Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.
February 7, 2012 at 9:45 AM
Clint Eastwood’s powerful and moving “Halftime in America” Super Bowl ad for Chrysler has been denounced by some Republican operatives as partisan shilling for President Obama. Eastwood and Chrysler deny it. What’s undeniable is that Mr. Obama, despite tremendous political pressure to do nothing, used federal money to keep Chrysler and General Motors out of bankruptcy liquidation. (Help for Chrysler began in the waining days of the Bush administration). Challenger Mitt Romney opposed the bailout, an irony coming from this son of the man who rescued American Motors.
Playing counterfactual history is always risky, but what if Washington had done nothing? Ford didn’t need federal help. The Japanese transplant factories were also safe. Still, it’s unlikely that GM and Chrysler could have gone through Chapter 11 proceedings like an airline and come out fine. Union-haters would have enjoyed seeing the United Auto Workers decertified and pensions eliminated (and this helps the middle class…how?).
But the auto industry is much more than two or three companies. Had GM and Chrysler shut down, an entire economic ecosystem of suppliers would have been destroyed and the damage might well have taken Ford down, too. It would have devastated a Midwest already reeling from bad trade deals and offshoring of jobs. Millions of jobs might have been at risk.
September 30, 2010 at 9:45 AM
As the third quarter slouches across the finish line, many of the worst fears of early summer weren’t realized. Deflation did not break out. A double-dip recession did not happen. The Eurozone did not collapse. Commercial real-estate’s sickness did not become a worse drag on the economy.
On the other hand, no magic optimism rescued the labor market. Unemployment remained acute, particularly for younger workers, minorities, older workers who had lost a job and those in many distressed industries. Five unemployed workers are chasing every opening. In addition, the weak recovery is sending more people into poverty and income inequality, which was already at levels not seen since the 1920s, is increasing. The real pain and general anxiety is creating an unstable political environment even as it seems to paralyze political leaders from meaningful action.
The Dow rose some 8 percent in September (we’ll see how it ends the last day of the month). Bullish analysts saw it as a sign of fresh life in the expansion. Other observers, also using a word with “bull” in it, pointed out a fresh infusion of money from the Federal Reserve, which was mainlined into equities via low interest rates and was no real vote of confidence in the economy. Interestingly, or ominously, gold stayed above $1,300.
April 21, 2010 at 9:30 AM
General Motors crossed an important milestone today by repaying $8.1 billion in loans from the federal and Canadian governments. American taxpayers still own a substantial share of GM: $45 billion that could be recouped through a stock offering.
The GM and Chrysler bailouts were necessary to save 1 million jobs and a major portion of what’s left of manufacturing in the United States. Repaying through a stock offering is entirely possible. It’s worked before, with the federal rescue of northeastern railroads through the formation of Conrail, which was later successfully privatized. The real question is whether this is indeed a “new GM,” as its executives tout.
The old GM became new many times, including repeated draconian cuts to its workforce and closing dozens of plants. The Saturn reinvention didn’t take, both because of resistance from the United Auto Workers but especially because the executive suite of GM’s heart just wasn’t in it. Most of all, GM just couldn’t design and sell cars that appealed to the public. So a new, new GM? We’ll see. Toyota has given the company a gift that could only be bungled by, well, General Motors.
April 6, 2010 at 10:20 AM
Toyota began receiving complaints about its potentially lethal sudden acceleration problem from Europe in late 2008, and issued repair guidelines for those countries last September. It didn’t announce an accelerator recall here until January. Now the Transportation Department wants to fine Toyota a record $16.4 million for failing to notify regulators quickly about the flaw. That’s the largest fine the government can levy against an automaker under the law. Toyota’s most recent profit was $1.7 billion.
At the risk of putting too fine a point on it, this is one reason white-collar malfeasance pays. The laws and regulations are a patchwork; the corporations have the finest lawyers money can buy, as well as politicians where they have factories; regulators for years have been too cozy with industry. For example, Toyota bragged that it had saved $100 million in recent years by negotiating smaller recalls with regulators.
Even the $2.3 billion fine against Pfizer for fraudulent marketing practices is a “cost of doing business” for a corporation that banked $50 billion in annual revenue. But it’s better than the penalty Toyota faces.
Will “market forces” apply their own rough justice to Toyota? Perhaps, with the help of civil lawsuits (the “trial lawyers”). And at least the company’s president has apologized and promised reforms. That’s more than most American CEOs would do, least of all the princes of Wall Street. But the double standard will remain. The low-income kid who robs a liquor store goes away quickly, hard time. The same isn’t true for corporations — even though the Supreme Court holds they have the same rights as a person — or in most cases for their highly paid leaders.
