Who’s this guy?

Meet Kenneth R. Feinberg, the new pay “czar” for the White House. He’s tasked with reigning in the out of control compensation at companies the government helped recently.

I think it should be noted right off the bat that this is tied to executive compensation and bonuses…two pots of money that are so out of step with compensation in the real world it’s obscene. I mean, one year after all of these places went under and they’re giving out billions in bonuses?

Here’s more from Wash Post:

The cuts will affect 25 of the most highly paid executives at each of five major financial companies and two automakers, according to the sources, who spoke on the condition of anonymity because the plan has not been made public. Cash salaries will be cut by about 90 percent compared with last year, they said.

The administration will also curtail many corporate perks, including the use of corporate jets for personal travel, chauffeured drivers and country club fee reimbursement, people familiar with the matter have said. Individual perks worth more than $25,000 have received particular scrutiny.

And here are the companies affected…

The seven companies under Feinberg’s purview are Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and American International Group. These firms have received a total of about $250 billion in bailout funds from the Troubled Assets Relief Program, adopted last year by Congress, and benefited from hundreds of billions of dollars more in government guarantees and other support.

Personally, I’d like to see executive pay at publicly traded companies capped at a set price with stock options/bonuses only triggering when those folks actually produce provable results. But this “failing up” nonsense that CEOs continue to do decade after decade is ridiculous.

Of course I know this won’t happen because Wall Street firms will continue to claim that these compensation models are key to attracting the right talent, even though there are usually dozens of qualified applicants for every position they have.

Still, one can dream…

Lots of “clunking” going on this morning at the Donk, but it’s the hot topic and since this criticism comes from a Dem I thought it worthy of pointing out some opposition from my side of the fence.

From her Tumblr blog:

Of course the cash for clunkers program is popular, we’re giving away money.

My concerns are first, that we are just moving demand around, and that the sales in this program are robbing sales from 2, 3, or 12 months from now when we are going to still need sustained growth in our economy. Remember, around 60,000 to 70,000 people are trading their cars in for new ones every month without this program.

Second, I haven’t yet gotten clear answers on how many deals are currently in the pipeline and how they will wind this program down in a way that will give certainty to buyers and dealers.

Third, I’m worried that an extension right now will penalize the two companies that we just made huge taxpayer invesments in. I’m trying to verify, but I believe, based on my conversations with dealers and other research, that Chrylser and GM both have inventory issues with the cars that qualify for this program. Seems weird we would invest billions of taxpayer dollars in two American companies in an effort to save them, and then extend a program that could penalize them.

I realize all car sales, both foreign and domestic, are good for the economy, but I hate the idea that there may not be a level playing field for the next few weeks because of inventory issues.

I’ll take these one by one.

First, yes, it’s giving money away. But that’s what we’re doing with stimulus dollars anyway, and there’s always some amount of wealth redistribution when you do that. As far as shuffling demand around, I don’t know that I buy that. An additional 3 to 4 grand can turn somebody into a buyer fairly quickly, especially when you’re talking about smaller, lower priced, more fuel efficient cars.

Second, I agree that it’s not clear, but one has to imagine that if it does go over we’ll figure it out so consumers don’t get screwed. After all, we’re talking about a couple billion dollars here and why we’re even fighting about it seems silly to me. This is a drop in the bucket, but it means A LOT to consumers.

Third, when people buy 250,000+ cars in a week, America benefits. Not only that, if GM and Chrysler are running out of stock, well, that’s a good thing…is it not? After all, one of the biggest problems they had was too much inventory. This will help them wind that backlog down. And yes, she’s right that there will be spillover to foreign car makers…but I doubt many of those cars are being shipped over. Most foreign car companies make their autos here, so it’ll ultimately benefit our economy. Personally, I don’t see the problem, and if McCaskill wants people to buy GM and Chrsyler, propose upping the amount of rebate somebody gets for those two brands.

What do you think?

TIMES crunches the numbers and comes up with some encouraging data…

The initial data released by Department of Transportation, however, shows that so far cash for clunkers has been a green success. The clunkers averaged 15.8 m.p.g., compared with 25.4 m.p.g. for the new vehicles purchased, for an average fuel-economy increase of 61%.

On the whole, American drivers are trading in inefficient trucks and SUVs for much more efficient passenger cars. Car manufacturers like Nissan are already retooling some models to improve their fuel economy so they can qualify for the credits.

