Jaguar CX - 75

One of the major complaints about electric cars is that they are so ugly looking and slow. The G-Wiz is often the butt of so many jokes, Jeremy Clarkson in particular like to make fun of the car.

Anyway, the new breed of electric cars are changing people's perception of electric cars. They look sexy and are fast.

I blogged about the Jaguar CX - 75 concept some time back. Here are some pictures of this sexy car from Jaguar.

First Leaf electric car goes to Nashville family

According to a news report, a family in Nashville, Tennessee, US, has become the first family to receive keys to the much talked about full electric car - the Nissan Leaf. This car won the Car of the year 2011 - the World's first electric car to win this award.



Actually the report might be wrong because the first person to get the Leaf in the US is Tour de France champion Lance Armstrong, the official spokesperson of Nissan Leaf.

The Leaf will be available in the UK in March next year and will cost £23990 after the £5000 Govt. discount.

Can you handle Italian passion?

Alfa Romeo has come up with a naughty interactive video.

So, do you want to interact with this passionate yet seductive Italian woman?

Update: The Alfa Romeo Italian passion mini site is no longer online.

Buying your last new car

Mike Smitka

Retirees have been good car customers the past decade, particularly those who retired in 2005-2007. Will the next decade will be a different story? -- initial data suggests "yes." And it won't be a good one.

A recent working paper^[1] by Wade D. Pfau at the National Graduate Institute of Policy Studies in Tokyo argues that data show the likely financial status of retirees in 2000 -- not a bad year -- will be worse than for any group since 1926. The basic issue is that returns on investments are low; the "rule of thumbs" for how much you needed to save and the rate at which you could draw down savings are proving optimistic.

Pfau examines the long-accepted 4% rule of thumb for an equity investments: that it's safe to draw down that much of principle. But he finds that US returns during 1926-1980 were higher than they have been during the past 30 years. Furthermore, they were higher than in a wider sample that includes 17 other developed countries and a longer time period; in many cases, a 3% rule of thumb was too optimistic. The past is no guide to the future, but will we see a return of historic dividend levels and capital appreciation anytime soon? Never mind bond performance -- with near-zero interest rates, that's no help for the average investor.

Part of what happens is that down years accentuate the depletion of assets, and down years early on do the greatest damage. That is, those who retired in 1999 and 2000 had to liquidate a larger than anticipated share of their holdings in the bad years of 2001 and 2002. Even though asset prices recovered for the next 5 or so years, that didn't help because they'd sold off so much of their portfolio. Those who retired early were the most vulnerable, in what Pfau notes the finance literature calls "reverse dollar cost averaging."

So what of recent retirees, many of whom saw their paper wealth and chose to stop working at comparatively young ages? I fear the worst. Recent losses on assets make "downsizing" housing, the biggest component of wealth, problematic. The bond component of portfolios is earning almost nothing (though if an individual was prescient and held only "long" bonds they'd have a nice capital gain -- but if they saw the future that clearly, they are probably still working...). The initial hit to stock portfolios was huge, and many invested aggressively. Of course inflation is low -- unless you have a less-than-golden healthcare policy. Or have an old home that isn't well insulated, and, since you're home all the time, you keep constantly warm.

The logic and data of Pfau's article is thus quite unsettling, even if (as he notes more than once) the past is not a good guide to the future. His references though don't suggest that the future will be rosy: John Bogle's Enough: True Measures of Money, Business and Life, John Wiley, 2009; Dimson, Marsh and Staunton "Irrational Optimism" from the Financial Analysts Journal 60:1, 2004; and John West, "Hope is Not A Strategy," Fundamental Index Newsletter, October 2010.

Of course we could be on the threshold of an era of strong growth. But my position as an expert on the Japanese economy is clear: their "lost decade" and what the US is looking at are analytically similar (though our growing population should shorten the period of stagnation).

For the auto industry, that means that a higher than normal share of the baby boomers have already bought their last new car.

[1] See Will 2000-era retirees experience the worst retirement outcomes in U.S. history? A progress report after 10 years by Wade D. Pfau.
Note that I have not looked for data on new car purchases by retirees; my small sample of relatives and neighbors may be sorely misleading. If you have such data, please let me know!!

BMW launches three new BMW 1 Series models

BMW has just announced the launch of three new BMW 1 Series models. This includes the much anticipated BMW 1 Series M Coupé which will be arriving in the UK in May 2011. It will cost £39,990 on the road including delivery, number plates, first registration fee and BMW Emergency Service.

The new BMW 1 Series Coupé and Convertible will be released on 26 March 2011.

Updates to the design includes a new front end and lighting giving them an even more athletic appearance.

2 Lotus F1 teams

Latest press release from Lotus.

Group Lotus plc and Genii Capital are joining hands and we will soon see the Renault F1 Team renamed as ‘Lotus Renault GP’ from the start of the 2011 racing season onwards.

Group Lotus plc will acquire a major equity stake in the team from Genii Capital. Genii, an investment holding company with a portfolio of automotive technologies, bring non-F1™ technologies such as lightweight braking systems, variable compression engine technology and on board software systems to the partnership. In addition to this, Genii is also offering Proton the ability to leverage on its existing business relationships in Russia and other parts of the world, as a means to expand Proton's global reach. Through Genii, Proton can also potentially access advanced automotive technologies by virtue of Genii’s association with Mangrove, a venture capital group.

However, I wonder where that leaves Team Lotus (also powered by Renault) led by AirAsia CEO Datuk Seri Tony Fernandes.

Some quotes:

Group Lotus CEO Dany Bahar:

"I can think of no better platform for automotive brand communications than motorsport and F1™. We’re well aware that there has been a lot of controversy around the usage of our brand in F1™ and I’m delighted to be able to formally clarify our position: We are Lotus, and we are back.”

Dato' Sri Mohd Nadzmi Mohd Salleh, Chairman of Proton, Lotus majority shareholder:

"We know that Group Lotus has much to offer Formula 1™ and vice versa. After careful consideration, we believe this arrangement will be fruitful, both from a commercial and marketing point of view."

Tun Dr Mahathir Mohamad, Proton advisor and former Prime Minister of Malaysia:

"This is an exciting development which delivers strategic benefits to both Group Lotus and Proton. I fully support the partnership."

Carlos Ghosn, Chairman and CEO of Renault:

“This multi-partner alliance will bring a new dynamic to the team and enable it to compete with the sport’s best from next season.”

Gerard Lopez, founding partner of Genii Capital:

“For Group Lotus, access to Formula 1™ opens up new marketing opportunities and a major platform for business exchanges and development. In this regard, Genii Capital possesses shareholdings in, and direct access to, cutting edge companies in the automotive industry. Our tie-up with Group Lotus and Proton, which will enable its future road car ranges to take advantage of significant new technologies, is a natural step.”

Rise of the Electric Vehicles - the IDTechEx electric vehicle event in San Jose, California

The inaugural IDTechEx electric vehicle event in San Jose, California was a great success and it will now be repeated annually in three continents. The range of different electric vehicles on display was fascinating such as a Hawkes Ocean Technologies submarine, a 200 mph silent Formula One Racing car from Kleenspeed, etc.

BMW, Nissan and Fiat provided fascinating views and announcements as well. Detailed market statistics for all types of electric vehicle were shared at the event.

Professor Pietro Perlo of Fiat Central Research insisted that, for maximum benefits, vehicles must be "born electric". He is developing small pure electric cars because they have the clearest business case, being lower cost, not just non-polluting at point of use. However, he is cautious about the first generation in-wheel motors. Others are using them confidently.

