Rick Newman
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New Deals for Car Buyers, Via the Auto Bailout
Continue reading… 5 CommentsWith the auto bailout kicking into higher gear, General Motors and Chrysler aren't the only ones getting some help. Relief is flowing to car buyers, too.
The government has finally clarified what GM and Chrysler must do to get billions of dollars more in aid they need to stay in business and transform their operations. Both companies still face serious hurdles, and bankruptcy remains an option. But as the road map comes into focus, it's allowing both of the automakers—along with some competitors—to offer new deals aimed at boosting sales and turning around a moribund car market. And the government is helping out by backing warranties while the GM and Chrysler restructure.
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The Auto Bailout: What's In It for Car Buyers
Continue reading… 13 CommentsIn order to bail out General Motors and Chrysler, the government has decided to throw a bone to car buyers, too.
Executives at the troubled Detroit automakers have long pointed out that nobody wants to buy a car from a company that might not be around in two or three years. That's why they've insisted that declaring bankruptcy is a road to ruin: It might allow their companies to shed debt and restructure, but even a small chance of liquidation would spook most buyers.
The government seems to have heard that complaint, which is why President Obama's provisional plan to bail out GM and Chrysler includes new protections for people who buy their products. Under Obama's plan, the government will fund a program to honor warranties on GM and Chrysler cars purchased while the companies are restructuring. Obama also plans to pursue a "scrappage" policy that could offer car buyers tax rebates or other incentives for trading in an old clunker and buying a new car.
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View From MIT: A Depression Still Avoidable
Continue reading… 0 CommentsI spoke recently with David Schmittlein, dean of MIT's Sloan School of Management. Here are some of his thoughts about the recession's impact on corporate America, entrepreneurs, and the ambitions of business school students:
What will it take for Treasury Secretary Timothy Geithner's bank bailout plan to work?
It's an opportunity to get some of those toxic assets off their books, but I'm not sure it matters how much of that stuff they get off their books. The banks increasingly know what these assets are. Over the last six months, they've put a whole lot of effort into understanding that. Now there's a pretty good inventory of what those bad assets are.That's not the same thing as valuing them, and the private firms in this partnership will mainly be the ones that value those assets. I really wonder how many firms will want to get into a public-private experiment if Congress is setting a midmanagement pay scale. You have to ask, do you trust the government to keep its hands off your business?
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Why Booting Wagoner Won’t Solve GM’s Woes
Continue reading… 25 CommentsBy most accounts, Rick Wagoner was never really the problem.
It’s self-evident that he presided over the demise of General Motors since taking over as CEO in 2000. The company has lost money for four years straight, and is only alive now thanks to government aid that could grow to $40 billion in total.
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How Bailouts Can Butcher Capitalism
Continue reading… 36 CommentsWe have a new F word: failure.
One unhappy hallmark of the Great Recession is a dramatic spike in financial distress. Moody's predicts that the default rate on corporate debt--which helps foretell bankruptcies--will be three times higher this year than in 2008. Home foreclosures are already at record highs, and going higher. Defaults on credit cards and other consumer debt will crest right behind mortgages.
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10 Cars Detroit Should Copy
Continue reading… 88 CommentsI'm not a member of President Obama's automotive task force, which is overseeing the bailout of General Motors and Chrysler. But in a way, we're all on the task force, since these two automakers are staying afloat thanks to taxpayer funding that could reach $40 billion or more this year.
So I'm going to give Detroit some advice. Not about labor contracts or debt refinancing or global alliances, but just about cars. It's true that the quality of American-made cars has improved in recent years. But that's not enough. If the folks running the Detroit Three—including Ford, which hasn't asked for a bailout but still might—drove the latest offerings from the competition, they'd realize there are lots of innovations they're missing out on. (See a slideshow.) Here are some of the top cars from which the Detroit automakers can learn:
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Bailout Scorecard: The End of the Beginning
Continue reading… 9 CommentsBreathe a sigh of relief: More than six months after the financial crisis erupted, a complete bailout regime is finally in place.
The bank rescue plan finally unveiled by Treasury Secretary Tim Geithner is the last major piece of a vast bailout scheme that's been evolving since last September, when Lehman Brothers failed and AIG and Merrill Lynch almost did. Having a full plan in place doesn't mean it will work. But regulators at the White House, Treasury, and Federal Reserve can now transition from designing the biggest financial bailout in 70 years – which could ultimately cost more than $2 trillion - to executing it.
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Why Goldman Sachs Should Repay Its TARP Money
Continue reading… 0 CommentsYou call this a problem?
With Congress and other parts of the government getting overinvolved in the private sector, Goldman Sachs and a few other banks are speeding up plans to pay back taxpayer funds they've received under the financial rescue plan. Their reasons are obvious: Nobody wants to be the next AIG, hauled before Congress and flogged for making too much money while dipping into taxpayer pockets. Proposed new rules on executive pay - and even mid-management pay - at bailout recipients could interfere with the normal way firms hire people and run their operations. And the volatile nature of populist politics is the antithesis of the predictability every business craves.
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How Secrecy Could Wreck Geithner's Bank-Rescue Plan
Continue reading… 18 CommentsYou don’t need to know the details.
