Technology StocksAmerican Automobile Industry: Can it survive?

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From: TimF3/3/2012 12:26:14 PM
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GM to Idle Chevy Volt Output as Sales Slow
By Sharon Terlep

General Motors Co. will idle production of its Chevrolet Volt battery-powered car for five weeks beginning this month because of slow sales amid an effort to boost the vehicle's consumer appeal, the company said Friday.

Launched last year with great fanfare, the Volt has had a rocky start as sales stalled, and the car became a lightning rod for critics of the Obama administration's auto-industry bailout and support for alternative energy.

GM said around 1,300 workers at the Hamtramck, Mich., factory where the Volt is built will be out of work between March 19 and April 23, a spokesman said. ...

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From: TimF4/8/2012 11:13:30 AM
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Chrysler’s Newfound Immunity
Jonathan H. Adler • April 5, 2012 8:14 am

The WSJ reports on an easter egg contained in Chrysler’s bankruptcy restructuring.

Chrysler is immune from new punitive-damage claims from any alleged manufacturing defects in vehicles sold before the auto maker’s 2009 government-brokered restructuring.

Chrysler’s legal exemption, approved by a bankruptcy judge, is the product of rules embedded in the federal bankruptcy law. These rules allow sick companies at times to abandon product liability or other risks, overruling state laws that give consumers the right to seek damages.

Specifically, the company’s immunity—which no other car maker has—stems from a clause Chrysler crafted in its 2009 bankruptcy sale to Italy’s Fiat SpA. The exemption applies to more than 28 million cars and trucks.

The legal protection afforded Chrysler, now profitable for the first time in six years, allows the Auburn Hills, Mich., company to “essentially get a free pass on some of their most egregious past mistakes,” said Douglas Laycock, a University of Virginia law professor and punitive-damages expert.

The story includes links to the relevant documents. I’d be curious whether any readers believe there’s any way to challenge these provisions in court.

UPDATE: The VC’s own Todd Zywicki comments:

That WSJ article was weird–it is black-letter bankruptcy law that you can discharge products liability and other tort claims in bankruptcy. The only limitation really is due process, which is if potential claimaints have notice that their claims will be discharged. And what is typical is to basically create a trust out of some of the assets in the case and set those aside for the claimants. And so if you actually own a Chrysler car or buy one used after the date of the bankruptcy then due process is satisfied.

The real anomaly here is actually GM. There for purely political reasons the government allowed claims against GM to pass through bankruptcy. I suspect it is because of the trial lawyers.

Punitive damages are especially disfavored in bankruptcy. They are subordinated to actual damages. So where creditors do not receive their compensatory damages in full–because the debtor is insolvent–it makes no sense to pay punitives before other creditors are paid in full for compensatory damages.

The oddity in these cases is the rigged bidding process. Typically this matters because discharging the claims increases the value of the reorganized company (or the amount that a buyer will pay in a 363 sale). So the real benefit would not go to Chrysler, but rather to Chrysler’s estate, which would thus have more money that it could pay out to creditors as a whole.

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From: TimF6/16/2012 1:36:07 AM
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Obama's United Auto Workers Bailout
If the administration treated the UAW in the manner required by bankruptcy law, it could have saved U.S. taxpayers $26.5 billion.


Message 28210189

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From: TimF7/3/2012 12:16:24 PM
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Government Motors: As GM shares near record low, taxpayer loss on bailout rises to $35 billion


H/T Prolife

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From: Glenn Petersen7/29/2012 8:18:05 PM
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GM Marketing Chief Resigns as CEO Rebuilds in Slump

By Tim Higgins
Jul 29, 2012 5:40 PM CT

General Motors Co. (GM)
said its head of marketing, who decided to end advertising on Facebook (FB) Inc. and the Super Bowl, resigned as the automaker’s U.S. market share declines.

Chief Marketing Officer Joel Ewanick, is leaving effective immediately, GM said in an e-mailed statement. Alan Batey, vice president of U.S. sales and service, will assume the post on an interim basis, according to the statement. Chief Executive Officer Dan Akerson this month also removed Karl-Friedrich Stracke as head of European operations.

The company, based in Detroit, has lost share in its home market after its 4.3 percent first-half sales gain trailed the 15 percent industrywide increase in light-vehicle sales. The automaker, after posting a record $9.19 billion profit last year, also is struggling to end losses in Europe.

Under Ewanick, 52, the automaker decided in May to end advertising on Facebook after a regular spending review. GM began discussions about resuming ads on the social-network website, two people familiar with the talks said earlier this month. Ewanick also decided not to advertise during the National Football League’s Super Bowl championship game next year on CBS.

GM spent $10 million on paid ads on Facebook last year, a person familiar with the spending has said. That’s a fraction of the about $1.8 billion GM spent in 2011 on advertising in the U.S., according to Kantar Media.

Toyota Surges

The first-half U.S. market share for GM, the largest U.S. automaker, fell to 18.1 percent from 19.9 percent a year earlier, according to researcher Autodata Corp.

