Thursday, April 30, 2009

Tesla Model S on Letterman

Elon Musk was interviewed by David Letterman on The Late Show last night, and the Model S was driven onto the stage. Letterman just gushes over this car. The Chevrolet Volt? Not so much.

Here's a clip that you might actually be able to watch for a while before CBS makes them take it down.

Is it just me, or does Elon Musk look like Roland Gift of the Fine Young Cannibals?
From the Nerds with Too Much Time File
The Star Trek Theme Played on Theremin

In honor of the new Star Trek movie opening next week I present the Star Trek theme played on a theremin.

This is well-done but nerdy in so many ways, I can't even count. First, you have to own (or make) the Star Treck uniform. You have to find a clip from the show, and learn how to insert the performer into the clip via green screen. You need to learn to play the theremin. Just maybe you need to build the the theremin, because most of them are supplied in kits. (Clip from via
Yes Virginia, there Is a Chrysler Bankruptcy
Chapter 11 filed today. Hopes to be out in 60 days.

As was speculated yesterday, Chrysler couldn't negotiate a deal with holdout creditors, so Chapter 11 was filed today. Fiat is on board. The US government and Canadian government have pledged about $10 billion to get them going and keep them going. Starting May 4, the plants will be shut down until Chrysler "emerges" from bankruptcy, hopefully within 60 days. Count on it. In 60 days Chrysler will emerge as a beautiful butterfly.

Solving the Saturn Problem

When GM introduced the Saturn brand in 1984, it was meant to be a break from GM past. Saturn was built on an innovative small car and a dealership experience geared on treating the customer with respect, from a no-haggle pricing strategy to fresh-baked cookies in the lobby. At the dealership level, the brand was a success, and Saturn dealers ran up customer satisfaction scores that were much better than GM dealers as a whole.

Saturn was never a financial success for GM. The SL series that the brand was founded upon was expensive to develop. Chevrolet dealers, the root of much of GM's profit, complained that by developing the SL as an exclusive to Saturn to Chevrolet deprived them of a modern small car for years. Consequently, the SL series was the first and last Saturn-exclusive platform, thereafter, all Saturns would be based upon a platform shared by other GM divisions. As Saturn lost its exclusivity, it slowly started losing its reason to exist. As competition grew tougher, GM had more and more problems both supplying its multiple brands with unique and up-to-date models and supplying the brands with enough marketing support to drive sales of those models that were in the showroom.

Currently, Saturn has its best line-up of vehicles in a long time, perhaps ever, but sales have been awful. The Astra is a competent small car that competes directly with the Volkswagen Golf, one of the most popular cars in the world. The Astra now has huge incentives, but dealers still have trouble moving them off the lot. The Aura was car of the year when it was introduced a few years ago. The most frequent criticism of the car was lack of a rear seat armrest; and when that's the worst problem a car has, that's not too bad. Sales of the Aura are in the toilet. The Vue was recently redesigned. The Vue is a solid, competent small-to-midsized SUV/CUV. It's too heavy though, and sales have been low. The Saturn Outlook is one of the much-praised three-row GM crossovers. Chevrolet, Buick and GMC sell their own versions of the same vehicle, and there's just not enough market to support four versions of the same vehicle. The Saturn Sky, a two-seat convertible sports car, was never meant to be a high volume seller, and that's good, because sales haven't even met expectations.

Now that General Motors is effectively insolvent, GM has announced that it will no longer develop new Saturn models. There is talk that the dealers may take over the brand and source models from any manufacturer that will cut a deal with them, but there are a lot of obstacles in that plan. The primary obstacle is that nobody has figured out how to pay for it. GM tried putting Saturn on the market, but there were no buyers.

Here's my solution: give Saturn to Chrysler. Technically, GM wouldn't give Saturn to Chrysler, it would trade Saturn for Chrysler stock, but since Chrysler stock is worth next to nothing, it would effectively mean giving it away. Nevertheless, giving Saturn to Chrysler would solve problems for both companies.

Chrysler's biggest problem is almost the exact opposite of Saturn's. Chrysler doesn't have enough cars to sell. Chrysler has plenty of trucks, way too many, but cars worth selling are in short supply. When Daimler owned Chrysler, the new card development budget was whacked. Chrysler's designers were under pressure to use bargain basement parts wherever possible, and that penny-pinching was reflected in the quality of the cars. The newer car models have been savaged by critics and have proven to be much less reliable than average. The Dodge Caliber and its siblings are Chrysler's "small" cars, but they have trouble matching the fuel economy of midsize cars. I have joined the Chorus of people deriding the Chrysler Sebring for its looks, and it doesn't perform any better than it looks. The Dodge Avenger? See Sebring. Chrysler's 300 series was a hit when it was introduced, and it has some merit, but it's getting long in the tooth, and it's not enough to build a company upon. Compounding the problem with Chrysler's cars is that it has nothing int he pipeline to replace them over the next two years. Even a Fiat Merger won't do anything to help in the next two years. If the government props up Chrysler as expected, for two years or more, the government will have to cover the losses of a car company without cars to sell.

