Lost in this weekend's news about the $700 billion bailout package for the banking industry was a $25 billion loan package for United States auto manufacturers. This package comes at a time when apparently Congress and the President believe that the American people will see $25 billion as a pittance compared to the $700 billion they're already planning to spend on mortgages. While there certainly is precedence for this move --- the government loaned $675 million to Chrysler in 1980--- this loan package is several orders of magnitude larger.
Ryan Pfenninger of MarketRiders is outraged at this loan package, claiming it is anti-competitive to startup companies like Tesla Motors who are investing their own money in alternative technologies like battery power. $25 billion is a lot of money. Detroit should not be able to argue for 30 years against improved fuel mileage and better technology, and then come back to the same government they persuaded into facilitating their failure, for a bailout.
He points out the immense irony in this loan to auto manufacturers. According to Ryan, General Motors (NYSE:GM), Ford (NYSE:F), and Chrysler are currently struggling significantly against Japanese and other foreign manufacturers who have spent the last many years improving fuel efficiency and developing hybrid and other alternative technologies. If Detroit had spent as much time, money, and effort in research and development as they did lobbying Congress to keep fuel mileage standards low, and made competitive non-gas guzzling vehicles, I would venture a guess these loans wouldn't be necessary.
Ryan believes that most people understand a mortgage bailout was necessary. But he's not so sure that if Detroit fails, this could cripple the United States economy. There are plenty of foreign auto manufacturers with operations in the United States -- Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (NASDAQ:NSANY)-- who could easily pick up the slack. Their vehicles are outselling American automobiles. They are building plants in places like East Liberty, OH and Lincoln, AL, providing jobs for people displaced by the failure of Detroit.
Sometimes, it's hard to determine if major investors are being overly optimistic, outright daffy, or are simply seeing something that the rest of us just don't see.
In my view, the current course of events at Chrysler Corp. is one of those difficult to determine situations. On its face, it looks like it could be a case of basic business logic in action. But on closer examination, it just doesn't make sense, at least not to me.
Declaring a payoff horizon of ten years, Cerberus Capital Management has placed a great deal of faith in Chrysler, the American auto manufacturer which is best described these days as an also ran. The kicker is, the Cerberus ten year plan is being initiated at a time when auto industry profitability is near impossible. Consider also the fact that current Chrysler management openly admits that the company isn't in any condition to go it alone.
And there's more trouble in the mix. Cerberus said in a New York Times story that Chrysler is meeting "every financial metric." But Cerberus considers the world's current economic turmoil to be a temporary problem, not the economic world change that it actually is. Meanwhile, Chrysler CEO Bob Nardelli is smiling because Cerberus has given Chrysler lots of money, and he gets to cut heads.
U.S. stock futures drifted lower Thursday morning on the heel of another big loss reported by AIG. With reports today that mortgages made in 2007 are going bad at a rapid pace, the blow to the financial system may be even deeper than Wall Street had estimated, and data on June pending home sales could give more information about the recent state of the housing market. Also in focus today will be July same-store sales announced by retailers, which could show a 2.2% gain due to stimulus checks and back-to-school shopping, as well as rate decisions by ECB and BOE. The latter already kept rates the same. Finally, rising oil prices could affect trading as well.
AIG (NYSE: AIG) posted its third straight quarterly loss Wednesday after the close. Analyst believe that this quarter's $5.56 billion recorded loss due to investments related to mortgages could continue in the next few quarters. AIG's results didn't just cause investors to dump the stock, but also caused overall jitters about financials. AIG shares are down over 9% in premarket trading. In Europe, Allianz, Axa, Aegon, three of the biggest insurers, also post lower earnings on asset writedowns. Toyota Motor Corp. (NYSE: TM) reported a 28% profit fall in the quarter, 39% drop in operating profit. The company said the strong yen and rising costs of materials for the decline in addition to soft conditions in the U.S. all contributed to these results. While it said it plans to offset the declines by launching new vehicle models and stepping up production of popular models, it's unclear how successful that would be in light of softening economic conditions worldwide.
Staying with the auto industry, The Wall Street Journalreported that Chrysler and Nissan Motors (NASDAQ: NSANY) are in talks tabout jointly producing midsize cars, where Nissan would produce midsize sedans that Chrysler would sell in the U.S. under its own name.
Nissan Motors (NASDAQ: NSANY) thinks that the US market will account for less than 15 million vehicles sales this year. Last year that figure was 16.1 million. The Japanese company says it is preparing for the worst. That is too bad, because Nissan tends to sell smaller, more fuel-efficient cars and not large pick-ups and SUVs. If it thinks the market for its products will get much softer, its says something about the entire industry.