On-road vehicle makers shun third generation traction batteries such as lithium sulfur, fearing for safety, but they are already used in electric aircraft and military off road vehicles. 1kWh/kg is achieved with lithium air and lithium water, where carbonate based electrolytes have proved a dead end. Presenter PolyPlus Battery Company claimed to have cracked this problem, having moved on from lithium sulfur focus. Indeed, with its compliant seal, its batteries are pressure tolerant for EVs at great depths under the ocean and rival the energy density of gasoline. 1 kWh/liter and 600 wh/kg are being targeted under a recent ARPA-E grant. This work and that of Sion Energy on lithium sulfur target 300 miles affordable range for pure electric land and air vehicles. Toyota and IBM recognise that here is the future. Meanwhile, 1.3 kWh/kg and 700 Wh/liter has been achieved with a damage tolerant lithium water battery for marine use that has no self-discharge. A pilot line is planned next.

Future of Electric Vehicles Europe will take place in June 2011 in Munich, Germany. Visit www.idtechex.com/evEurope for more info

George W. Bush 2002 speech on home ownership

David Ruggles

The following is posted as a reference to a book review I am working on. The book is "All if Devils are Here, the Hidden History of the Financial Crisis" by Joe Nocera and Bethany McLean

President George W. Bush addresses the White House Conference on Increasing Minority Homeownership at The George Washington University Tuesday, Oct. 15, 2002

THE PRESIDENT: …. I appreciate your attendance to this very important conference. You see, we want everybody in America to own their own home. That's what we want. This is -- an ownership society is a compassionate society.

More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a -- it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future.

We've got to work to knock down the barriers that have created a homeownership gap.

I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause) … And it's going to require a strong commitment from those of you involved in the housing industry…

I appreciate so very much the home owners who are with us today, the Arias family, newly arrived from Peru. They live in Baltimore. Thanks to the Association of Real Estate Brokers, the help of some good folks in Baltimore, they figured out how to purchase their own home. Imagine to be coming to our country without a home, with a simple dream. And now they're on stage here at this conference being one of the new home owners in the greatest land on the face of the Earth. I appreciate the Arias family coming. (Applause.)

We've got the Horton family from Little Rock, Arkansas, here today. … They were helped by HUD, they were helped by Freddie Mac. …

Finally, Kim Berry from New York is here. She's a single mom. You're not going to believe this, but her son is 18 years old. (Laughter.) She barely looked like she was 18 to me. And being a single mom is the hardest job in America. And the idea of this fine American working hard to provide for her child, at the same time working hard to realize her dream, which is owning a home on Long Island, is really a special tribute to the character of this particular person and to the character of a lot of Americans. So we're honored to have you here, Kim, and thanks for being such a good mom and a fine American. (Applause.)

I told Mel Martinez I was serious about this initiative… And the good news is, Mel Martinez believes it and means it, as well. He's doing a fine job of running HUD, and I'm glad he has joined my Cabinet. (Applause.)

And I picked a pretty spunky deputy, as well, Alphonso Jackson -- my fellow Texan. (Applause.) I call him A.J. …

I see Rosario Marin, who's the Treasurer of the United States. Rosario used to be a mayor. Thank you for coming, Madam Mayor. (Applause.) She understands how important housing is. …

All of us here in America should believe, and I think we do, that we should be, as I mentioned, a nation of owners. Owning something is freedom, as far as I'm concerned. It's part of a free society. And ownership of a home helps bring stability to neighborhoods. You own your home in a neighborhood, you have more interest in how your neighborhood feels, looks, whether it's safe or not. It brings pride to people, it's a part of an asset-based to society. It helps people build up their own individual portfolio, provides an opportunity, if need be, for a mom or a dad to leave something to their child. It's a part of -- it's of being a -- it's a part of -- an important part of America.

Homeownership is also an important part of our economic vitality. If -- when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; …

Low interest rates, low inflation are very important foundations for economic growth. The idea of encouraging new homeownership and the money that will be circulated as a result of people purchasing homes will mean people are more likely to find a job in America. This project not only is good for the soul of the country, it's good for the pocketbook of the country, as well.

To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a down payment. They may be qualified. They may desire to buy a home, but they don't have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross. And one way to address that is to have the federal government participate.

And so we've called upon Congress to set up what's called the American Dream Down Payment Fund, which will provide financial grants to local governments to help first-time home buyers who qualify to make the down payment on their home. If a down payment is a problem, there's a way we can address that. And when Congress funds the program, this should help 200,000 new families over the next five years become first-time home buyers.

Secondly, affordable housing is a problem in many neighborhoods, particularly inner-city neighborhoods. … I'm doing is proposing a single-family affordable housing credit to encourage the construction of single-family homes in neighborhoods where affordable housing is scarce. (Applause.)

Over the next five years the initiative will provide home builders and therefore home buyers with -- home builders with $2 billion in tax credits to bring affordable homes and therefore provide an additional supply for home buyers. …

And we've got to set priorities. And one of the key priorities is going to be inner-city America. …

Another obstacle to minority homeownership is the lack of information. You know, getting into your own home can be complicated. It can be a difficult process. I had that very same problem. (Laughter and applause.)

Every home buyer has responsibilities and rights that need to be understood clearly. And yet, when you look at some of the contracts, there's a lot of small print. And you can imagine somebody newly arrived from Peru looking at all that print, and saying, I'm not sure I can possibly understand that. Why do I want to buy a home? There's an educational process that needs to go on, not only to explain the contract, explain obligation, but also to explain financing options, to help people understand the complexities of a homeownership market, and also at the same time to protect people from unscrupulous lenders, people who would take advantage of a good-hearted soul who is trying to realize their dream.

Homeownership education is critical. And so today, I'm pleased to announce that through Mel's office, we're going to distribute $35 million in 2003 to more than 100 national, state and local organizations that promote homeownership through buyer education. (Applause.)

And, of course, one of the larger obstacles to minority homeownership is financing, is the ability to have their dream financed. Right now, we have a program that all of you are familiar with, maybe our fellow Americans are, and that's what they call a Section 8 housing program, that provides billions of dollars in vouchers to help low-income Americans with their rent. It encourages leasing. We think it's important that we use those vouchers, that federal money to help low-income Americans go from being somebody who leases to somebody who owns; that we use the Section 8 program to not only help with down payment, but to help with continuing monthly mortgage payments after they're into their new home. It is a -- it is a way to help us meet this dream of 5.5 million additional families owning their home.

I'm also going to encourage the lending industry to develop a mortgage market so that this script, these vouchers, can regularly be used as a source of payment to provide more capital to lenders, who can then help more families move from rental housing into houses of their own. …

Last June, I issued a challenge to everyone involved in the housing industry to help increase the number of minority families to be home owners. And what I'm talking about, I'm talking about your bankers and your brokers and developers, as well as members of faith-based community and community programs. And the response to the home owners challenge has been very strong and very gratifying. Twenty-two public and private partners have signed up to help meet our national goal. Partners in the mortgage finance industry are encouraging homeownership by purchasing more loans made by banks to African Americans, Hispanics and other minorities.

Representatives of the real estate and homebuilding industries, through their nationwide networks or affiliates, are committed to broadening homeownership. They made the commitment to help meet the national goal we set.

Freddie Mae -- Fannie Mae and Freddie Mac -- I see the heads who are here; I want to thank you all for coming -- (laughter) -- have committed to provide more money for lenders. They've committed to help meet the shortage of capital available for minority home buyers.

Fannie Mae recently announced a $50 million program to develop 600 homes for the Cherokee Nation in Oklahoma. Franklin [Raines], I appreciate that commitment. They also announced $12.7 million investment in a condominium project in Harlem. It's the beginnings of a series of initiatives to help meet the goal of 5.5 million families. Franklin told me at the meeting where we kicked this office, he said, I promise you we will help, and he has, like many others in this room have done.

Freddie Mac recently began 25 initiatives around the country to dismantle barriers and create greater opportunities for homeownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for homeownership loans. …

There's all kinds of ways that we can work together to meet the goal. Corporate America has a responsibility to work to make America a compassionate place. Corporate America has responded. As an example -- only one of many examples -- the good folks at Sears and Roebuck have responded by making a five-year, $100 million commitment to making homeownership and home maintenance possible for millions of Americans. …

The non-profit groups are bringing homeownership to some of our most troubled communities. …

The other thing Kirbyjon told me, which I really appreciate, is you don't have to have a lousy home for first-time home buyers. If you put your mind to it, the first-time home buyer, the low-income home buyer can have just as nice a house as anybody else. And I know Kirbyjon. He is what I call a social entrepreneur who is using his platform as a Methodist preacher to improve the neighborhood and the community in which he lives.

