Canadian Business Blogs | Advice on Investment in Canada, Stock Market, Small Businesses Opportunities » Tom Watson

Jacko, a fallen angel and the world’s hottest market analyst

Tom Watson — Wed, 15 Jul 2009 16:43:44 +0000

Like many Farrah Fawcett fans, I think the death of Michael Jackson robbed the passing of Charlie’s most famous angel of some well-deserved news coverage. After all, Jill Munroe and her fellow detectives (I was more of a Kate Jackson devotee) influenced my life far more than the moon-walking pop star. Truth be told, I saw the adult version of Jackson as a true disco freak. And his questionable interaction with children put him on my I-could-not-care-less list. That said, I understand that legions of people saw Jacko in a very different light, so I fully understand the media spotlight that his sudden death generated.

I do not, however, respect the hype surrounding Matthew Robson, Morgan Stanley’s hottest new market analyst. In case you haven’t heard, Robson works out of London, where he recently penned a report on the attitude of today’s youth toward social media and technology (see a cut and pasted version below) that shot around cyberspace faster than I reach for the off button whenever Jacko’s music comes out of the radio. And please note we are talking about a 15-year-old intern whose market insights were considered worthy of column inches at serious news organizations such as the Globe and Mail, not to mention the Financial Times—which put a story about the kid’s power of observations on page one.

The media attention is probably due to the fact that the report is negative on newspapers and concludes teenagers “do not use twitter.” According to Edward Hill-Wood, Robson’s team leader at the investment bank, the research note on teen attitudes “provides one of the clearest and most thought-provoking insights we have seen. … So we published it.”

But that appears to say a lot about what the adults at Morgan Stanley are reading and writing on a regular basis. After all, nobody, not even the investment bank, is calling the report accurate. My favourite part is Robson’s dubious conclusion that 99% of teenagers have a mobile phone. “The general view,” Robson says, “is that Sony Ericsson phones are superior, due to their long list of features, built in walkman capability and value (£100 will buy a mid-high range model). Teenagers due to the risk of it getting lost do not own mobile phones over the £200 mark.”

Too bad Fawcett didn’t pass away on the slow news day that helped make Robson famous.

How Teenagers Consume Media

(the report that shook the City)

Radio
Most teenagers nowadays are not regular listeners to radio. They may occasionally tune in, but they do not try to listen to a program specifically. The main reason teenagers listen to the radio is for music, but now with online sites streaming music for free they do not bother, as services such as last.fm do this advert free, and users can choose the songs they want instead of listening to what the radio presenter/DJ chooses.

Television
Most teenagers watch television, but usually there are points in the year where they watch more than average. This is due to programs coming on in seasons, so they will watch a particular show at a certain time for a number of weeks (as long as it lasts) but then they may watch no television for weeks after the program has ended.

Teenage boys (generally) watch more TV when it is the football season, often watching two games and related shows a week (totalling about 5 hours of viewing). A portion of teenagers watches programs that are regular (such as soap operas) at least five times a week for half an hour or so but this portion is shrinking, as it is hard to find the time each day.

Teenagers are also watching less television because of services such as BBC iPlayer, which allows them to watch shows when they want. Whilst watching TV, adverts come on quite regularly (18 minutes of every hour) and teenagers do not want to watch these, so they switch to another channel, or do something else whilst the adverts run.

The majority of teenagers I speak to have Virgin Media as their provider, citing lower costs but similar content of Sky. A fraction of teenagers have Freeview but these people are light users of TV (they watch about 1 ½ hours per week) so they do not require the hundreds of channels that other providers offer.

Newspapers
No teenager that I know of regularly reads a newspaper, as most do not have the time and cannot be bothered to read pages and pages of text while they could watch the news summarised on the internet or on TV.

The only newspapers that are read are tabloids and freesheets (Metro, London Lite…) mainly because of cost; teenagers are very reluctant to pay for a newspaper (hence the popularity of freesheets such as the Metro). Over the last few weeks, the Sun has decreased in cost to 20p, so I have seen more and more copies read by teenagers. Another reason why mainly tabloids are read is that their compact size allows them to be read easily, on a bus or train. This is especially true for The Metro, as it is distributed on buses and trains.

Gaming
Whilst the stereotypical view of gamers is teenage boys, the emergence of the Wii onto the market has created a plethora of girl gamers and younger (6+) gamers. The most common console is the Wii, then the Xbox 360 followed by the PS3. Most teenagers with a games console tend to game not in short bursts, but in long stints (upwards of an hour).

As consoles are now able to connect to the internet, voice chat is possible between users, which has had an impact on phone usage; one can speak for free over the console and so a teenager would be unwilling to pay to use a phone.

PC gaming has little or no place in the teenage market. This may be because usually games are released across all platforms, and whilst one can be sure a game will play on a console PC games require expensive set ups to ensure a game will play smoothly. In addition, PC games are relatively easy to pirate and download for free, so many teenagers would do this rather than buy a game. In contrast, it is near impossible to obtain a console game for free.