GM in 2011 regained the title of the world’s largest automaker by sales after natural disasters in Asia curtailed Toyota Motor Corp. (7203)’s production of vehicles and parts. Toyota surpassed GM in worldwide sales in 2008.

Toyota’s worldwide sales surged 34 percent in 2012’s first half to 4.97 million, ahead of GM’s 4.67 million, putting the Toyota City, Japan-based automaker on pace to regain the top spot.

In Europe, GM installed Vice Chairman Steve Girsky as interim president of interim president of the European unit. Stracke, the man he replaced, remains with GM and will perform“special assignments” and report to Akerson, GM said in a statement earlier this month.

Thomas Sedran, a consultant who joined the company’s Ruesselsheim, Germany-based Opel unit in April, was named deputy chief executive officer. Sedran is leading Opel until a permanent chief is found. The automaker’s losses in Europe have totaled $16.4 billion since 1999.

GM plunged 40 percent since its November 2010 initial public offering through July 27. GM reorganized under a U.S.-backed bankruptcy in 2009 and the U.S. still holds a 32 percentstake.

To contact the reporter on this story: Tim Higgins in Southfield, Michigan, at

To contact the editor responsible for this story: Jamie Butters at

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From: Glenn Petersen8/4/2012 3:21:38 PM
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In Wooing of Nissan, a Lesson for Tech Jobs?

New York Times
August 4, 2012

SMYRNA, Tenn. — The dairy farms that once draped the countryside here were paved over so the Japanese carmaker Nissan could build its first American assembly plant. Eighty miles to the south, another green pasture was replaced by a Nissan engine factory, and across Tennessee about 100 Nissan suppliers dot the landscape, making steel in Murfreesboro, air conditioning units in Lewisburg, transmission parts in Portland.

Three decades ago, none of this existed. The conventional wisdom at the time was simple: Japanese automakers would not build many cars anywhere but Japan, where supply chains were in place, costs were tightly controlled and the reputation for quality was unparalleled.

“They were very unfamiliar doing anything outside Japan,” said Senator Lamar Alexander, a Republican who was governor of Tennessee when Nissan opened its factory here in 1983. “They were tentative and awkward even discussing it.”

Today, echoes of that conventional wisdom can be heard within the American technology industry. For years, high-tech executives have argued that the United States cannot compete in making the most popular electronic devices. Companies like Apple, Dell and Hewlett-Packard, which rely on huge Asian factories, assert that many types of manufacturing would be too costly and inefficient in America. Only overseas, they have said, can they find an abundance of educated midlevel engineers, low-wage workers and at-the-ready suppliers.

But the migration of Japanese auto manufacturing to the United States over the last 30 years offers a case study in how the unlikeliest of transformations can unfold. Despite the decline of American car companies, the United States today remains one of the top auto manufacturers and employers in the world. Japanese and other foreign companies account for more than 40 percent of cars built in the United States, employing about 95,000 people directly and hundreds of thousands more among parts suppliers.

The United States gained these jobs through a combination of public and Congressional pressure on Japan, “voluntary” quotas on car exports from Japan and incentives like tax breaks that encouraged Japanese automakers to build factories in America. Pressuring technology companies to move manufacturing here would pose different challenges. For one thing, Apple and many other technology giants are American, not foreign, and so are viewed differently by politicians and the public. But it is possible and the benefits might be worth it, some economists say.

“The U.S. has a long history of demanding that companies build here if they want to sell here, because it jump-starts industries,” said Clyde V. Prestowitz Jr., a senior trade official in the Reagan administration who helped negotiate with Japan in the 1980s. The government could also encourage domestic production of technologies, including display manufacturing and advanced semiconductor fabrication, that would nurture new industries. “Instead, we let those jobs go to Asia, and then the supply chains follow, and then R&D follows, and soon it makes sense to build everything overseas,” he said. “If Apple or Congress wanted to make the valuable parts of the iPhone in America, it wouldn’t be hard.”

One country has recently succeeded at forcing technology jobs to relocate. Last year, Brazilian politicians used subsidies and the threat of continued high tariffs on imports to persuade Foxconn — which makes smartphones and computers in Asia for dozens of technology companies — to start producing iPhones, iPads and other devices in a factory north of São Paulo. Today, the new plant has 1,000 workers, and could employ many more. Apple and Foxconn declined to comment about the specifics of their Brazilian manufacturing.

However, a developing country like Brazil can adopt trade policies that would be difficult for the United States. Taking a hard line to reduce imports of technology goods and encourage domestic manufacturing could violate international trade agreements and set off a trade confrontation. “We’re a long way from even talking about limits on imported iPhones or iPads,” said a former high-ranking Obama administration official who did not want to be named because he was not authorized to speak.

Protectionism is bad policy in today’s globalized world, many economists argue. Countries benefit most when they concentrate on what they do best, and trade barriers harm consumers by driving up prices and undermine a nation’s competitiveness by shielding industries from market forces that spur innovation. The United States needs to create new jobs, economists say, but it should not chase low-paid electronics assembly work that at some point may be replaced by robots. Instead, it should focus on higher-paying jobs.