That’s been the paternalistic approach taken by Treasury and Federal Reserve officials since last fall, as they’ve tried one maneuver after another to salvage the financial system and fix the economy. The just-trust-us strategy has backfired, badly. Now we have another major component of the Save America project, Treasury Secretary Tim Geithner's plan to help unwind billions of dollars worth of money-losing bank deals that are at the heart of the problem. It looks to be off to a good start. But if Geithner & Co. continue to conduct bailouts in the shadows, then count on more eruptions like the recent fiasco over bonuses at AIG - with reverberations that could threaten the entire bailout regime.
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6 Cars That Signal the Future of Driving
Continue reading… 34 CommentsBiodiesel. Natural gas. Propane. Methane. Americans have grown up on cars that run on one thing—fuel derived from oil—but a century after the automobile began to transform American life, a new revolution is underway. And this time, drivers may have to get used to a new kind of fuel in the tank.
For starters, President Obama has offered $2.4 billion in government support to help develop electric-powered vehicles, part of his plan to put one million "green" vehicles on the road by 2015. Automakers are getting the message. At this year's Detroit Auto Show, auto execs who used to rhapsodize about hood scoops and horsepower enthused about emission-free tailpipes and energy independence. General Motors is staking its resurgence on a battery-powered car that plugs into a household receptacle. Other big automakers are seeking the same kind of killer app that Toyota found when it introduced the Prius hybrid almost 10 years ago. "This is about the new DNA of the automobile," says Larry Burns, GM's research and development chief. "The recession and its impact on the auto industry amplifies the need for a diversification strategy."
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A Boost For GM, a Ding For Chrysler
Continue reading… 21 CommentsAt General Motors headquarters in Detroit, there's finally a bit of vindication.
For several years, GM has been insisting that its cars and trucks are much better than the slapdash cookie-cutters that helped trash the automaker's reputation in the '80s and '90s. Executives frequently complain about a "perception gap" between the poor vehicle quality Americans expect, and GM cars that are supposedly as good as the competition.
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7 Surprises Buried Beneath the AIG Bonuses
Continue reading… 23 CommentsThe recent Congressional hearings on AIG generated intense heat. But was there any light?
Actually, quite a lot. The scandal over bonuses paid to AIG’s rogue trading unit has obviously dominated news coverage and public attention. But while explaining the bonuses, AIG CEO Ed Liddy and other experts also provided lots of information on the most important question of all: Is the $170 billion AIG bailout working, or not? And what would happen if the government simply pulled the plug? Here’s some of the new information that has emerged:
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5 Lessons From the AIG and Merrill Bonuses
Continue reading… 12 CommentsScore one for common sense.
American taxpayers may not have much of a say over which banks get bailout money or what a fair price for toxic derivatives may be, but basic logic is finally winning out when it comes to lavish bonuses.
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The AIG Bonuses: A Welcome Scandal
Continue reading… 44 CommentsFinally. A scandal we can relate to.
For the last year, something has been really wrong with the U.S. economy. But what, exactly? The collapse of Bear Stearns in March 2008 was the first indicator. The government stepped in with a $29 billion bailout, marking the first time many Americans may have heard of “mortgage-backed securities.”
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What’s Good, What’s Bad About the AIG Bailout
Continue reading… 28 Comments"There are times when one would like to hang the whole human race, and finish the farce.”
The latest surreal twists in the AIG bailout bring to mind Mark Twain, who could spot folly as if he were hunting for it with a spyglass. Had Twain had AIG to work with as raw material, we’d probably have another couple dozen enduring epigrams skewering the greedy and the foolish.
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Wreck Company, Earn Bonus
Continue reading… 6 CommentsAt AIG, the hotshots who lost a staggering $41 billion in 2008 and injected poison into the world’s financial arteries are in line to earn at least $165 million in bonuses. Merrill Lynch, which lost nearly $28 billion last year, insists it must still pay $3.6 billion in bonuses to hundreds of dealmakers.
[See the real harm caused by the AIG bonuses.]
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The Real Harm Caused By the AIG Bonuses
Continue reading… 35 CommentsIt used to be such a nice, benign word. “Bonus.” In Latin, it literally means “good.” Way back in school, a bonus question on a test earned you extra credit if you got it right, with no penalty if you got it wrong. When tacked onto your salary, a bonus was a reward for doing your job especially well.
Credit the pillagers at Merrill Lynch and now AIG with yet another epic perversion.
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Why Bad Times Breed Better Habits
Continue reading… 8 CommentsEverybody’s getting poorer.
This year’s Forbes billionaire list includes just 793 worthies, down from 1,125 last year. And the overall list is a major sob story – 83 percent of the world’s billionaires lost money last year.
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More Outrage Over the Merrill Bonuses
Continue reading… 18 CommentsThe last time Merrill Lynch tangled with the New York attorney general, it didn’t go so well. In 2002, after a bruising battle with Eliot Spitzer over conflicts between its research and investment banking divisions, Merrill finally agreed to widespread reforms, paid a $100 million fine, and issued an embarrassing “statement of contrition.”
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America and China, Dragging Down Each Other
Continue reading… 21 CommentsThink American workers have it bad? It's worse in China.
You may not know that by scanning the headlines. Late last year the Chinese government passed its own stimulus package of about $600 billion, to meet its target of 8 percent GDP growth. That's right, 8 percent. That would be outlandish growth here, where the economy is now shrinking, not expanding.
But in China, that's barely enough to keep a restless workforce employed. And the government might not be able to make its 8 percent target. Unemployment is soaring, and there's even a possibility that economic woes could lead to angry public protests like those that preceded the 1989 Tiananmen Square massacre.