And so is Luis Cortes, who represents Nueva Esperanza in Philadelphia. I went to see Luis in the inner-city Philadelphia. … But he also understood that a homeownership program is incredibly important to revitalize this neighborhood that a lot of folks had already quit on. …

Again, I want to tell you, this is an initiative -- as Mel will tell you, it's an initiative that we take very seriously. … Thank you for coming. May God bless your vision. May God bless America. (Applause.)

UK Insurance tips

Talking about my driving experience in Malaysia to some friends. I was relating how much fun it is to drive in Malaysia even though I could only afford a Proton, the national car as imported cars had a tax of up to 300%. At that time petrol cost me less than RM1per litre (approx 20p), though I heard that it has now increased to around RM2 (approx 40p). Compare that with £1.20/ litre in the UK now.

Furthermore, the car insurance was pretty cheap  and if you didn't have any accidents, it becomes cheaper every year. Here in the UK, I have no idea why, but the insurance we pay seems to increase very year. It has gone up from around £300 to £700 now. We have had no accidents in the past 4 years and there is no logic but everyone I talked to told me the same thing and the amazing thing is that people grumble but just pay up in the end as they have no choice..

I recall that the insurance companies once increased the car insurance of everyone here in the UK across the board due to the fact that there had been floods the past year and a large number of cars had been damaged. In other words, they just transfer the costs to the customers.

I used to think that privatisation and lack of governmental control would lead to better customer services and a customer friendly industry but apparently this has not happened and probably the Government needs to come in with some customer friendly legislation and regulations.

Anyway, there are still some great insurance deals out there on the net. You just have to look for it. However, this is easier said than done. Click here for the cheapest auto insurance tips . These might help you lower your premium a bit. For example, it might be a good idea to look at the cars targeted the most by the thieves.

The new BMW 6 Series Convertible

The new BMW 6 Series Convertible will be arriving in the UK on 26 March 2011.

BMW apparently considers the Mercedes SL350 as the competitor for the 640i SE and has put up a side-by-side comparison of the two cars. While the 650i is compared with the Jaguar XK
Convertible and the Mercedes SL500.

The 640i SE has a power output of 320hp and goes from 0-62mph in 5.7 secs while the 650i SE has a power output of 407 hp and goes from 0 to 62mph in just 5 seconds.

Prices (on the road) for the 640i SE is £65,680 while for the 650i SE is £73,430.

Old Spice cars

Noticed these cars at the 10K Mo run at Greenwich, London last weekend.

Can you identify them?

The Crisis Yet to Come

The Atlanta Fed's blog from October 27, 2010 has a chilling piece on the source of the downturn in revenue at the state level (and by implication the local level, too). Quite simply, they note and then back with data that (duh! - with hindsight) real estate assessments lag the market. Hence the downturn has to have other sources, specifically declines in individual income tax receipts and sales tax receipts. Real estate tax receipts have actually continued to rise, as higher assessments from the era of peak prices continue to track up.

That's chilling, because it implies that state and local governments will continue to see revenues fall as assessments are updated to track the market down. Now the level of dependence on real estate related revenue varies widely. But on average it suggests that even if incomes begin to recover, government revenues will continue to fall.

Indeed, a recent paper by Cogan and Taylor quantifies the magnitude of the downturn: budget cuts by state and local governments fully offset the much-maligned Obama stimulus package. They had earlier taken a stand on the "multiplier" (the extent to which an expenditure increase or tax cut would stimulate activity). [Look for a discussion of multiplier estimates by Brad de Long.] But when they went to check what ex post performance might show, they found a problem that rendered that discussion moot: ex post, there was no multiplicand to be multiplied. Of course that's not reassuring going forward, because in 2011 there won't be a stimulus package to offset what state and local government are doing. When teachers are fired next summer, and as road maintenance crews are axed and parks closed, there won't be anyone stepping in to hire them or pay for them to be rehired. Now Cogan and Taylor think the multiplier is small; I'm not convinced by their arguments. But small multiplier or large, the job losses will be real.

John F. Cogan and John B. Taylor, "What the Government Purchases Multiplier Actually Multiplied in the 2009 Stimulus Package." National Bureau of Economic Research Working Paper No. 16505, October 2010. http://www.nber.org/papers/w16505

If we thought banks were too big to fail, what of the government of the 10th largest economy in the world, California? They are starting their 2011 budget cycle with a $25 billion deficit and a long period of underfunding state and local pension funds. I doubt there's enough available for cutting on the expenditure side, and while I've never lived there, my sense is that there is no ability to enhance revenue, given the demonstrated ability of vocal citizens' movements to impede government via referenda. Pundits may be comparing us to Greece to argue that we need to cut the Federal deficit, but they really don't understand the dynamics of bond markets. But they can and should look at California, and ask whether we will feel compelled to bail them out as the EU did with Greece.

Mike Smitka

Addenda

Readers might see a contrarian position at Slate Moneybox, Default Position: Why we needn't worry too much about municipal bankruptcy by Annie Lowry. She argues first that the incentives are strong to avoid bankruptcy, while a crisis increases policy options. Second, though only implicit in her argument, bond holders can be forced to renogotiate without bankruptcy. While she does not mention it, many bonds are very close to private placements, and that facilitates renegotiating debt. (I handled sovereign debt renegotiations during a banking career decades back.) Third, and again less explicit, the biggest obligations are not formal bonds but retirement systems. It may be possible to renege on those -- tell retirees "no more pension." That may not need Chapter 9. In sum, all of those lessen the role of formal bankruptcy.

Elsewhere I calculated the numbers for California. Their accounting is arcane, but at the state level the budget is around $100 billion with a projected $25 billion deficit. That means tax receipts of $75 billion, so that closing the gap via revenue enhancement would in the extreme require a 33% increase in taxes (and more in tax rates, given exemptions). But in the background California's GDP is approximately $1 trillion, so the gap is on the order of 2.5% of personal and corporate incomes. Of course the state has perhaps $500 billion in unfunded pension obligations. Now in most places where I've lived government salaries are below market so these pensions are in effect part of the total package. I don't believe it ethical to adjust those retroactively. But in any case the magnitude of the problem is well within the taxing ability of the state, without leading to exorbitant rates. The problem is one of politics, not economics.

Medical professionals are the most accident prone in the UK

A recent press release by the online price comparison site, Confused.com, totally changed my perception of the motorist profiles I have had all my life. Apparently those in the medical profession appeared most frequently in the top ten (50%) car insurance claims in the past 12 months (18th October 2009 and 18th October 2010).

This is surprising because they are supposed to be most aware of all professions when it comes to accidents and injuries.

The results of the research showed that GPs are the most hazardous drivers in the UK with 33% of claims made by them. They were followed by psychologists (30%), district nurses (30%), hospital doctors (29%) and dentists (27%)making a claim.

In what seems to be bizarre findings, 20-20 vision doesn't help as well with opticians making up 27% of those claiming for an incident in the last 12 months. They were closely followed by law abiding policeman who made up 26% of the claimants.

It was not surprising that high earners such as solicitors and accountants are also the most likely to make a claim, contributing to 65% of the top 20.

The safest drivers were actually the low income earners with car valeters being the least likely to make a claim with only 8% putting in the paperwork in the last 12 months.

