Three-headed dog from hell preying on Chrysler, GMAC, lease biz
There's no way this panicked flight from leases -- Chrysler first, then JP Morgan Chase, then GMAC and then Ford Motor Credit -- signals anything but worse times ahead for the Auburn Hills ward of Cerberus Capital Management and, potentially, would-be buyers of General Motors and Ford pickups.
There's also no way, or not much of one, that Chrysler, GM and Ford dealers will effectively persuade lease-leaning customers to pay a bigger chunk of their monthly cash flow for trucks that will depreciate just as fast in their drive ways as they would on finance company books. If it's painful for Chrysler Financial, Chase, GMAC and Ford Credit to take the hit, why wouldn't it be for Joe Sixpack? Answer: It would.
Gas north of $4-a-gallon, even though it's eased back in recent days, is the gift that keeps on giving. Slackening demand begets production cuts, which begets less revenue. Declining residual values cuts finance company margins and drives estimated monthly payments higher. Higher monthly payments push buyers in other directions, causing demand to slacken.
It ain't good. Ironic, isn't it, that the smartest guys in the room -- those Cerberus sharpies -- are the first ones to cut their losses? They're either gonna' kill Chrysler, and soon, or, like chemotherapy, push the patient to the edge of death just to save it. Any bets on which it'll be?
What you won't hear from pols on the Fannie & Freddie bailout
In the end, we all pay. We pay because "Wall Street got drunk," as President Bush was surreptitiously recorded saying. We pay because Fannie Mae and Freddie Mac, quasi-governmental mortgage backers owned by shareholders, essentially are backstopped by American taxpayers to the benefit of private investors. (And, as Treasury Secretary Henry Paulson justifies it, to ensure confidence in the mortgage markets.)
But what you won't hear from the pols posturing to rescue American mortgage lenders from themselves -- Republicans and Democrats alike -- are admissions of their complicity in enabling the arrogance of Fan and Fred ... mostly because of effective lobbying on both sides of the aisle.
"So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie," Paul Gigot writes in today's Wall Street Journal. "The implicit taxpayer guarantee that ... so many ... said didn't exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.
"The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever."
And we pay. Because the House just passed the housing bill that the New York Times calls "the most far-reaching government assistance for the nation's housing market since the New Deal."
Detroit's Tiger Stadium saga shows a city burdened by its past
You don't need a degree in historic preservation to see Detroiters have a thing about clinging to rotting artifacts of their glorious past -- the archaic Hudson's Building, the gap-toothed Michigan Central Train Depot and outmoded Tiger Stadium, now blessedly succumbing to the wrecking ball long after it should have.
How long? Oh, about a decade, as my good friend and former Detroit News colleague Jon Pepper reminded me in a note from New York. How's he know? Cuz on Sept. 29, 1999, he wrote a column calling for Detroit to "bury" Tiger Stadium and predicted, presciently, that collective Detroit would keep the decaying hulk around and hope for a miracle -- a metaphor for the civic malady that has helped bring this city, state and their core industry to the reckoning it now faces. Here's the column, first published in The News:
Like most funerals I've attended, the farewell to Tiger Stadium this week brought back bittersweet memories.
A boyhood friend and I walked around both decks of the stadium recalling games we'd seen, autographs we'd collected, adventures we'd had.
The last goodbye also served to remind us why the stadium's time had passed. Its arteries were hopelessly clogged around hotdog stands and restrooms. Its most basic functions were severely impaired, with aisles too narrow, seats too small and sight lines obscured by posts. It was time to go.
If this is like other funerals for treasured Detroit institutions, however, we'll keep the body in the parlor far longer than we should, hoping somehow that it will miraculously spring back to life. One only has to look a few blocks west of the stadium at the withering corpse of the old Michigan Central Train Depot to see that hope is more durable than steel, bricks and mortar.
There are dozens more abandoned buildings like the train station downtown. The rueful hotels on Washington Boulevard, the empty office buildings on Capitol Park, the padlocked storefronts on Woodward Avenue are barely standing. They hang on the ropes, taking punches from vandals and strippers, waiting for an intervention to save them.
It's a fate that awaits Tiger Stadium, too, if it is left to stand.
There is no question that a city struggling to rebuild some sense of purpose and pride should incorporate its past as part of its future. Detroit is a better place for breathing new life into the Fox Theatre, Orchestra Hall, Opera House, Gem Theatre and Century Club, and the buildings of Harmonie Park, all of which were once shuttered.
