Archive for April 18th, 2009
April 18th, 2009
After spending most of the past decade dying by inches, Chrysler LLC bowed to its second bailout by the federal government to keep its heart beating — the financial equivalent of life support for the ailing automaker.
Sadly, though, even as its workers labor busily to keep the body alive and healthy, their efforts are largely symbolic at this point. The bankrupt automaker, in other words, is already brain-dead.
Of course, the company still has about 10 days to broker a deal with another automaker before the Obama administration pulls the plug and allows Darwinian theory to take over. And the only one audacious enough to try is Fiat Group SpA and its charismatic, driven leader, Sergio Marchionne.
Don’t get me wrong — I have nothing but respect for the 56-year-old Marchionne, who nearly single-handedly overhauled Fiat’s inept management structure, abandoned plans for apathetic, lifeless cars in favor of successful models like the hot-selling 500, or Cinquecento, and set about fixing its crumbling dealer network.
On the brink of bankruptcy when Marchionne took over, Fiat ended 2008 with $2.2 billion in profits on sales of $78 billion, and its operating margin was one of the best in the industry. Last week, the Italian automaker reported a 14.7 percent increase in March sales amid a 9 percent drop in European car sales — the only European automaker to see sales grow.
Obviously, the man’s doing something right. And few companies have needed brain transplants more desperately than Chrysler and its crosstown rival, General Motors Corp.
His brain would certainly be a welcome change at the former No. 3 automaker.
Still, I hesitate to get too carried away by turnarounds engineered by one man — even if this one man has racked up a fairly impressive track record.
If that man is taken out of the picture, what happens to the company in the long term — particularly one as committed to incompetence as Chrysler’s management has traditionally been?
And the proposed deal is curious, given the state of Chrysler these days. It needs money. Now. And the shotgun marriage involves no cash.
The money would come in the form of an additional $6 billion government loan.
Other than that, Chrysler would get almost nothing immediately. Except Marchionne’s brain.
Here’s hoping he’d stick it out long enough to make some real changes in Detroit.
April 18th, 2009
Call me a pessimist. (Everyone else does.)
But I just can’t bring myself to feel exactly bullish about the news from last week, when euphoria gripped the country as stocks ticked upward and interest rates ticked downward.
It was a great week for the Obama administration, which took advantage of near-record-low mortgage rates to tell every American homeowner to refinance their home loans.
“We are at a time where people can really take advantage of this,” President Barack Obama said last week.
It made my hair stand on end.
Granted, I tend to be a little gun shy. But I’m a big believer in the “fool me once” philosophy.
And Obama’s remarks sounded an awful lot like former President George W. Bush’s throughout the early — and increasingly euphoric — days of the decade.
Back then, of course, the prevailing wisdom was that everyone needed to own a house. In 2002, Bush announced an aggressive program to provide down payment assistance, increase the supply of affordable homes, increase support for self-help homeownership programs and simplify the buying process.
He also told the real estate and mortgage-finance industries (back when we had them) to increase the number of minority homeowners.
“Five-and-a-half million families by 2010 will own a home,” he said triumphantly at the time. “That is our goal. It is a realistic goal.”
Was it ever. Briefly, at least.
Ever since, I’ve been fairly bearish about declarations from my federal government. For sure, it’s a great time to refinance. Of course, in 2002 (and in the five years after), it was a great time to buy a house.
So a few glimmers of possible improvement here and there are hardly enough to convince me that a global economy mired in a recession for more than a year is finally “starting to level off,” as The Associated Press proclaimed happily last week.
Especially when I hear something like this:
“The sense of a ball falling off a table, which is what the economy has felt like since the middle of last fall … we can be reasonably confident that that is going to end within the next few months and we will no longer have that sense of a free-fall.”
That’s Lawrence Summers, one of Obama’s top economic advisers.
So much for euphoria.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
April 18th, 2009
Among the many object lessons to be learned from the financial crisis, one or two come through loud and clear:
If you’re going to sin, sin big. And take a lot of people down with you.
Disgraced financier Bernard Madoff, for example, didn’t do it right. Sure, he took lots of people down with him, but in the end, he was the only one standing when it was time to pay the piper.
If, on the other hand, you’re Maurice Greenberg, who for 38 years ran American International Group, you can testify to Congress — with a straight face — that you had nothing to do with AIG’s financial peccadilloes because you left in 2005. And, apparently, get away with it.
In other words, all manner of transgressions will be forgiven, or at least overlooked, in this new era as long as enough people have been damaged.
If Madoff had only managed to make the major financial institutions on Wall Street complicit in his Ponzi scheme, he’d probably be getting a bailout, not a jail sentence.
Are you too big to fail, even though you helped mire the global economy in a recession worse than any in recent memory? Get trillions of dollars in bailout money from the federal government.
Bought a house you can no longer afford? You could get a bailout of your own. And even if you don’t qualify for the Obama administration’s program, so many homeowners are either in trouble or under water that you may suddenly find yourself with a little more leverage when approaching your banker.
If your lender balks, however, and your last resort is bankruptcy or foreclosure, you probably shouldn’t lose sleep over your credit score, either. After all, a foreclosure or bankruptcy filing this year or last won’t bear the same weight as one in 2005.
Even the vaunted New York Stock Exchange is re-evaluating how to delist companies. To protect itself from a wave of delistings, NYSE Euronext approached the Securities and Exchange Commission about relaxing its requirement that companies listed on the New York Stock Exchange maintain a share price of more than $1. Nasdaq OMX already suspended its minimum-bid price and market-cap requirement.
And I’m sure there’s plenty more to come. Hopefully, this won’t be the only lesson learned from the economic comeuppance of 2008.
But recessions keep coming back to haunt us, no matter how many times we’ve been through them. It makes me wonder how long it will take us to forget this time.
Contact Business Editor Annette LaCross at alacross@rrstar.com or 815-987-1295.
