Chrome Sweet Chrome - Commentary

Deja Vu All Over Again

nospam@example.com (That Jack) — Sun, 22 Feb 2009 23:16:18 -0600

This past week promised all sorts of fireworks in the continuing saga of Detroit’s most troubled automakers, GM and Chrysler LLC. Instead, while there was news, the lit match hit a wet fuse. Both GM and Chrysler issued press releases regarding their intent, but any drama was forestalled by the Tuesday morning leak from the White House saying that GM would be getting fast tracked on their $4 billion bridge loan request. If you recall, the Chrysler revelation came out in the late afternoon the same day, while Rick Wagoner outlined the GM plan at 6:30pm.

The timing and order of the announcements was hardly what one might have expected.

Don't disturb the man behind the curtain.

Prior to the approval of the loan, the application is usually made. Then there’s a bit of time to digest the loan application and results are communicated. The signaling of pre-approval by the new administration suggests a couple of things. First, it may well be that the companies and the Obama Administration were working very closely together throughout the last couple of months, and had worked out an accommodation and modus operandi. The other implication is that that Obama Administration is treating Treasury funds in the same cavalier way that banks treated subprime borrowers. Credit? No problem! Stop by today for our daily specials!

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Roadside Assistance

nospam@example.com (That Jack) — Mon, 22 Dec 2008 21:51:52 -0600

Last Monday, I had an early morning appointment and my trusty, and a bit rusty, 1998 Accord for the first time in over 180,000 miles wouldn’t start. I called AAA and a tow truck was dispatched. While I had tried to jump-start the car previously, the tow truck driver found that my battery cables were loose, and on that cold damp day, I did not have a solid electrical connection. We tightened the cables, and I started the car without the aid of a jump.

By the end of the week, a call went out for a $13.4 billion jump start for two neighbors of mine, the General Motors Corporation and Chrysler, LLC. It seems they had flat tires on that road to nowhere they’ve been on. A distressingly cheerful tow truck driver, one G.W. Bush, was able to get both car companies back on the road, able to write paychecks and pay their bills, at least until to the next shift takes over in January.

After a great deal of public hand-wringing about potential bankruptcies and the need for deep, fundamental repairs to the companies themselves, they ended up with a jump start, a short list of “you might want to think of fixing these” and a merry wave. The potential for at least a bit of actual roadside repair was passed up and while the two companies are back on the road, there’s been no agreement to actually fix the engine that drives Detroit.

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Corkage Fee

nospam@example.com (That Jack) — Wed, 17 Dec 2008 18:30:00 -0600

In the week before Thanksgiving, I naively thought that the testimony of the CEO’s of the Detroit Three and UAW President Ron Gettelfinger would give the Congress plenty of time and information to sort out whether or not to provide the companies with a bridge loan. Instead, we are going on close to a month later, and the issue is in more doubt than ever. Moreover, the damage done in the public’s mind to the reputation of the Detroit firms has gone from bad to worse. The firms’ troubles and widely perceived incompetence has gotten to be an article of faith, as commonly believed as such popularly held beliefs as global warming or Barack Obama’s innocence of Chicago politics.

Remarkably under-reported in the rush to find a formula to prevent the loss of potentially millions of livelihoods at the auto companies and related businesses is the stunning unpopularity of any action to come to the companies’ aid. A Fox News poll puts the percentage of people disapproving of an auto bailout at 58%, against only 37% approval. Even more telling, though, is that the same poll revealed 52% disapproval for aid in union households, and only 44% approval. “Solidarity Forever” seems to have an end date.

I know amongst us in Michigan and who depend on the industry for our daily bread, support for any sort of rescue runs as high as our passion for survival. But it is crucial to put into perspective the willingness of our fellow citizens to throw us under the bus as easily as our industry would contract workers. And given the wide unpopularity to prop up the fortunes of the domestic firms, it is equally remarkable that any politician south of our Peninsula would have any interest or support for the bailout/bridge loan.

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Utility Player

nospam@example.com (That Jack) — Mon, 8 Dec 2008 13:44:00 -0600

In the early nineties, my sister-in-law needed a new car. She worked as an aide for a special education class, which meant that she about as poor as George Obama. As it worked out, though, she qualified for a $99 a month lease for a Ford Ranger. She swooped in and signed the paperwork on this bargain, and we were in for two years of complaining about how crummy the truck was in the snow. Her black Ranger, you see, was part of a government-mandated program to produce fuel-efficient trucks, and her lease special was a four-cylinder, two-wheel drive, manual transmission model specifically created as a money losing offset so that Ford could sell more desirable V-8 pick ups and utilities.