“Closing our border is a 20th-century thought, and it will only weaken the economy over the long term,” said Andrew N. Liveris, president of Dow Chemical and co-chairman of the Advanced Manufacturing Partnership, a group of executives and academics convened by the White House who have studied ways to encourage domestic manufacturing.

The debate is not just economic, however. Increasingly, it is political. With high unemployment, the question of how to create jobs has taken a role in the presidential race between President Obama and Mitt Romney, and both have traded barbs on outsourcing by American companies.

Although the car and technology industries are different — and the eras are separated by 30 years — the resurgence of American auto manufacturing in the 1980s is an example of how one industry created tens of thousands of good jobs. Since its first pickup truck rolled off the line here on June 16, 1983, Nissan has produced more than seven million vehicles in the United States. It now employs 15,000 people in this country. It makes more than a half-million cars, trucks and S.U.V.’s a year, with the plant in Smyrna building six models, including the soon-to-be-produced, all-electric Nissan Leaf.

Other foreign carmakers settled in America: Honda, Toyota, Hyundai, BMW, Mercedes-Benz and, most recently, Volkswagen — after a failed attempt decades ago. And some of those factories have become among the best in the world. The Nissan engine plant in Decherd, Tenn., for instance, exports engines to Japan. “We have 14 companies now that produce light vehicles here and that is enormous,” said Thomas Klier, a senior economist at the Federal Reserve Bank in Chicago. “There is no major market in the world that compares to it.”


“Where is Tennessee?”

It was a blunt question, posed by Takashi Ishihara, president of Nissan, to Mr. Alexander, then the state’s governor.

Mr. Alexander, who had journeyed to Tokyo in 1979 to pitch Nissan on building a plant in his state, was ready with his answer: “I said, It’s right in the middle.” To help out, he displayed a satellite photograph of the United States at night, showing the bright lights shining on the East and West Coasts and the relative darkness of Tennessee.

“We were the third-poorest state in the nation back then,” Mr. Alexander said. “President Carter had told all the U.S. governors to go to Japan and persuade the Japanese to make in the U.S. what they sell in the U.S.”

Mr. Alexander recalled the Nissan executives were “incredibly anxious” about testing their homegrown production systems abroad. Could the Japanese car companies achieve the same quality using American workers?

Despite the concerns, pressures were growing for Nissan to break out of its manufacturing cocoon in Japan, including currency fluctuations that made exporting more expensive. The final push came from American anger as imports grabbed one-fourth of the United States market.

“Japanese automakers had achieved rapid growth by exporting to America,” said Hidetoshi Imazu, a senior manufacturing executive at Nissan in Tokyo who led the development of the plant here in its early years. “But it was clear that model would no longer work.”

In the fall of 1980, Congress held hearings to limit Japanese imports. With tension running high, Nissan announced plans for the $300 million assembly plant in Smyrna. That gave the company a head start in circumventing looming restrictions. In May 1981, Japan agreed to limit exports to America to 1.68 million cars annually, a 7 percent reduction from a year earlier. In addition, the United States imposed a 25 percent tax on imported pickup trucks.

“The pressure put on the Japanese was absolutely critical for them to agree to export restraints,” said Stephen D. Cohen, a professor emeritus of international studies at American University.

Rural Tennessee may not have seemed a likely place to build a giant automotive factory, but its location was actually a selling point. It was far from Detroit and the United Auto Workers — and the Japanese wanted to work without what they saw as union interference.

Nissan’s choice of Tennessee was not popular with everyone. On a 20-degree February morning in 1981, trade unionists jeered Mr. Alexander and Nissan executives as they turned the first shovelfuls of dirt for the factory, protesting nonunion construction crews. An airplane circled overhead urging a boycott of Japanese vehicles.

Standing nearby was Marvin Runyon, a 37-year veteran of Ford who had been recruited as Nissan’s first American plant manager. In a later interview with The New York Times, Mr. Runyon was asked what his old colleagues in Detroit thought of his new job. “They wish me luck,” he said. “But not too much.”

Success did not come overnight. Many Japanese were skeptical of their new colleagues. Americans, they had heard, were soft, lazy and incapable of mastering the precision manufacturing that had made Nissan great.

To train its new American engineers, Nissan flew workers to its Zama factory in eastern Japan. There the Nissan officials, assisted by English-speaking Japanese workers called “communication helpers,” imparted the intricacies of the company’s production techniques to the Americans.

Beginnings at Nissan

Early on, Nissan guarded against quality concerns by not relying on parts from American suppliers. Most components were either shipped from Japan or produced by Japanese companies that set up operations nearby. “We felt sourcing parts on the U.S. wouldn’t allow us to make cars in our own way,” said Mr. Imazu, the Nissan manufacturing executive.

