenigsegg Group AB backed out of a Saab purchase agreement three weeks later, creating an opening for Spyker. “If you were a gambling man, you would have bet this deal would not close because none of the other deals have closed,” said Mike Tyndall , an analyst with Nomura Securities in London. GM Chairman and Chief Executive Officer Ed Whitacre said Dec. 15 that the Trollhaettan, Sweden-based unit would be shut unless he had a sales accord by month’s end. “We were so incredibly close,” Spyker CEO Victor Muller said in a text message to Bloomberg News. “I have no words.” Spyker fell 33 cents, or 15 percent, to 1.86 euros at 3:59 p.m. on the Amsterdam exchange. The shares touched 1.62 euros earlier for the biggest intraday decline since Sept. 30, 2008. ‘Complex Transaction’ “Despite the best efforts of all involved, it has become very clear that the due diligence required to complete this complex transaction could not be executed in a reasonable time,” GM Europe President Nick Reilly said in the statement. “In order to maintain operations, Saab needed a quick resolution.” Saab’s closing will be “an orderly winddown,” he said, and “not a bankruptcy or forced liquidation process.” An agreement announced last week for the sale of Saab powertrain technology and tooling to Beijing Automotive Industry Holdings Co. shouldn’t be affected by the shutdown plan, GM said. Whitacre told reporters in Detroit this week that Spyker was the last bidder for Saab, which traces its roots to aircraft company Svenska Aeroplan AB, founded in 1937 to secure production of Swedish warplanes. The first car left the factory a decade later. Sales, Jobs GM bought half of Saab in 1990 and took full ownership in 2000. U.S. sales of Saab models tumbled 61 percent through this year’s first 11 months, and the biggest U.S. automaker identified the brand as one of four — along with Saturn, Pontiac and Hummer — it would shed to streamline operations. Saab employs about 3,500 workers at its Trollhaettan plant, and its closing puts thousands more jobs in the region and among auto suppliers in Sweden at risk. The Swedish government found out early today that the Saab deal collapsed and doesn’t know why, Industry Ministry spokesman Haakan Lind said in a phone interview. Industry Minister Maud Olofsson and State Secretary Joeran Haegglund, the government’s main liaison to the auto industry, visited Saab’s headquarters and plan a press conference at 4 p.m. local time, Lind said. Spyker emerged as the front-runner to buy Saab this month. Spyker used Koenigsegg’s business plan in its bid, Muller said yesterday. GM is focusing on the Chevrolet, Cadillac, GMC and Buick brands in the U.S. Saturn is being wound down after a planned sale to Penske Automotive Group Inc. fell through in September. GM has agreed to sell Hummer to China’s Sichuan Tengzhong Heavy Industrial Machinery Co., pending regulatory approval. To contact the reporters on this story: Katie Merx in Southfield, Michigan, at kmerx@bloomberg.net Ola Kinnander in Stockholm at okinnander@bloomberg.net .

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Geithner Says Treasury Faces Long-Term Losses From Insurer AIG, Automakers

December 10, 2009

By Rebecca Christie and Robert Schmidt Dec. 10 (Bloomberg) — Treasury Secretary Timothy Geithner said today the government is unlikely to recoup its investments in insurer American International Group Inc. or the automakers General Motors Co. and Chrysler Group LLC. Geithner also said he chose to extend the $700 billion Troubled Asset Relief Program to give the Obama administration more time to unwind its bank-rescue efforts. The economy still faces “significant headwinds,” and housing markets remain dependent on government support even as they are stabilizing, he said. U.S. financial and economic conditions have improved, Geithner said in prepared testimony for the Congressional Oversight Panel. The Treasury now expects to make money on its banking investments, if not on its efforts to stabilize the automobile and insurance industries. “There is a significant likelihood we will not be repaid from our investments in AIG, GM and Chrysler,” Geithner said. The Government Accountability Office yesterday said that U.S. taxpayers will lose $30.4 billion from the auto-industry bailout, down from a prior estimate of $43.7 billion. The GAO report predicted a similar loss of $30.4 billion in AIG, down from a previous estimate of $31.5 billion. To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net

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Americans Want Government to Spend for Jobs, Send Bill to Rich, Poll Shows