Here's how Saturn can help Chrysler, by merging Saturn with Chrysler, Chrysler dealers will have competent cars to sell much sooner than they could acquire them from Fiat or develop them in house. Suddenly Chrysler would have a competent small car (the Astra), Midsized car (the Aura) and small sporty car (the Sky). The Vue could fight it out with the Dodge Journey to see which is the survivor. The Outlook can either be dropped or serve as a complement to the Chrysler minivans.

Chrysler would help Saturn by giving Saturn a broader range of products including Dodge trucks and Jeeps. Later, there would be the potential to gain from The Chrysler/Fiat partnership and possibly through a partnership with Opel as well. The Saturn models would have better distribution, especially in rural areas that don't have a stand-alone Saturn dealership. In fact, this combination could take the form of a new keiretsu made up of GM, Chrysler, Fiat and Opel, with cross-ownership of stock all around. The product-planning model would be similar to that used successfully by Renault/Nissan and Ford/Mazda. GM can wholesale product to Chrysler in much the same way that Chrysler builds and wholesales the Routan for Volkswagen.

There are a couple problems with my solution, first is that it would exacerbate what is considered to be a current problem with Chrysler: too many dealers, as current Saturn dealers would be added to the Chrysler Dodge Jeep dealers. Personally, I've always thought that problem was overrated. Rhetorically, I counter: which problem would you rather have, too many dealers, or not enough product? Since the Saturn-Chrysler combination would likely occur in the context of Chapter 11 proceedings by GM and Chrysler, the dealer problem can be resolved through the Chapter 11 plan. The second problem would be too many models and brands. Again, which problem would you rather have, too many names or not enough product?

In summary, a Saturn-Chrysler combination solves a product problem for both Chrysler and Saturn. It increases fratricidal competition between dealers, but all of these dealers aren't going to make it anyway, the fittest will survive. Similarly, the car and truck models that are the fittest will survive. For a government-created enterprise that's a lot of Darwinism. Welcome to the new world.

Wednesday, April 29, 2009

Chrysler Bankruptcy Likely Tomorrow?

Multiple sources say Chrysler is likely to file bankruptcy tomorrow (Thursday). There are several holdout creditors that refused the haircut terms that the major secured lenders approved. The government even raised the offer by $.25 billion, to $2.25 billion, but it didn't work.

Actually, I wouldn't be surprised if Chrysler didn't file Chapter 11 tomorrow because I don't see what the hurry is at this point.

More later - maybe

Tuesday, April 28, 2009

Chrysler, Treasury Dept. and Lenders Reach Tentative Deal
Combined with UAW Agreement - Chrysler is Making Progress But Still Faces Rough Road

Multiple sources are reporting that there is a tentative deal between Chrysler, the Treasury Department and Chrysler's secured creditors that involves the creditors taking $2 billion and writing off the remainder of their $6.9 billion debt.

News reports about yesterday's UAW deal with Chrysler focus on the fact that the UAW will own a 55% equity stake in Chrysler. The news reports don't mention something that I'm assuming has to be a fact but has not been confirmed, that this equity stake will be divided into multiple trust funds. Some funds will belong to the general membership, some will belong to the healthcare VEBA, and some will belong to the pension plan. Each of these entities has a different trust structure and subtly different fiduciary duties. If this type of ownership continues it could be problematic at the time of the next collective bargaining agreement.

With fires put out concerning the secured creditors and the unions, Chrysler's and PTFOA's attention can shift to issues concerning Chrysler's cash needs and long term viability. Integral to that is the Fiat/Chrysler combination. The government has indicated a willingness to put $6 billion into Chrysler if it can demonstrate viability. The problem is that Chrysler has been losing $1 billion a month in recent months. It can take half a billion or a billion dollars to retool a factory to build a new model. Chrysler will have to retool three or four plants to build Fiats to make the merger worthwhile. The first Chryslerfiats won't be ready until 2011 at the earliest. It becomes readily apparent that $6 billion is just a drop in the bucket.

How much more cash will Chrysler need - from the government or elsewhere? How much is rational to spend? Let's assume for the sake of argument that Chrysler turns its operations around and starts making half a billion a month in profit, or $6 billion a year. The auto industry in good tiems supports a 7.5 price/earnings ratio, so a fully functioning Chrysler would support a market cap of $45 billion. To get there, you might have to come up with $15 billion for interim losses, $8 billion in retooling, $8 billion in R&D for a couple more mainstream domestic models. That's $31 billion. Keep in mind though, you aren't going to be able to sell all the stock to raise money for the company. Fiat will have 20 to 35%. UAW trusts will have up to 55%. Treasury will have ?
The bottom line: the math is still tough.

If the math doesn't work, I don't think PTFOA should force it. Instead, they should step back from the Fiat plan and look back at the possibility of combining General Motors with Chrysler. If we're going to have an automaker that is nationalized for public policy reasons, you might as well be honest about it. By combining the two, you can make more strategic decisions regarding capital budgeting and eliminate duplicate costs. One bureaucracy can handle such necessary tasks as repurposing shut down plants and retraining displaced workers. You would also minimize the situation that we have now, and that's the problem with Chrysler selling its vehicles at firesale prices just to move them of the lot, contributing to a problem with gross margins across the industry.

Monday, April 27, 2009

Pontiac G8
Future Classic

Watch 2009 Pontiac G8 GXP in Autos & Vehicles  |  View More Free Videos Online at

The blogosphere is full of mourning over the loss of Pontiac. Pontiac was an underachieving brand, but it was OUR underachieving brand, damn it!