By 1985, Nissan was confident enough about the quality that it added passenger cars to Smyrna’s assembly lines. Gradually, American parts makers were allowed to bid on supply contracts. Even that came amid arm-twisting by Congress, which passed a law in 1992 requiring auto makes to inform consumers of the percentage of parts in United States-made cars that came from North America, Asia or elsewhere.

Calsonic Kansei of Tokyo opened its first plant in Tennessee in the mid-1980s, and now employs about 2,600 Americans making instrument panels, exhaust systems, and heating and cooling modules for Nissan. “The Japanese suppliers were encouraged to localize production,” said Matt Mulliniks, vice president for sales and marketing at Calsonic Kansei in Tennessee.

Nissan’s early doubts are reflected in recent debates over whether American workers can compete with overseas laborers. Within the technology industry, workers in Asia are viewed as hungrier and more willing to tolerate harsh work schedules to achieve productivity. The numbingly repetitive jobs of assembling cellphones and tablet computers, executives say, would be scorned here; they worry that many Americans will not make the sacrifices that success demands, and want too much vacation time and predictable work schedules.

In the auto industry, the belief that American workers could not match Japanese workers has long since faded. “A big part of the reluctance of Japanese automakers to come to the U.S. was the belief that their manufacturing systems could only work with loyal Japanese employees,” said Mr. Cohen, the American University professor. “Everybody was surprised how quickly the systems were adopted here.”

This year, Nissan held an internal competition to decide where to produce a new Infiniti-brand luxury sport utility vehicle. The plant in Smyrna was vying against one in Japan.

The surprising winner: Smyrna.

“All my life I’ve heard about how great luxury brands like Lexus and BMW are,” said Richard Soloman, a 20-year veteran at the Smyrna plant. “Now we will be building a vehicle of that standard right here in Tennessee.”

The Japanese presence has rippled through the South. But no place has benefited to the extent of Tennessee, which counts more than 60,000 jobs related to automobile and parts production. The state’s jobless rate, which exceeded the national average by a significant margin in 1983 when Nissan opened its plant, is now lower — 7.9 percent in May versus 8.2 percent nationwide.

Brazil’s Breakthrough

Earlier this year, when Apple’s chief executive, Tim Cook, took the stage at a technology conference, he was asked if his company — which once made computers in America, but now locates most assembly in China and other countries — would ever build another product in the United States.

“I hope so,” Mr. Cook replied. “One day.”

That day came recently for Brazil.

In Jundiaí, an hour’s drive from São Paulo, a strip of asphalt has recently been rechristened Avenida Steve Jobs, or Steve Jobs Avenue. Alongside is a factory where workers make iPhones and iPads. Brazil got these jobs through tactics the United States once used to persuade Nissan and other foreign carmakers to build plants in America: it cajoled Apple and Foxconn with a combination of financial incentives and import penalties.

Like the United States, Brazil is a big market — the third largest for computers after China and the United States. It has long imposed tariffs on imported technology products to encourage domestic manufacturing. Those fees mean that smartphones and laptops often cost consumers more in Brazil — and that domestic manufacturers can be at a disadvantage if their products require imported parts.

In April 2011, Brazil’s president, Dilma Rousseff, traveled to Asia with a pitch — much as Mr. Alexander did in 1979. The federal government would give Foxconn tax breaks, subsidized loans and special access through customs and lower tariffs for imported parts if it started assembling Apple products in Brazil, where Foxconn was already producing electronics for Dell, Sony and Hewlett-Packard.

Foxconn agreed. Within months, new Brazilian engineers were flying to China for training. By year’s end, Foxconn was making iPhones in Jundiaí, and it began making iPads there in early 2012, according to Evandro Oliveira Santos, director of the Jundiaí Metalworkers Union, whose members work at the plant. Stores now carry Apple products with the inscription “Fabricado no Brasil” — “Made in Brazil.”

Apple products remain expensive; the latest iPad, for instance, costs about $760 in Brazil, compared with $499 in the United States. But because those devices are made in Brazil, and lower tariffs are charged on parts used to assemble them, Foxconn and Apple are pocketing larger shares of the profits, analysts say, offsetting the increased costs of building outside China.

Foxconn declined to discuss specific customers, but said the Brazilian government’s incentive programs had influenced its decisions and that the company expected to generate more Brazilian jobs, as well as aid the government’s goal of furthering the country’s technology industries.

Indeed, Brazil hopes that compelling Foxconn to assemble iPhones and iPads domestically will help set off a technology explosion. Ms. Rousseff has said that Foxconn could invest $12 billion more in Brazil. And as an electronics supply chain develops within the country — as it has in China — the expectation is that other manufacturers will build factories.

The government also hopes to use consumer electronics as a springboard for more advanced manufacturing. Targeting high-tech parts like computer displays and semiconductors could help Brazil reduce its trade deficit in these products, and develop a robust homegrown industry, said Virgilio Almeida, information technology secretary at the Ministry of Science and Technology. “They are deemed high priority in the Brazilian industrial policy, and are part of the Greater Brazil Plan,” he said. “Brazil has developed specific policies that grant incentives to foment research, development and industrial production.”