Here is the full list of the Top 20 occupations that have claimed in an accident:

1. Doctor GP
2. Psychologist
3. District Nurse
4. Hospital Doctor
5. Solicitor
6. Chartered Accountant
7. Head Teacher
8. Dentist
9. Personnel Officer
10. Chartered Surveyor
11. Quantity Surveyor
12. Optician
13. Systems Manager
14. Police Officer
15. Financial Advisor
16. Computer Services Manager
17. Accountant Chartered
18. Pharmacist
19. Probation Officer
20. Local Government Officer

Top 20 occupations least likely to be involved in an accident

1. Car Valeter
2. Labourer
3. Van / Lorry / Fork Lift Truck Driver
4. Farm Worker
5. Scaffolder / Roofer
6. Construction Worker
7. Decorator / Painter / Plasterer
8. Road Worker
9. Coach Driver
10. Security Guard
11. Builder
12. Groundsmen
13. Mechanic
14. Carpet Fitter
15. Warehouse Employee
16. Bar Staff
17. Cleaner
18. Bakery Worker
19. Double Glazing Fitter
20. Factory Worker

Malaysia to become regional hub for Peugeot

French carmaker Peugeot has chosen the Malaysian Naza group to spearhead its expansion in the region following the success of the marque in the country. The Naza Group was appointed official distributor for the Peugeot brand in January 2008. 3,766 units of Peugeot vehicles were sold in 2009 which accounted for 86% of Peugeot sales in the Asean region.

Former Malaysian PM Tun Dr Mahathir launched the Peugeot 207 yesterday. Codenamed as the T33 Project, the car is different from the 207 sold here in the UK and is actually a modified version of the 206. The only difference from the 206 is that it has a slightly elongated boot at the back making it a sedan. The car will be assembled at the Naza plant in Gurun, Kedah.

The car is powered by a 1.6L engine and price on the road with insurance starts from RM72,888 (approx. £14647).

Click link for information on Car rental France.

The Election and the Stock Market

It is hard to understand why Republican gains in Congress are leading to a jump on Wall Street: if we listen to their rhetoric, they are promising us fiscal stringency, hard-nosed policies towards those indebted and thereby not recovery (given the role both play in our economy) but further economic pain.

But maybe I listen (well, read) too much. Ronald Reagan ran as a fiscal conservative, deriding the deficits of Jimmy Carter; Bush II couldn’t complain about deficits because he inherited a surplus, but nevertheless paraded as a conservative. Those running for Congress did the same. Yet at least in terms of economic policy they were radical Keynesians, increasing the size of government. To take the more recent case, under Bush II every single department of the Federal government expanded, while he expanded welfare via the huge prescription drug supplement to Medicare). Yet both cut taxes rather than finding a means to pay for their profligacy.

Will things be better this time around? Or will we have a stalemate in Washington? – for better or (right now) for worse, Obama seems to be a real fiscal conservative (woe is us). So the impetus of Congress (or at least Republican congresses) to spend and spend [and not offset that with taxes] may go nowhere.

Of course we know that financial markets are efficient and thus incorporate knowledge of the future: about half the time when markets go up the performance of the economy proves better than the average forecast....now for you students in intro statistics, why is that somehow less than reassuring?

Mike Smitka

A little green van called ELVIN

Electric cars do not have an internal combustion engine - which is great for the environment. However, this means that they are amazingly silent. This brings up some unique safety issues. People can't hear the cars coming up behind them.

To find a solution to this problem, a research project in the University of Warwick is using a green van called ELVIN (Electric Vehicle with Interactive Noise) which emits different sounds to see how people perceive the sounds.

Review of MillionCars website

I recently found out about a new Malaysian online car marketplace called MillionCars. It is is not the typical car site and targets all income ranges of consumers in Malaysia. The website has not been even officially launched even though it's already online. Right now it only offers limited features to the users and the first phase development of this website is just to give a chance for the dealers and buyers to get used to the website.

At this moment, individuals or dealers can register. The individual account is open to anyone in Malaysia who wants to sell a car. Individuals would receive 25 credits at registration and they can use the credits to post, renew, add and pro long their ads. If they want to post more than 4 ads, they need to upgrade their account to a dealer.

The second type of account is strictly for car dealers. They will receive 250 credits at the time of registration and they will also get their own online showroom that can be seen from the "Dealer" Page. The free registration promotion for dealers will end mid November (Nov 15, 2010). The google map feature has been integrated to make it easier for the customers to get to their selected dealer's showroom.

As for payment options, the website is integrated with the iPay88, a Malaysian company that offers safe bank online payments. It works just like Paypal. The iPay88 payment system allows different payment systems.

According to Muhammad Nasri, they plan to offer extra features in the next few months for both the buyers and sellers. They are in the process of tweaking the site to make it more user-friendly.

The user could browse used or new cars easily from the front page. Also, keep in mind that this website is not targeted for middle range type of consumers but rather, targeting for all types of consumers in Malaysia.

Top 5 American muscle cars

Americans have always had an obsession with cars – their speed, loud engines and raw power. We’ve dug out the top 5 classic American Muscle cars that embodied these qualities and have become legends among the automotive industry around the world.

Number 5: 1967 Pontiac GTO

The Pontiac GTO was considered the start of the classic muscle car, and in 1967 it had a engine makeover to see it take on a 400 cubic inch enlargement. If you were lucky enough to get your hands on the 81,722 built in ’67, consider yourself lucky to have a classic that pumps 360 hp @ 5100 rpm. For its overall style and “bad ass” appeal we’ve ranked it at number 5.

Random Fact: This car was used in the hit movie XXX starring Vin Diesel (2002)

Image credits: http://static.cargurus.com/

Number 4: 1969 Plymouth roadrunner

This classic was described as “muscle without the bells and whistles”. Stripped of over complicated options, Plymouth decided to make muscle as cheap as possible without sacrificing power. It ended up over taking sales of the GTO by 10,000 units which puts this 390 hp @ 5000 rpm in 4th place.

Random Fact: Plymouth paid Warner Brothers studios $50,000 to use the Roadrunner cartoon character to promote sales

Image credits: http://awesomecarauctions.com/

Number 3: 1968 Dodge Charger R/T

After a spell of dismal sales, Dodge decided to change the styling of the Charger to “coke bottle styling”. In addition to the new style, a performance package was now offered as R/T (Road/Track) which turned an average muscle car into a 425 hp @ 5000 rpm monster. For its sheer power and ingenious redesign it gets the number 3 spot.

Random Fact: When the car was released Dodge wrote, “This is no dream car. It’s a real ‘take-me-home-and-let’s stir-things-up-a-bit’ automobile.”

Image Credits: http://www.2dayblog.com/

Number 2: 1967 Chevrolet Corvette 427

Everyone has heard of the Corvette, and it still remains an icon of the pure American muscle car era. 1967 was a special year for the Corvette, not only did it pump out a whopping 435 hp @ 5800 rpm, but included leather seating, air conditioning and many other perks. If you owned this car you were at sexy symbol status, and just short of notoriety it falls to number 2.

 Image Credits: http://image.corvettefever.com

Number 1: 1967 Shelby GT500

Why has Eleanor made it to number 1? The Ford Mustang is the icon of muscle cars and with the magic touch of Carroll Shelby, the Mustang took an overhaul to produce a mean road racing champion. In terms of pure styling, Shelby has the winning look hands down. Being famous does has its advantages, especially in this post – the GT500 ranks number 1 on our list for its style, celebrity status and 355 hp. If you forgot why its become famous, see the video below where the GT500 “Eleanor” outruns the police in “Gone in 60 Seconds “

 Image Credits: http://www.online-ford.ru/



Have a favourite American Muscle car that’s not on the list? We value your comments and looking forward to adding your choices to the list of the top American Muscle cars.

NOTE:
This is a guest post by David who writes on the Make and Model Blog, a car blog discussing all things with four wheels. Make and Model are an online classifieds website advertising a range of used cars including Audis, Fords and Alfa Romeos.

Car Czar Steve Rattner's New Book "Overhaul" Names Names!

