Rick Newman
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Can the Chevy Volt Survive GM?
Continue reading… 52 CommentsTwo momentous things are happening at General Motors. One is GM's electric-powered car, the Chevrolet Volt, which might be a breakthrough machine if it debuts on schedule in late 2010. The other is the deepest financial crisis in GM's history, which threatens virtually every program underway at the huge automaker—including the Volt.
First, the money problem. One of the most overlooked stories of recent weeks is GM's decision to postpone nearly all of its new-product spending for the next two years, as Automotive News reported recently. GM won't confirm the details, but such cutbacks would be a drastic measure meant to preserve cash and help GM avoid bankruptcy, which many analysts think is likely by next year if car sales stay in a funk and GM doesn't raise cash from outside sources.
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How Corporate America Is (Inadvertently) Boosting Obama
Continue reading… 0 CommentsIf you were a CEO who wanted to influence the presidential election, how would you do it? You could donate money and crank up your firm's political action committee. Or hold fundraisers and lobby your well-heeled friends for support. You might even publicly endorse your favorite candidate—assuming that wouldn't drive your employees to the other guy.
But here's a more effective way for business leaders to influence Election Day results: Announce major corporate cutbacks that scare the stuffing out of voters.
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Why the Feds Rescue Banks, Not Homeowners
Continue reading… 96 CommentsThe financial bailout is on, and so far the government has injected upwards of $150 billion in a variety of banks, not to mention a $120 billion loan for insurance giant AIG and $25 billion for the Detroit automakers.
As for helping distressed homeowners, Washington is still thinking it over.
On the surface, this might seem like the outrage of the century. The huge commitment of $700 billion in taxpayer money is supposed to help taxpayers, after all, and it's hard for many people to understand how adding a bunch of bank stock or insurance-company IOUs to the government's portfolio does that, exactly.
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Why Warren Buffett Is Buying
Continue reading… 8 CommentsWarren Buffett's optimism hasn't exactly moved markets lately. Since Buffett announced in mid-October that he is bullish on U.S. stocks, the markets have fallen, not risen. Buffett's not complaining—he can buy even lower.
But that's little comfort to the rest of us. In a recent New York Times article, the legendary investor made it clear that he's not making any predictions about whether the stock markets will rise or fall in a month or a year. Instead, he has long pointed out that it's smart to invest in healthy businesses that provide something people need and appear to be undervalued—as long as you have the time to wait around until the stock rises to its deserved price. Of course, when you're a billionaire, it's easy to wait. When you're a working parent or a pensioner, it's not.
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Greenspan vs. Buffett
Continue reading… 13 CommentsIf Alan Greenspan lived on a flood plain, would he buy insurance?
When the former Federal Reserve chairman testified before Congress recently, he kicked off his remarks by announcing that "we are in the midst of a once-in-a-century credit tsunami." Those once-in-a-century analogies are usually used to explain away something that's so rare you can't possibly be blamed if you fail to prepare for it. Plan for every hundred-year disaster and there's little time or money left to invest in the good life.
Greenspan's shrug-off brought to mind Warren Buffett, who's made news lately by snapping up big chunks of Goldman Sachs and General Electric at depressed prices and by generally being the only living person expressing any optimism at all about stock markets. There's also a new book about Buffett, The Snowball by Alice Schroeder, who spent hundreds of hours talking with the Oracle of Omaha. Buffett is famous for his ability to calculate risk—and avoid it—which is the very thing that banks and consumers catastrophically failed to do over the past couple of years. "He always thinks through what's the worst possible thing that could happen," Schroeder told me during an interview. "What we're seeing now is a lot of people who said, 'This kind of calamity has never happened before, so it probably won't happen to me.' But that doesn't mean the calamity will never happen."
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The Need for Greed
Continue reading… 17 CommentsThis commentary first aired on the PBS program Nightly Business Report .
Maybe we should have been a little nicer to all those greedy guys who wrecked Wall Street. Because we could use some greed right about now.
Hey, I understand—we need some villains to blame for our economic mess, and they can't be us—that old comic strip still isn't funny. The rich guys who ran the profligate banks are the obvious targets. They care about making money above all else, and for that, they've been trashed by politicians and voters alike.
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In Detroit, Chrysler is Crashing First
Continue reading… 20 CommentsThey used to be known as the Big 3. Then they got much smaller, and GM, Ford, and Chrysler became known as the Detroit 3. Soon they might be the Detroit 2.
The news that General Motors is exploring some kind of merger with Chrysler is a startling turn in an industry where pride, heritage, and protection of your turf have been key parts of the business plan. But in Detroit, clearly these are desperate times. Plunging sales have hit the domestic carmakers much harder than their competitors, largely because of an overreliance on big gas guzzlers that many people can't afford these days. The credit crunch and deepening recession are scaring off even more buyers and leaving the automakers threadbare. If the rocky road persists into 2009—which seems likely—GM and Ford could run short of cash and face the probability of bankruptcy. Chrysler—which is now privately owned and enduring the steepest sales dropoff of all—might already be veering off the road.
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10 Cars Nobody Would Miss if They Vanished
Continue reading… 35 CommentsBicycle sales are up. But cars? Who needs 'em?
That seems to be the attitude among consumers as they drastically cut back spending on their wheels. So far in 2008, car sales are headed for the lowest level in at least 15 years. With a full-blown recession settling in, it looks like next year will be just as grim, if not worse. The shrinkage is so dramatic that General Motors has talked with both of its crosstown rivals, Ford and Chrysler, about some kind of merger. If the Detroit 3 don't consolidate, analysts think at least one of them could run out of cash by late 2009—and maybe go belly up.