Internet
Every teenager has some access to the internet, be it at school or home. Home use is mainly used for fun (such as social networking) whilst school (or library) use is for work. Most teenagers are heavily active on a combination of social networking sites. Facebook is the most common, with nearly everyone with an internet connection registered and visiting >4 times a week. Facebook is popular as one can interact with friends on a wide scale. On the other hand, teenagers do not use twitter. Most have signed up to the service, but then just leave it as they realise that they are not going to update it (mostly because texting twitter uses up credit, and they would rather text friends with that credit). In addition, they realise that no one is viewing their profile, so their ‘tweets’ are pointless.

Outside of social networking, the internet is used primarily as a source of information for a variety of topics. For searching the web, Google is the dominant figure, simply because it is well known and easy to use. Some teenagers make purchases on the internet (on sites like eBay) but this is only used by a small percentage, as a credit card is required and most teenagers do not have credit cards. Many teenagers use YouTube to watch videos (usually anime which cannot be watched anywhere else) and some use it as a music player by having a video with the music they want to listen to playing in the background.

Directories
Teenagers never use real directories (hard copy catalogues such as yellow pages). This is because real directories contain listings for builders and florists, which are services that teenagers do not require. They also do not use services such as 118 118 because it is quite expensive and they can get the information for free on the internet, simply by typing it into Google.

Viral/Outdoor Marketing
Most teenagers enjoy and support viral marketing, as often it creates humorous and interesting content. Teenagers see adverts on websites (pop ups, banner ads) as extremely annoying and pointless, as they have never paid any attention to them and they are portrayed in such a negative light that no one follows them.

Outdoor advertising usually does not trigger a reaction in teenagers, but sometimes they will oppose it (the Benetton baby adverts). Most teenagers ignore conventional outside advertising (billboards etc) because they have seen outside adverts since they first stepped outside and usually it is not targeted at them (unless it’s for a film). However, campaigns such as the GTA: IV characters painted on the side of buildings generate interest because they are different and cause people to stop and think about the advert, maybe leading to further research.

Music
Teenagers listen to a lot of music, mostly whilst doing something else (like travelling or using a computer). This makes it hard to get an idea of the proportion of their time that is spent listening to music.

They are very reluctant to pay for it (most never having bought a CD) and a large majority (8/10) downloading it illegally from file sharing sites. Legal ways to get free music that teenagers use are to listen to the radio, watch music TV channels (not very popular, as these usually play music at certain times, which is not always when teenagers are watching) and use music streaming websites (as I mentioned previously).

Almost all teenagers like to have a ‘hard copy’ of the song (a file of the song that they can keep on their computer and use at will) so that they can transfer it to portable music players and share it with friends.

How teenagers play their music while on the go varies, and usually dependent on wealth –with teenagers from higher income families using iPods and those from lower income families using mobile phones. Some teenagers use both to listen to music, and there are always exceptions to the rule.

A number of people use the music service iTunes (usually in conjunction with iPods) to acquire their music (legally) but again this is unpopular with many teenagers because of the ‘high price’ (79p per song). Some teenagers use a combination of sources to obtain music, because sometimes the sound quality is better on streaming sites but they cannot use these sites whilst offline, so they would download a song then listen to it on music streaming sites (separate from the file).

Cinema
Teenagers visit the cinema quite often, regardless of what is on. Usually they will target a film first, and set out to see that, but sometimes they will just go and choose when they get there. This is because going to the cinema is not usually about the film, but the experience –and getting together with friends. Teenagers visit the cinema more often when they are in the lower end of teendom (13 and 14) but as they approach 15 they go to the cinema a lot less. This is due to the pricing; at 15 they have to pay the adult price, which is often double the child price. Also, it is possible to buy a pirated DVD of the film at the time of release, and these cost much less than a cinema ticket so teenagers often choose this instead of going to the cinema. Some teenagers choose to download the films off the internet, but this is not favourable as the films are usually bad quality, have to be watched on a small computer screen and there is a chance that they will be malicious files and install a virus.

Mobile Phones
99% of teenagers have a mobile phone and most are quite capable phones. The general view is that Sony Ericsson phones are superior, due to their long list of features, built in walkman capability and value (£100 will buy a mid-high range model). Teenagers due to the risk of it getting lost do not own mobile phones over the £200 mark. As a rule, teenagers have phones on pay as you go. This is because they cannot afford the monthly payments, and cannot commit to an 18-month contract. Usually, teenagers only use their phone for texting, calling.

Features such as video messaging or video calling are not used –because they are expensive, (you can get four regular texts for the price of one video message). Services such as instant messaging are used, but not by everyone. It usually depends whether the phone is Wi-Fi compatible, because otherwise it is very expensive to get internet off the phone network. As most teenagers’ phones have Bluetooth support, and Bluetooth is free, they utilise this feature often. It is used to send songs and videos (even though it is illegal) and is another way teenagers gain songs for free. Teenagers never use the ringtone and picture selling services, which gained popularity in the early 00s. This is because of the negative press that these services have attracted (where the charge £20 a week with no easy way to cancel the service) and the fact that they can get pictures and music on a computer –then transfer it to their phones at no cost. Mobile email is not used as teenagers have no need; they do not need to be connected to their inbox all the time as they don’t receive important emails. Teenagers do not use the internet features on their mobiles as it costs too much, and generally, if they waited an hour they could use their home internet and they are willing to wait as they don’t usually have anything urgent to do.