This relatively economical truck soldiered on in service for the lease period, dutifully fitted with a framework in the bed to house a couple of heavy sand bags, wholly inappropriate to the task of commuting and never hauling anything other than groceries. She later moved on to equally on sale Escorts, which were nearly as cheap and more fuel-efficient in the bargain. The Escorts, too, were part of the mandated system to try to convince Americans to buy small and economical transportation.

In the arguments flying back and forth about whether or not to loan the Detroit Three any sort of loans to permit their temporary survival, one point that has been politic to avoid has been the role played by Congress to force the Detroit automakers to make inexpensive, thrifty vehicles at a loss, using expensive labor. If I hear another pundit say that Detroit doesn’t build what people want to buy, I think I’ll scream at the TV (again!). Frankly, Detroit’s made millions of big, comfortable impressively huge car and trucks for the vast people of this vast land that people clamored to buy.

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Homework

nospam@example.com (That Jack) — Mon, 1 Dec 2008 14:39:00 -0600

I forget the circumstances, but it was during the Presidency of Bush 41 and a meeting of heads of State was going on. It could have been a G7 conference, it could have been in the run-up to the Gulf War, in any case, there was a long table in the foreground of the television screen, and each politico in turn was issuing the same kind of pablum we’ve come to expect. A few rows of staffers backed up each chief, and between the last row and the ornate wall in back there was James Baker, George Bush’s Secretary of State.

Mr. Baker was not watching but he was moving from national dignitary to dignitary. There was a word here, a word there. He shook hands quickly and took some arms, going back and forth. It was clear what was going on. Agreements had been secured before and Mr. Baker was making sure that everything was going according to the script. He had done his homework, and had cut all the deals and was making sure that that was promised was going to be delivered.

It was a tremendous insight to me on how things were actually done at the highest levels. No public discussions actually brokered anything. Whether done over the phone or over cocktails, in person or by letter, nothing occurred in front of the public eye before all the real negotiations occurred offline. We should contrast this with what seemed to have happened two weeks ago.

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Mega Fauna

nospam@example.com (That Jack) — Mon, 24 Nov 2008 15:29:00 -0600

About 10,000 BC North America lost almost all of its native large mammal species. We see their pictures in the natural history museums, mammoths, mastodons, saber toothed cats, giant bears and elk. For years, many naturalists blamed human hunting. Now, though, many climatologists blame rapid climate change, as the rapid cooling, known as the Younger Dryas period, that temporarily brought the Ice Age roaring back claimed the early Clovis culture, the first large human emigration to this continent.

The Clovis people – so named due to finding their projectile points near Clovis, New Mexico –seem to have originated in Europe. Arrowheads in Europe match the Clovis points, while the style is unknown in Siberia where proto-Indians were thought to have come from. Anthropologists theorize the Clovis people followed fish and game along the ice sheets to North America. The disaster of the Younger Dryas ended the period of European settlement, and claimed these human inhabitants, just as so many other species.

{mosimage}What caused the Younger Dryas? Early explanations explained it via changes in the ocean conveyor system, but there was no “smoking gun”, until geologists started seeing nanodiamonds in Michigan soil samples. Throughout North America, markers of a cataclysmic explosion and impact like iridium, metallic microspherules, magnetic spherules, and soot turned up, all pointing to a comet or asteroid airburst in the vicinity of Lake Michigan. This impact destroyed the large native species in North America.

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Car Czar

nospam@example.com (That Jack) — Mon, 17 Nov 2008 13:39:00 -0600

Over the past several decades we’ve had domestic “czars” for crises in Energy, Education, and Drug Abuse. Now, the Office of the President-Elect has floated the idea of an automotive czar to implement whatever direction Congress imposes on the Detroit Three as both punishment and conditions for a designated bailout package to get through the next several months.

{mosimage}We’ve seen no real solutions to energy issues as we are more dependent on imported oil than ever, nor education as American children seem to fall further behind international competition each year, nor drugs as there’s no sign of abatement in the drug abuse epidemic. The use of the term “czar” reminds me of the line from “The Princess Bride” where the character says, “You keep using that word, I don’t it means what you think it means.” Showing the sense of humor the inventor of language “pun-ishes” us with, the Czar was the Autocrat of all the Russias. He was master of all, aristocrats, clergy, peasants and serfs. He had absolute power over life and death – and taxes. His word was law and you owed your very existence to his good graces.

None of the “czars” we have seen thus far, as estimable as they might be, have exhibited these sorts of attributes. Probably just as well, as we live in a participatory democracy. But still, we have seen a remarkable lack of improvement in circumstances, despite Cabinet-level intervention in all manner of problems. I wish the new Czar all the luck in the world, and it will take a certain amount of luck for him (or the Car Czarina) to succeed, given the history.