Old buildings with unique functions, however, are particularly difficult to adapt for other uses. Detroit didn't need a giant train station in the age of air travel. It didn't need a mammoth building for a department store when the big stores built these days are one-tenth the size. And it really doesn't need an old ballpark when the teams that inhabited it have departed for good.
Detroit clung to the old Hudson's department store building 15 years longer than it should have. While grand plans came and went and came again, the building deteriorated and took the surrounding neighborhood along with it. In its final years, the gloomy hulk of the Hudson's building stirred more pathos than joy.
Similar fanciful schemes have been floated recently for a converted Tiger Stadium, but there is scant reason to put faith in any of them. If the stadium didn't work as a modern sports venue, why should anyone believe it will work as a condominium development, a retail outlet or an automotive mall?
About the only proposal we haven't yet seen is that the stadium should be converted to a gambling casino, but that is probably only a matter of time, if history is our guide. Casino schemes were among the last desperate rolls of the dice for the train station and for the Hudson's building, and they will be for Tiger Stadium, too, if we let it.
The most intriguing idea, supported by members of the Tiger Stadium Fan Club, is to shed most or all of the stadium and retain the baseball diamond where Cobb, Cochrane, Kell and Kaline once played. Yet even that idea seems fantastic, given the city's inability to care for its other parks, such as Belle Isle.
The harsh reality is that Tiger Stadium is most valuable as a cleared site. It's 10 acres in size, with uncontaminated soil, clear title and good access to freeways, highways and railroad tracks. In a city with as much encumbered land as Detroit, the property at Michigan and Trumbull offers a diamond -- so to speak -- in the rough.
The most valuable souvenirs from Tiger Stadium already have been carted away in the memories of the fans. We'll long remember our first impressions and our terrific last impressions, and all that happened in between. An abandoned stadium left to weather the elements won't enhance those memories in the years or decades to come.
The funeral is over for Tiger Stadium. Now bury it.
Well said, JP. And said nine years ago, which pretty much says it all, Detroit.
Detroit's deepening woe: How bad it is, and how did it get this way?
NEW YORK -- Am in the Big Apple at a seminar attended by folks from around the country who a) know Detroit's automakers are sick and b) don't understand how it got this bad and c) wonder if we'll pull out of our collective nosedive.
I pause, look at them and say: "Not sure." Misinformation, half-truths and false impressions abound, albeit much of it directionally correct: How come Detroit's Big Three "didn't see" what Honda and Toyota saw so they could have more fuel-efficient cars, the woman from Kansas City asked today? What about the union workers, inquired the guy from Dallas who, in an earlier life, whiled away some hours on the defunct Willow Run assembly line? The guy from PBS's Nightly Business Report is mildly incredulous, and another (maybe it was the woman from Kansas City) wondered why the unions and management didn't get serious about change until last fall.
I try to explain. Then another person from Detroit says: Did you see where GM and Ford shares are today?
Grim is where they are. At Monday's bell, shares in General Motors Corp. closed at $11.55 after dipping as low as $10.57. Ford Motor Co. shares ended the day at $4.81, up from an intraday low $4.46. Reminds me of the line I heard last week from a CNBC panelist who declared GM "financially irrelevant" on Wall Street.
Stunning, that. But it shouldn't be given $4-plus-a-gallon gas, slumping sales and undeniable evidence that the Big Three are, to borrow a sport analogy, out of position.
They're not alone. To leave the Michigan bubble is to be reminded how insulated the Big Mitten and its economic troubles are from the rest of the country. Not that other places don't have their own problems, some of which we share -- sub-prime fall-out, tanking home values, stressed government budgets, threats of layoffs.
It's how utterly dismal our predicament seem to theirs by comparison. If they don't say it, you know they're thinking: How could they let it get this bad? Good question, and there's an answer to it. It's just not a defensible one.
Detroit Council, DPS antics give new meaning to 'leadership'
I think it was Barbara Rose Collins, the esteemed, tiara-wearing member of Detroit City Council, who once said she resented the implication (by whom I don't recall) that Detroit can't govern itself.
Judging by council's on-again, off-again battle with the embattled mayor and, this weekend, a new scandal swirling around council chambers, I'd say the implicators got is just about right. The Gang of Nine wants the governor to take Hizzoner out, then it doesn't. It wants to take him out themselves, then it doesn't. Now come reports that the feds are investigating at least one council member in connection with a sludge contract. How fitting. And the chief of staff for City Council President Ken Cockrel Jr. resigned last week, the Freep reports, after allegedly being videotaped taking a bribe.