Teenagers do not upgrade their phone very often, with most upgrading every two years. They usually upgrade on their birthday when their parents will buy them a new phone, as they do not normally have enough money to do it themselves.

Televisions
Most teenagers own a TV, with more and more upgrading to HD ready flat screens. However, many are not utilising this HD functionality, as HD channels are expensive extras which many families cannot justify the added expenditure. Many of them don’t want to sign up to HD broadcasting services, as adverts are shown on standard definition broadcasts, so they can’t see the difference. Most people have Virgin Media as a TV provider. Some have Sky and some have Freeview but very few only have the first five channels (BBC One, BBC Two, ITV, Channel Four and Channel Five).

Computers
Every teenager has access to a basic computer with internet, but most teenagers computers are systems capable of only everyday tasks. Nearly all teenagers’ computers have Microsoft office installed, as it allows them to do school work at home. Most (9/10) computers owned by teenagers are PCs, because they are much cheaper than Macs and school computers run Windows, so if a Mac is used at home compatibility issues arise.

Games Consoles
Close to a third of teenagers have a new (<2 ½ years old) games console, 50% having a Wii, 40% with an Xbox 360 and 10% with a PS3. The PS3 has such a low figure because of its high price (£300) and similar features and games to an Xbox 360, which costs less (£160). The Wii’s dominance is due to younger brothers and sisters, they have a Wii and parents are not willing to pay for another console.

What is hot?
• Anything with a touch screen is desirable.
• Mobile phones with large capacities for music.
• Portable devices that can connect to the internet (iPhones)
• Really big tellies

What is not?
• Anything with wires
• Phones with black and white screens
• Clunky ‘brick’ phones
• Devices with less than ten-hour battery life

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THOMAS WATSON is a senior writer, market columnist and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received two National Magazine Award nominations for business feature writing in 2008, winning a silver award for his coverage of Canada’s ABCP fiasco. He landed his first NatMag nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text during the dot-com boom, when he headed investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

I hate all taxes, too

Tom Watson — Tue, 14 Jul 2009 18:58:49 +0000

The anti-Harper crowd is making way too much out of an off-the-cuff comment on taxes made by Canada’s prime minister.

In a recent interview with the Globe and Mail’s Eric Reguly, who asked if Stephen Harper regretted cutting the GST, the PM said: “No, it’s … First of all, I believe cutting all taxes is good policy, okay? I… I’m of the school that… You know, there are two schools in economics on this; one is that there are some good taxes and the other is that no taxes are good taxes. I’m in the latter category. I don’t believe any taxes are good taxes.”

Believe it or not, this caused a knee-jerk volcano to erupt—and not just in Liberal land.

Bryan Borzykowski, a fellow blogger with CB Online (who does not speak for the editorial board of Canadian Business magazine, which also dislikes taxes a lot) called Harper’s anti-taxes remark a remarkable and ridiculous statement for a conservative politician to make.

Borzykowski then pointed readers to what he calls a great post by Globe writer Adam Radwanski, who outs the PM as an anarchist. “If taken to its logical conclusion,” Radwanski insists Harper’s comment means all government spending, along with everything it supports, is bad. “Not just equalization and grants and other things that Harper would have taken offence to back in his National Citizens Coalition days. We’re also talking about defence, and law enforcement, and any public infrastructure whatsoever – stuff that even the most libertarian members of Harper’s party would concede that we need.”

Despite the massive run up in federal government expenditures, Borzykowski and Radwanski both conclude Harper actually thinks it is a good idea to abolish all public spending. But with all due respect to the logic used, it is possible to consider something bad and still accept it.

Taxes. Deficits. Credit cards. Lawyers. Dentists. Editors. Small talk with the hairdresser. Lots of things are necessary evils. And Harper clearly knows a thing or two about them. After all, he is a politician, and they also typically fall into that camp.

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Deflating Buffett

Tom Watson — Thu, 25 Jun 2009 16:59:31 +0000

Some folks think deflation is still a real threat. Not Warren Buffett. Yesterday, the world’s second richest man said the U.S. economy has “no bounce,” but he dismissed any risk of deflation while praising the Obama administration and Federal Reserve central bank for applying powerful jumper cables to keep America’s engine running.

I am not sure I agree. After all, deflation has certainly hit the value of a Buffett lunch. Indeed, recent bidding to dine with the 78-year-old U.S. billionaire (and help the Glide Foundation, a San Francisco charity, fight poverty) was well under US$200,000. In 2008, a Chinese hedge fund manager paid US$2.1-million to share a buffet with Buffett.