With an oversupply of cars, we ferreted out the ones that few people would miss if they suddenly disappeared. We started by analyzing data from J.D. Power and Associates to determine which mainstream cars have fallen the most in sales this year. Of those, we highlighted the ones that score in the bottom half of their categories in the U.S.News car and truck rankings. Here are the cars with the least appeal to both critics and consumers:
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How GMAC's Woes Foretell Consumer Pain
Continue reading… 3 CommentsA lot of people who have been hearing about the ubiquitous credit freeze are probably wondering where the heck it is, since their credit card bills and mortgage statements seem to keep coming, unabated. It's even harder to understand how this unseen credit crunch is supposed to bring down the broader economy.
Well, here's one fresh glimpse of how the banking crisis is spreading into the "real economy"—and how the whole spiral is likely to get worse. GMAC, the nation's biggest auto lender, recently said it will lend money only to "prime" borrowers with credit scores of 700 and above. The reasons: rising losses, unstable credit markets, and other factors that essentially mean a lot less money is available for loans.
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How to Tell if You're Rich
Continue reading… 59 CommentsIf your household income is $250,000, other people might consider you rich—even if it feels as if you're just getting by.
The big debate over tax cuts—and who, exactly, constitutes the middle class that should get most of them—usually focuses on a single income number. Barack Obama wants to target his tax cuts at people making $200,000 or less, and his tax increases at those pulling in $250,000 or more. John McCain appears to have a more expansive view of the middle class. When asked earlier this year what the income threshold for "rich" people should be, he took a stab and suggested $5 million.
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As the Economy Sinks, So Do Odds of a Tax Cut
Continue reading… 13 CommentsOne of the riskiest financial moves you make this year could be listening to the presidential candidates—and banking on a tax cut after the November elections.
John McCain and Barack Obama both promise that widespread tax cuts will be one major way they'll revive the economy and help lift consumers' sagging spirits. They differ, of course, on who should enjoy the largesse. McCain wants to cut estate and corporate income taxes, and extend broad-based tax cuts that were enacted earlier this decade. Obama agrees about extending some of those Bush era tax cuts, while offering lots of other relief to people earning less than $250,000 and raising taxes on the wealthy.
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Forget the Stock Market. Worry About Jobs
Continue reading… 20 CommentsThe depressed stock markets have dominated the news lately, as investors recalibrate their finances—and their lives. But it looks like there's more bad news on the way that could hit even closer to home.
The job market has gradually drifted out of the comfort zone this year, with the unemployment rate rising from 4.9 percent in January to 6.1 percent this fall. That's higher than what economists call the "sustainable" rate that's normal, more or less, as people move between jobs in a healthy economy. And suddenly it looks as though the job market will be the next pillar to quake as global economic tremors continue. Consider some of these recent projections—mostly downgrades—for the U.S. unemployment rate over the next year:
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The Economy on Election Day: Worse
Continue reading… 8 CommentsPoliticians often like to ask voters if they feel better off today than at some carefully chosen point in the past. If Barack Obama or John McCain asks that question on November 4, most Americans will probably answer no. And it won't matter what point in recent years they're comparing it to.
Economic predictions always come with caveats, because nobody completely understands how consumers behave or markets react. But most economists agree that the next several months are shaping up as one of the gloomiest stretches in years. Here's how key parts of the economy will probably look when voters go to the polls on November 4:
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Bailout Will Help, but Pitfalls Remain
Continue reading… 17 CommentsThe mammoth financial bailout plan is finally in place. But don't exhale just yet.
The $700 billion rescue bill that Congress finally passed will limit panic in the markets, since it gives the government vast new authority to take over sclerotic securities that have clogged the credit system and already brought down some of America's biggest companies. With the feds stepping into the bloodbath, the hemorrhaging should stop. But the economy is still in precarious shape, and unrealistic expectations about the bailout could end up disappointing consumers hoping for some kind of immediate relief.
Here are some likely developments for which consumers should prepare:
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How the Credit Crunch is Hitting Home
Continue reading… 23 CommentsWhere's the pain?
That's what most Americans have been wondering, as they digest warnings from Washington about the dire ramifications of a global credit crunch. Up till now, the credit freeze has mainly hit parts of the economy hidden from ordinary consumers: Short-term corporate loans, hedge-fund borrowing, derivatives markets. No wonder most people have been scratching their heads—and calling Congress to protest a massive Wall Street bailout.
But like the proverbial Blob, the credit crunch is now spreading beyond the back-office parts of the economy into areas felt more directly by consumers. The biggest examples:
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How Sarah Palin, Joe Biden Would Guard Your Wallet
Continue reading… 12 CommentsVice presidential candidates spend most of their time cheerleading for their boss—and attacking his opponent. But with intense interest in the upcoming debate between Democrat Joe Biden and Republican Sarah Palin, the two No. 2's have been staking out their own turf on the financial bailout, the housing crisis, and other economic matters. Here's where they stand on issues that matter most to consumers:
THE WALL STREET BAILOUT
The bailout bill, with its huge price tag, is deeply unpopular among voters, and while both campaigns tepidly support it, the candidates have all bashed Wall Street fat cats, greedy banks, and failed companies like the mortgage giants Fannie Mae and Freddie Mac.
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Better Ways to Sell the Bailout
Continue reading… 17 CommentsFinancial panic? Yaaaaaawwwwn.
When President Bush tried to make the case for his $700 billion bailout bill on prime-time TV, he painted a dire picture if it didn't pass. "America could slip into a financial panic," he warned. "The value of your home could plummet.... More businesses would close their doors, and millions of Americans could lose their jobs.... Ultimately, our country could experience a long and painful recession."
Americans obviously didn't buy it. Unmoved by Bush, they barnstormed Congress in protest, and the result was the stunning defeat of the first bailout bill in the House, five days after Bush pleaded for it on TV.