Meanwhile, up in Midtown, the Detroit School Board yet again punts its budget, raising the likelihood that Gov. Jennifer "I-don't-want-to-get-involved" Granholm will have to get involved because the board and the schools administration simply can't craft a budget that isn't riddled with deficits. What's that you were saying, Council Member Collins?
When it comes to business, have long maintained that it's wise to pay attention to what the bosses do, not what they say. Embarrassment is not sufficient to describe the city's two pre-eminent elected bodies. They dither, the city crumbles, the creaking schools stumble toward a shutdown, Metro Detroiters groan at the spectacle and Detroiters reap the pathetic rewards. If ever there's a case for to be made for a ward system that would drive some measure of accountability into the system, these are it.
It would all be hysterical if it wasn't so appalling. And, yes, embarrassing.
On 'speculators' driving oil higher and Rust Belt self-destruction
What does it say that the two lawmakers leading last week's Capitol Hill wail about skyrocketing oil prices hail from the Big Mitten -- namely that ol' lion, Rep. John Dingell, and his would-be Energy and Commerce understudy, Rep. Part Stupak?
Tells me they know a political opportunity when they see it. And, second, that banging the committee room table is a fitting gesture to show they're doing something, anything, to help their hometown automakers. Gawd knows, Detroit needs it.
For some perspective, check out this column in today's New York Times, courtesy of Joe Nocera. "After years of ignoring the rather obvious fact that oil is a finite resource, the world has suddenly become acutely aware of that reality. Everyone in the oil markets is attuned to every little twitch that has the potential to damp supply or increase demand.
"That's why, for instance, when Libya announced on Thursday that it might cut oil production, oil jumped more than $5. Meanwhile, when Brazil discovers a huge new oil field, the market shrugs. That is not speculation at work -- it's market psychology. There's a big difference. If there is indeed a bubble, that's what is causing it."
Fair point, and worth mulling instead of looking for someone to blame ... which usually leads to the big, bad capitalists. Herbert Hoover would be proud.
Elsewhere, in today's Wall Street Journal, a riff on "the self-inflicted economic death of Ohio." Echoes the sorry tale of Michigan, whose political class (on both sides of the aisle) and their pals in self-dealing organized labor cling to the dead dog of the past and hope for the best. Makes you want to weep for the states and those who pay the price.
'Environmentalist moralisms' clash with world of Putin, Chavez
High gas prices are pushing Detroit's automakers to the financial brink, delivering losses to mighty Toyota Motor Corp. in the United States, pinching motorists and businesses across the country and becoming issue No. 1 in the presidential campaign.
And what do our esteemed leaders (of both parties) in Washington do? They telegraph, through wildly unaffordable climate-change legislation and bone-headed threats to tax the "windfall profits" of Big Oil, just how "unserious" a nation today's America is becoming.
Or so argues The Wall Street Journal's Dan Henninger, rightly, in a must-read column today: "We live in a world in which Russia's Vladimir Putin and Venezuela's Hugo Chavez use their vast oil and gas reserves as instruments of state power," he writes. "Here, Nancy Pelosi and Harry Reid use their control of Congress to spend a week debating a 'climate-change' bill. This they did fresh off their subsidized (and bipartisan) ethanol fiasco.
"One may assume that Mr. Putin and the Chinese have noticed the policy obsessions of our political class. While other nations use their oil reserves to attain world status, we give ours up. Why shouldn't they conclude that, long term, these people can be taken? Nikita Khrushchev said, 'We will bury you.' Forget that. We'll do it ourselves."
'Nuf said.
The pandering -- from Obama to McCain, from the Bush administration to both sides of Congress -- would be laughable if it wasn't so unsettling. What does it say about American leadership when it threatens oil companies that control less than 10 percent of the world's known reserves; supports the president's "request" for Saudi Arabia to pump more oil; ignores the simple fact that oil has become a tool of aggressive statecraft in Russia, Venezuela, China and Iran; dismisses any linkage between new policy-making (can you say "ethanol subsidies" and restrictions on exploration?) and their effect on the relative price of oil?
It says too many American leaders aren't serious, especially when massive American reserves of oil and natural gas are within reach ... but off limits. Look, this isn't an argument for a monster SUV in every garage; that day has passed, and Detroit knows it. It's an argument for realism, balance and a recognition of how inter-connected the American economy is with the rest of the world. Next time someone says "energy independence" to you, laugh. Because it's a joke.