But they rightly points out the potential pitfall in this situation…

It’s called the efficiency paradox: as we get more efficient at using energy — through less wasteful cars and appliances — the overall cost of energy goes down, but we respond by using more of it. In the case of cars, that means driving more. Ultimately our gas bill stays the same, but we spend more time on the road and pump the same amount of greenhouse-gas emissions into the atmosphere. The earth isn’t any better off.

This is one reason why it makes sense to have gas at a fixed cost that doesn’t go below that. Car makers have long be clamoring for this because without it the CAFE standards that the government sets don’t push people to buy the more fuel efficient cars if gas is cheap.

Is raising the fuel prices to a set level next on the Dems’ agenda? If not, should it be?

• Your vehicle must be less than 25 years old on the trade-in date
• Only purchase or lease of new vehicles qualify
• Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)
• Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in
• You don’t need a voucher, dealers will apply a credit at purchase
• Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

So what are your thought about the program? Will you take advantage of it?

It’ll be a while before we know if this arrangement will work or not, but I can’t help but think a new G.M. that builds better, greener autos will be competitive in the future.

From NY Times:

“We deeply appreciate the support we’ve received during this historic transformation and will work hard to repay the trust and the money that so many have invested in G.M,” the chief executive, Fritz Henderson, said just a couple of hours after the company closed the sale of its good assets to a new, government-backed carmaker.

“The last 100 days has shown everyone, including ourselves, that a company not known for quick action can indeed move very fast,” Mr. Henderson said. “Starting today, we want to take that intensity, the decisiveness and the speed of these last several weeks, and transfer it from the battlefield triage of the bankruptcy process to the day-to-day operations of the new company.”

G.M.’s goal, Mr. Henderson said, is to design, build and sell the best vehicles in the world, something that the company had forgotten. He listed the company’s priorities, in order, as its customers, its cars and its culture.

Here are some of the changes that have already happened…

The new company will be much smaller, with brands like Saturn, Hummer, Opel and Pontiac in the process of being sold or closed. It will also have a smaller sales network, with thousands of dealers having been cut during the reorganization.

Its management ranks also will be smaller. Mr. Henderson said the company is eliminating 35 percent of its executive positions, including the job of Troy Clarke, who has served as G.M.’s North American president. Mr. Henderson will assume control over the company’s North American operations, and he was not specific about Mr. Clarke’s future.

Also, it looks like they’re partnering with eBay to auction cars in California, so they’re already starting to innovate and find unique ways to connect with consumers.

What are your thoughts? Should they have been liquidated instead of going this route? And, if so, why would that be better for us?

Discuss.

It examines one of the central tensions in the public takeover of the company: Should federal dollars be spent building a lean, mean business model that will please Wall Street and increase value for shareholders (i.e. American taxpayers)? Or, should there be some built-in conditions designed to set aside as many manufacturing jobs as possible for certain people (i.e. American taxpayers)?

Now that we all own 60% of the company, it may be a story you find worth the watch:

Interesting link to new corporate logos…

Not too many people are dancing over the news of GM’s bankruptcy, but opinions are decidedly mixed on what the government ownership of the car company will mean.

Lee Cary, of American Thinker sees the era of Government Motors dawning with coercive attempts to force a Green fleet onto American consumers. This, in Cary’s opinion, will be quickly followed by the unintended consequences, namely a falling market share followed by more government infusions of money, followed by tariffs on foreign automobiles, followed by retaliatory tariffs on American-made goods, followed by economic disaster.

How about Robert Reich, who has routinely applauded the Obama economic agenda? Well, he’s not exactly sunny either. Reich says the government part-ownership of GM will do nothing more than slow its inevitable demise. He accuses the administration of trying to have it both ways by appeasing autoworkers (who want as much bailout as possible) and average taxpayers (who generally oppose the government’s intervention).

So the Obama administration is, in effect, paying $60bn to buy off both constituencies. It is telling the first group that jobs and communities dependent on GM will be better preserved because of the bail-out, and the second that taxpayers and creditors will be rewarded by it. But it is not telling anyone the complete truth: GM will disappear, eventually. The bail-out is designed to give the economy time to reduce the social costs of the blow.

Certainly someone must think things could turn out just fine. Oh sure. There’s Michael Moore. He sees this as a great opportunity for the government to seize American industry in the name of fighting a war against global warming and dwindling oil supplies. He wants massive mass transit, he wants it now and he wants it built in GM factories by GM workers who would, of course, be government workers in Moore’s world.

Feel free to leave your own predictions/desires in the comments. As for me, I’m going to take some more antacid in the hopes of quieting a stomach turning circles over the prospect of a government-owned car company.

All the kings horses and all the bond deals couldn’t keep GM from cracking. As feared, the car giant has filed for bankruptcy. Now what?