The Oracle of Omaha, of course, hasn’t been firing on all pistons lately. In fact, he was recently blasted in the press by American trader Dennis Gartman, who attacked Buffett’s buy-and-hold investing philosophy and the related share performance of Berkshire Hathaway Inc., which has seen its stock price tank over 40% from its 2007 peak.

“Warren Buffett is an idiot,” Gartman told The Oregonian, after delivering a speech to Portland brokers. “Shame on Warren Buffett. That’ll be a good quote for your article.”

Gartman, a CNBC regular and market newsletter author (with a loyal following), is a momentum investor. He admits to losing money on two-thirds of his trades. But he claims his wins are big enough to cover the losses. Either way, he actually has a lot of respect for Buffett, which is why, in a subsequent CNBC interview, he called Buffett a brilliant investor.

So what’s up the idiot comment?

If truth be told, Gartman knows the investing world still holds Buffett in very high regard. He also knows that verbal attacks on U.S. market gods often get picked up by media outlets around the globe. And he is a short seller who thinks Berkshire shares will dive when Buffett dies.

Simply put, when you play the momentum game, it never hurts to use the press to get your opinions known.

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Red Dawn: The sequel (starring Barack Obama)

Tom Watson — Fri, 19 Jun 2009 18:53:30 +0000

Not many people see similarities between U.S. President Barack Obama, the proselytizer of change, and the former guy who ran the White House, the now-reviled George W. Bush (just in case you have forgotten). But independent Wall Street economist Robert Brusca sees things different than most. And he thinks the new boss at 1600 Pennsylvania Ave. is acting pretty much just like the old one. “[Obama] funnels money and changes rules to benefit friends—just a different group of friends,” Brusca notes in the current issue of Canadian Business. And “this has consequences, because he has mucked up the way the whole system works and the notion of risk-reward.”

Brusca’s comments stem from the treatment of bondholders during the recent auto sector social-planning/bankruptcy proceedings, which ran over the rights of creditors to fast-track government bailouts of General Motors and Chrysler. Since then, of course, Obama has started mucking with his central bankers, generating a wake-like atmosphere on Wall Street. Indeed, the White House announced plans yesterday to expand the power of the U.S. Federal Reserve, a move that actually involves handing the U.S. Treasury a veto over emergency activity launched by Big Ben at the Fed.

“Do we really want to have an appointed cabinet officer in our government wield that power over our so-called independent central bank?” asks U.S. fund manager David Kotok, chairman of New Jersey-based Cumberland Advisors. “Remember, it is the central bank that is charged with policy making to encourage low inflation and economic growth. The more politics gets into central banking, the greater the inflation risk. Politicians do not want to apply restraint. They tend to discourage higher interest rates as a tool to fight inflation. History is replete with examples of central bank policy failures while under political influence.”

Furthermore, now that Washington is playing with Fed powers, the Federal Reserve Act is exposed to all sorts of political tinkering as it moves through the House and Senate. “This proposal is on a fast track,” warns Kotok. “There will be public hearings, of course, but the decisions are being made in the smoke-filled rooms. The lobbying is already intense. We believe that the end result is coming and it is already known. The United States is extending a social-democratic form of government to the bulk of the U.S. economy. We are applying an industrial policy to finance and banking, just as we are doing to health care and autos.

“We have already done this for years with the agriculture sector. The result is that we pay farmers not to farm and we get ethanol policies that starve millions of people, and we promote protectionism in sectors like sugar. That’s how industrial policies end up in social democracies. We are going to get one in banking and lending and the monetary business. The outlook is not sanguine.”

Add up the expected reach of U.S. interventionist policy (on finance and banking, agriculture, autos, housing and health care), Kotok says, and you get nearly half the nation’s GDP under an industrial policy in the new America.

“Larry Kudlow, take note,” he says, “free-market capitalism is dead.”

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Last chance to try for Father’sDay giveaway package worth about $200 (and get my invaluable thoughts on auto bailouts)

Tom Watson — Tue, 16 Jun 2009 14:02:39 +0000

Reading material from Canadian Business and Simon & Schuster Canada is still up for grabs. To try to win this Father’s Day giveaway, all you have to do is read my blog posting below and make the best comment (for or against) the auto bailouts.

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ORIGINAL POST

Something must be wrong with me, which probably isn’t news to everybody. Nevertheless, I am appalled by the $14-plus-billion (and counting) cost of the Canadian auto company bailouts. I don’t think it is worth spending this huge amount of public money to try to save maybe five thousand jobs, especially not at companies that failed to address many obvious issues because executives and union leaders alike knew they could squeeze taxpayers when the poop hit the fan.

When it comes to GM and Chrysler, I think the money being tossed around in Canada is nothing more than a cynical vote acquisition spree by a Conservative government running wild thanks to the Great Recession, which has freed the Harper administration from seriously pretending it prefers to govern with balanced books.

I am not proposing this, but if the bailouts are really about the big economic picture, or even saving the Canadian auto sector, I actually think it might be better to give the money to Honda and Toyota, so they could strengthen local operations. Or maybe even Toronto-based electric carmaker Zenn. Its ownership rights to potentially game-changing energy storage technology is still a long-shot (for more on this, see my new market column in the Tech 100 issue of Canadian Business magazine), but unlike GM or Chrysler, you can at least see the pin.