Fritz Henderson indicated that Pontiac's cars would not be resurrected under new badges. That means goodbye to the Solstice, Goodbye to the Vibe, and sadly, goodbye to the Aussie musclecar, the G8. Oh, G8, we hardly knew ye. I'm sorry I left you alone on that dealer lot all those cold lonely nights. The G8 was not a sales success, but it got generally good reviews. More than anything else, the G8 is a victim of lousy timing. The 2008 Model debut coincided with $4.00/gallon gas prices. The 2009 model arrived with the general economic freefall.

Ironically, with all the attention being paid to the passing of Pontiac, the G8 is finally starting to get noticed. My old superhero buddy, the GOOGLETEER, flew in the window and did this web search

"Pontiac G8" (and) future-classic

and the search returned 20,200 hits.

If you act now, you should be able to get a discount and some incentive bucks. I bet a month from now, it will be a different story entirely.
GM Lays its Last Card on the Table
- Last Ditch Plan to Avoid Bankruptcy Announced Today Including Reverse Split

This morning, GM CEO Fritz Henderson held a press conference and announced what appears to be GM's last non-bankruptcy restructuring plan. This plan seems to be more what the government was looking for all along, but it may be too late to avoid Chapter 11 bankruptcy. If I understand the plan, it offers bondholders 10% of their money plus collectively 10% of the stock in the company. The union and retirees get stock for their pension and healthcare givebacks, and the government gets stock for the bailout money. Existing shareholders would retain only 1% of the equity in the restructured company. To do this, GM will execute a 100-1 reverse split, trading 100 shares of current GM stock for 1 share of reorganized GM stock. The government would end up being GM's largest shareholder, which, when you think about it, is appropriate since the government will be providing all the money not just to clean up all old obligations but to pay for future operating losses and restructuring costs as well.

Ninety percent of GM's bondholders must agree to the restructuring for the plan to take effect; otherwise, it's Chapter 11 time.

In other news, Pontiac will be gone. Numerous factories will be closed. More than 22,000 workers will be cut, though not all at once, perhaps 7,000 or 8,000 of those workers will be production workers.
Things to do When you have Too Much Time on Your Hands
1. Build 1/10 Scale Saturn V rocket

Breaking NEWS: Tentative Chrysler Labor Pact with UAW

Just in time for the Monday morning news, Chrysler announced a tentative give-back deal with the UAW. Terms have not been detailed, but apparently the cash contribution Chrysler owes for retirees will roughly be cut in half, with the employees receiving an equity stake in the new company. The plan presumes that Chrysler will file Chapter 11 bankruptcy.

The deal with the UAW also includes some undisclosed cuts to benefits, but the particular benefits have not been disclosed. The deal with the Canadian Auto Workers included elimination of tuition assistance, car discounts and (at least a cutback in) the legal services benefit. L

Sunday, April 26, 2009

Friday, April 24, 2009

CAW and Chrysler Reach Deal
$19.00 per hour savings without base wage cuts, huh?

Tonight Canadian Auto Workers (CAW) president, Ken Lewenza, announced a concessions agreement
with Chrysler. Chrysler threatened to close all Canadian operations unless the CAW agreed to reduce labor costs by $19.00 per hour to reach parity with Toyota of Canada. The total annual savings are supposed to amount to $240.00 per year.

Tonight Lewenza said that the negotiators had met their target. The agreement will save $19.00 without reducing the base hourly wage for the production workers.

What exactly the workers will be giving up wasn't itemized. Personally, I have a hard time believing that the net results will be $19.00 per hour.

How do you save $19.00 per hour without reducing hourly pay? Maybe they're using American hours now.

Speaking of the New York Times. That paper has an excellent explanation of MERS. MERS, or Mortgage Electronic Registration Systems, holds the mortgages for 60 million homes according to the article. Usually MERS calls itself the "nominee" of the true mortgage holder. If you went to lawschool and don't know what a "nominee" is, well you're in company with everybody else. The status of a nominee is not necessarily addressed in the statutes or case law of most states.

The true effect of MERS is to obscure ownership of the mortgage, hide problems with sloppy and imprudent securitization, and indirectly make it virtually impossible to work out a loan modification in time to prevent foreclosure.

What the lenders should have done if they wanted/needed a thjrd party to hold mortgages through multiple assignments is to have put together a committee attached to an organization for uniform state laws and created a model uniform law for Mortgage nominees. It's still not too late to do so. The law should spell out the rights and duties of Mortgage nominees and include provisions for transparency and consumer protection as well as lender convenience.
IF Bankruptcy
THEN What about the Pension Funds?

I'm getting a lot of calls from autoworkers asking what's going to happen to their pension income. I politely tell them I don't know. The New York Times has an article that sheds some light on the issues. It appears that GM's pension plan was better funded than Chrysler's. Cerberus may have a contingent obligation to cover part of Chrysler's shortfall. It also appears that how much your benefits will be cut (if at all) may depend upon your age. Some of the people interviewed by the NYT are concerned that if GM and Chrysler go bankrupt, defined benefit (traditional) pension plans will soon be as extinct as the dodo bird.

