Emission Credits

Yes, our world often gets sillier every day ... but here is a doozy:

The US EPA has set overall emission gasses objectives for car manufactures’ fleets ... in order to reduce greenhouse gasses and reduce global warming. And apparently manufacturers who do better than their emissions objectives can sell their excesses (credits) to other auto makers so that they can meet theirs. Enter Tesla ... whose electric cars obviously have zero emissions ... so it has oodles of emission credits to peddle. Chrysler builds lots of big SUVs ... therefore has trouble meeting is fleet emission goals ... so it is spending hundreds of million dollars to buy them from Tesla, see: Buying Emissions Credits.

Inane? Of course! Ridiculous? Sure! Sony’s televisions also emit no greenhouse gasses, so why isn’t Sony also able to sell emission credits to car manufacturers? Or Hershey with zero emissions from its candy bars? Whoever wrote that EPA rule had to have been a blooming idiot!

GuM

I have written skeptically about the future of General Motors in the past … see: Government Motors.  Now we see that the U.S. taxpayers are about to take a $10 billion haircut on their General Motors bailout … whereas the United Auto Workers (UAW) will make out like the bandits that they truly are … see: Detroit News Story.

Actually, if it were not for the popularity of GM products in China (a baffling development, see: Bloomberg Story), there would be a considerably larger gum-up of taxpayer accounts.  To put things in perspective, the 1979 government bailout loan to Chrysler under Lee Iaccoca totaled $1.5 billion … which was repaid in full … see:  Washington Times Story.

I still strongly believe that, at some point, the fact that the UAW is part of the management structure at GM will eventually spell its downfall.  It was the short-sighted concessions that GM management gave to its unions in days past that spelled its previous financial collapse.  And, I predict, future labor contracts will be even more tainted by this current union self-dealing.  It’s inevitable.

The Fog of Mendacity

Chrysler Peapod

Here is a must-read blog entry on Powerline ... see Chrysler's Resurrection.  Prepare yourself to get sick to your stomach and again wonder if those bozos in Washington are ever being straight with the American public.  And, also see a clear example of how an august newspaper such as the New York Times can flack for the current administration.

The story is about Chrysler and its $12.5 billion bailout from the American taxpayers in 2009.  Most of the details are in this well-documented story and its contained links, but the bottom line is that, for all this generosity on the U.S. taxpayers' part, we have ended up taking a $1.3 billion haircut and also being on the hook for a $3.5 billion loan to Fiat (which recently finished purchasing 51% of Chrysler.)  This loan is ostensibly meant to allow Chrysler to develop cars such as the Peapod shown above ... but it will most likely never be paid back.

Now the other 49% of Chrysler is owned by the United Auto Workers which is a clear recipe for disaster ... anytime union workers negotiate with themselves over pay raises and work rules, they always end up winning in the short term but losing big in the long run.  Yes, you say, they do have jobs currently ... but with salaries that are effectively being paid for by the U.S. taxpayer.

Another part of this saga that isn't told directly therein is that the bondholders in the original Chrysler were virtually wiped out (30 cents on the dollar) and that the original stockholders now have lost something like 90% of their investment -- a very convoluted calculation. (In a traditional bankruptcy, they would have probably faired much better.)  If you are tempted to dismiss these losses to the better good of Chrysler's staying in business, please reflect on how many pension plans, 401Ks, and IRAs have lost oodles and boodles in this transaction ... just maybe one of yours.

So, next year, when you hear The Barry bragging about how he saved Chrysler and 115,000 "auto-industry" jobs ... with very little cost to the U.S. taxpayer, you will know "the rest of the story."

Mr. Goodwrench

President Obama has unilaterally guaranteed the warranties on the autos sold by General Motors and Chrysler. See U.S. Auto Warranties. Now this is a pretty far-reaching commitment of taxpayer dollars for not having any public or Congressional input. To see how profound this might be consider the following: these two U.S. automakers sell roughly eight million cars a year (some years more, some years less) and I estimate the effective cost of a three-year warranty on a new car to be about $1,000 per car. So Obama has committed the U.S. taxpayer to $8 billion of cost per year in the first year and accumulating up to $24 billion per year in year three (after layering each new model year). Once these two car companies went under, this guarantee would theoretically last for at least three years after they disappeared under the waves. Now this is just problem one. There are two more serious issues:

1) What about Ford Motor? How can they compete with GM and Chrysler when these latter two companies have free access to the U.S. taxpayer’s wallet from which to extract even larger amounts of pelf.

2) What about foreign auto makers? Can they not now claim unfair trading practices for this U.S. warranty backstop? In fact, just the current Obama loan guarantees to GM and Chrysler could also be construed to be the start of an auto-industry world trade war. We know that the degeneration of world trade was a major contributing factor to the great depression. Have we just let this genie out of the bottle once again?

The Obama administration is moving so fast in its attempts to improve our economy that I am concerned that it has not spent enough time worrying about unintended consequences. Maybe they need to follow that oft-used phrase from the Clinton administration and "stop and take a deep breath".