I am not supposed to think this way. Indeed, I have a young daughter, who, according to current academic thinking, is supposed to have me singing socialist ditties as I bake cupcakes for dollhouse tea parties or dance around the house in frilly princess outfits. I know this thanks to a recent Guardian article, which noted that having little girls makes even the most masculine man “learn to love pink, take part in endless games of dressing up, and even bake fairy cakes if that’s what his little princess desires.”

According to the British newspaper, the simple existence of my daughter is supposed to make me support increased public spending. The article in question was based on two studies that suggest the political views of parents are heavily influenced by the sex of their children. One examined voting records of U.S. congressmen before and after they had children. It reportedly found support for gender equity policies is greater among male politicians with daughters.

The second study claims British voting behavior provides “evidence that daughters make people more left wing, while having sons, by contrast, makes them more right wing.” After men father females, Brit academics claim, they “gradually shift their political stance” and become more sympathetic to raising taxes and the “female desire” for a larger amount of people employed to look after the “public good.” A mother with sons, on the other hand, becomes sympathetic to the “male case” for lower taxes and smaller government.

As a father, of course, I’d argue that these conclusions smell like the puffy clouds generated by Walter the Farting Dog after he eats a brick of very old cheese.

My political beliefs are not fixed. I used to call myself a Platonic Marxist. But that was back in my graduate school days. I never even thought about what the term was supposed to mean. I simply thought it would sound cool to the numerous females in my classes. Back then, I argued with people who misunderstood socialism. But I also took a lot of heat for a poster in my student office that pictured the back-end of expensive cars sticking out of a five-car garage. It had a caption that said: “Justification for higher education.”

Some folks thought that meant I was a member of the young PCs. I wasn’t. They were geeks. I bought the poster because I was a kid with crappy tastes, except in cars.

Over the years, I have learned a few things, and not just that male students should not use the word “platonic” in any self description, unless they actually want to study on study dates. But my political views are still a mess. I enjoy the company of labour leaders and billionaires alike. I believe in capitalism, but know it is far from fair. I support free trade, but don’t really think losing jobs to countries that oppress individuals is a good thing. And I don’t have a huge issue with Buy American spending in the States, at least not in the short term, since the U.S. economy is more important to a global recovery than our own (these ideas are my own, not the stand of the CB editorial board that I serve).

I understand how politics works. In fact, I often think about entering the game, which makes me try to imagine policies that could get a guy like me elected. My best is a real whopper from the left, which looks more and more plausible every day. Since governments are getting into business in a big way, and since banks are being blamed for the financial meltdown, I say why not steal some of their profits by offering a Bank of Canada credit card, which could use personal debt to help pay down national debt by allowing anyone with a private sector card to transfer outstanding balances and pay interest of just a few points above inflation.

When being serious, of course, I think Canada should hang tough and stop justifying more and more deficit spending by claiming it will help us fight a global downturn that we can’t really influence. In global monetary affairs, we are a spectator nation. So maybe we should try to keep our fiscal heads, which was our competitive advantage when the world economy was firing on all pistons.

For the record, however, I absolutely love Tea Virginia Reed Watson, my wonderful kid, who came into this world in my living room-where I catered to the needs of four midwives (one for my wife, one for my daughter and two students) before fighting them all for a ringside seat at the birthing tub. I took parental leave and was happy doing it. In fact, since helping deliver my child, I have shared the caregiver role equally with my equally loving wife. I have played My Little Pony for hours on end in the local public pool and I have watched The Little Mermaid at least once for every dollar being tossed at GM.

I get behind my daughter’s causes. Indeed, I am Twiller Baby aware, so I fully supported Thumbelina’s campaign against urban developers. I worry about my child’s interests. In fact, I could write a graduate thesis on the negative gender stereotypes projected by the Berenstain Bears. Simply put, I’ll do anything for my daughter, which is why I didn’t care about the shocked looks I got on Toronto Island two summers ago when doing what it takes to deal with a seriously bad case of childhood constipation.

But, hey, I still want lower taxes. Maybe it is because I also play dad to Oscar Snow Mittens Reed Watson, a semi-evil male cat, who would be a lot safer with fewer cars on the road. Whatever the reason, I think the market should have a lot more say in what automakers survive this downturn, not to mention how GM and Chrysler restructure. In my humble opinion, spending $2.5 million per job to save positions at companies losing money in an industry with overcapacity and demand issues is just nuts. It isn’t even fair to the real working class.

I try to imagine how liberal capitalism will shake out for my daughter. Free nations around the world are relying on Red Capitalism to bail them out of this crisis. And to buy time, the States is doing some pretty large-scale social planning that doesn’t seem to care much for creditor rights. Since nobody seems to want to allow failing companies to fail, I can’t imagine what will happen with inflation or during the next major downturn (or the one after that).