December 9, 2009

By Mike Dorning and Catherine Dodge Dec. 10 (Bloomberg) — Americans want their government to create jobs through spending on public works, investments in alternative energy or skills training for the jobless. They also want the deficit to come down. And most are ready to hand the bill to the wealthy. A Bloomberg National Poll conducted Dec. 3-7 shows two- thirds of Americans favor taxing the rich to reduce the deficit. Even though almost 9 of 10 respondents also say they believe the middle class will have to make financial sacrifices to achieve that goal, only a little more than one-fourth support an increase in taxes on the middle class. Fewer still back cuts in entitlement programs such as Social Security and Medicare or a new national consumption tax. These long-standing contradictions in voters’ attitudes toward taxes, spending and the deficit are intensified as the U.S. grapples with the most severe economic crisis in decades, says J. Ann Selzer , president of Selzer & Co. , a Des Moines, Iowa-based firm that conducted the nationwide survey. The rich have become an especially inviting target as the combination of a bank bailout and big bonuses stoke resentments, she says. “People are hurting,” Selzer says. “They want anything that can help and not hurt them more.” “It’s hard enough just to get by,” says poll respondent Trevor Wofsey, 32, a postal carrier in Big Pine Key, Florida. “We’re being cut at every level: There are less hours at work and they want us to pay more into medical. Food is up, gas is up .” Obama Jobs Initiative The findings are in tune with the job-promotion initiatives President Barack Obama announced Dec. 8, as well as the administration’s assurances it will address the deficit, and proposals from some Democratic lawmakers to raise taxes on the wealthy. The difficulty of reconciling public demands for government action on jobs while at the same time reducing the deficit is shaping up as a major political theme ahead of the 2010 midterm elections. Obama and Democrats in Congress confront an unemployment rate that was 10 percent for November and a deficit that is forecast to be more than $1 trillion over each of the next two years. While the public sees both unemployment and the deficit as a threat, anxiety over unemployment is higher. Eight out of 10 poll respondents rate unemployment a high risk to the economy in the next two years and 7 of 10 say the same about the deficit. Infrastructure Spending The poll contains some of the features Obama announced in his jobs plan. Two-thirds of Americans back boosting spending on infrastructure. Six of 10 also support more spending on alternative energy to stimulate job growth, another measure Obama announced. “The best thing we could do is take some public money to rebuild our infrastructure and improve it,” says poll respondent Richard Kellaway, 75, a Unitarian Universalist minister who lives in Dorchester, Massachusetts. Unemployed people “could be put to work in a matter of days.” Americans support a range of other potential new government initiatives presented as employment programs, with ideas from both parties backed by wide majorities. An across-the-board tax cut, a favorite of some Republicans, also is supported by 6 of 10 Americans. A tax credit for businesses that hire new workers, which Obama favored as a presidential candidate and this week proposed in a limited form available only to small firms, gains backing from 7 of 10 Americans. Skeptical About Results Americans support the proposals even as they express doubts the federal government will help cut joblessness. A 51 percent majority say they are pessimistic about the prospects. When it comes to the deficit, they are more distrustful: 61 percent say they are pessimistic the government will bring down the budget shortfall. Nearly 9 out of 10 Americans say the middle class will have to make sacrifices to cut the deficit. That doesn’t mean that they are ready to embrace the idea. “With the middle class making more sacrifices than they are already making because of what the government ran up, it’s going to eventually leave the middle class at the bottom,” says poll respondent Laisha Wright, 25, an unemployed resident of Columbus, Ohio. The wealthy would be better able to bear the burden of more taxes, she says. “I don’t think it would be a big issue for them.” Across Party Lines The appeal of taxes on the wealthy crosses party lines. About half of Republicans back the idea and it is more popular among Democrats and independents. House Democrats have proposed surtaxes on the wealthy to pay for the health-care overhaul and the decision to send an additional 30,000 troops to Afghanistan Obama announced last week. Obama made tax increases on the wealthy a theme of his presidential campaign, promising to roll back the Bush administration’s tax cuts for families that earn more than $250,000. White House Budget Director Peter Orszag has promised to produce a budget that will cut the long-term federal deficit, and Senate Budget Committee Chairman Kent Conrad , a Democrat from North Dakota, is pressing for a bipartisan commission on deficit reduction. The poll shows that an across-the-board 5 percent cut of all discretionary government spending also attracts support as a deficit-reduction measure, with 57 percent saying they would back it. Majorities of poll respondents also say some big government programs either are not justified or could be cut. They included the $700 billion rescue of the nation’s banking system, the auto industry bailout, Iraq War funding, the $787 billion economic stimulus package and funding for the Afghanistan War. Cuts in funding for the Medicare prescription drug program would be resisted by 71 percent. To see methodology and exact question wording, click on the attachment tab at the top of the story. To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net ; Catherine Dodge in Washington at cdodge1@bloomberg.net

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Pension Funds Eliminating Equities to Add $40 Billion of Corporate Bonds