David Ruggles

By David Ruggles

I've been waiting for this book since meeting Steve Rattner at a Federal Reserve conference in Detroit in May 2010. The subject of the conference was "After the Perfect Storm, Competitive Forces Shaping the Auto Industry. " Rattner gave a presentation that was largely a promotion for the book he was still working on, offering up fascinating anecdotes only an inside would be aware of, along with some juicy gossip. He also answered some questions from the attendees, which included numerous auto industry veterans, members of the press, and ex GM CEO Robert Stempel. The book is finally available and is MUST reading for anyone interested in the previously unknown details on how the auto industry bailout actually took place. I approached the book with a mixture of curiosity and skepticism due to my personal feelings about certain imperfections in the auto industry bailout, in particular the dealer terminations. I came away from the reading with a new found respect not only for the width and depth of the challenges faced by the Obama Administration's automotive task force, known as Team Auto, but a real appreciation for what they did for the country, in most cases at great personal sacrifice. In Rattner’s case, his personal attorney bill for dealing with the rigors of the vetting process cost him $400,000. The book did nothing toward mitigating my anger over the dealer terminations.

It also reinforced the importance to the nation of the Troubled Asset Relief Program (TARP), an idea proposed by Bush Administration Treasury Secretary Hank Paulson and passed by Congress after the Lehman Brothers collapse in the fall of 2008, without which it is unlikely that the auto industry bailout would have been possible.

Some unlikely heroes came to light, including President George W. Bush, Paulson, and even Vice President Dick Cheney. During the last days of the Bush Administration there was a meeting of Republican Senators who were holding up a bill in Congress proposed by the Bush Administration to bail out the U.S. auto industry, a bill which ultimately failed and forced the Bush Administration to use TARP funds to bridge the two ailing automakers over to the Obama administration. Cheney reportedly broke from his usual "laissez faire" “free market” economics stance in an unsuccessful but impassioned plea for a Congressional bailout saying, "Don't let this happen on our watch unless you want to be known as the party of Herbert Hoover forever."

George W. Bush, before taking the bold step of going against Republican Party ideologues in bridging GM and Chrysler to the new administration with TARP funds, said, “Frankly, there’s one other consideration, and that is, I feel an obligation to my successor. I feel it is good policy not to dump him a major catastrophe on his first day in office.”

Hank Paulson testifying before Congress, “Had the banks not returned or repaid their TARP money early out of fear of government involvement in their compensation practices, instead of loaning the money out to support the economy, it is probable the money to bailout GM and Chrysler wouldn’t have been available.” Paulson also made the point to the Bush Administration that, “There is no private debtor in possession financing available for either GM or Chrysler to go into Chapter 11 on their own.

The book is a chronicle of deadlines, heated and impassioned debate, personalities, “brinkmanship,” and harsh negotiations. There was serious debate among the Obama administration about just letting Chrysler go, as in the long run it was thought it was a lost cause and that letting it liquidate would help GM and Ford. At this point, Treasury Secretary Tim Geithner weighed in on the “fickle nature of public opinion. Right up until Lehman Brothers declared bankruptcy, public opinion favored letting the firm go down. In the ensuing chaos, the consensus had shifted overnight, and the government was believed to have made a terrible mistake by letting them collapse.”

It also became evident that letting Chrysler go would send a ripple throughout the supplier community causing a “run on the trade by suppliers refusing to supply parts if not paid in advance.

Called out in the book as Incompetents, Light Weights, or Obstructionists are such well known figures as: Sheila Bair, FDIC Chairman, Ray Young – GM CFO, Rick Wagner, ex GM CEO, Fritz Henderson, ex GM CEO, and a host of GM board members.

There are those called out for praise including Bob Corker, Republican Senator from Tennessee, Mark Zandi, Chief Economist for Moody’s Economy.com, and Ron Gettelfinger, Head of the United Auto Workers union.

Retired General Electric CEO Jack Welch was consulted frequently.

“Characters” include “Jimmie” Lee and Jamie Diman, of JP Morgan, Sergio Marchionne, CEO of Fiat, and, of course, Rahm Emanuel, President Obama’s Chief of Staff.

There are many unsung heroes who labored in near obscurity. Without the talent and effort of participants too numerous to list here, the bailout wouldn’t have happened. Of particular significance are Harry Wilson, Team Auto’s corporate restructuring specialist, Matt Feldman, Team Auto’s resident genius of bankruptcy law and driver of the Section 363 strategy that allowed for the speedy trips through bankruptcy court, and Brian Deese, Team Auto’s White House liaison. It was Harry Wilson who first proposed that taxpayers take an equity stake on GM to a large degree, and Chrysler to a lesser degree, to minimize the problem of sending them out into the marketplace with a huge load of debt, and the debt service that goes with it. This was probably the biggest decision, one fraught with “moral hazard,” that had to be made by the President.

The two men “driving the bus” were Larry Summers, head of the White House Counsel of Economic advisers, and Tim Geithner, Treasury Secretary, overseen by President Obama, who once asked about the U.S. automakers, “Why can’t they build a Corolla?” It must have been lost on the President that, in fact GM, and Toyota had built “Corollas” together in their joint venture Fremont CA plant that was shuttered as part of the restructuring.
Rattner doesn’t spend a lot of time on the dealer termination issue other than to emphasize that all industry experts he spoke to recommended thinning out the dealer body. I suspect the primary industry expert was Steve Girsky, a one time advisor to the UAW that was disqualified for Team Auto membership by virtue of that relationship. Girksy has been an outspoken advocate of fewer but larger dealers in the interest of efficiency, as he puts it.

Rattner also fails to mention input by the Pentagon to the Bush Administration over concern over a collapse of the country’s industrial base and how it would impact military procurement in the middle of 2 wars.

Chrysler is doing better than anyone anticipated. Both companies are exceeding the conservative projections assigned to them.

There are still issues at GM as evidenced by yet another CEO change as GM board member Dan Ackerson is taking over as CEO after Ed Whitacre “retired“ after only a few months in the job. Rattner also chronicles the ongoing conflict between the old GM board members and the new ones. The are many “players” who will be unhappy with Rattner’s revelations, which is just one good reason to read it. He must have kept writing new chapters as things have unfolded, all the way up to publication of the book. There are chapters yet to be written, but any student of politics, economics, or the auto business needs to read this book.

NYT discussion of electric vehicles

See the following note by yours truly as well as by 5 other analysts of the auto industry. The New York Times Room for Debate feature covers a wide variety of topics, and attracts lots of comments, some of them, uh, unusual as NYT tries to lean towards accepting all comers, but many that are thoughtful and informed. I peruse it regularly, and not just when it covers topics specific to the auto industry or to economics.

Mike Smitka

Best safety innovations

Euro NCAP presented the first Euro NCAP Advanced rewards at a press conference held on October 1st 2010 at the Paris Motor Show. The technologies developed by car manufacturers were rewarded for offering scientifically proven safety benefits:

1. Audi Side Assist
2. BMW Assist Advanced eCall
3. Honda Collision Mitigation Braking System (CMBS)
4. Mercedes-Benz PRE-SAFE® and PRE-SAFE® Brake
5. Opel Eye
6. Peugeot Connect SOS and
7. Citroën Localized Emergency Call
8. Volkswagen Lane Assist
9. Volvo City Safety

According to the press release,other technologies will be assessed in the coming months and will be announced in 2011.

For more details, go to the NCAP’s website.

Has the Obama Stimulus Package Failed?

Well, it certainly failed to keep unemployment under 8% as promised. My guess is the administration failed in part to calculate the cutbacks at the state and local level caused by severe cutbacks due to the deterioration of tax revenue. But overall it was constrained by the diversity of analysis at the time (remember, some well-known economists were still predicting a "V"-shaped recovery?) and because parts were turned into tax cuts. (Little consolation if as you as an individual or corporation have no income to be taxed.)

