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New Deals for Car Buyers, Via the Auto Bailout
Tweet Share on Facebook March 31, 2009 Comment (10)With the auto bailout kicking into higher gear, General Motors and Chrysler aren't the only ones getting some help. Relief is flowing to car buyers, too.
The government has finally clarified what GM and Chrysler must do to get billions of dollars more in aid they need to stay in business and transform their operations. Both companies still face serious hurdles, and bankruptcy remains an option. But as the road map comes into focus, it's allowing both of the automakers—along with some competitors—to offer new deals aimed at boosting sales and turning around a moribund car market. And the government is helping out by backing warranties while the GM and Chrysler restructure.
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The Auto Bailout: What's In It for Car Buyers
Tweet Share on Facebook March 30, 2009 Comment (13)In order to bail out General Motors and Chrysler, the government has decided to throw a bone to car buyers, too.
Executives at the troubled Detroit automakers have long pointed out that nobody wants to buy a car from a company that might not be around in two or three years. That's why they've insisted that declaring bankruptcy is a road to ruin: It might allow their companies to shed debt and restructure, but even a small chance of liquidation would spook most buyers.
The government seems to have heard that complaint, which is why President Obama's provisional plan to bail out GM and Chrysler includes new protections for people who buy their products. Under Obama's plan, the government will fund a program to honor warranties on GM and Chrysler cars purchased while the companies are restructuring. Obama also plans to pursue a "scrappage" policy that could offer car buyers tax rebates or other incentives for trading in an old clunker and buying a new car.
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View From MIT: A Depression Still Avoidable
Tweet Share on Facebook March 30, 2009 CommentI spoke recently with David Schmittlein, dean of MIT's Sloan School of Management. Here are some of his thoughts about the recession's impact on corporate America, entrepreneurs, and the ambitions of business school students:
What will it take for Treasury Secretary Timothy Geithner's bank bailout plan to work?
It's an opportunity to get some of those toxic assets off their books, but I'm not sure it matters how much of that stuff they get off their books. The banks increasingly know what these assets are. Over the last six months, they've put a whole lot of effort into understanding that. Now there's a pretty good inventory of what those bad assets are.That's not the same thing as valuing them, and the private firms in this partnership will mainly be the ones that value those assets. I really wonder how many firms will want to get into a public-private experiment if Congress is setting a midmanagement pay scale. You have to ask, do you trust the government to keep its hands off your business?
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Why Booting Wagoner Won’t Solve GM’s Woes
Tweet Share on Facebook March 29, 2009 Comment (26)By most accounts, Rick Wagoner was never really the problem.
It’s self-evident that he presided over the demise of General Motors since taking over as CEO in 2000. The company has lost money for four years straight, and is only alive now thanks to government aid that could grow to $40 billion in total.
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How Bailouts Can Butcher Capitalism
Tweet Share on Facebook March 27, 2009 Comment (119)We have a new F word: failure.
One unhappy hallmark of the Great Recession is a dramatic spike in financial distress. Moody's predicts that the default rate on corporate debt--which helps foretell bankruptcies--will be three times higher this year than in 2008. Home foreclosures are already at record highs, and going higher. Defaults on credit cards and other consumer debt will crest right behind mortgages.
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10 Cars Detroit Should Copy
Tweet Share on Facebook March 27, 2009 Comment (89)I'm not a member of President Obama's automotive task force, which is overseeing the bailout of General Motors and Chrysler. But in a way, we're all on the task force, since these two automakers are staying afloat thanks to taxpayer funding that could reach $40 billion or more this year.
So I'm going to give Detroit some advice. Not about labor contracts or debt refinancing or global alliances, but just about cars. It's true that the quality of American-made cars has improved in recent years. But that's not enough. If the folks running the Detroit Three—including Ford, which hasn't asked for a bailout but still might—drove the latest offerings from the competition, they'd realize there are lots of innovations they're missing out on. (See a slideshow.) Here are some of the top cars from which the Detroit automakers can learn:
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Bailout Scorecard: The End of the Beginning
Tweet Share on Facebook March 25, 2009 Comment (6)Breathe a sigh of relief: More than six months after the financial crisis erupted, a complete bailout regime is finally in place.
The bank rescue plan finally unveiled by Treasury Secretary Tim Geithner is the last major piece of a vast bailout scheme that's been evolving since last September, when Lehman Brothers failed and AIG and Merrill Lynch almost did. Having a full plan in place doesn't mean it will work. But regulators at the White House, Treasury, and Federal Reserve can now transition from designing the biggest financial bailout in 70 years – which could ultimately cost more than $2 trillion - to executing it.
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Why Goldman Sachs Should Repay Its TARP Money
Tweet Share on Facebook March 24, 2009 CommentYou call this a problem?
With Congress and other parts of the government getting overinvolved in the private sector, Goldman Sachs and a few other banks are speeding up plans to pay back taxpayer funds they've received under the financial rescue plan. Their reasons are obvious: Nobody wants to be the next AIG, hauled before Congress and flogged for making too much money while dipping into taxpayer pockets. Proposed new rules on executive pay - and even mid-management pay - at bailout recipients could interfere with the normal way firms hire people and run their operations. And the volatile nature of populist politics is the antithesis of the predictability every business craves.
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How Secrecy Could Wreck Geithner's Bank-Rescue Plan
Tweet Share on Facebook March 23, 2009 Comment (4)You don’t need to know the details.
That’s been the paternalistic approach taken by Treasury and Federal Reserve officials since last fall, as they’ve tried one maneuver after another to salvage the financial system and fix the economy. The just-trust-us strategy has backfired, badly. Now we have another major component of the Save America project, Treasury Secretary Tim Geithner's plan to help unwind billions of dollars worth of money-losing bank deals that are at the heart of the problem. It looks to be off to a good start. But if Geithner & Co. continue to conduct bailouts in the shadows, then count on more eruptions like the recent fiasco over bonuses at AIG - with reverberations that could threaten the entire bailout regime.
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6 Cars That Signal the Future of Driving
Tweet Share on Facebook March 23, 2009 Comment (36)Biodiesel. Natural gas. Propane. Methane. Americans have grown up on cars that run on one thing—fuel derived from oil—but a century after the automobile began to transform American life, a new revolution is underway. And this time, drivers may have to get used to a new kind of fuel in the tank.
For starters, President Obama has offered $2.4 billion in government support to help develop electric-powered vehicles, part of his plan to put one million "green" vehicles on the road by 2015. Automakers are getting the message. At this year's Detroit Auto Show, auto execs who used to rhapsodize about hood scoops and horsepower enthused about emission-free tailpipes and energy independence. General Motors is staking its resurgence on a battery-powered car that plugs into a household receptacle. Other big automakers are seeking the same kind of killer app that Toyota found when it introduced the Prius hybrid almost 10 years ago. "This is about the new DNA of the automobile," says Larry Burns, GM's research and development chief. "The recession and its impact on the auto industry amplifies the need for a diversification strategy."
Rick Newman
The global economy is mysterious, even scary. Chief Business Correspondent Rick Newman connects the dots. In addition to his writing for U.S. News, Rick is the co-author of two books: Firefight: Inside the Battle to Save the Pentagon on 9/11, and Bury Us Upside Down: The Misty Pilots and the Secret Battle for the Ho Chi Minh Trail.
Read Rick's latest blog entries here.
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