December 3, 2009

By Bryan Keogh and John Detrixhe Dec. 3 (Bloomberg) — J.C. Penney Co. , the third-largest U.S. department-store chain, is dumping stocks from its retirement plans and gradually boosting bonds to 100 percent of investments from 20 percent as federal requirements to plug pension gaps take effect. The Plano, Texas-based retailer promised to “eliminate” uncertainty for shareholders caused by underfunded pensions, and will shift some of the money into investment-grade bonds, increasing fixed-income assets to the highest level in the plan’s history, J.C. Penney spokeswoman Darcie Brossart said. J.C. Penney has plenty of company. General Motors Co. and Goodrich Corp. have also been buying debt as the U.S. pushes retirement pools to cut riskier assets after losses jeopardized some funds. JPMorgan Chase & Co. says fixed-income holdings will rise 10 percent in the next few years, or about $40 billion of corporate debt. The new money is flowing into investment-grade bonds, which may be overheating after returning 21 percent this year, according to Cabot Money Management. “We’re seeing more plans leaning toward corporate bonds than has been the case historically,” said Mark Ruloff , the director of asset allocation at Arlington, Virginia-based consulting firm Watson Wyatt Worldwide Inc., which surveyed funds in August on their strategies. “It’s adding a new slate of buyers that weren’t in the market before.” Pension funds are increasing allocations of investment- grade debt to the highest level since the 1970s, when federal rules created a “bias” toward equities, as the U.S. mandates that plans set targets to fully fund worker obligations, Ruloff said. Competing for Debt Demand from retirement plans is competing with mutual funds and public pensions for corporate debt, even as prices may not be justified by the economic outlook or profits, said William Larkin , who oversees $500 million at Cabot Money Management. Investment-grade bonds have returned 21 percent this year, including reinvested interest, the most for a comparable period since 1985, according to Merrill Lynch & Co. index data. Cash flowing into the market has allowed companies to borrow a record $1.18 trillion this year, Bloomberg data show. Investment-grade securities are rated at least Baa3 at Moody’s Investors Service and BBB- by Standard & Poor’s. “I’m seeing a lot of ugly issuers out there,” said Larkin, a Salem, Massachusetts-based money manager. “Someone’s buying them, and they’re very, very expensive.” Auto, Airline Losses Congress passed the Pension Protection Act of 2006 after losses in the auto and airline industries threatened to saddle the government-run Pension Benefit Guaranty Corp. with “significant” liabilities, according to JPMorgan. Companies in the S&P 500 Index had about $1.1 trillion of assets in their pensions at the end of 2008, compared with $1.4 trillion of liabilities, according to JPMorgan. After last year’s 38 percent plunge in the S&P 500 Index, the worst since 1937, the plans were underfunded by about 22 percent. The Pension Protection Act of 2006 encourages managers to shift to corporate bonds in two ways. The act discounts liabilities based on high-rated investment-grade debt, providing an incentive to put assets in similar investments. The rules also require plans to ensure they are fully funded, providing benchmarks and penalties along the way and requiring plans be frozen if the assets fall below 60 percent of the value of future liabilities. ‘Game Changer’ For J.C. Penney, with about 150,000 participants in its primary pension plan, the rules are a “game changer,” Chief Financial Officer Robert Cavanaugh told analysts and investors on a June 18 conference call. “At the end of the day, it’s real easy,” he said. “Do you have enough cash to protect your associates’ retirement?” Corporate plans traditionally allocated about 60 percent of their assets to equities, 30 percent to fixed-income securities and 10 percent to alternatives such as private equity and real estate, said Joseph Rosalie, principal in the human capital practice at Deloitte Consulting LLP in New York. J.C. Penney is aiming for a 75 percent fixed-income allocation by 2014 to 2017, depending on how quickly the stock market recovers from the recession , according to the company. In June, the fund allocated 70 percent of its assets to equities, 20 percent to fixed-income and 10 percent to real estate. High-quality corporate bonds will make up an increasing share of the fixed-income portfolio over time and currently make up a “meaningful component,” Brossart said in an e-mail. “J.C. Penney is taking it to an extreme,” Rosalie said. ‘Blackjack Table’ With the S&P 500 up 23 percent this year, corporate pension funds may resist switching, said Rosalie, who expects allocations to be split evenly between equities and bonds in coming years. “When do you get off the blackjack table?” he said. “How do I walk away from equities when I know the market’s got to return?” Pensions were lured to the corporate market earlier this year after yields rose to the highest on record relative to Treasuries, said Michael Schlachter , who advises retirement funds as a managing director at Santa Monica, California-based Wilshire Associates Inc. After widening to 6.03 percentage points in January, so- called spreads have narrowed to 2.19 percentage points, about the lowest since January 2008, according to Merrill Lynch index data. The market’s 21 percent return this year compares with losses of 6.82 percent in all of 2008, the worst on record. ‘Extreme Market Conditions’ “It was a shift born solely of extreme market conditions,” Schlachter said. “Corporate spreads have not been super compelling like they have been over the past six to nine months.” Goodrich , the largest maker of aircraft landing gear, began shifting to investment-grade bonds from Treasuries earlier this year, Chief Financial Officer Scott Kuechle told analysts on Nov. 7. Goodrich’s U.S. plan was underfunded by 29 percent as of last Dec. 31, with about $2.4 billion of assets covering $3.4 billion of expected liabilities. “That was pretty well-timed in the beginning of this year,” he said. The Pension Benefit Guaranty Corp. , which takes over failed private funds, insuring the plans of more than 44 million Americans, is moving away from equities, according to spokesman Jeffrey Speicher. As of Sept. 30, the PBGC, which isn’t covered by the Pension Protection Act, allocated 60 percent of its about $70 billion in assets to cash and fixed-income securities and 37 percent to equities. GM’s asset management unit began employing a liability- driven investment approach in 2003 and moved about 20 percent of its U.S. fund’s assets to fixed income from equities in late 2006, limiting losses from last year’s market plunge, Julie Gibson, a spokeswoman for GM, said in an e-mail. “This reallocation served us well last year, when the pension lost around 11 percent, much less than a lot of firms with greater equities exposure,” she said. To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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New Jobless Claims Fall For The Fifth Straight Week, Claims Hit 457K