Quoting some highlights of the NYT story:

The government estimated that Chrysler’s plan was $9.3 billion short as of last November — but said it would be responsible for only about $2 billion of that. Most of the shortfall would be sliced from workers’ benefits. At G.M., the estimated shortfall was $20 billion as of last November, but the government would assume $4 billion of obligations and G.M.’s workers would lose the rest.

When Daimler sold a majority stake in Chrysler in 2007 to a private equity firm, Cerberus, it promised to pay $1 billion into the government’s pension insurance program if the pension plan failed within five years. The Treasury could try to persuade Daimler to put some of that money into the plan to avoid a failure.

. . . .

The pension insurance agency, currently operating with an $11 billion deficit, has long viewed the automakers’ plans with anxiety, though its officials declined to discuss the situation. G.M.’s plan alone is bigger than the guarantor. The agency has roughly $67 billion in assets to cover the benefits of nearly 4,000 failed pension plans; G.M. has $84 billion in trust just to cover promises to its own workers.

. . . .

The government’s maximum benefit is $42,660, but coverage falls off rapidly for workers who are younger when their plan fails. For a 55-year-old, the maximum is only $24,300.

Thursday, April 23, 2009

Meanwhile, Back at General Motors Part II
General Motors Isn't Going to Make June 1 Debt Payment

GM Decides not to Make $1 Billion Payment

GM's CFO, Ray Young, told the Wall Street Journal Wednesday that GM isn't planning on making a loan $1 billion loan payment that's due June 1. It really couldn't get more crystal clear, either GM gets its loans restructured before June 1 or it goes Chapter 11.

BTW, Automotive News online ( free this week. Usually you have to subscribe for about $100/year to get acess to everything.

Let's see, how about a link to a marginally relevant video? How about Money, Money, Money by Bjorn Again. If you can find it, Bjorn Again, Live at the Royal Alpert Hall is a killer DVD. Here's a link to the CD, selling for $68.99 as an import on

Meanwhile - Back at General Motors . . .
Most Plants to Shut Down All Summer

General Motors announced that it was planning on idling most of its US plants for up to 9 weeks this summer to adjust inventory. Total inventory as of April 1 was 122 days. Industry average now is about 83 days, and optimal is 60. Some models have much more inventory than the GM average.

The shutdown let's GM accomplish a lot more than clearing inventory. It will lessen the supplier shock if Chrysler goes Chapter 7 and leaves key suppliers unpaid. In general, it allows GM to work itself into shape in a post June 1 environment that will be drastically different than the reality today.

The downside is that the shutdown will deprive GM of inventory of some key 2010 models that either are currently in production or are on the cusp of production, such as the Chevrolet Camaro, the Chevrolet Equinox, and the Buick LaCrosse.

Now for the marginally relevant Youtube Video - it's Shutdown by the Beach Boys. A song which should be in the Guinness Book of World Records for the worst simplest saxophone solo in the rock era. Take it away, Mike Love

Government Raises Offer to Chrysler Lenders

With just over a week left until the April 30 deadline, late on Wednesday the government raised its offer to Chrysler's lenders. The new offer: $1.5 billion in first lien debt and 5% of the company. This is a counter to the lenders' demand of $4.5 billion in first lien debt and 40% of the company. I predict the government will have to double this offer and add a little more to get a deal done. My prediction: if a deal is going to get done, it will get done at $3 to $3.5 billion in cash equivalents and up to 10% of the company.
Government Raises Offer to Chrysler Lenders

Wednesday, April 22, 2009

Flint, Michigan plans for "Shrinkage"

The New York Times has an article about a plan being proposed in Flint, Michigan which will actually shrink the size of the city to reflect its lower post-industrial population base. Twenty years ago, filmmaker Michael Moore highlighted the decline of Flint (his hometown) in his documentary, Roger and Me. Continued job losses at General Motors have made things worse in Flint since that movie was made.

In the shrinkage plan, foreclosed houses would go into a "land bank" and whole areas once industrial and residential will return to open space. According to Wikipedia, Flint's population now is a little over half of its 1960 peak of 200,000. By shrinking the city's physical size, public services could be delivered more efficiently and the city would be more resistant to urban blight.

If the shrinkage plan works, about the only thing Flint will need for a fresh start is a new name. I'm thinking "Costanzaville".

Tuesday, April 21, 2009

Chrysler's Creditors Make Counteroffer
Offer to reduce 35% of Debt & take Minority (40%) Equity

Chrysler (guided by PTFOA) wanted the major lenders to agree to reduce their debt to 15% of face value. The lenders didn't exactly jump at the deal. Chrysler's debt, unlike GM's, is mostly secured. According to the Wall Street Journal, the lenders think they could get about 65% of face value through liquidation. The lenders' counteroffer, conveyed this afternoon is to reduce their debt by only 35% and in exchange to take a minority stake in the company, 40% by some accounts. Oh yes, and they want Fiat to put some money into the company as well.

With only 9 days left until D-Day, April 30, this is looking like an especially challenging deal to get done. Perhaps Monty Hall could come out of retirement. (By the way, he's Canadian, so we'll have to keep an eye on him.)

Chrysler Turns Down Government Loan
- Instead of Capping Executive Pay

At the same time Chrysler LLC is telling the Canadian Auto Workers that they must cut their pay by $19 per hour, CNN has published information that Chrysler Financial turned down a government TARP loan because accepting the money would have meant putting an unacceptable cap on executive pay.