America’s Gap

Throughout his term, Mr. Obama has regularly gathered advisers to discuss manufacturing, according to former high-ranking White House officials. As one meeting was breaking up, Mr. Obama casually tapped an aide’s iPhone to raise a point. Since the device is designed domestically, he said, it should be possible to make them in this country as well.

But it became clear at the meetings that there were differences of opinion over how best to bring manufacturing home, according to people familiar with the discussions who did not want to be named because the sessions were private. Everyone shared the same goal: establishing a level playing field and creating as many jobs in America as possible. But the debate centered, in part, on choosing among different tactics the American government has used in the past: penalties like tariffs against foreign countries that do not play by the rules or incentives like tax breaks to encourage more domestic manufacturing. On one side were officials like Ron Bloom, until earlier this year the president’s senior counselor for manufacturing policy, who favored more aggressive stances to counter policies used by Asian countries. He argued that the United States should fight China’s efforts to keep its currency weak. If China’s currency were stronger, American companies might find it costlier to make their goods in China and could have greater incentive to manufacture more in this country.

Aligned on the other side at times were two powerful voices, Lawrence H. Summers, the top economic adviser to Mr. Obama until 2010, and Treasury Secretary Timothy F. Geithner. Along with many economists, Mr. Summers argued that an overly aggressive trade stance could hurt manufacturing — by, for instance, pushing up the price of imported steel used by carmakers — and over time, drive companies away.

Mr. Geithner thought diplomacy was more effective than confrontational tactics like labeling China a currency manipulator. “He told us, ‘It’s going to be a trade war if we go there,’ ” according to a person who attended the meetings. But this person countered that China would respond only to pressure. “What doesn’t work is the quiet stuff,” he said.

Mr. Summers, in a recent interview, declined to discuss his role at the White House. But, speaking more broadly, he said protectionist measures might incite new domestic manufacturing in the short run, but it would come at a high price. “People will pay more for the product because it’s produced in a place that can’t make it at the lowest cost,” he said. “It burdens exporters because they pay more for their inputs. And it removes the spur of competition.”

A spokeswoman for Mr. Geithner said that “a multidimensional approach to tough yet smart engagement with China is the most effective way to level the playing field.” This strategy has had some success in persuading China to increase the value of its currency, she noted.

One of the president’s economic advisers also said that, despite some differences, Mr. Obama’s team, including Mr. Geithner and Mr. Summers, united to preserve manufacturing jobs in a critical area, by bailing out the auto industry in the wake of the financial crisis.

But the divisions within the White House have often frustrated those who wanted a sharper focus on manufacturing. “The critics would say we didn’t really fight for manufacturing policy,” said another former high-ranking official who took part in many of those meetings. “They have a strong point.”

Now, with unemployment high and a growing debate over outsourcing of jobs, manufacturing is on the political agenda. In March, Gene B. Sperling, director of the White House’s National Economic Council, outlined initiatives — including tax breaks for building factories here, infrastructure investments and going after “unfair trade practices” — to reinvigorate manufacturing. In May, the Commerce Department announced tariffs on Chinese solar panels for selling below fair-market value. The White House has challenged China’s trade practices on tires and rare-earth metals, and has established an “interagency trade enforcement center” to combat unfair trade.

Washington, however, has generally shied from addressing the protectionist measures of countries like China with countermeasures, as politicians once did against Japan.

After the Senate last year passed legislation imposing tariffs on nations whose currency is undervalued — a salvo aimed at China — the bill went nowhere in the House of Representatives, and the White House indicated it did not like the proposal.

However, champions of “in-sourcing” legislation — which takes away benefits from companies moving jobs abroad and provides incentives for those bringing jobs back — said the tenor of the debate is changing. “The public by and large has been betrayed by large American corporations that outsource. I think Congress is catching on to that,” said Senator Sherrod Brown, Democrat of Ohio.

Still, he does not advocate tariffs or quotas. Senator Debbie Stabenow, Democrat of Michigan, also favors tax breaks, rather than penalties. “I love my iPad,” she said. “And I want it made in America.”

One reason for the difference today: Unlike in the 1980s, when Japanese auto imports upset many voters, there has been little public outcry over imported cellphones and computers.

Back then, American workers were losing jobs as imports from Japanese companies cut into sales of the Big Three automakers.

But consumer electronics are different. Though some jobs have moved to Asia, many were never here to begin with. And the biggest technology importers — like Apple, Hewlett-Packard, Dell and Microsoft — are American companies.

Today, many consumers do not know or care where their smartphones are made. “Where it was built, what it means for politics, how it affects the economy,” said Raymond Stata, a founder of Analog Devices, one of the largest semiconductor manufacturers, “that’s not something people think about when they buy.”

Bill Vlasic reported from Smyrna, Tenn., Hiroko Tabuchi from Tokyo, and Charles Duhigg from New York. Lis Horta Moriconi contributed from Rio de Janeiro.