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Jobs Interview

nospam@example.com (That Jack) — Mon, 10 Nov 2008 13:46:00 -0600

Despite political fatigue, I have my weekly doses of punditry, and I enjoy the Saturday evening hour on Fox News of “The Beltway Boys” and followed by “Fox News Watch”. The “Boys” are one centrist Democrat, Mort Kondracke and one center right Republican, Fred Barnes. The “News Watch” is a fairly lively right-left interchange of critique of media bias and oxymoronic applications of journalistic ethics.

This past weekend on “Beltway Boys”, both the Democrat and Republican agreed that the executives of the Detroit Three and the UAW, who had gone to Capitol Hill in supplication for more billions, were among the losers of the week. The mainstream Democrat felt that rewarding poor management judgement was unjustified in every failing company, and that financial industry bailouts were only justified in the pivotal role those firms play in key banking and finance in the economy. The Republican felt that the America has a robust auto industry, but not represented by the companies based in Michigan with their union support. Firms locating in right-to-work states were likely to survive and thrive, but locating in Michigan was just “crazy”.

It is against this sort of bi-partisan headwind that Rick, Bob, Alan and Ron went to negotiate . . .

It is against this sort of bi-partisan head wind that Rick, Bob, Alan and Ron went to negotiate with the Democratic congressional leadership to expand upon the $25 billion approved and appropriated loan package with as much as $25 billion more - their own “jobs interview”. The backdrop was 3rd quarter results posted by GM and Ford which featured about $7 billion each in cash burn between the two firms in the last 3 months, apiece. At this pace, GM might not make it through 2009. Ford is a little better off, but Mr. Mulally is quite firm about the need for a “bridge loan” to get through the current crisis. The image of the Detroit 3 and Mr. Gettelfinger bargaining across the table to preserve the remaining jobs and the very companies themselves of the domestic auto industry is now burned into the consciousness of any halfway aware person in southeast Michigan.

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Direct Deposit

nospam@example.com (That Jack) — Mon, 3 Nov 2008 15:02:00 -0600

Before the widespread use of direct deposit, muggers like predators at the waterhole would watch the routes taken by little old ladies on the way the bank and relieve them of their checks on the way the local bank, or their cash on the way out. I suppose it was related to the old term, “they get you coming and going”. And this is pretty much sums up the underlying dynamic of GM’s attempt to acquire Chrysler. Chrysler, you see, will be due some yet to be determined tranche of cash from the now appropriated $25 billion auto industry loan program. GM, on top of hoping to control Chrysler’s 11 billion in cash and current accounts, hopes to be in line for additional loan money to perhaps restart their stalled product plans as well.

Of course, not everyone else in the automotive soup kitchen line thinks that GM would automatically qualify for Chrysler’s portion. Ford, for example, this week issued a press release reminding people that they had needs too in order to meet the new draconian mileage standards, all in the midst of a multi-year profit slump. While not part of the story, I wouldn’t be surprised if the message being brought to the Treasury Department officials is that, with the GM acquisition of Chrysler, that there should be two OEM slices of the advantaged loan pie, and not three with GM getting theirs and Chrysler’s as well. So far, the line at the shelter is orderly, but those in line are laying down markers regarding what they expect.

What does that say of the market’s assessment of the value of the receivables, inventory, fixed assets, human capital and management?

One governmental action of the last week that bears scrutiny is the one where the Bush Administration informed GM and Cerberus that the government would not helping to finance GM’s acquisition. What I understand that to mean is that there is a need for a huge bridging loan in order move the various funds involved in any such merger. Investment banks typically serve in this function, but you may have heard, there’s a credit crunch out there. The government’s reticence is understandable. The merger, from an ongoing business standpoint, doesn’t make any sense at all as product lines, dealer bodies, supply base, etc. are all duplicative. Then there’s the small matter of the worthiness of either firm going forward. Both have cash holdings alone far in excess of their market caps. What does that say about the market’s assessment of the value of the receivables, inventory, fixed assets, human capital and management? If accomplished, job losses are expected to be in the 25,000 – 30,000 range for the two companies, and up to 200,000 total in knock on effects. There will be a whole new crew setting economic policy real soon, too, and both presidential candidates have quite different perspectives, not only between themselves but with the current administration (this despite what you might have heard). Besides, asking for government aid in making the merger happen is a bit like the mugger asking the cop an the beat to hold on to his knife as he rifles through his victim’s purse.