(Uupdate) The Detroit Free Press is more specific about what happened. According to the DFP, TARP requires that the top 25 highest paid employees sign waivers that they won't sue the government and the company if their compensation is reduced as a condition of government aid. Chrysler did not provide waivers from all of the top 25 executives.

Monday, April 20, 2009

Chrysler's Canada Problem

Reports circulating today discuss the possibility of Chrysler Canada going bankrupt and Chrysler pulling out of the Canadian market entirely. If this happened it would send multiple shocks through what's left of Chrysler. Demand for Chrysler vehicles in Canada would likely plunge. Right now, I would estimate that Chrysler has a lot larger % share of the Canadian market than in the US. Chrysler would also have a supply problem. The Windsor, Ontario is now the sole supplier of Chrysler's signature minivan now that the St. Louis facility has been mothballed. The 300-series and other "LH" cars are built in Brampton, Ontario. Even the halo car, the Dodge Viper, is made in Canada. I'm sure Chrysler did not budget on moving the machine tools for these plants to the USA.

Factory information via

The Pain in Spain is from Debt Collectors

Time Magazine has an interesting story about the rise of debt collection by public humiliation in Spain. Collectors dressed up in tuxedos or as bullfighters come to your door and follow you around the neighborhood until you pay.

Sunday, April 19, 2009

Oh Canada!
CAW Deadlock Front & Center On Chrysler Agenda

The Canadian Auto Workers union has so far rejected Chrysler's restructuring demands as Chryler scrambles to resolve unsettled issues regarding labor creditors and Fiat and put together a cohesive financial package by the end of the day on April 30th. I'm not taking sides. You can read about it here.

Instead, I'll change the subject. Here's a video from back when everything was happy & rosy in Canada. Take it away Robin Sparkles.

Why I don't Tweet:
I won't help Ashton Kutcher Destroy America

Ashton Kutcher recently set a milestone by being the first person with one million followers on the system. I'll be honest, I just don't get the attraction of Twitter. No offense, but I don't care what you're doing right now. As to what I'm doing right now: piss off. It's none of your business, and you've got better things to do with your time.

Not that I'm a purist about not wasting time. I do have a blog after all. I just don't need any more help. Look at the math.

If 1 million people spend 5 minutes a day following Ashton Kutcher that's almost two billion minutes worth of Ashtoneering.

1 000 000 x 5 x 365.25 = 1,826,250,000

Let's convert this to person-years, shall we using the conversion function of Google:

1826250000 minutes = 3,472.29639 years

Let's divide that into lifetimes: 3772.29 / 75 (average lifespan) = 46.3 person/lives being spent wasted by Ashton Kutcher each year. It's not fair. If the average person killed 46 (point 3) people, he'd get the electric chair. Ashton gets Demi Moore.

Let's look at another way, let's say that 1/2 of the time spent on Ashton Kutcher is spent at work when the person should be doing something else. How much productivity is being lost solely due to Ashton Kutcher?

1826250000 minutes / 60 minutes in an hour = 30,437,500 each year wasted by Ashton K.

(30,437,500 hours /2) * $25.00 per hour = $380,468,750 in lost productivity every year due to Ashton Kutcher.
Maybe we can turn this around though. Maybe we can make it work for us. We can create a new unit of money. Let's call it the Ashton unit. We'll take the $380,468,750 of productivity that is wasted on Ashton Kutcher each year and make that 1 Ashton-unit. Let's say we want to justify a bailout of GM. $17 billion sounds like a lot of money, but in terms of Ashton-units, it's really only 44.6 AU. It's quite cheap when you think of it that way.

The bottom line: I refuse to join Twitter. If I wanted to waste hours on Ashton Kutcher, I'd watch Dude, Where's My Car? on (again).

And now, on the topic of leaders & followers, it's time for our marginally relevant Youtube clip of the day - what a surprise - another Monty Python clip. Who'da thunk?

Saturday, April 18, 2009

Autonews: GM is Preparing "ALL EQUITY" Offer to Creditors

Autonews reported today (Saturday of all days) that General Motors is preparing a last ditch pre-bankruptcy offer to its creditors to effectively convert all of their debt into equity in the new (good) GM. This would apparently include the bond holders, the government, and at least to a certain degree, the underfunded pension and VEBA obligations.

Personally, I don't see this happening. Perhaps if Fritz softened them up with this classic Guess Who tune, they just might make it work.

Friday, April 17, 2009

Dow Jones and the Industrials

I was a student at Purdue University from 1979-1982. During most of that time, the top local band was a group of mostly students that called themselves Dow Jones and the Industrials. A bunch of their old stuff has hit the web and generated a mini-revival. Here's a clip of their song USA. Thanks for making school full of engineers and farmers hip, guys.

CIA Interrogation Memos Released

The CIA released records from the Bush Administration years detailing its interrogation methods. Waterboarding -yes, sleep deprivation - yes, slapping - yes, the Spanish Inquisition. I wasn't expecting the Spanish Inquisition!