The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take a 12.5 percent stake, with the United Auto Workers getting a 17.5 percent stake and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

Plus, GM could get an additional $30 billion in federal assistance for its reorganization. That’s on top of the $20 billion the company already received in the form of low-interest loans.

More fallout: the Pontiac, Saturn, Hummer and Saab brands will be terminated or sold. And GM will no longer be listed as part of the Dow Jones industrial average.

Oh, and the majority owner of one of America’s most storied companies will now be the U.S. government – at least for awhile.

Good times. More soon.

This is an extreme example, but I can’t help but think car companies can easily hit the 35 MPG mileage standards Obama is about to lay out if the following is possible for a street ready car.

From Green Car:

Volkswagen’s CEO, Martin Winterkorn recently confirmed the company is working on a car that will get 235 mpg (1 liter per 100 kilometers) fuel economy. In 2002, VW showed its 1-Liter concept car that achieved 264 mpg (0.89L/100km). The project was cancelled in 2005 but VW has now revived it. How real is this? VW now says a limited production car could be offered by 2010.

The VW 1-Liter, developed in a wind tunnel, has a very narrow and very flat body configuration that necessitated tandem seating for the two occupants. Measuring in at 4.1 feet wide, 11.4 feet long, and just over 3 feet tall, the car features an amazing drag coefficient of just 0.159…even more wind-cheating than the slippery GM EV1 electric car’s 0.19 Cd. With its 235 mpg fuel economy, it can travel 400 miles on its 1.7 gallon fuel tank…all the while achieving a 75 mph top speed.

The future of cars is small and lightweight. Bet on it.

This is a pretty big stake in the ground, because they’ll be using California’s standards…the toughest in the nation.

No doubt you’ll be hearing that this is bad for business, but that’s what they said about seat belts, airbags and every other time CAFE standards were raised. And I think we’re all fairly aware that the car companies who’ve prospered are the ones who offered the highest fuel efficiency standards the earliest.

From NY Times:

President Obama will announce as early as Tuesday that he will combine that state’s emissions rules with the existing corporate average fuel economy standard overseen by the Transportation Department, the officials said. As a result, cars and light trucks sold in the United States will be roughly 30 percent cleaner and more fuel-efficient by 2016.

The White House would not divulge details, but environmental advocates and industry officials briefed on the program said that the president would grant California’s longstanding request to implement its tailpipe standards. Thirteen other states and the District of Columbia have said they intend to apply the same rules. That request had been denied by the Bush administration but has been under review by top Obama administration officials since January.

Yet Mr. Obama is planning to go further, effectively issuing a single rule for both fuel economy and emissions that matches California’s strictest-in-the-nation standards.

Under the new standard, the new combined fuel efficiency standard for cars and light trucks will be about 35 miles per gallon by 2016, roughly in line with the California rule.

In my mind this is a smart move for many reasons, not the least of which is you diffuse the emissions standards argument immediately. Yes, it will upset states rights’ advocates, but how does it makes sense that a state should be able to determine whether or not certain pollution levels are acceptable or how much mileage cars can have in their locale?

In other words, there are some things that must be mandated by the federal government, and this is one of them. Our long term strategic interests, both for the environment and our dependency on foreign oil, rely on one set of standards across the board.

More as it develops…

In a bid to survive bankruptcy, Chrsyler is closing nearly 800 dealerships, a full quarter of the company’s dealers. The dealers themselves had no say.

While bankruptcy may be a better long-term solution for Chrysler than continued government bailouts, the short-term will not be pretty. Car dealerships provide a lot of jobs and a lot of tax revenue for communities. They also tend to sponsor charity events and spend a lot on advertising, particularly in local newspapers which, as we all know, aren’t doing so well these days.

The National Automobile Dealers Association (NADA) has already launched a campaign calling on President Obama to act now to stop the Chrysler closings and the ones expected to affect over 1,000 GM dealers in the next few weeks and months. One of NADA’s talking points is that dealers, on average, pump $16.5 million per year into their communities. The lost revenue will be felt deeply in a lot of places.

But just because something is painful doesn’t mean it’s unnecessary. No one wants to see this kind of turmoil in what was once one of America’s proudest companies, but Chrysler simply can’t hope to continue without making cuts. Better to remove a quarter of their dealers now than to have to shutter them all in a year or two. That’s the raw and unfortunate calculus. But I’m sure that’s cold comfort to those who will lose their jobs.

Despite all the government assistance and talk of providing more, GM lost $6 billion last quarter with earnings dropping by 47%.