If nothing else, the past three months have yet again demonstrated that the American economy and American expectations are underpinned by an expectation of comparatively cheap fuel. That, alone, should be evidence enough that Americans -- and Detroit's automakers -- need to get a lot smarter, and fast, about smaller cars, crossovers, conservation and alternative technologies.
That's not all: The past few months also demonstrate how utterly unwilling the rest of the world is to help a country whose leaders won't help themselves. What we're seeing is weak, uninformed leadership masquerading as simply craven politics, and it says more about a prevailing American character trait today than many of us would care to admit.
Labor disputes, dysfunctional Big Three scuttle Michigan image
Takes a particularly keen sense of denial to insist that the 12-week American Axle strike, walkouts at two General Motors plants and, today, a Teamsters walkout against car-hauler Performance Transportation Services don't (or won't) hamper Michigan's image in the economic marketplace for investment and, yes, jobs.
But here was a Berkeley labor guru in The News today: "I don't think the strikes will be defining," said Harley Shaiken, a labor professor at the University of California whose roots are in Motown. "Michigan remains a place to invest."
In manufacturing? Why? And who's he kidding? It doesn't take a PhD in labor economics to suggest the contrary: That outsiders, especially savvy ones looking to invest precious capital where it will deliver a respectable return, more likely look at Michigan, see its strikes, declining market share of its Big Three, their broken business models, panicky contract bargaining and anti-business state government and say, "No, thanks. We've got other options."
It's a simple fact -- not "anti-labor" -- to repeat yet again that investment in the automotive sector goes where strong unions and union cultures typically aren't. (Or at least they have for the past 20 years, which ought to qualify as a trend.) Investment also goes where the prevailing wages more closely approximate the national average, not the 30 percent or 40 percent premiums that have been the going rate in Big Three assembly plants.
Levin, Stabenow offer profile in courage on climate change. Right.
Republicans in the U.S. Senate today managed to torpedo the Climate Change bill, handing coastal Democrats and presumptive presidential nominee Barack Obama an embarrassing defeat. Siding with their party and its standard-bearer were, natch, Michigan's own Carl Levin and Debbie Stabenow.
If the ear chewing I got this morning from a ranking industry executive is any indication, Detroit Auto is none-to-happy with the malleable backbones of their ersatz friends in the Senate: "This is something that could close one or two of these companies," the exec told me. "It would clobber this industry. It's inexcusable to me. If not now, when? When are you going to fight?"
Presumably after the legislation passed and the mandates kicked in. Then the pols with hearts (and complicity in the creating the outcome) would rush to offer federal loan guarantees to stave off bankruptcy; to pass legislation to extend unemployment benefits to one or two years from the usual 26 weeks; and to placate unions that lent their political support to lawmakers who sold 'em out.
Senate leaders may not like principled stands by senators keenly attuned to the issues that matter most to their constituents, but they respect them. Succumbing to calls for party unity only, as Levin and Stabenow did today, means they can be rolled and, second, that Detroit Auto has two fewer friends in Washington than it thought it had.
Center for Michigan founder does Mackinac, nails sad truth
Apologies to the head-in-the-sand crowd: Phil Power, the retired newspaper publisher turned think tanker, did the Detroit Regional Chamber's Mackinac Policy Conference with 1,700 others and this is what he saw:
"Many of the programs ... were thoughtful, far-seeing, appropriate to the need for bipartisan common ground to get Michigan moving again. But in the back of the room, leaders of both political parties were cracking jokes, paying scant attention to the large measures at issue," Power writes in his weekly column.
"As enablers of a dysfunctional political system that is serving millions of Michigan citizens very badly, they should be ashamed. The unintended consequence of this year's Mackinac conference was to reveal in full and stark detail the yawning disconnect between what the politicians chatter about and what Michigan really needs. And if you reflect a bit, it will tell you something very important about the state of our state today."
It gets worse, actually. I've probably attended 10 Mackinacs since the mid-90s, and an enduring constant -- beyond the political cynicism that Power aptly describes -- is a conflict-averse lethargy in the business community that is maddening. Business complains about the governor, laments the troubles of Detroit Mayor Kwame Kilpatrick, whines about the new Michigan Business Tax and criticizes Lansing's indifference to the concerns of business. But when I suggest to a small group of CEOs that it might make a difference if some of them made their gripes public, if only to get the political class off its proverbial keister, I get blank stares.
That's sad, too, Phil. What's it gonna take to break the cycle of cynicism and apathy -- to become Michississippi?