Not the Soft Cushion! Not the Comfy Chair!
Henderson's View of the World 4/17/2009
Nothing to see here, move along

GM CEO Fritz Henderson had a conference call with analysts and reporters today to go over GM's restructuring plans. Judging from this article just posted on, the conference was anticlimactic. He said that bankruptcy was likely but "not preferred". Refuting yesterday's lead stories, Henderson said GM remained committed to four "key" brands, Chevrolet, Cadillac, Pontiac, and GMC. (Pontiac?) There's nothing in the USATODAY writeup about Buick, but honestly, Buick doesn't cost GM much to keep around. There are only three models, and it shares dealerships with Pontiac and GMC. It's worth keeping around just because the Chinese like it.

What about the other brands? Henderson said that they have received three bids for the Hummer brand. No word on if any of these bidders actually had a positive eBay history. Without specifics he said he has received indications of interest in Saab & Opel. He said that the retail parts brand, AC/Delco is not up for sale.
NYT Talks about Hypothetical GM Bankruptcy

The New York Times published an article discussing some potential hangups and delays in a GM chapter 11 bankruptcy. I don't have time to get into it. Check out the original here. (Free registration required.) Thanks to Steve B. for the link.

Thursday, April 16, 2009

GM to Axe 1700 Dealers by June 1?
Talk of Shutting down Pontiac and GMC as Well

I debated even posting this, because this type of news story is maybe only one step removed from being a rumor. That being said 1700 dealers times 50 jobs per dealer is a job loss of 82,000 people. That's enough people to fill up a football stadium and more than the total active UAW workers that work for GM, so you can say it would be a big deal. Yet, although that's a bunch of people, if each of these dealership employees makes $50,000, that's "only" a total payroll of $4.2 billion per year. When you are throwing around billions in stimulus bucks, you really do have to make choices.

Tuesday, April 14, 2009

Implode-O-Meter gets Slapped

I have written about the Implode-0-Meter website a couple times in this blog. Implode-O-Meter was one of the first websites to coherently describe how the sky was falling in the mortgage markets. Here's what I wrote about Implode-O-Meter on February 8, 2007, more than two years ago:

Thursday, February 08, 2007
The Mortgage Lender IMPLODE-O-METER
Chronicling the Opening Shots of the Great 2007 Depression

In the news today, giant British Bank HSBC announced that it was going to make a financial reserve against expected losses in the range of $10.6 billion. That amount is the same order of magnitude as the cost of the 25,000 troop "surge" in Iraq. HSBC's stock has taken a 2% hit on the news. In fact, HSBC's $10 billion charge is just the tip of the iceberg when it comes to financial losses relating to bad mortgage loans. For years now, the mortgage industry has played loosey-goosey with other people's money writing loans that no thinking person would write: no-doc loans, 120% loan-to-value, 100% subprime with exploding interest rates . . . the list goes on.

While the real estate market was hot, the bad loans could be covered by increasing home values. Now that the market isn't hot, stupid loans can turn a burst bubble into a death spiral in many areas. Bad loans result in foreclosed and abandoned properties, which results in lower home values for neighboring properties, which causes an inability to refinance, which causes more defaults and foreclosures, etc. etc. etc. Ultimately, the total cost of the bad loans could exceed the cost of the Iraq war. In fact, I've heard the number TRILLION seriously discussed in relation to this mess.

All of this gets to the central link of the post. A guy named Aaron Krowne runs a blog called the Mortgage Lender Implode-O-Meter. This blog is an excellent source of information and perspective on the troubles in the mortgage industry. Since December 2006, Aaron has tracked news stories announcing the demise of 19 mortgage lenders. It's amazing that this subject has gotten less attention in the press than Britney's style of exiting a limo.

Right now there are hearings in Congress concerning possible legislative remedies for abusive mortgage loans, but as far as the current crisis goes, that's like closing the barn door after the cow has escaped. It looks like the economy is just going to have to take its lumps. I just have a bit of concrete advice. Get out of any financial services mutual fund that you may have, and watch your bond funds carefully. If you have a bond fund that invests heavily in mortgage-backed securities, get out now.

(I may have predicted the crumbling of the mortgage markets, but I later learned that it's not so easy to find a mutual fund that doesn't have exposure to financial institutions or mortgages. I didn't follow my own advice, and I lost as big a share of my 401k as everybody else. Oh, well.)

Anyway, back to Implode-O-Meter, a company called The Mortgage Specialists Inc. sued Implode-O-Meter for publishing unflattering information that was allegedly leaked by disgruntled employees. Implode-0-Meter took down the offending information but refused to disclose its sources. Mortgage Specialists sued and a state court judge in New Hampshire ruled that Implode-O-Meter must disclose its sources. I really hope Implode-O-Meter appeals this one. If I find out more information I will post an update.

The UAV War - Is Terminator Coming to Life

In an essay titled Tomgram: Filling the Skies with Assassins, Tom Engelhardt alerts us to the possibility that the US may be leading the world in an unmanned aerial vehicle arms race that is expensive now, and might come back to bite us later if military-style UAVs are used for domestic survailance, or if an adversary develops UAV technology and starts flying drones over the United States.

I'm not sure what should be done about the problem from a policy perspective, other than keep reminding ourselves even though we as a society control a weapons system that allows our people to kill wihtout getting their fingernails dirty, we still have the moral imparative to make sure that we are fighitng a "just war".