Any way you slice it, the future looks pretty depressing, especially for parents who don’t like taxes. And so, for Father’s Day, I hope to help someone, right or left, escape current events with a giveaway package of reading material worth about $200. To try to win, just post a comment on this blog, making an argument for or against the auto sector bailouts. I’ll pick the best of the bunch and send the poster a free subscription to Canadian Business magazine, along with the following package of books from Simon & Schuster Canada: Old City Hall, a Robert Rotenberg legal thriller set in Toronto; John Connolly’s The Reapers; Bryan Gruley’s Starvation Lake; The Last Patriot by New York Times best-selling author Brad Thor; Roadside Crosses, the third in Jeffrey Deaver’s high-tech thriller trilogy; and Fool’s Gold, a market meltdown tale by award-winning Financial Times journalist Gillian Tett.
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Free stuff for Father’s Day (or moms) and why this dad is no auto bailout fan

Tom Watson — Fri, 12 Jun 2009 00:20:14 +0000

As a father, of course, I’d argue that these conclusions smell like the puffy clouds generated by Walter the Farting Dog after he eats a brick of very old cheese.

Some folks thought that meant I was a member of the young PCs. I wasn’t. They were geeks. I bought the poster because I was a kid with crappy tastes, except in cars.

Free stuff for Father’s Day (and why this dad is no leftie)

Tom Watson — Tue, 09 Jun 2009 20:21:23 +0000

As a father, of course, I’d argue that these conclusions smell like the puffy clouds generated by Walter the Farting Dog after he eats a brick of very old cheese.

Some folks thought that meant I was a member of the young PCs. I wasn’t. They were geeks. I bought the poster because I was a kid with crappy tastes, except in cars.

Why Air Canada can take a flying leap

Tom Watson — Thu, 21 May 2009 16:14:02 +0000

Air Canada sent me an email this week, offering to show me the “finer side of travel” for an extra $425, which would allow me to access a limited number of its “extensive network” of airport lounges. I did a double-take because this is an airline that recently showed my family the not-so-fine side of using its services.

In the first quarter, Air Canada posted a net loss of $400 million, up from a net loss of $288 million in Q1 2008. CEO Calin Rovinescu knows he has work to do. Since taking the helm earlier this year, he has “focused on Air Canada’s immediate priorities over and above the impact of this long and unrelenting recession. We have a strong management team in place and together, we are tackling each priority one by one. They are: obtaining pension funding relief, building liquidity, finding creative revenue generation while working hard to earn customer loyalty, reducing unit costs to reach competitive cost levels and, in the longer term, achieving acceptable margins by creating value for customers and shareholders through profitable growth.”

I honestly don’t know what I would do about many of the to-do items listed above. But I do know what Air Canada would have to do to make me even consider being a loyal customer, not to mention pay extra to sit in one of its lounges. Simply put, someone at the company would have to care enough to make up for the fact that it let me down as a customer in the first quarter.

Forgive the following rant. But in late March, I went to Toronto’s Pearson International, hoping to sit in one of the three AC seats that I had bought well in advance for a family vacation to Nassau. We were at the airport early, waiting to check-in, when an AC employee working the line grabbed our tickets and checked us in electronically. She then made a face and told me to stay in line since I had a small problem.

“Really,” I said, “Is the flight delayed?” I asked. I actually had a list of other flights leaving Toronto for Nassau that day in my pocket. Flying Air Canada in the past has taught me to plan for the worst. “No,” the AC employee replied. “Everything is fine with the flight. Please just stay in line.”

After being left to steam for about 40 minutes, I got to the counter, where I was told I had failed to select actual seat locations for my family when buying tickets online, and, as a result, my family had lost one ticket due to a seating issue. I responded by pointing out a piece of paper that showed I had indeed selected our seats months ago.

“My computer says you didn’t,” I was told, meaning I must have forged the document in my hand. But I let that go when I learned that the AC employee who had grabbed our tickets in line had checked me in along with my wife, which potentially left my four-year-old daughter behind waiting for another flight.

Instead of handing my kid the car keys, I asked to have my daughter put in my seat. That was done, but then I was told the family luggage would be removed from the plane because it was checked in using my name. After a battle of words, I let that go and asked when AC would start trying to put me on another flight. I pulled out my list of other planes leaving for Nassau that morning, noting I still had time to get on a Westjet flight. That got a good laugh. I was told new flights would be found for bumped passengers after the AC flight (and all the other options) had left.

At this point, I asked if there was any room left in First Class. I was told there were actually a few seats. I offered to buy one. I was told they were being held for some people who had been bumped for not selecting seat numbers when buying tickets. I mentioned again that I had selected my seats. That got another laugh out of the zombies behind the counter.

My daughter started crying. “Why can’t you come on vacation, daddy?” My wife told me not to answer the question with bad words. That’s when I was told I should move along to the gate and simply wait to see how many people on the flight failed to show.

“You mean there are people who have not checked-in yet and they still have seats while I am here and I don’t?” I asked. “Yes,” I was told, “you don’t have a seat because you didn’t select a seat number when you bought the tickets. But wait and see. The flight closes in 5 minutes and you might get a seat if someone fails to show.”