Then there was politics. The stimulus package was passed in late February 2009 with the help of Susan Collins and Olympia Snowe, both Republicans from Maine. After Obama’s inauguration on January 20, 2009, the stock market continued the “free fall” that began under George Bush in 2008. Rush Limbaugh, John Boehner, and others touted as spokesmen of the "right," frequently commented that the “stock market must not like the prospect of “Obamanomics.” At the time, I thought this was hypocritical at best as the free fall began as a result of the meltdown of the financial system triggered by Joe Cassano, AIG, Goldman Sachs, etc. due to a lack of proper regulation on the Republican administration’s watch, fueled by years of easy money.

After the Stimulus Package was passed, and “markets” could be certain the administration was solidly behind the economy, the stock market began a run that has restored approximately 13.5 trillion dollars of mostly American wealth. Strangely, we haven’t heard anything about this from Limbaugh, Boehner, Beck, etc. It stands to reason that if the stock market is an indicator of how the market likes a President’s economic policies, it should be evident, that at least relatively speaking, the stock market has “liked” Obama since March of 2009 when the stock market advance began.

For my own part, I think this logic is largely overblown, but if the "right" wants to use this logic when they think it benefits them, they should use it when it doesn’t.

When Obama was inaugurated in January 2009, the U. S. economy lost 750,000 jobs in that month. As he had just taken office at the end of the month it would be hard to blame him for this. The job loss wasn’t stemmed the following month. These things usually take a while, 2-3 quarters even after policies change, and a new president can do little without the approval of Congress. (A similar example would be the Reagan administrations struggle with the unemployment situation it inherited from the Carter administration – see below.) In fact, it took about 12 months to stem the monthly job loss, so we went from -740K per month to zero in 12 months. Failure? You be the judge.

The graph below from the Reagan era shows the unemployment results of Reagan’s attempt at economic stimulus, which was largely based on massive tax cuts and then was helped by the Fed's easing of real interest rates by 4 percentage points from record high levels. (The Fed Funds rate briefly broke above 19% in the summer of 1981 with inflation of 10%, falling to under 9% by spring 1983 with inflation of 4%, so from "real" 9% to "real" 5%.) In fact, it was Paul Volcker and the Fed who broke the back of inflation, not Ronald Reagan. No help this time: the Fed lowered interest rates in 2008, and by the time Obama took office they were at historic lows with no further cuts possible.

Most economists agree that in times of economic recession, tax cuts are primarily saved or used to pay off debt by wary consumers (or held onto by the corporate sector for similar reasons). As a consequence, tax cuts are NOT as stimulative as public works spending or (in the opportunity cost sense) by providing help to state and local government so that they wouldn't fire people. In addition, once the economy eventually turns around, tax cuts are difficult, if not impossible, to repeal. This results in institutional deficits year after year. The "right" may claim that this is the way to "starve the beast" but under Bush, when Republicans controlled both the White House and Congress, they showed no ability to actually do so. [MS: They appropriately complain that government is inefficient, it's inevitable because it's asked to do things that the market typically can't do because output can't be measured or a price can't be attached. That's why government reform is even harder than corporate restructuring. But apparently the Republicans under several presidents judged that most of what government was doing was necessary.]

The Reagan tax cuts did not have the same stimulative impact as the Obama stimulus has had so far, as the graph suggests. [Economists insist on complicated models, but this is certainly a good start: MS] It could be argued that the recession Reagan inherited from Jimmy Carter was nowhere near as serious as the one Obama inherited from Bush. The financial system had not melted down and only one automaker was near bankruptcy. Reagan’s voter approval rating was equally as bad as Obama’s at this stage of their administration, as an impatient electorate expected things to rebound faster. Reagan lost 27 seats in the House to the Democrats in his first midterms. His approval rating rose substantially when he was shot by John Hinckley, Jr., and he was rescued by an economy that started to improve, based on pent up demand, fiscal policy and lower interest rates, before his second term election, which he won decisively. Previous to being shot, Reagan's approval ratings were in the range of what Obama's are now.

It is interesting to note that Reagan was nowhere as "right" as people think. He was once President of the Screen Actors Guild, a “union” full of “known leftists,” to borrow a phrase. He established a huge entitlement program in California by proposing and signing a law that provided 2 free years of junior college to California residents. He gave the country a compassionate but inefficient form of universal health care in the form of the Emergency Room Mandate (The Emergency Medical Treatment and Active Labor Act) that he signed into law in 1986. He granted amnesty to millions of illegal aliens. He deregulated the airline industry, beginning a chain of losses and unsuccessful restructurings of such magnitude that the industry has from its inception through today now lost money on net. His deficits eventually swamped George HW Bush, and led to the election of Bill Clinton. (Arthur Laffer, Reagan’s favorite economist and author of the Laffer curve, refers to Clinton as the most conservative president, in terms of economics, of the modern era.) Reagan's deregulation led to other problems. The S&L crisis initially cost taxpayers $600 billion, an amount lowered to $250 billion because the government then closed down most of them and did a good job of selling assets at auction. That crisis didn’t do the elder Bush any good either. Nor did the "grass roots" 3rd party candidacy of Ross Perot, the Tea Partier of his era.

In the last few months, things have stagnated. Job creation has not gained desired traction. We have been stuck at zero – though that sure beats the alternative we'd have absent a stimulus package. The economy has been hit with the double whammy of the European Debt Crisis and the BP oil spill. On top of day after day media coverage of bad news comes economic data that reflected our position at the bottom of a large trough and looked especially bad compared to last year's numbers. Yet last year’s numbers were juiced by an economic stimulus called “Cash for Clunkers”...as anyone who reads this blog has seen discussed in detail.

The fact is, we desperately need Obama’s latest stimulus proposal. Yet, the 
Republicans, who have seen the same graphs I have included here, will obstruct this legislation in any way they can. It remains to be seen if Collins and Snowe will vote with the Democrats on this. The LAST THING the Republicans want is an Obama triumph of any kind going into the midterms, regardless of what might be for the good of the country. Obama was shoved into a ship foundering in deep water when he came into office. He's steered it towards shore, but now partisan electioneering has cut off the engines. Which direction will the boat drift? – we don't know, but if it's not towards port, the Republicans must share the blame.

The closest thing to a Republican plan is the alternative budget they proposed a few months back, a document hopelessly short of detail. Otherwise, they have chosen the “Party of No” approach.

Please note that I am an amateur economist at best, and think of myself as "conservative" (on that dimension, I'm a typical [though now former] car dealer). I have studied Keynes to a degree. I am also familiar with an alternate theory of economics some call the "Austrian School." My understanding of the Austrian School theory is its bottom line of “laissez faire” economics, a kind of “natural selection,” survival-of-the-fittest approach. It makes for an interesting point of view for discussion over a beer. But we haven’t seen it at work since Herbert Hoover. Ron Paul would be a Austrian school advocate, I believe. "Austrians" would have let the banking system and our industrial base collapse in a process they call “creative destruction.” Well, as an auto industry person now consulting on the financial end of the industry, I could see how that would lead to destruction, an unreasonable and unnecessary cost. The Pentagon was fully aware of this and played a part on convincing Bush the second to step in. But there was no discussion among proponents of letting GM and Chrysler liquidate of how long rebuilding would take, of how new institutions could arise from the ashes in my lifetime. Creativity isn't a always matter of inspiration, it's a product of years or decades of hard work.

To be clear, it is NOT my understanding that John Maynard Keynes advocated ongoing deficits; he was a monetary economist and worked hard to keep the financial sector from bringing down the "real" economy where most people worked. In fact, he would have preferred the establishment of a “rainy day” fund before advocating systemic deficits. WW2 represents the ultimate Keynesian stimulus -- FDR was too timid on his own to use Keynesian principles in his public works projects, which combined with restoring a modicum of financial stability only reduced the unemployment rate during the Great Depression from 25% to 17%. None of us are old enough, other than perhaps my father, to remember first hand, but it is sobering to read of the cutbacks because of the political climate surrounding FDR’s campaign for reelection. In addition, the Supreme Court stopped some of FDR’s public works initiatives, while renewed monetary stringency (for reasons that sound chilling given current debates) led to a spike in unemployment in 1937. We really don't want another world war to pull us out of the doldrums.