GM executives say car buyers are turning away from GM out of concern the company will end up in bankruptcy and won’t honor its warranties. Could the prospect of bankruptcy help force bankruptcy? To put it dramatically, is GM in a death spiral?

The company has until June to provide the government a restructuring plan. But another quarter like this past one is going to make Americans extremely wary of handing out yet another bailout.

This certainly turns the tables on the notion that unions are somehow “anti-business.”

From USA Today:

STERLING HEIGHTS, Mich. — The United Auto Workers union will own 55% of a restructured Chrysler LLC and its retiree health care trust will get a seat on the board if union members vote to approve contract concessions this week.

Chrysler stock could even be traded publicly again, as there are mechanisms for the UAW to sell shares to fund the health care trust.

Factory-level union leaders voted unanimously Monday night to recommend approval of concessions that union President Ron Gettelfinger said would help keep the automaker out of bankruptcy.

A summary of the revised Chrysler-UAW contract says that Italian automaker Fiat Group SpA eventually will own 35% of a restructured Chrysler, with the remaining 10% stake divided between the U.S. government and secured lenders, mostly banks and hedge funds.

Up is down, black is white, dogs and cats living together…

Honestly, I think this could actually turn out rather well because the union obviously has increased interest in making sure the business stays afloat and is profitable.

We shall see…

And Pontiac will vanish.

The carnage continues…

DETROIT – General Motors Corp. could be majority owned by the federal government under a massive restructuring plan laid out Monday that will cut 21,000 U.S. factory jobs by next year and phase out the storied Pontiac brand.

The plan, which includes an offer to swap roughly $27 billion in bond debt for GM stock, would leave current shareholders holding just 1 percent of the century-old company, which is fighting for its life in the worst auto sales climate in 27 years.

GM is living on $15.4 billion in government loans and said Monday in a filing with the U.S. Securities and Exchange Commission that it envisions receiving an additional $11.6 billion. But if GM’s restructuring plan can’t satisfy the government by June 1, the struggling company could go into bankruptcy protection.

So how do they plan to restructure?

Pretty simple…the government will now own GM:

GM said that it will ask the government to take more than 50 percent of its common stock in exchange for canceling half the government loans to the company as of June 1. The swap would cancel about $10 billion in government debt.

In addition, GM is offering stock to the United Auto Workers for at least 50 percent of the $20 billion the company must pay into a union run trust that will take over retiree health care expenses starting next year.

If both are successful, the government and UAW health care trust would own 89 percent of GM stock, with the government holding more than a 50 percent stake, CEO Fritz Henderson said in a news conference at GM’s Detroit headquarters.

I guess the name GM is still appropriate since it’ll essentially be short for Government Motors after this deal.

Have at it…

Oh, and hybrids too.

From NY Times:

The goal, which radiates from the very top of the Chinese government, suggests that Detroit’s Big Three, already struggling to stay alive, will face even stiffer foreign competition on the next field of automotive technology than they do today. [...]

To some extent, China is making a virtue of a liability. It is behind the United States, Japan and other countries when it comes to making gas-powered vehicles, but by skipping the current technology, China hopes to get a jump on the next.

My guess is that this has less to do with the economic advantages and more to do with China’s epic pollution problem. But the story says that, because electrics still have to get their power from somewhere, the greenhouse emissions are only cut by 19%. Still, this could merely be an effort to shift the pollution from the city to the countryside where most of the power plants resides.

But here’s the thing…China’s government can mandate a lot of things we can’t. So a green revolution can happen a lot faster there and they can reap the rewards before we do. Of course, they can also make more mistakes, but what did Edison say about failing?

Here’s more on what they’re doing to ramp this up…

Beyond manufacturing, subsidies of up to $8,800 are being offered to taxi fleets and local government agencies in 13 Chinese cities for each hybrid or all-electric vehicle they purchase. The state electricity grid has been ordered to set up electric car charging stations in Beijing, Shanghai and Tianjin.

Government research subsidies for electric car designs are increasing rapidly. And an interagency panel is planning tax credits for consumers who buy alternative energy vehicles.

China wants to raise its annual production capacity to 500,000 hybrid or all-electric cars and buses by the end of 2011, from 2,100 last year, government officials and Chinese auto executives said. By comparison, CSM Worldwide, a consulting firm that does forecasts for automakers, predicts that Japan and South Korea together will be producing 1.1 million hybrid or all-electric light vehicles by then and North America will be making 267,000.

Regardless of China, the most damning stat in all is that Asia will be outproducing us by almost 8 to 1 in two years. How did this happen? The market for hybrids and electric is white hot right now and Asia is absolutely destroying us.