And that’s when I realized I should just continue holding up the line, which I did. After three brutal hours, my family boarded a much smaller plane than I expected. Air Canada had switched planes and my seats were lost in the computer shuffle because I had selected seats in a high row number not offered on the smaller flight. We ended up in the back row, the one typically used by AC flight attendants. “That’s ok, Sir,” I was told. “We really don’t mind too much when customers need our seats.”

That’s the last communication I have had with the company, at least it was before the email offer this week. And it would have been nice if someone had tried to make up for a not-so-fine travel experience before trying to sell me a good one. That’s how customer loyalty is won.

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DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates. THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Dreaming Obama style

Tom Watson — Wed, 20 May 2009 20:14:39 +0000

According to Dan Becker, director of the American environmental group Safe Climate Campaign, U.S. President Barack Obama’s new national fuel-economy standard is the “biggest single step to curb global warming” that has been taken to date. That boast, of course, is wrong. The financial crisis gets my vote. But either way, calling the U.S. fuel-economy plan a real step forward is as believable as support for the initiative given by General Motors CEO Fritz Henderson.

“GM is fully committed to this new approach,” Henderson said in a statement yesterday. “GM and the auto industry benefit by having more consistency and certainty to guide our product plans.” Wow. That sorta makes me wonder (not really) why GM fought the idea for years before it had to turn to Uncle Sam for a US$15-plus-billion survival loan.

Adopting the standard proposed by California’s greenhouse-gas Terminator, governor Arnold Schwarzenegger, who was once the most famous Hummer driver in the world, Obama’s plan calls for American automotive fleets in the 2016 model year to get, on average, 35.5 miles per gallon, equivalent to 6.72 litres per 100 km.

“For the first time in history,” Obama said in a Rose Garden speech, “we have set in motion a national policy aimed at both increasing gas mileage and decreasing greenhouse gas pollution for all new trucks and cars sold in the United States of America.”

“Everyone wins,” he added, noting Americans will pay less for fuel, “which means less money going overseas and more money to save or spend here at home.” Meanwhile, companies like GM “have new incentives to create the technologies and the jobs that will provide smarter ways to power our vehicles.”

The new standard, of course, will also supposedly help stop mankind from finding out if human activities are responsible for warming planet temperatures. According to the United Nations Intergovernmental Panel on Climate Change, there is at least a 10% chance human activities are not the problem. Others, and not just right-wing nuts, insist there is no cause for major concern. But planet saver or not, Obama’s policy can’t be effective if its goal can’t be met.

Indeed, as Canadian auto sector analyst Dennis DesRosiers points out, the new fuel-economy standard for U.S. automakers “is near impossible to meet from a number of perspectives, with engineering and consumer acceptance leading the way.”

The only way to seriously attack auto-related emissions in the States, where only 30% of car purchases are currently in the small market segment, is to maintain high gas prices. Canadian drivers are greener. But to meet the U.S. target, DesRosiers says we would have to improve fleet efficiency by 3.25 litres per 100 km in seven years. That’s a huge undertaking when you consider fleet fuel efficiency in this country has improved to approximately 10 litres per 100 km from 11 litres per 100 km in the last 25 years. And in this time frame, the market share of small vehicles in Canada has actually improved to 60% from about 25%.

Obama’s other problem, of course, is that his administration is reportedly saving GM to make it viable and save U.S. jobs, and building small cars in North America is not a profitable business. “So,” as DesRosiers says, “this sets up a classic dilemma for the [automakers]. They can work to meet the standard, and in the process resign themselves to ever-increasing losses, year in and year out. Or they can move their small car production to countries where they can be made profitably like Korea, China, India, etc.”

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DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates. THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Take Rubin’s oil story with huge grain of salt

Tom Watson — Tue, 19 May 2009 19:39:36 +0000

You can always tell when the media has a new flavour of the month. Today, Jeff Rubin is it, thanks to the release of his new book, not to mention his recent departure as CIBC World Markets’ chief economist and chief strategist.

The high-profile oil bull, who holds a PhD in economics from Harvard University, joined the bank as a senior economist decades ago and has been named top Canadian economist something like ten times. Nevertheless, Rubin’s book, which describes how peak oil is about to kill globalization, was apparently not something he could promote as an investment-banking employee in good standing. After all, it is considered pure entertainment by major oil industry players like Suncor’s Rick George. (Is Rubin “an economist or an entertainer?” the oil sands CEO recently wondered in the Toronto Star.)

That makes Rubin a good feature story (see latest edition of Canadian Business magazine). But his book should still be taken with a grain of salt, one that is the size of, well, something really, really big—like the number of things that will prevent his vision of the future from coming true.

I have never met a peak oil theorist who didn’t come across like a religious fanatic. In my opinion, they don’t typically use terms like “in my opinion” because they tend to wear a very crude sense of blinders. I can agree that the price of oil will rise if supply does not keep up with demand. It is all the other stuff that peakers like to preach about that I don’t typically buy.