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From: Glenn Petersen8/7/2012 10:24:31 AM
   of 431
Emails: Geithner, Treasury drove cutoff of non-union Delphi workers’ pensions

By Matthew Boyle
The Daily Caller
Published: 12:27 AM 08/07/2012

Emails obtained by The Daily Caller show that the U.S. Treasury Department, led by Timothy Geithner, was the driving force behind terminating the pensions of 20,000 salaried retirees at the Delphi auto parts manufacturing company.

The move, made in 2009 while the Obama administration implemented its auto bailout plan, appears to have been made solely because those retirees were not members of labor unions.

The internal government emails contradict sworn testimony, in federal court and before Congress, given by several Obama administration figures. They also indicate that the administration misled lawmakers and the courts about the sequence of events surrounding the termination of those non-union pensions, and that administration figures violated federal law.

Delphi, a General Motors company, is one of the world’s largest automotive parts manufacturers. Twenty thousand of its workers lost nearly their entire pensions when the government bailed out GM. At the same time, Delphi employees who were members of the United Auto Workers union saw their pensions topped off and made whole.

The White House and Treasury Department have consistently maintained that the Pension Benefit Guaranty Corporation (PBGC) independently made the decision to terminate the 20,000 non-union Delphi workers’ pension plan. The PBGC is a federal government agency that handles private-sector pension benefits issues. Its charter calls for independent representation of pension beneficiaries’ interests.

Former Treasury official Matthew Feldman and former White House auto czar Ron Bloom, both key members of the Presidential Task Force on the Auto Industry during the GM bailout, have testified under oath that the PBGC, not the administration, led the effort to terminate the non-union Delphi workers’ pension plan.

“As a result of the Delphi Corporation bankruptcy, for example, Delphi and the Pension Benefit Guaranty Corporation were forced to terminate Delphi’s pension plans, which means there are Delphi retirees who unfortunately will collect less than their full pension benefits,” Feldman testified on July 11, 2012.

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From: Glenn Petersen8/16/2012 7:20:07 PM
   of 431
General Motors Is Headed For Bankruptcy -- Again

Louis Woodhill, Contributor
8/15/2012 @ 6:24PM

President Obama is proud of his bailout of General Motors. That’s good, because, if he wins a second term, he is probably going to have to bail GM out again. The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling. It would be too embarrassing politically. Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market. For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011. With a loss of market share comes a loss of relative cost-competitiveness. There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.

To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu.

The Malibu is GM’s entry in the automobile market’s “D-Segment”. The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord. The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.

Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment. This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.

GM is in the process of introducing a totally redesigned 2013 Chevy Malibu. It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).

Automobile technology is progressing so fast that the best vehicle in a given segment is usually just the newest design in that segment. Accordingly, if a car company comes out with a new, completely redesigned vehicle, it had better be superior to the older models being offered by its competitors. If it is not, the company will spend the next five years (the usual time between major redesigns in this segment) losing market share and/or offering costly “incentives” to “move the metal”.

Uh-oh. At this point, it appears that the 2013 Malibu is not only inferior to the 2012 Volkswagen Passat, it’s not even as good as the car it replaces, the 2012 Chevy Malibu.

If you follow the automobile enthusiast press, you know that, under the leadership of then product czar Bob Lutz, GM went all out to develop a competitive D-Segment car for the 2008 model year. The result was the 2008 Chevy Malibu, which managed to get itself named by Car and Driver magazine as one of the “10 Best Cars” for 2008.

However, when tested head to head against six other D-Segment sedans in the March 2008 issue of Car and Driver, the 2008 Malibu came in third, behind the Honda Accord and the Nissan Altima. Adjusted to the points scale that Car and Driver uses today, the 2008 Malibu scored 187 points, 6% lower than the winning 2008 Honda Accord’s 198 points.

Still, third was a respectable showing. The previous generation of the Malibu, a darling of rental car fleets, would have come in dead last in any D-Segment comparison test.

Acknowledging the importance of the D-Segment to the company’s future, GM’s CEO, Dan Akerson, ordered that the introduction of the redesigned 2013 Chevy Malibu be advanced by six months, from the fall of 2012 to the spring of 2012.

In their March 2012 issue, Car and Driver published another D-Segment comparison test, pitting the 2013 Chevy Malibu Eco against five competing vehicles. This time, the Malibu came in dead last.

Not only was the 2013 Malibu (183 points) crushed by the winning 2012 Volkswagen Passat (211 points), it was soundly beaten by the 2012 Honda Accord (198 points), a 5-model-year-old design due for replacement this fall. Worst of all, the 2013 Malibu scored (and placed) lower than the 2008 Malibu would have in the same test.


Digging deeper, the picture just gets worse. Despite its mild hybrid powertrain, which is intended to provide superior fuel economy (at the cost of a higher purchase price and reduced trunk space), the 2013 Malibu Eco delivered the same 26 MPG in Car and Driver’s comparison test as the Passat, the Accord, and the Toyota Camry.