Picture credit MQ-9 "Reaper" via US Air Force via

Monday, April 13, 2009

Government Tells GM to Prepare for Bankruptcy

GM has until June 1 to have its ducks in a row or face the wrath of the PTFOA. The President's Task Force on Automobiles ) has directed GM to prepare detailed bankruptcy plans before that date.. AsI mentioned last week, the expected plan would have GM's performing assets, (mainly) Chevrolet, Cadillac and GM China split off in a new corporation - call it "New GM" or "Good GM". Everything else would be kept in the current shell. Call it "Old GM" or "Bad GM". This general framework for a bankruptcy hasn't changed since last week. What has changed is the prospects for workout outside of bankruptcy. These prospects are looking weaker and weaker as bondholders haven't shown any indication that they are willing to make enough concessions to cut a deal.

If there is a bankruptcy, the New GM could emerge from the bankruptcy in as little as two weeks after the filing. The old GM would be liquidated over several years. I assume (yeah, I know) that the new GM will have a collective bargaining agreement with the UAW to avoid unrest and political blowback. I have know idea what the terms of that agreement will be.

Now, here's the marginally relevant Youtube video of the day. A clip on the subject of preparation by singer, songwriter and math professor Tom Lehrer, a man who is not only brilliant enough to have earned his B.A. in Mathematics at age 18, he also is credited as the inventor of the jello shot. Happy belated 81st birthday Tom (April 9). Now, everyone go buy one of his albums so he doesn't get mad at me for embedding the clip.

Saturday, April 11, 2009

Start Spreadin' the News
2011 Jeep Grand Cherokee Debuts in NYC

Chrysler has exactly 19 days to finalize its merger with Fiat, resolve an impasse with its secured debt lenders, tie up a bunch of other loose ends and present its new self to the PTFOA (that's the President's Task Force on Automobiles to you and me). If it doesn't, then the feds turn off the money spigot, and per Standard & Poor's, Chrysler will be headed for a liquidation rather than a reorganization.

But let's say Chrysler gets all this pesky paperwork stuff done and emerges as the "new" Chrysler in 19 days, what kind of products will the new Chrysler sell? The answer is, for the first year or so, pretty much what's in the stores right now. For model year 2011 (starting as soon in 2010 as Chrysler can push the metal through the doors), Chrysler aims to introduce a re-skinned Chrysler 300 and a brand new Jeep Grand Cherokee. If are quick at getting their ducks in a row, some rebranded Fiats may be available about the same time. The initial Fiats will likely be imports. It will take a minimum of two-years for the first Fiat clone to come from a retooled US factory.

Chrysler showed off the 2011 Grand Cherokee at the New York Auto Show this week. David Zatz's site has an extensive write-up on the new Grand Cherokee and its new 3.6 liter v-6 engine. The new Grand Cherokee's chassis was co-developed with Mercedes. The V6 engine, formerly called the "Phoenix" but now called the "Pentastar" is the first of a new family of engines that are supposed to migrate to most of Chrysler's products. What is the new Grand Cherokee like? It looks a lot like the current one with the lines smoothed over and a modern-looking interior replacing the 90's look of the current model.

In this particular case, the debut of the Phoenix/Pentastar engine is at least as important as the debut of the Grand Cherokee. The Phoenix engine was supposed to be paired with a new dual-clutch automatic transmission, and the pair was supposed to breath life into Chrysler's somewhat tired product line. The dual-clutch transmission was canned early this year because Chrysler and its manufacturing partner, Getrag, couldn't agree on who was supposed to pay to equip the brand new factory that they built. That leaves it to the engine itself to keep the lights on at the current Chrysler factories. The initial version of the Phoenix/Pentastar will displace 3.6 liters and yield 280 horsepower. This is competitive with similar-sized mainstream engines available today, but several manufacturers already sell similar engines that are more powerful yet still economical. GM ranks with the leaders in this engine class. Unlike the Pentastar, GM's 3.6 liter engine already features direct injection to improve power, economy and emissions, and GM makes D.I. available on mainstream models like the Chevrolet Camaro (300 hp)and Traverse (286 hp). The 2011 Grand Cherokee is expected to have EPA ratings of 16 city and 23 highway with the V6. Chrysler says its V6 will be cheaper to produce. We'll see.

Friday, April 10, 2009

Title Company Exec Runs off with the Dough Leaving Homeowner SOL - Maybe

The Home Equity Theft Reporter blog has some great stuff, like this story about a title company exec in Louisville, Kentucky who ran off with the proceeds of a home refinancing transaction, leaving the homeowner with no money to pay off the old mortgage and "facing foreclosure". For agency law wonks: who bears the loss here, the homeowner or the new lender? What do you think?

(I'm not sure the homeowner is facing foreclosure at all. If the escrow agent didn't deliver the proceeds, it seems to me the homeowner doesn't have to pay the new loan. She still has to pay the old loan though, but she's no worse off than she was before.)

And now a marginally relevant Youtube link. RIO, a pretty decent Elvis impersonator, doing Kentucky Rain.

Mortgage Crisis - Beginning of the End or End of the Beginning?

We've had our first hints of good economic news lately, the stock market is back up to 8,000. Auto sales stopped going down. Summer is coming and government stimulus money should start working its way through the system in significant quantities soon.