July 10, 2009 at 9:56 AM
Top of the News: So General Motors has left bankruptcy court as a “good GM,” its CEO vowing “business as usual is over.” The “bad GM” left behind includes the solemn pledges it made to hundreds of thousands of retirees, who as employees created most of the real wealth the company enjoyed.
I hope GM can pull it off. Still, we the people own 60 percent of GM, and the Obama administration lost a key opportunity in using billions of dollars to rescue a company hobbled by decades of mismanagement (remember the EDS acquisition back in the 1980s?).
The government could have insisted that much of GM be retooled to build 21st century transportation equipment, including trains and light rail that would have not only fit with an intelligently crafted stimulus and helped retrofit the country for a higher-energy, less-carbon future, but given GM a big opportunity to open new export markets. In World War II, GM’s plants were quickly converted to make military equipment. Instead, the cautious administration opted for a slimmed-down status quo.
June 1, 2009 at 10:29 AM
Top of the News: At the risk of starting the week with jargon, consider discontinuity and tipping points. And consider the historic Chapter 11 bankruptcy filing of General Motors.
As regular readers know, I covered GM in the 1980s and part of the 1990s. This morning, I got an email from a former colleague saying, “Who would have believed it.” He was being somewhat ironic, because much of the serious financial press had forecast big trouble for GM for years, even as it kept bobbing back up again.
If ever there was a company unprepared for discontinuity — that the next 30 years won’t be a replay of the past 30 years — it was GM. For years, consumer and corporate debt could rise seemingly without consequences. Gasoline prices were low and SUVs were highly profitable. Long single-occupant drives in gas guzzlers was that “non-negotiable” American lifestyle and “corporate governance” were words said with an arched eyebrow at the country clubs of Grosse Pointe.
May 29, 2009 at 9:28 AM
Top of the News: The economic elites and much of business journalism tend to discount the potential for a General Motors bankruptcy, which could come as early as this weekend. After all, the American economy is all about financial plays at its worst, and shimmering technology at its best.
This may be premature complacency. While it’s difficult for Northwesterners to appreciate the vast economic footprint of GM, consider this scenario: Boeing, diminished by years of job cuts and factory closings, seeks Chapter 11 and will come out smaller and perhaps still uncompetitive.
Even that doesn’t get at the role of GM in the Midwest, with a still vast network of suppliers from steel to machine tools to parts. Together, they provide the bulk of jobs that provide wages with high multipliers. They prop up municipal budgets. GMAC, while somewhat detached from GM now, is continuing sore in the financial crisis.
May 27, 2009 at 10:12 AM
Top of the News: The frantic improvisations of the Bush and Obama administrations finally crashed against the bondholders of General Motors. They won’t accept a deal exchanging $27 billion in debt for a 10 percent stake in the revamped company.
If the move pushes GM into bankruptcy reorganization, we should be cautious about blaming the bondholders. They include institutions representing Main Street pensioners as well as big investors. Unlike shareholders, they didn’t own GM — and were thus liable for its corporate governance. They made GM loans by purchasing its bonds.
To accept the government deal, which would have given most of the equity in GM to the feds and the United Auto Workers, could have set a bad precedent for the rights of those who buy corporate bonds. Enough bad precedents were set with the controlled demolition of Bear, Sterns and Lehman Brothers.
May 12, 2009 at 10:20 AM
Top of the News: Among the many things weighing on this market — where investors increasingly worry about a sucker’s rally — is the rising potential for a bankruptcy court filing by General Motors.
As I write, GM shares are at $1.12 and falling. Imagine that. General Motors, once the world’s largest automaker and the symbol of American industrial might. “What’s good for America is good for General Motors and vice versa…” (CEO “Engine” Charlie Wilson’s actual quote). A buck and change,
The consequences of the Chapter 11 filing of much-smaller Chrysler are only beginning to be felt, many of them unintended. The supply chain is freezing up, an event that will affect even relatively healthy Ford. Creditors who lost big will reasonably be wary of investing in any new Big Three venture. Who will buy a car from a “bankrupt car company”?
April 30, 2009 at 9:53 AM
Top of the News: Chrysler’s filing for chapter 11 bankruptcy protection is a bookend on the tragic fall of the American auto industry, one that began in the 1960s.
Then, a powerful industry became complacent, auto moguls and union bosses together ignoring quality, competitiveness, innovation and flexibility. The trouble began with the 1973 oil shock and rising xompetition from Japan. The Big Three never really addressed its weaknesses, even though by the late 1980s, unions were continually giving ground.
But the bosses kept building boring cars. They became ever-more prisoners of the bean-counters and anodyne models that seemed to promise steady, large sales — but still eroding against better-quality and more innovative imports. Chysler, as much as its brethren, received a temporary boost with unsustainably low gas prices in the 1980s and 1990s — and Ram trucks and minivans propped up profits. The old executive complacency was merely reinforced.