Even Republicans remember the Great Depression. Tent camps of desperate citizens were called “Hoover Towns.” At one point, 28 states didn't have a single bank open. It took the Republicans a generation to regain the White House, and even then it took a popular war hero like Dwight Eisenhower to accomplish that. The Right Wing and the John Birch Society referred to Ike as a “socialist”, and a “tool of communism.” Ike inherited a wartime tax structure with a top rate of 91%. With hundreds of thousands of young men home from war and needing a job, Ike embarked upon a Keynesian style public works project called the Interstate Highway System, instead of providing tax cuts to bolster the economy. The rest is history and the country was transformed for better or worse.

Another example of deficit spending and Keynesian economic stimulus would be the expansion of railroads after the Civil War. Tax revenues were at low ebb and the country was deeply in debt. We "spent" by giving away land, something that didn't show up in the budget. That and 30 year government bonds financed the transcontinental railroad. Most people would say the investment paid off; even folks who maintain, “The government is the problem, not the solution” might agree. There is an ideal balance to be achieved between “socialism” and “laissez faire” to achieve the desired results. Government is the price we pay for civilization.

To return to the opening topic. If only Obama had inherited a situation that didn’t already included accelerating deficts, burgeoning unemployment, and diminishing tax revenues. But he inherited what he inherited. Nobel Prize winning economist Paul Krugman calculated that the stimulus should have been twice its size. Obama agreed, but recognized that a larger stimulus was politically impossible. As a consequence he chose to let the original, bloated Bush 2009 budget go through without "pork scrutiny" and associated cuts. This represented the breaking of a campaign promise. But cutting government spending in the face of recession leads to Depression. Isn’t this the lesson of the Great Depression and the Hoover era? Does anyone really think the Republicans want to go there again with them in charge? At the moment they are trying to have their cake -- decrying stimulus and money already spent to avoid a crisis -- and eat it to, since as the party of "no" there will be no policy bearing their name.

Sometime in the next few years the government needs to take steps to get rid of systemic deficits. The Republicans across several administrations showed that cutting "their way out" won't work. (Indeed, if you look at the size and composition of the budget, every non-defense Federal bureaucrat could be fired and we'd still have a budget deficit.) Growth will help, a rebound in incomes and employment would improve the revenue side, the "cyclical" part of the deficit. I don't like it, but basic arithmetic still shows the bottom line has to include ... let me phrase this carefully, tax enhancements.

So you be the judge. Did the Obama stimulus package fail? How does the Obama rebound compare with the Reagan era? Does anyone have a suggestion on what Obama could have done to turn things around more quickly, especially in light of Republican opposition?

Marketminder post with additional graphs

David Ruggles [with editorial asides by Michael Smitka]

Bob Lutz – “The Triumph of “Gut” over Number Crunching”

Bob Lutz, auto industry icon, recently received a Lifetime Achievement Award from the Automotive Fleet and Leasing Association (AFLA) at their annual conference in Las Vegas. As part of the ceremony Mr. Lutz was asked for his opinions on recent events in the automotive industry, as well his perspective on his career in the auto industry. Not only has Lutz had a brilliant career in the auto industry, his ability to articulate is what sets him apart.

Lutz has written another book, to be released next year. His previous book, “Guts: 8 Laws of Business from One of the Most Innovative Business Leaders of Our Time” is well known and widely read. While I like my own title for his book, he prefers “The Car Guy Versus the Bean Counters.” I’m sure it will be an instant best seller.
Lutz’s long adversarial relationship with the numbers people goes way back. In my own view, bean counters live by the mantra, “You can’t manage what you can’t measure.” They have no understanding for the fact that, “What you could have had, but didn’t get” is just as real, despite the fact it can’t be easily quantified. For years, Lutz has had to deal with those who thought designing and building vehicles should be based on study group data. The previous generation Malibu was an example. According to Lutz, GM’s numbers people maintained that that Malibu scored the highest in study groups of any vehicle they had ever developed. We know how that car worked out. Thanks to Lutz, GM now takes a different view in the development of their vehicles. By investing an additional $500. to $800. per vehicle in content, with a focus on interior quality, transaction prices are higher as fewer and lower incentives are required to maintain volume. The current Buick LaCrosse is an example.

Lutz points out that GM is not in the transportation business, but in the business of emotions. Consumers buy vehicles mostly based on how they view themselves driving it, and how they are perceived by others.

On the subject of Buick, Lutz addressed the issue of why GM chose to maintain the Buick brand instead of others they let go. Buick is a hot brand in China. Over time, Chinese became impressed with the Buick brand because it was the chauffeur driven vehicle of choice of the wealthy and high ranking officials going back decades. In fact, Chinese preferred Buick to Cadillac. This preference made the Buick brand the obvious choice when the decision had to be made.

Lutz is highly critical of the U.S. government’s CAFE approach to fuel economy, preferring the European model of fuel taxes. His comment, “CAFE is like trying to control American obesity by only producing standard sized clothing,” brought down the house. In his view, phased in fuel taxes would influence consumers in what they buy and drive, making it easier for manufacturers to predict consumer preferences. The fact that this is not politically viable is another story. Lutz believes that U.S. consumers will not pay a premium for high fuel economy vehicles without a dramatic rise in fuel prices, despite the fact he raves about the new GM VOLT. At some point Americans will tire of fighting the war against radical Islam and paying for both sides of the war.

When questioned about any possible political ambitions Lutz replied, “First of all, I’m too old. Secondly, I wasn’t born in the U.S., and we know how that plays in this country. But should those things be waived, I might agree to be Emperor for a couple of years.” Extreme laughter followed this “tongue in cheek” comment.
When the subject of the auto industry bailout came up, “Lutz first responded by saying, “I really don’t have anything in common with the average Democratic voter.” Again laughter. But he went on to say, “The administration’s team did an admirable job. There is no doubt they had to trample on some due process issues, but the end result was magnificent.” While I would have loved to have been able to ask questions about SIGTARP, the dealer terminations, the executive shuffling at GM, the impending IPO, etc., there wasn’t an opportunity.

Lutz kept his audience spellbound and there was a discernible wave of disappointment when it was time for his segment to conclude.
Going into his version of retirement he has left a lasting legacy on the auto business. Bob Lutz is at the top of my list of those I would most like to have a beer with.

David Ruggles
WARDS Dealer Business
Sept 2010

The Pentagon’s Role in the Auto Industry Bailout.....

and other interesting tidbits


Recently I was privileged to listen to an address given by John McElroy at the American Fleet and Leasing Association conference in Las Vegas. Mr. McElroy is President of Blue Sky productions, the company that brings us Auto Line Daily TV, chronicling auto industry events and news. He addressed an audience of fleet and leasing professionals and I was fortunate to be present. A student of the industry for over 30 years living in the Detroit area, McElroy is accomplished in the art of gleaning inside auto industry information and applying his own particular insight, especially as it regards the Detroit 3. While I share many opinions with him, he told me some things I either did not know or hadn’t thought of. Of course, that is why I attended in the first place.

According to Mr. McElroy:

First: “International exchange rates and dramatically lowered costs have put the Detroit 3 in a position they haven’t been in for years. They can export to other countries profitable. In fact, the White House goal is to double U.S. automotive exports in 5 years.” And we know the White House is “driving this bus.” Export business would mean adding shifts and reopening plants. All of this spells “JOBS!” Let’s hope they are successful.

Second: “Ford is way out in front of everyone in the area of in cabin electronics. Ford’s SYNC system, developed in conjunction with Microsoft, is 3 years ahead of anyone else. Ford will introduce their next generation before other automakers offer their first. In addition, Ford is poised to be wildly profitable in the coming years, especially if the economy rebounds. It is a given that they will be the UAW’s next target for union contract negotiations.”