In a recent speech, Dan Akerson admitted that GM’s powertrain technology had fallen behind that of competitors in some cases. This is illustrated by the Malibu Eco’s EPA gas mileage ratings. At 25 MPG City/37 MPG Highway, the Malibu Eco is not as fuel-efficient as the conventionally-powered 2013 Nissan Altima (27 MPG City/38 MPG Highway).

It might be possible for GM to give the Malibu a better powertrain during its five-year-product life cycle. Unfortunately, there is no way that they will be able to correct its biggest design flaw, which is its short wheelbase.

For years, automobile companies have been trying to design cars with the longest possible wheelbase (distance between the front and rear axles) for a given overall vehicle length. A longer wheelbase provides advantages in the areas of styling, ride, and legroom.

In developing the 2013 Malibu, GM decided to shorten the wheelbase by 4.5 inches from that of the previous-generation Malibu, from 112.3 inches to 107.5 inches. This gave the 2013 Malibu the shortest wheelbase in the entire D-Segment.

The Car and Driver comparison-test-winning Passat has a wheelbase of 110.4 inches, which gives it a “unique selling proposition”, the roomiest back seat in the D-Segment. The Passat has combined front and rear legroom totaling 81.5 inches, 3.5 inches more than the Malibu.

This may not sound like a lot, but, like baseball, automobile design is “a game of inches”.

For a 6’1” tall man, sitting in the back seat of the 2012 Passat behind a similar-sized driver is like sitting in a limo. His knees will be nowhere near the back of the front seat. In contrast, the same sized man would have to struggle to get into the back seat of the 2013 Malibu, and would have to sit with his legs splayed once he did.

Rear seat legroom is important in the family sedan market, not only for the comfort of adult passengers, but also for the ease of using children’s car seats. The 2013 Nissan Altima also has longer wheelbase and more rear seat legroom than does the Malibu.

Chevrolet is not a premium brand, like Mercedes or BMW. Since the 1920s, Chevy’s essential market positioning has been “more car for your money”. Unfortunately, the 2012 Volkswagen Passat is more car for the money than is the 2013 Malibu. There will not be anything that GM will be able to do about this for the next five years other than to reduce the price of the Malibu by offering “incentives”. This will eat into the company’s profitability, which is already weak.

As a company, General Motors peaked in 1965, when it commanded 50.7% of the U.S. market, and made a stunning-for-the-time $2.1 billion dollars in after-tax profits. Adjusted by the GDP deflator to 2011 dollars, GM made $12.1 billion in after-tax profits on $117.9 billion in revenue.

In 1965, Volkswagen was tiny compared to GM. It produced only 1.6 million vehicles, about 22% of GM’s 7.3 million. VW’s total revenues were only 11% of GM’s. The most powerful engine you could get in VW’s volume family car, the Beetle, had 40 horsepower. The biggest engine you could get in GM’s equivalent, the 1965 Chevy Impala, had 425 horsepower.

In the first half of 2012, Volkswagen sold almost as many vehicles as GM did, 4.6 million vs. 4.7 million. And, its total revenues were much higher, $119.2 billion vs. $75.4 billion for GM. Part of this is the result of currency exchange rates, but VW had a significantly higher operating profit margin than GM, 6.8% vs. 5.7%.

Under the leadership of Ferdinand Piech, who is kind of like a German-speaking, automobile industry version of Steve Jobs, Volkswagen is determined to become the biggest and most profitable car company in the world. And, right now, they are eating GM’s lunch.

Not only has Volkswagen taken an important share of the U.S. D-Segment with their new Passat, but they are pulling away from everyone in the troubled European market, where GM is losing money on its Opel subsidiary. The headline in the current edition of Automotive New Europe’s “Global Monthly” is, “Buried: VW Uses Europe’s Crisis to Crush Rivals”. In this case, GM is one of the “crushees”.

Will GM be able to turn itself around, and save American taxpayers from losing $26.5 billion on Obama’s bailout?

One way to answer that question is to compare the 2013 Chevy Malibu against the 2012 Volkswagen Passat, as Car and Driver did. Results: VW, first out of six; GM, dead last. However, additional insight can be obtained by looking at how GM’s CEO, Dan Akerson (63), stacks up against Professor Doctor Martin Winterkorn (65), the man handpicked by Ferdinand Piech in 2007 to be his replacement as CEO of Volkswagen AG.

Akerson has an engineering degree, but he also has a Master’s Degree in Economics, and his first big job was as CFO of MCI. Akerson was CEO of General Instrument, and then of Nextel, and then of XO Communications, which went bankrupt in June 2002. He joined the private equity firm, the Carlyle Group, in 2003.

Akerson got his first job in the automobile industry when he was named CEO of GM in late 2010. Recently, he has been hiring and firing top GM executives at an alarming pace, and he is understood to be working on a major reorganization of the company. Akerson recently gave a televised speech to GM employees on the need for “integrity”.