Question: What would the world have been like had we raised CAFE standards and mandated that the Big 3 start producing electric and hybrids back in the day? After all, GM had the EV1 spun up long before Honda or Toyota had options and if the political will would have been there it would have been a viable enterprise…especially if local and state governments bought the vehicles for use by their employees.

All I’m saying is that government interventionism isn’t always the worst thing in the world, especially when you’re talking about long term strategic goals that we know will benefit our economy, national security, etc.

For complete information on gas mileage rates between different brands, check out GreenHybrid’s list. Very useful.

After months of hand-wringing, bailouts and backlash, new GM CEO Fritz Henderson says bankruptcy is still a very real possibility:

The company, he said, has until June 1 to accomplish changes sought by the government, or it will be in bankruptcy. The 60-day deadline should be enough time, but if it becomes evident that the changes can’t be made by the deadline, GM could go into court sooner, he said.

“It doesn’t have to take 60 days. If it’s quite clear that we’re not able to accomplish what we need to do in terms of operational restructuring, reduction of debt on the balance sheet and what we need to do to accomplish these broad parameters of having a viable business, this will be a management judgment” reviewed by the Obama administration’s autos task force, he said.

Hopefully GM can find a way out of its tailspin, but the company is clearly worried they won’t be able to meet the new guidelines laid out by the Obama administration. Arguably, we should have worked with GM to find a bankruptcy solution months ago, rather than kicking the problem down the road.

By delaying what may be inevitable, we’ve left both GM and the government in awkward positions. The situation should have never gotten to the point where the President of the United States can force the resignation of the CEO of a publically held corporation. While the cries of “socialism” are hyperbolic at best, no one should be happy with the way the government has handled GM.

Perhaps GM can still avoid bankruptcy and the government bailout and meddling will prove to have been a distasteful but necessary step in saving one of America’s key industries. But I can’t help but think that, once again, we allowed a sky-is-falling mentality to prevent us from developing a solution that addressed the core problem.

So it’s pretty apparent people are upset that there are different rules for the automakers and banks. Well, I’m not sure what to tell you except the entire economy isn’t leveraged against the health of the Big 3. Yes, they’re vitally important and I think we should continue to help them out, but they don’t come anywhere close to the problems we face in the financial markets. Not by a long shot.

And so GM was offered some additional short term help with strings attached. And they took it. You can argue that Wagoner was forced out, but he had a choice. Just like the banks have to submit themselves to stress tests. And all of these CEOs know what the right thing to do is given that they’ve screwed up big time.

But it’s not just the businesses being asked to change. Big Labor is being put through the wringer too:

A key ingredient is getting the UAW to agree to an entirely new labor contract, including major reductions in health-care benefits, according to several people involved in the matter. “That’s the No.1 wildcard here,” one of these people said Monday.

Under this plan, the “good” GM would not be expected to hold the tens of billions of dollars in retiree and health care obligations that hurt the auto maker in recent decades. Instead, those obligations would be transferred to an “old GM,” made up of less-desirable brands like Hummer and Saturn, and underperforming plants and other assets. This part of GM would likely sit in bankruptcy much longer while a buyer is sought for the parts or it is wound down. Proceeds from the sale of old GM would go to pay claims to various creditors, including GM retirees.

“That is the plan, to the extent it comports with the bankruptcy laws,” said one person familiar with the matter.

What I don’t understand about all of the chatter today is I thought this is exactly what critics wanted last year. And yet all I’m reading today is how “socialist” this is. So yeah, color me puzzled.

By the way, that WSJ article is fantastic. Do try to read the whole thing.

This move comes a day before the two car companies are scheduled to submit restructuring plans to the government. Presumably, this task force will be involved in approving the plans and monitoring the companies’ progress.

Whether the task force is a better idea than a car czar all depends on how Geithner and Summers prioritize their new responsibility. With the hundreds of billions in government money spiraling through the economy, the money wrapped up in the auto bailout may not get the administration’s full attention. Then again, a single czar is easy to marginalize and, if Obama couldn’t find the right person for the job, a multi-official task force seems the better option.

The failure of GM and Chrysler would significantly add to the nation’s growing unemployment rate. For this reason alone, I suspect the new task force to take their responsibility seriously and do what they can to make sure the billions in bailout money is not squandered. The question is: can such squandering be avoided, no matter the diligence of government overseers? Even with the massive loans, there is no guarantee GM and Chrysler can survive. Time will tell if we’ve used taxpayer wisely or if we’ve thrown good money after bad.