December 3, 2009

WASHINGTON — The tally of newly laid-off workers seeking unemployment benefits fell unexpectedly for the fifth straight week, a hopeful sign that the job market is slowly improving. Still, claims remain above the levels that most analysts say would be consistent with an economy that is adding jobs. The unemployment rate is at 10.2 percent and expected to keep climbing into next year. First-time claims for unemployment insurance dropped by 5,000 to a seasonally adjusted 457,000, the lowest total since the week of Sept. 6, 2008, the Labor Department said Thursday. Wall Street economists expected an increase, according to a survey by Thomson Reuters. The ongoing decline in claims signals that employers could start adding jobs by as early as January or February, economists said. The nation’s economy has shed jobs for 22 straight months, the longest stretch since World War II. “The surprise further drop in jobless claims … is a very encouraging sign that the U.S. economy may be closer to the point of net job creation than we had thought,” John Ryding, an economist at RDQ Economics, wrote in a research note. Many economists say that claims need to fall to about 425,000 for at least a month to indicate that employers are hiring more people than they are firing. The department’s employment report for November, to be released Friday, is expected to show that employers shed another 130,000 jobs after cutting 190,000 in October. Economists forecast the unemployment rate will remain at 10.2 percent. A Labor Department analyst said the closing of state unemployment offices for last week’s Thanksgiving holiday was responsible for some of the decline. Economists closely watch initial claims, which are considered a gauge of layoffs and a sign of whether companies are willing to hire. The four-week average of claims, which smooths out fluctuations, dropped for the 13th straight week to 481,250, about 180,000 below the peak for this recession, reached this spring. But the Federal Reserve said in a report Wednesday that employers in most regions are reluctant to hire new workers, even as the economy stages a modest recovery. Meanwhile, the number of people claiming unemployment benefits for more than a week rose by 28,000 to 5.5 million, the department said. Analysts had expected a decline. That total doesn’t include millions of unemployed Americans that are receiving benefits under extended programs paid for by the federal government. About 4.5 million people were receiving extended benefits in the week ended Nov. 14, the latest data available. That’s an increase of about 300,000 from the previous week. The jump is a result of Congress adding another 14 to 20 weeks of extra benefits last month, the fourth extension since the recession began and the longest total extension on record. That boosted the total number of weeks a person could collect unemployment to as much as 99 in the hardest-hit states. Layoffs continued this week. Gannett Co. said it was cutting 26 newsroom jobs at its flagship USA Today newspaper and eliminating 11 positions at USA Weekend magazine. Another media company, the Greenspun Media Group, which publishes the Las Vegas Sun, announced it was reorganizing its operations in a cost-cutting move and would lay off an unspecified number of workers. Among the states, California had the largest increase in claims, with nearly 15,000, which it attributed to layoffs in the service industry. Illinois, North Carolina, Pennsylvania and Texas had the next largest increases. The state data lag initial claims by one week. The largest decrease in claims was in Michigan, with a drop of 1,242, which it attributed to fewer layoffs in the auto industry. Indiana, Hawaii, Oregon and the Virgin Islands also reported declines.