Martin Winterkorn has a PhD in Metallurgical Engineering, and he has spent his entire career in the automotive industry. At the 2011 Frankfurt Auto Show, Winterkorn was caught on amateur video sitting in, and studying Hyundai’s newly introduced i30, a competitor to VW’s best-selling family car, the Golf. Here is an excerpt from a story about this incident published along with the video by The Truth About Cars, an auto industry blog:

“(Martin Winterkorn) pulled on the adjuster of the steering column, and heard – nothing. At Volkswagen, there is an audible (“klonk!) feedback whenever the steering column is adjusted.

Immediately, Klaus Bischoff, head of Volkswagen Brand Design was summoned. He pulled on the adjuster: No sound. “Da scheppert nix,” exclaimed Winterkorn in his heavy Bavarian accent. “There is no rattle!”

Winterkorn was livid: “How did he pull that off?” He, the blasted Korean. “BMW doesn’t know how. We don’t know how.” He, the blasted Korean, must have found out how to battle the dreaded Scheppern.

Tension is high. This could affect careers. Someone quickly explains that there had been a solution, “but it was too expensive.” That gets Winterkorn even more enraged. “Then, why does he know how?” For less money. He, the Korean. There is no answer. Hyundai has beaten Volkswagen at the Scheppern front.

Winterkorn measures the A-pillar, runs his hands over the plastic. He walks away, his entourage trots after him. Deeply in thought and very worried.”

Uh-oh. While Dan Akerson is busy rearranging the deck chairs on GM’s Titanic, Martin Winterkorn is leading VW to world domination via technical excellence.

“The game isn’t over until it’s over”, but if President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again. And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.

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From: Glenn Petersen9/24/2012 4:29:57 PM
1 Recommendation   of 431
Why Isn't GM Doing Better?

by Megan McArdle
The Daily Beast
Sep 24, 2012 2:17 PM EDT

The company has shed its legacy costs. Why is its market share still declining?

A British friend who rented a Chevy Malibu last weak reported that it was "shocking", and not in a good way. The Chevy Volt, once touted as the company's Great Green Future, needs thousands and thousands worth of incentives to move a unit . . . and even at that, is selling so few that they've temporarily shut down the assembly line where they're made. The company's stock price has been stuck in the low twenties for months--which means, for those following along at home, that if the government sold its GM shares today, taxpayers would lock in a $15 billion loss on the money we gave them.

Two years ago, I asked whether GM had gotten its groove back. The Cruze, their "Corolla killer", seemed like a good car. The Buick Enclave looked nice. More importantly, the company had gotten rid of a lot of the legacy costs that had made it literally financially impossible to compete with Honda and Toyota. For any given level of car, GM started off a couple of thousand in the hole: pensions for retired workers, retiree health care, higher wages (including wages for those in the "job bank" who weren't actually working). Especially in small cars, where the profit margins are thinner, there was only one place that money could come from: the quality of the car. Less insulation, cheaper trim, fewer little extras. Which is the answer to the question that President Obama allegedly asked when he sat down with the auto task force: "Why can't they make a Corolla?"

Mickey Kaus made fun of me for that article, saying I'd been taken in, like many reporters before me, by GM's promises of change. Last year I revisited the question a bit, with no firm conclusions except one:

Unfortunately, corporate culture is a sort of black box; from the outside, you can’t see what’s going on. You have to wait to see what emerges.

What we can say is that this time, we’re actually going to find out. GM has fixed basically every other problem that anyone could name: Instead of a $2,000-a-car cost disadvantage due in large part to legacy costs such as wages and retiree benefits, it now has a cost advantage. The eight marques that multi­plied the overhead and muddied the value propositions of its brands have been streamlined to four. The excess dealerships have been closed.

What’s left is culture. After everything, if GM begins losing market share again, we’ll know that it’s beyond saving. To paraphrase the old joke: “How many experts does it take to turn around a big company? Only one—but the company has to really want to change.”

The jury is still out, of course, but things don't look all that great for the defendant. GM still just seems to be muddling along. They've apparently been sticking to pricing discipline on the Cruze--a welcome sign from a company that has previously been far too reliant on deep discounting and fleet sales which kill resale values. But the result has been a steep decline in sales. The brand is still damaged. And the company overall still depends a lot on trucks, fleet sales, and discounting--three questionable sources of revenue that got them into trouble in the past. And while their market share briefly moved back above 20% in the wake of the Fukishima disaster, it's back down to 18% in 2012.

To be sure, GM is better positioned to handle the decline, having shed dealers and workers and retiree health costs. But that's hardly a rousing endorsement of either the company, or the bailout.

Conservatives will blame the union, and to be sure, those costs would have been cut more deeply if the government had not interfered. Liberals will blame management, and of course, they are the people who brought us the too-expensive Volt, and other Greatest Non-Hits of the GM lineup.

But if the company fails again, I think that both of these places miss the point: it is the company, not the union or management, that isn't working. It went into 2008 with a damaged brand, a history of poor labor relations, and a thousand other problems. There may simply have been no way to make the company over into something that could once again be a world-class competitor.

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From: TimF1/29/2013 12:34:09 PM
   of 431
Stuck in reverse, Detroit edges closer to bankruptcy

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