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Everything but the Squeal

nospam@example.com (That Jack) — Tue, 28 Oct 2008 13:35:00 -0600

Many business historians believe that a visit to a Chicago slaughterhouse inspired Henry Ford’s invention of the moving assembly line. As a pig’s carcass was moved from workspace to workspace, parts of it were removed and subsequently moved along to other sub-disassembly areas. Through which every part of the animal was used in some way, not only for ham, chops, tenderloin and bacon and less high high-toned cuts such as pigs’ feet (trotters) and headcheese, but also for pigskin, lard, and less savory uses. The process, it was said, used everything “but the squeal”. Henry Ford reasoned that if the moving disassembly line worked efficiently to take a finished product apart, it may work very well in putting something complicated, like a car, together.

Why buy something only to dismantle it?

Well, the disassembly process may work well, too, not only for butchering large animals, but for whole car companies as well. Ironically enough, many observers are thinking that Stephen Feinberg of Cerberus is thinking of a similar disassembly of Chrysler. Last week, you’ll recall, we discussed the potential acquisition of Chrysler by GM. This has still been the hot topic of auto industry discussion this week, as apparently lots of GM-Chrysler talks have been going on, this despite the apparent illogic of the merger. GM has trouble with its current stable of Chevrolet, Pontiac, Buick, GMC, Cadillac, Saturn, Hummer, and Saab in the US and Opel, Vauxhall, and Holden abroad, let alone adding Jeep, Chrysler and Dodge. Some folks say that this would just accelerate the further cutting of domestic brands. It may do so indeed, but why buy something only to dismantle it?

Well, unless there’s cash in it, of course. Chrysler is rumored to have been a good steward of cash up until this point, with the figure of about 11 billions being booted around. GM’s burn rate indicates that the more cash they would have on hand, the longer they could survive until the market bounces back. It seems GM still has something Cerberus wants, and that’s the remaining 49% of GMAC.

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Drizzle Drazzle Druzzle Drome

nospam@example.com (That Jack) — Mon, 20 Oct 2008 17:26:00 -0500

Stephen Feinberg, born in 1960, might be a bit young to remember King Leonardo and his Short Subjects cartoon program. But one of the “short subjects” was little Tooter Turtle, who was always asking Mr. Wizard, inevitably a lizard, to turn him into something he wasn’t. He would then, equally inevitably, be placed into an impossible situation and would raise the cry, “Help me, Mr. Wizard!” The magic lizard would then intone, “Drizzle, drazzle, druzzle, drome. Time for this one to come home!” And he would.

That’s what’s happening with Chrysler at the moment. Mr. Feinberg’s Cerberus firm took over nearly 90% of Chrysler from Daimler a little over a year ago, hoping to turn the iconic company around from the predations of German mismanagement. Not long thereafter, $4/gallon gasoline caught out Chrysler’s heavily SUV and pick up truck loaded line up, sending sales in those key segments plummeting. Even more depressingly, Chrysler’s vehicles with competitive fuel mileage fared even worse than their more thirsty offerings. Despite hiring an A-list of automotive and non-automotive executives, Chrysler’s challenges went from bad to worse.

Then, in an event even George W. Bush predicted, the home mortgage scandal hit as the bad mortgages kited by “affordable housing” advocates at Fannie Mae and Freddie Mac, like Frank Raines and Jimmy Johnson, poisoned the capital markets worldwide. The resulting credit crunch is the worst the country’s seen since Jimmy Carter’s inflation binge.

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Self-Limiting

nospam@example.com (That Jack) — Mon, 13 Oct 2008 13:47:00 -0500

It happened to me again today. I was driving along and some big SUV was in a hurry, a huge hurry. As it was a perfect day, I was attempting to enjoy it with our MGB, with the top down, of course. The SUV was hell bent to go around on the right on Stadium Boulevard, and I just used enough speed to prevent the cutoff. At the next light, the SUV was itching to take off, and as the road ahead was clear, I figured, “what the hell” and let her accelerate as fast as she wanted.

Well, the 35 year old MGB convertible, without tricks or excessive tip in, just moved smoothly off the line, and ended up being a bit faster than the new SUV. How can this be? When last tested, the MGB’s 0-60 time was still somewhat high, even the late chrome bumper versions were only good for 13.7 second times. Modern machinery is considered slow at a 0-60 time near 10 seconds. Econo-buggies are at seven or eight-second times, and modern SUV’s maintain that pace as well. So what gives? How can an old and slow English sports car with low horsepower continue to keep up or even beat today’s much better cars and trucks in real life traffic?

The SAF is activated at the point one’s spouse is aroused to say, “Hey! How fast are you going anyway?”