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Tesla $128,500 Electric Car Drives Like Go-Cart on Meth: Jason H. Harper

December 3, 2009

Review by Jason H. Harper Dec. 3 (Bloomberg) — I get excited about exciting cars. There’s a nervous-expectant, first-date vibe when driving an auto that I’ve heard lots about and hope to really like. The Tesla Roadster is one of those. The first all-electric sports car, it’s sexy and screamingly fast — no wonder the hype has spun far outside the sphere of the auto world. Throw in a hyperbolic chief executive officer , several lawsuits, delivery delays, a test drive by Arnold Schwarzenegger , a glowing profile in the New Yorker, and a $465 million loan from the U.S. Department of Energy and those expectations balloon to the size of a zeppelin . On a recent morning in New York City I crawl inside the Roadster to finally learn the truth. Will it be worth the fuss? In 2006, a collection of Silicon Valley investors announced the development of an electric car based partly on the super- light Lotus Elise . By September 2009, Tesla Motors Inc. had delivered 700 cars, most at a cost of $109,000, not including a $7,500 federal tax credit. I’m testing the first derivative, the new $128,500 Roadster Sport, which has 40 more horsepower, increased peak torque and special suspension. An air-cooled electric motor makes 288 horsepower and 295 pound-feet of torque. With a top speed of 125 mph, it’ll travel from 0 to 60 in a hot-to-trot 3.7 seconds. The Environmental Protection Agency’s stated range for the car is 244 miles on a full charge. Road Range Of course claims and reality can go off on different paths like Cain and Abel. The Tesla puts out no pollution and will rumble with Porsches off the line, but unlike a second- generation Prius, there are compromises. Range on my test drive is disappointing. At a full charge of the lithium-ion batteries, the car’s digital monitor gives me an expected range of 203 miles, and then begins downgrading that number more quickly than stock in a newspaper conglomerate. After two consecutive round trips out of Manhattan, I have to cut short my itinerary and limp home in decreased-power mode, even though I’ve never put the Roadster in “performance” setting. (“Standard” and “range” are the other drive options.) My mileage is less than 140 — more than 100 off the EPA rating. That said, I’m trying to drive the sucker’s wheels off. I also know the readout is not accounting for an extra 10 percent battery reserve. Still, the idea of getting stuck on the George Washington Bridge in the rain, grimly holding a mobile phone to my ear is plenty dissuading. Human Origami This is still a car for super-cool early adopters. The Roadster, which has a soft manual top that tucks into the trunk, looks like a Lotus Elise with strands of misplaced DNA. Tesla says only 6 percent are Lotus parts, but its dimensions are similar — by which I mean tiny. Harley-Davidsons will tower over you, cab drivers will pretend you’re not there, and clambering inside is an exercise in human origami. The size and lightness means it drives like a go-cart on meth and handles on rails of air, sacrificing only a bit of the Lotus’s ideal weight distribution by dint of the heavy batteries. What utterly separates it from a regular sports-car experience is laying onto the accelerator and having the landscape scrape by into shards of color, accompanied by no engine noise at all. I love a good engine note and eventually miss it, but I leave the stereo off, enjoying the hums and fan noise from this iPod on flying wheels. The Tesla is stupidly, mouthwateringly fast. Unlike conventional engines, electric motors lend their full torque from zero revolutions per minute, so the get-go is ready from the get-go. The surge of power feels relentless, and I don’t run out of torque until almost 100 mph. Carnival Ride The sensation leaves passengers grasping for apt comparisons. Like a super-fast bumper car, says one; carnival ride, proclaims another; jet plane, mutters a third. From the outside, the effect is even more odd — a sport car in stealth mode. On the freeway I pull alongside a Porsche Carrera 4S and give him a look. He just looks away. Damn. All new models have an upgraded interior, but my test model has an incredible $10,800 of options, including fine carbon- fiber weave and hand-stitched leather that sucks up gracefully around the instrument cluster. No wonder the final price comes to a staggering $145,650. It gets a new touch-screen on the center column which reads measurements like range, pound feet of torque, how aggressively the car has been driven recently (as measured by a base line), how many kilowatts have been used, and the projection of how many barrels of oil have been saved. Five Buttons The only other controls are five glowing buttons — park, drive, reverse, neutral and traction control. Beautiful, geeky simplicity. At the end of my day I power the car off at its home garage and crawl out, thinking only this: I want more. Lots more. If this is the future, it seems pretty good indeed. Say what you will of the controversies and loud media attention, Tesla did it and did it first. Nobody can take that away from them. And that’s very much worth all the fuss. The 2010 Tesla Roadster Sport at a Glance Engine: 375-volt electric motor with 288 horsepower and 295 pound-feet of torque. Transmission: Single-speed fixed gear. Speed: 0 to 60 mph in 3.7 seconds. Range: 244 miles in mixed driving, though real-world results will vary. Price as tested: $145,650 (not including available $7,500 federal tax credit). Best features: Supercar-class performance, no tailpipe pollution. Worst features: Range anxiety, scant elbow room. Target buyer: The hip early adopter who wants Porsche performance sans emissions. ( Jason H. Harper writes about autos for Bloomberg News. The opinions expressed are his own.) To contact the writer of this column: Jason H. Harper at Jason@JasonHharper.com .