Ford has recently repaid 7 billion in debt while making a 2.6 billion dollar profit in the last quarter. It boosted market share to 16.9% from 16.4% and seems to have a lot of positive momentum going for it. It’s credit rating is on the rise. Ford recently raised 1.4 billion dollars through a public stock offering, using part to fund their Voluntary Employee Beneficiary Association with cash instead of stock, and to pay down debt.

I have been convinced, with no actual confirmation, that the Ford family, who largely live off the dividends of their preferred shares, were well aware of what would happen to their position if the company was forced into Chapter 11 bankruptcy. I suspect that was the motivating factor behind Ford’s “mortgaging the farm” in advance of an impending crisis as a means of “insurance.” Or perhaps they were merely clairvoyant. McElroy agrees. Perhaps someone will write a book that will bear out this theory, or not.

In the interest of full disclosure I do have a substantial portion of the Ruggles family fortune, meager that it is, invested in Ford stock.


Third: “The Pentagon was a strong influence in the decision to bail out the auto industry.” Their lobbying for an auto industry bailout began during the Bush administration, who finally bridged GM and Chrysler over to the Obama administration with 16 billion dollars in unused TARP funds. This after Congress had turned them down in a request for a bailout package. I have written for months about the interconnection between the automotive suppliers, the auto manufacturers both foreign and domestic, and aerospace and defense. My opinion has been based on research done by fellow Auto Finance News contributor Dr. Michael Smitka, Phd., Professor of Economics at Washington and Lee University, who is an expert in these matters. According to Professor Smitka, the supplier base employs 5 times as many workers as the auto manufacturers.

Without naming sources, Mr. McElroy comfirmed what we have suspected all along. Losing only Chrysler would have triggered a chain reaction collapse through the supplier base. These same suppliers also supply military procurement. Many of the major suppliers were already in Chapter 11 bankruptcy or on “death row.” Just Chrysler alone going into liquidation would have shut down all North American auto production, sending a ripple effect across both oceans. Considering the condition of the banks, long on paper assets and short on cash, it could have taken years to put things back together in some semblance of order. Try building a car OR HUMVEE without an ignition switch, a steering column, or a single suspension component. Banks were more interested in returning TARP money, to keep the Feds out of their executive compensation, transportation, and entertainment habits, than in loaning money for perceived risky endeavors. This situation also had a lot to do with why the government had to be the debtor in possession financier of the two automaker’s Chapter 11 bankruptcies.

Shutting down North American auto production is one thing. Shutting down military procurement is another.

A hot topic among attendees of this fleet and leasing conference was the issue of extending fleet intervals and it’s impact on resale values. Chrysler seems to be overly relying on fleet sales but the good news is that it can actually make profit at fleet prices.

Mr. McElroy predicts that transaction prices on new vehicles will rise as incentives decrease. On the surface, this will be good news for the OEMs and bad news for consumers. But if lower incentives mean higher pre-owned prices, residuals and resale values, it should somewhat offset the higher transactions prices on new vehicles.

It could also mean we are in for a new wave of leasing!

Bloomberg story

See a quote of me in Bloomberg, on Honda. But I also suggested that the reporter, Alan Ohnsman, call Toshi Amino -- the quotes of Toshi are much more central to the topic. With US$1.00 = ¥84.24 [and €1.00 = ¥106.66] this morning (10am EDT on 25 Aug), Honda's strategic position of "make where you sell" looks pretty good compared to Toyota's heavy export orientation.

Mike Smitka

Taking It In(house)

Automotive suppliers in North America continue to face many challenges. First, they are capital constrained at a time when the “factory” is trying to build more vehicles – it is not just the odd “hot” car that is in short supply, it is entire brands. Second and surprisingly, the past 18 months’ turmoil facilitated new entry. The French firm Faurecia is an example, since it was (at least in relative terms!) cash-rich and scooped up several suppliers that were in temporary trouble. That immediately expanded Faurecia’s customer base, and since they (like many suppliers) are emphasizing new technologies, such access to the purchasers and engineers at target customers is important.¹ Finally, at least in the United States, there remain both incentives to as well as increased potential for assemblers to pull work in-house.
Ford is explicit in this. Mark Fields, their President for the Americas, notes they will add 635 jobs to undertake work currently done by suppliers (Automotive News, 9 August 2010, p. 8). This represents a reversal of trends over the past 15 years, when among other things GM and Ford spun off the bulk of their parts operations into (respectively) the supposed-to-be-independent firms Delphi and Visteon. Both ended up in Chapter 11, and in both cases their former parent companies bought back or otherwise propped up some of the factories they had spun off. Now GM appears to have found purchasers for some of those (e.g., the former Saginaw Steering), but they remain the lender of last resort to more suppliers than they would like. So not all of the reversal was undertaken willingly, and thus may in due course be reversed. However, Ford in particular continues to have the issue of legacy costs, since it did not go through bankruptcy. If it can avoid offering early retirements and rehire some of those on extended layoff, then those “legacy” costs fall on a per-vehicle basis.
At the same time, the UAW made major concessions, permitting two-tier wage structures. That means that bringing work in-house is more attractive as a commercial proposition, particularly when suppliers are unionized or otherwise have a labor cost approaching that of new “Detroit 3” hires. Ford has already pulled work in-house. Locally, the Strasburg VA facility of International Automotive Components used to make door panels for the F-150, at the rate of one every seven seconds; Ford now does that work itself. Labor costs weren’t the only issue; at the northern end of the Shenandoah Valley, the Strasburg plant is no longer well-placed geographically, as all the east-coast assembly plants, including the former Ford truck plant in Norfolk, VA, are now shuttered.² Now none of the plant’s customers are within an 8-hour drive. Indeed, most of their output gets exported to Ontario, a long haul from here, made worse by the need to skirt first mountains and then Lake Erie.
Now at another level the organizational structure that made albatrosses of the plants handed over to Delphi and Visteon remains. In-house suppliers will remain unionized, and executives will have incentives to “game the system” by skewing head counts and pushing for internal transfer prices that cloud the real costs of such operations. Furthermore, it is very hard to create incentives that encourage innovation, absent arms-length price setting for transactions and wage setting that need not follow larger corporate norms. So how well things will work really is an issue of management discipline. In the early days of GM under Alfred Sloan, senior management had hands-on engineering and operational experience. They could and did intervene, even while implementing a structure of divisionalization that on paper tasked senior executives with strategic tasks and divisions with operational tasks. But once the locus of power shifted to finance–an inevitable trend as that’s the only common language shared by the divisions of large corporations–then things gradually deteriorated. Shifting work to “out-house” suppliers was, uh, something that smelled bad to all concerned: the line executives, the unions, engineering staffs and even corporate staffs, threatening power and perks. Costs (and in the old days, quality problems) could be passed on to the assembly operations and the customer.
Those concerns aren’t central in the short run of one or two model cycles–as long as the wage gap between incumbents and new hires does not create too much friction. To the extent that new hires work in new operations, Ford and others can finesse that, because they can keep the two groups from mixing. Where such control issues are a problem may ironically be Toyota: over the past two decades, it has had a hard time finding places to invest its hoard of cash. One thing it did do was build up stakes in suppliers, which it believed (with some justification!) would offer better returns than Japanese financial markets. Furthermore, growth was at Lexus. Rumors I’ve heard in my wanderings among suppliers make me suspect that the pressure to pinch pennies fell by the wayside–plus engineers and purchasers were just plain busy, and watching costs took time they didn’t have.
The Detroit 3 should not emulate Toyota. Instead, they should let suppliers be suppliers.

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Notes

1. I am a judge for the Automotive News PACE supplier innovation competition, doing vetting visits to 2-3 finalists a year for the past 15 years. During that time innovation went from undertaken reluctantly and irregularly because the product line or company was at risk to a core (or the core) element of corporate strategy.
2. See joint work by James Rubenstein of Miami [of Ohio] University and Thomas Klier at the Chicago Fed, check the link at right for several  working papers and Fed publications.

Mike Smitka