According to Reuters, Nissan's CEO, Carlos Ghosn, said: "If we take the trend of the market in May and June it looks like we are going to be much below 15 million. Now I'm not sure if this is going to continue for the rest of year. We are preparing ourselves for the worst."
If a typical car sold in the US costs the consumer $25,000, Nissan's prediction indicates that total sales in the world's largest vehicle market will fall off by about $30 billion. That is nearly one quarter of Ford's (NYSE: F) annual sales.
Having a lot of small cars in the line-up has turned out to be a massive blessing for Japanese car companies. Honda (NYSE: HMC) and Nissan (NASDAQ: NSANY) did well in May US car sales. They have very few huge SUVs and pick-ups in their model lines. By contrast, Detroit's big auto companies have had their sales bolted to the sales of trucks. Consequently, their sales were murdered in May.
Honda's shares moved up a remarkable 8.6% overnight in Tokyo, a reward for being in the right place at the right time. But, that underestimates what Honda has done by sticking to selling small cars in America during the years when pick-ups were doing so well. Other Japanese car companies benefited, but to a lesser extent. Shares in Nissan rose 5.3% and Toyota (NYSE: TM) was up 3.2%. Honda and Nissan were the only major car companies that had sales increases in the US for May.
The news is more than a changing of the guard from Detroit to Japan. That has been going on for more than a decade. It is also a sign that Honda and Nissan are beginning to best Toyota, their larger rival, because their models mixes are more suited to a $4-per-gallon gas environment.
Toyota has been the major threat to US car companies. That may be changing.
Douglas A. McIntyre is an editor at 247wallst.com.
What Are You Going to Do With Your Tax Rebate? Starting in early May, more than 130 million Americans -- or at least, those who have filed a tax return by the deadline at midnight tonight -- will receive tax rebates ranging from $300 to $600, or $1,200 for married couples, plus $300 for each dependent child. The rebates, which represent a one-time cut in 2008 tax rates, are intended to help rescue the economy from recession by encouraging consumer spending. But will Americans spend the rebates? What are you going to do with your tax rebate? - USATODAY.com
World's Richest Women They're glamorous, powerful and very, very rich. What's not to envy? In 2008, Forbes counted 99 female billionaires, 16 more than last year, but still representing slightly less than 9% of the world's 1,125 billionaires. Only 10 women billionaires are self made, having built their vast fortunes themselves. Whether it be beauty, power, brains or all of the above, these 12 billionaires all have admirable assets beyond what even money can buy. In Pictures: The World's Billionaire Women - Forbes.com
There is never a shortage of jobs. Some people have two or three jobs. The classified adds have thousands of jobs all the time -- always. If someone is unemployed there is a reason and it is definitely not a lack of jobs.
Sometimes it is a regional lack of jobs, General Motors (NYSE: GM) and Ford Motor (NYSE: F) in the rust belt states of Michigan and Ohio have downsized, but foreign manufacturers Toyota (NYSE: TM) and Nissan Motors (NASDAQ:NSANY) in the Southeast have up sized. This does not help the states where jobs are leaving, and indeed causes other massive problems like weakening the tax base and pushing housing and other elements of the local economy down. However, from a national unemployment standpoint that does not count.
In our discussions of unemployment and the economic picture we attempt to understand the government figures and attribute some meaning. We know the government is prone to put things in their best light (lie) sometimes and there is discussion about what a true measure would be, but does that really matter? It is more important that whatever criteria is used remain constant so that we can use the data for comparisons, not that it be altered often as people become concerned about the exactness of the figures.
It might be time we need to account for a new set of metrics. What are the costs of retraining? How could these costs be distributed without expanding government -- not something I would support. We know that some people are not employable or are only marginally employable because they simply do not have the capability to do many jobs. I have numerous jobs, although generally speaking, I have created them myself over time. Clearly education and training are a factor, along with over all aptitude.
Lost in this weekend's news about the $700 billion bailout package for the banking industry was a $25 billion loan package for United States auto manufacturers. This package comes at a time when apparently Congress and the President believe that the American people will see $25 billion as a pittance compared to the $700 billion they're already planning to spend on mortgages. While there certainly is precedence for this move --- the government loaned $675 million to Chrysler in 1980--- this loan package is several orders of magnitude larger. 
Sometimes, it's hard to determine if major investors are being overly optimistic, outright daffy, or are simply seeing something that the rest of us just don't see. 
U.S. stock futures drifted lower Thursday morning on the heel of another big loss reported by AIG. With reports today that 
There is never a shortage of jobs. Some people have two or three jobs. The classified adds have thousands of jobs all the time -- always. If someone is unemployed there is a reason and it is definitely not a lack of jobs.
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