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Whitacre Said to Tell GM Employees Search for Chief May Take Up to a Year

December 2, 2009

By Jeff Green, Katie Merx and David Welch Dec. 2 (Bloomberg) — General Motors Co. Chairman Ed Whitacre said he was in a hurry. When he took over the chief executive officer job from Fritz Henderson yesterday, he showed just how urgent he is to fix the automaker. Whitacre, 68, who as chief of AT&T Inc. assembled the world’s largest telecom company, accepted Henderson’s resignation at a board meeting in Detroit. Whitacre, appointed by the Obama Administration’s automotive task force in July, will assume daily executive duties until a permanent replacement is found, he said at a press conference. “We need to hurry every chance we get,” Whitacre said Nov. 10 in an interview from his office in San Antonio. “This is about a turnaround, this is not business as usual. This is about a new GM, a new way of doing business.” The 6-foot, 4-inch Texas Tech University alum known as “Big Ed” has taken a hands-on approach from the start. In August, Whitacre’s board accelerated the schedule for unveiling some new models and made “tweaks and changes to the business plan,” he told reporters during a conference call. “Ed can be very, very tough with people who refuse to make decisions,” said Jim Kahan , a former AT&T senior executive, in a July interview. “This is an action-oriented guy. If you want to just study things and stick with the status quo, it’s not going to be a good match.” In meetings with GM’s executive leadership, Whitacre regularly stops formal power point presentations to ask questions of executives, he said in an interview. He also said he has delivered specific direction to those executives. ‘Hardly Shocked’ “When he became chairman of GM I knew there was no way in hell he was going to be a hands-off exec,” said Jack Grubman , a former telecom analyst with Salomon Smith Barney Inc. who knows Whitacre well. “I have not paid attention to the happenings at GM but am hardly shocked that Ed exerted his will.” Whitacre suggested to Mark Reuss , vice president of GM global engineering, that he and his top executives call every customer who initiates the return of a GM vehicle through the automaker’s 60-day money-back guarantee program. Starting in November, the executives have been charged with interviewing the customers to see why they returned the vehicle and what they purchased instead, Reuss told reporters last month. Whitacre has convened sessions that include employees at different levels of GM, even rank-and-file staffers, since he joined the company in July. At these so-called diagonal-slice meetings he has offered stern warnings that Henderson and other top executives would be fired if they weren’t getting the job done, people familiar with the discussions said. Told Dealers In August before the first board meeting, Whitacre told GM’s 15-member national dealer council, in a dinner with Henderson and other GM executives, that if they didn’t perform, the board would find someone who can, say three dealers who were at the gathering. “He’s a full-on Texan,” Chris Larsen , analyst at Piper Jaffray & Co. in New York, who also covered AT&T when Whitacre was in office. “He’s a hard-charging, tell-it-like-it is, southern drawl, kind of straight forward guy.” In an interview in July, Whitacre likened his challenge at GM to his task at AT&T. “We bought AT&T and took their name and remade it. That’s some of the same scale we’re trying to do here,” he said. “Good numbers make a lot of this go away.” He joined AT&T Corp.’s Southwestern Bell in 1964. He became CEO of AT&T Inc. ’s predecessor, SBC Communications Inc., in 1990, after the so-called Baby Bells had been spun off. By the time he retired in 2007, he had spent almost $200 billion on acquisitions. Search Begins “You’re talking about a man who knows how to run a very complicated business,” said Larsen. “He understands how Washington works and understands how to get both large, unionized, massive organizations and Washington to work together for the common shareholder.” The search for a new CEO “begins immediately,” Whitacre said in a statement released by GM after yesterday’s board meeting. The Detroit-based company had not started a CEO search prior to yesterday’s meeting, said one person briefed on the effort. Whitacre didn’t return calls for comment. “GM needs bold,” said an executive recruiter who follows the auto industry. “It needs someone like Alan Mulally , who said, ‘We’re focusing on the Blue Oval and the heck with all that other stuff.’” To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; Katie Merx in Los Angeles at kmerx@bloomberg.net ; David Welch in Southfield, Michigan, at david_welch@businessweek.com .

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Whitacre Wrests Control of GM From Henderson in `Hurry’ to Repair Carmaker