It’s not well advertised, probably because the because if general knowledge of this got out, the awful truth would be revealed, but nearly all modern cars are equipped with an acceleration limiting device, called the Spousal Arousal Factor, or SAF. It is activated at the point one’s spouse is aroused to say, “Hey! How fast are you going anyway?” The effect is instantaneous. The foot comes off the accelerator, if only to ask, “What was that, dear?” But off it comes, nonetheless.

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Dirty Sox

nospam@example.com (That Jack) — Mon, 6 Oct 2008 13:47:00 -0500

Years ago when I was exhibiting my talent for graduating in the middle of recessions (both degrees 1974 and 1980) I had to scramble to find work. One of my less successful forays into the job market, of which there were many, was a position I picked up as a “branch trainee” for an outfit called Credithrift. These folks specialized in household finance loans, usually secured via those same household goods. I remember the hiring interview in their Ann Arbor office, and I saw the Branch Manager hie on off, bolting out the door. I asked the interviewer, “Where is he going?” “Oh, he’s going off on collections.” I asked, “Does he do this a lot?” thinking that I’d have to do this unpleasant task if hired. The district manager replied, “We don’t like to do that.”

Well, they may not have like to do that, but I did plenty of it, eight to ten hours a day, five days a week. And I spent many months working for 90 bucks a week in those pre-inflation days, and sharing that meager amount with the employment service that got me this dream assignment. As you’d imagine, chasing down loan payments in Ypsilanti in a recession was lots of fun, and I could regale you with lots of tales about the people I met, but I did takeaway one key lesson from the experience. And that was, for credit markets to work, nearly everyone needs to meet their obligations. It worked out that about 95% of our clients, as strapped as they were, laid off, on unemployment and perhaps welfare, made their payments on time. Despite that, our margins were so thin, our little office at 10 North Adams was losing tons of money. When it came to loaning money, nearly 100% of the loan holders need to make their nut every month. If they don’t, then the whole house of financial paper might collapse.

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Anthropogenesis

nospam@example.com (That Jack) — Mon, 29 Sep 2008 10:24:48 -0500

From about the early Seventies to about 1998, there is wide agreement about general global warming. Global warming peaked in 1998, right after a particularly active solar year in 1997. A concurrent run up of carbon dioxide “emissions” (the term “emissions” is usually reserved for toxins) has lead to the theory of anthropogenic, that is, “human-caused” global warming.

Controversy swirls around the global warming claim, as most of the motivation behind the advocates for anthropogenesis seems to be political, to be generous. While the Earth seems to be cooling over the past 10 years, one thing can be stated unequivocally. Humans cause lots of unfortunate things. There are dense clouds of pollution in China. Pollution of epic proportions is continuing in developing countries like India and China. While most pollution has been regulated out of developed nations, some firms and governmental units have difficulties in meeting the letter of the law. And there is the question if many legal requirements go beyond Nature’s capability of scrubbing itself clean. Thankfully for us today, our immediate environment has been greatly cleansed.

While many human activities are to the good and benefit of many, many sadly have not. It only takes a short stint of time looking at the History Channel before we realize the Nazis were very bad people indeed. As the Communists apparently took fewer pictures, we don’t have as many programs on the famines and executions in Soviet Russia and Red China under the many Five Year Plans, the Great Leap Forward and Cultural Revolution. After our shameful withdrawal from Vietnam, hundreds of thousands of Vietnamese were consigned to “re-education” camps and millions of Cambodians were dispatched in the killing fields of Pol Pot’s Khmer Rouge. Today, radical Islamacists commit atrocities and brain wash operatives to murder-suicides that have killed many thousands, not only in the developed world, but also throughout the Middle East and Africa.

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Gimme Credit

nospam@example.com (That Jack) — Mon, 22 Sep 2008 10:14:00 -0500

There are a couple of durable things you can count on, if there’s a problem you can’t go wrong if you blame it either on Global Warming or George W. Bush. No ill in society or nature is too dire or too threatening not to be able to blame on the two biggest boogie men of our age.

Of course, those of you who are paying attention to the actual global temperature know that for the last ten years we’ve experienced a global cooling trend. And, despite arctic ice cap shrinkage recently, polar bear populations are up. It is surprising that more baby girls aren’t named Cassandra, frankly, but perhaps they should be, as global cooling is a lot more hazardous to your health than warming could ever be.

The biggest “debate” in the recent election is whether or not the American Economy is “fundamentally sound” or not. Those on one side are sure that the economy is in the worst problems since the Great Depression, the other recognizes the current credit crunch, and feels that direct, temporary federal intervention is in order to stabilize things. Both sides agree, at least for public consumption, that the centrist regime of George W. Bush is to blame. Both sides, though, know that’s not true.

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