HOWEVER, perhaps the biggest precipitating event of this recession/depression was the effect that underwater securitized mortgages had on your financial system. Many of the securitized subprime mortgages have been absorbed into the system, but the number of "Alt-A" Option-ARM adjustible rate mortgages subject to reset is actually going up, and will for some time. While some prognosticators claim that this will be the source of several rounds of crisis points like we suffered last fall, it all depends. If rates stay low, and credit is available to refinance the exploding ARMs, the rate changes might not be a big deal. To paraphrase Duran Duran, every little thing the reset does is answered by a question mark.

Thursday, April 09, 2009

From the WTF File:
Wells Fargo Posts Record 1st Quarter Profit

Wells Fargo Bank, which took $3 billion in government TARP money just a few months ago just posted a record profit for the first quarter.

This might just be a foretaste of huge profits by banks that aren't complete basket cases. The spread between what banks pay for money and the interest they charge is near an all time high. While credit card defaults are going up and now around 10%, the fact is, credit card issuers are wellcompensated for this risk when they can borrow money in the low single digits, charge their low-risk customers 14%, their high risk customers 22%, and their late customers 36%. That's not to mention the late fees & over limit fees and other outrageous practices.

Outrage at banking practices may be high enough now for credit card reform legislation to finally make its way through Congress. Perhaps we can say goodbye to universal default clauses, two-cycle billing,

Businessweek: Chrysler in Standoff with Banks

Businessweek is reporting that Chrysler is in a standoff with its lenders on debt reorganization that is key to closing the Fiat merger and government aid. Much of Chrysler's debt is secured debt, and as such, the creditors would have a preferred position if Chrysler were to file bankruptcy. So far, Chrysler hasn't come up with terms for reorganization that are juicy enough for the lenders to give up their collateral.

Which brings us to our marginally relavent video clip. Since Chrysler is in bed with Fiat, and there's some lingering German presence, how about a clip from an Italian Western dubbed in German?

Tuesday, April 07, 2009

2010 GMC Terrain -- the new Family Truckster?

The GMC Terrain will replace the Pontiac Torrent. It's a reskinned version of the redesigned 2010 Chevrolet Equinox. (More on the Equinox in a later post.) IMHO, this is just too similar to the Family Truckster from National Lampoon's Vacation.

Left GMC Terrain Right Family Truckster

Sunday, April 05, 2009

Autoblog: GM Bondholders might WANT bankruptcy - A troubling AIG tie-in

Here's a link to a post on that discusses the possibility that a good portion of GM bondholders might be trying to force GM into bankruptcy. Although bondholders are whining that they are not treated as well as some other unsecured creditors (think labor) in out of court plans proposed to date, the fact is that many of the current bondholders may have bought their bonds at 10-20% of face value. The irony is that some of these bonds may be backed by credit default swaps issued by AIG and backed 100% by the United States Government. Bankruptcy would be a triggering event for the Credit Default Swap to pay out, thus bondholders may be holding out for a bankruptcy to make a 400% profit courtesy of the US government. Now some of this may be speculation by the folks at Autoblog, but you get the sense that things are so screwed up right now that it must be true. For more on GM and the politics of bondholders, check out this article.

Who is Fritz Henderson?

It's been a week now since the Obama was dropped on Rick Wagoner. Since then, Frederick "Fritz" Henderson was named CEO of General Motors. What do we know about this guy? According to Wikipedia (which is never wrong), Fritz is 50 years old and has been with GM since 1984. He's been all over the world heading this and that for the General, from Brazil, to Singapore to Switzerland. He has a BS in Management from University of Michigan and a Harvard MBA.

Here's a picture of Fritz by himself, and one with his whole family.
Ode to a Grand Caravan

I just returned from a week in Washington D.C., visiting my money. This was a driving vacation, and it was made painless, even enjoyable, thanks to the creature comforts of our 2006 Dodge Grand Caravan. I've given Chrysler quite a bit of flack lately, much of it for lack of depth in their product line and for lack of quality control, but I have to say that in the 2 and a half years that I've had my minivan, I have had no significant problems, and it has been a top notch family traveling partner.

For our family of 4, we flop the small side of the 3rd row seat flat, and use the space for a cooler. The middle seats can be pushed back to nearly limo-like legroom, with much equipment stowed in the Sto'n'go compartments under the floor. The kids can watch dvd's and play video games in silence while the parents listen to satellite radio up front. In the old days, when the kids fought more, it was very useful to be able to separate them into separate rows. Now we mostly use the third row to hold stuff.

The most striking thing about the Chrysler minivans is the potential for very decent highway fuel economy. For about half the price of the $50,000 Hybrid Chevrolet Tahoe, you get just as much useful room, with superior highway MPG. For the last leg of our trip, from West Virginia to Indianapolis, the trip computer recorded a record high indicated 27.4 mpg. (Based upon past experience, the measured MPG will be about 1 MPG less.) Conditions: 2006 Dodge Grand Caravan SXT (3.8L-A4) Load - 4 adult-sized occupants, a full cooler and a week's luggage. Preparation: 35-psi in the tires and a freshK&N air filter. Conditions: hilly to rolling terrain, cruise control on 65-70 mph, air temperature 50-60 degree air temperature and a predominate slight crosswind. I'll be curious to find out whether the K&N air filter made a significant difference. If I notice a significant difference in MPG, I'll post.