December 2, 2009

By Jeff Green, Katie Merx and David Welch Dec. 2 (Bloomberg) — General Motors Co. Chairman Ed Whitacre said he was in a hurry. When he took over the chief executive officer job from Fritz Henderson yesterday, he showed just how urgent he is to fix the automaker. Whitacre, 68, who as chief of AT&T Inc. assembled the world’s largest telecom company, accepted Henderson’s resignation at a board meeting in Detroit. Whitacre, appointed by the Obama Administration’s automotive task force in July, will assume daily executive duties until a permanent replacement is found, he said at a press conference. “We need to hurry every chance we get,” Whitacre said Nov. 10 in an interview from his office in San Antonio. “This is about a turnaround, this is not business as usual. This is about a new GM, a new way of doing business.” The 6-foot, 4-inch Texas Tech University alum known as “Big Ed” has taken a hands-on approach from the start. In August, Whitacre’s board accelerated the schedule for unveiling some new models and made “tweaks and changes to the business plan,” he told reporters during a conference call. “Ed can be very, very tough with people who refuse to make decisions,” said Jim Kahan , a former AT&T senior executive, in a July interview. “This is an action-oriented guy. If you want to just study things and stick with the status quo, it’s not going to be a good match.” In meetings with GM’s executive leadership, Whitacre regularly stops formal power point presentations to ask questions of executives, he said in an interview. He also said he has delivered specific direction to those executives. ‘Hardly Shocked’ “When he became chairman of GM I knew there was no way in hell he was going to be a hands-off exec,” said Jack Grubman , a former telecom analyst with Salomon Smith Barney Inc. who knows Whitacre well. “I have not paid attention to the happenings at GM but am hardly shocked that Ed exerted his will.” Whitacre suggested to Mark Reuss , vice president of GM global engineering, that he and his top executives call every customer who initiates the return of a GM vehicle through the automaker’s 60-day money-back guarantee program. Starting in November, the executives have been charged with interviewing the customers to see why they returned the vehicle and what they purchased instead, Reuss told reporters last month. Whitacre has convened sessions that include employees at different levels of GM, even rank-and-file staffers, since he joined the company in July. At these so-called diagonal-slice meetings he has offered stern warnings that Henderson and other top executives would be fired if they weren’t getting the job done, people familiar with the discussions said. Told Dealers In August before the first board meeting, Whitacre told GM’s 15-member national dealer council, in a dinner with Henderson and other GM executives, that if they didn’t perform, the board would find someone who can, say three dealers who were at the gathering. “He’s a full-on Texan,” Chris Larsen , analyst at Piper Jaffray & Co. in New York, who also covered AT&T when Whitacre was in office. “He’s a hard-charging, tell-it-like-it is, southern drawl, kind of straight forward guy.” In an interview in July, Whitacre likened his challenge at GM to his task at AT&T. “We bought AT&T and took their name and remade it. That’s some of the same scale we’re trying to do here,” he said. “Good numbers make a lot of this go away.” He joined AT&T Corp.’s Southwestern Bell in 1964. He became CEO of AT&T Inc. ’s predecessor, SBC Communications Inc., in 1990, after the so-called Baby Bells had been spun off. By the time he retired in 2007, he had spent almost $200 billion on acquisitions. Search Begins “You’re talking about a man who knows how to run a very complicated business,” said Larsen. “He understands how Washington works and understands how to get both large, unionized, massive organizations and Washington to work together for the common shareholder.” The search for a new CEO “begins immediately,” Whitacre said in a statement released by GM after yesterday’s board meeting. The Detroit-based company had not started a CEO search prior to yesterday’s meeting, said one person briefed on the effort. Whitacre didn’t return calls for comment. “GM needs bold,” said an executive recruiter who follows the auto industry. “It needs someone like Alan Mulally , who said, ‘We’re focusing on the Blue Oval and the heck with all that other stuff.’” To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; Katie Merx in Los Angeles at kmerx@bloomberg.net ; David Welch in Southfield, Michigan, at david_welch@businessweek.com .

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GM’s Henderson Resigns From Helm of Automaker; Whitacre Is Interim Chief

December 1, 2009

By Jeff Green Dec. 1 (Bloomberg) — General Motors Co. Chief Executive Officer Fritz Henderson is stepping down after eight months on the job, and Chairman Ed Whitacre is taking over on an interim basis. A search for a permanent successor to Henderson “begins immediately,” Whitacre said in a statement released by GM. Directors accepted Henderson’s resignation today at a meeting in Detroit, Whitacre said. Henderson’s tenure at the helm of the biggest U.S. automaker spanned GM’s slide into bankruptcy on June 1 and exit on July 10, backed by $50 billion in federal assistance. Henderson, 51, became CEO in March when President Barack Obama ’s auto task force asked Rick Wagoner to step aside. “They’re looking to rebuild the company in a completely different form,” Maryann Keller , president of consultant Maryann Keller & Associates, told Bloomberg Television. “They’re looking to bring in someone who has a completely different perspective.” Whitacre, 68, the former chairman and CEO of AT&T Inc., was selected by the auto task force to run a revamped board when Detroit-based GM left Chapter 11 with the government as the majority owner. Today’s personnel decisions were made by the board, not the administration, a U.S. official said. At Headquarters With his new duties, Whitacre said he will be working at GM’s Renaissance Center headquarters in Detroit on a “daily basis.” GM formed a search committee to recruit a new CEO, said Chris Preuss , a company spokesman. The automaker notified U.S. officials about Whitacre’s ascent and Henderson’s departure, Preuss said. Henderson “has done a remarkable job leading the company through a time of challenge, and momentum has been building over the past several months, but we all agreed changes needed to be made,” Whitacre told reporters. He didn’t take questions or elaborate on the executive shake-up. Vice Chairman Robert Lutz will speak at the Los Angeles Auto Show tomorrow in place of Henderson, Preuss told reporters in Detroit. To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net ; Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net

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Detroit Needs Housing Rebound To Spur Pickup Sales

November 29, 2009

DETROIT — At Kevin Haner’s construction company in Las Vegas, three of the four Dodge Ram pickup trucks are starting to get a little old. He may replace one if he gets a great deal, but he’ll keep running the others until he’s convinced that the housing slump has ended. Haner’s reluctance to spend is typical of contractors nationwide. This presents a huge problem for the Detroit automakers because truck sales are directly tied to new home construction. Pickup sales are on pace for their worst performance in 17 years, and GM, Chrysler and Ford still sell 91 percent of all full-size pickups in the U.S. Even as Detroit tries to gain traction with new small cars and electric vehicles in a government-mandated shift toward greater fuel economy, it needs to sell more Rams, Chevrolet Silverados and Ford F-150s. Pickups often sell for $30,000 or more and typically command higher prices and generate more profits than small and midsize cars. They account for 22 percent of sales for the Detroit Three. Until pickup sales rebound, steady profits and solid financial footing will likely prove hard to come by. Haner and others have reason to be cautious. While October new home sales were up 6.2 percent over September, construction of homes and apartments fell a larger-than-expected 10.6 percent, and building permits, a key indicator of future construction, slid 4 percent. “I’m not inclined to take on any more exposure until I see that the building-housing market is thoroughly back out of recession,” Haner said Wednesday after the Commerce Department released the latest reading on new home sales. “Right now, construction companies are going out of business,” said Erich Merkle, president of the auto industry consulting firm autoconomy.com in Grand Rapids, Mich. “And those companies that are surviving are making do with the existing fleet.” The housing slump has pushed U.S. pickup sales downward for the past three years. Sales routinely topped 200,000 per month as recently as 2007, but in February they fell to less than 89,000, the low point for the year. They’re off 32 percent from the first 10 months of 2008, according to Ward’s AutoInfoBank. Ford, Chrysler and GM combined to sell 843,000 pickups through October. In Las Vegas, once among the hottest housing markets in the nation, building declined rapidly in the recession and is just starting to show signs of recovery, Haner said. His work force surged to 25 during the boom years earlier this decade, but now its down to six. He paid off three of his trucks in 2007 while business was still good, and he’s maintained them so they’ll last. With the casual truck buyer all but out of the market, automakers have been offering big incentives such as zero percent financing to entice contractors out of their bunkers. But like Haner, most are not budging because of uncertainty about a housing recovery. The big drop in October home construction numbers brought fears of a double-dip recession in the industry and warnings that 2010 may still be sluggish for the sector. Yet inventory in October dropped to the lowest level in nearly four decades, leading at least one housing industry analyst to predict that builders will be swinging their hammers soon. Mike DiGiovanni, General Motors’ top sales analyst, said the automaker still projects an upward trend in new housing into the fourth quarter of next year. Pickup sales are particularly critical to GM. The Chevy Silverado is by far the company’s top-selling vehicle. Even in the recession, GM sold 261,142 Silverados through October, but that’s 35 percent fewer than in 2008. DiGiovanni believes a recent stabilization in home prices, after months of declines, indicate the industry is starting a comeback. Markets like Las Vegas have seen prices drop for 12 straight months. But prices have risen for at least six consecutive months in Denver, Washington D.C. and Chicago, according to the Standard & Poor’s/Case-Shiller index of 20 major cities. Nationally, the median price of a new home was $212,200 in October, almost even with $213,200 a year earlier, but up almost 1 percent from September’s level of $210,700. “We do think that as we move into next year, residential investment is going to become a small positive for the economy,” DiGiovanni said. Merkle predicts that housing, and pickup sales, will lag behind the rest of the economy in recovering but still show small improvements next year. But it may take until late next year before contractors like Haner feel safe enough to buy new pickups. Haner may replace his own Ram pickup because his dealer is offering zero-percent financing. But he plans to run the three company pickups, one of which is nearly six years old, for 250,000 miles or more. A 2004 model has only about 60,000 miles on it, he said. Haner, who builds custom homes and does renovations and other work, has lived in the west for 35 years. He’s seen many boom-and-bust cycles in the real estate business, and he’s sure the Las Vegas market will rebound. But when asked what it would take for him to replace his trucks sooner, Haner said: “A hell of a lot more work than we’ve got right now.”

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