Rubin, of course, has been widely celebrated for predicting in 2000 that a barrel of crude would reach US$50 a barrel within five years. But so what? When the self-proclaimed maverick economist and other peak theorists were hyping US$200-plus oil last year, I was betting co-workers that a crash in demand would bring it back to US$30. To me, it was obvious that American housing prices and credit markets were in for a tough time. It was also obvious that speculators had helped push oil up above US$100.

In other words, I got lucky. And that happens to people who make economic predictions all the time, just not as often as they miss the mark.

Anyway, according to Rubin’s book, Why Your World Is About to Get a Whole Lot Smaller, oil scarcity and emissions standards will profoundly change where we live, work, vacation and eat. Simply put, he predicts that sky-high oil prices will make imports and travel too expensive, which will put an end to the auto sector and globalization. But this, he says, will actually be pretty good news for Canada, a trading nation that exports cars and trucks.

That, at least, is the message publisher RandomHouse is selling hard to sell Rubin’s back-to-the-future call for Canadians, who will return to simpler times, eating local food at the family table that was built in a local factory thanks to high oil prices.

“The global economy has suffered oil crises in the past, but this time around the rules have changed,” says the marketing blurb. “And that means the future is not going to be a continuation of the past. For generations we have built wealth by burning more and more oil. Our cars, our homes, our whole world has been getting bigger in the cheap-oil era. Now it is about to get smaller.

“There will be winners as well as losers as the age of globalization comes to an end. The auto industry will never recover from this oil-induced recession, but other manufacturers will be opening up mothballed factories. Distance will soon cost money, and so will burning carbon – both will bring long-lost jobs back home. We may not see the kind of economic growth that globalization has brought, but local economies will be revitalized, as will our cities and neighborhoods.”

Sounds nice. In fact, the book’s family-friendly thesis almost makes you forget the financial crisis that brought oil down from its record high is already threatening global trade. It also seems to ignore history, which says globalization probably can’t just stop without a return of not-so-fun world wars. There are many other things that could get in the way of Rubin’s vision of a never-ending oil supply crisis, such as a full-blown flu pandemic or new energy technologies or some major new oil finds or an alien invasion or even an anti-green movement (I put this behind alien invasion, so please accept it as a possibility, even if you considerate it unlikely).

These are all good things to ask Rubin about while he is still a hot headline maker. But do it quick, because the economist’s big day in the sun was overshadowed by Conrad Black, a more established headline hunter who can’t be beat when it comes to being the media’s flavour of the month.

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DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates. THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Clement doth protest too much

Tom Watson — Wed, 13 May 2009 18:39:00 +0000

I haven’t taken a good look at Stelco operations since writing a major feature on the company’s SNAFU-style restructuring a few years ago. But from what I know about the storied Hamilton steelmaker, I can understand why United States Steel Corp. has temporarily halted production at its Canadian plants.

The Harper government, on the other hand, doesn’t accept the need to close steelmaking operations in Hamilton and Nanticoke. Or, at least, it doesn’t want to look like it accepts the U.S. Steel decision that created more angry out-of-work voters in this country.

Industry Minister Tony Clement this week reminded the Pittsburgh company that it “committed to a series of undertakings regarding, among others, capital expenditures, research and development and production” when it bought Stelco in 2007.

“While I recognize that these are challenging economic times, we expect the company to live up to its commitments,” the minister said in a statement that was released to the media to make sure everybody knows just how hard Harper government ministers try to look out for the little guy.

Union officials welcomed the government’s hard line, the first enforcement action of its kind (if you consider a semi-harsh letter action) under the Investment Canada Act, which can be used to divest a foreign corporation of Canadian assets when production and job promises made at takeover time are broken.

The problem, of course, is that Pittsburgh-based U.S. Steel isn’t in violation of any commitments because the rules state that foreign invaders do not have to follow through on promises made when buying up Canadian assets if they are prevented from doing so by “factors beyond the control of the investor.”

Hmm. What has changed since U.S. Steel agreed to buy Stelco during the tail end of commodities boom? Perhaps Clement should check the value of his stock portfolio or head over to the Finance Minister’s office and ask why his own government is not living up to its promise to maintain a balanced federal budget. Then again, he has probably heard about the emergency fiscal stimulus package. If not, he could look up the budget speech that announced the need for about $85 billion worth of deficit spending “to keep our economy moving, and to protect Canadians in this extraordinary time.”

Unlike the Clement, U.S. Steel— which just reported a US$439-million Q1 loss, down from a US$235-million gain in the same period last year—isn’t playing political games. It has been forced to close plants on both sides of the border. And it should be left alone to try to live up to its shareholder commitments.

Twitter vs. Traditional Media

Tom Watson — Mon, 11 May 2009 21:19:38 +0000

I recently participated in one of the Empire Club’s new Lunch ’n Learn sessions, which offered an interactive Q&A session on the need for corporations to adjust media relations and communications strategies to the emerging opportunities and challenges created by social media.

The event was moderated by tweeter Boyd Neil, who is also senior VP and national director of Hill and Knowlton’s corporate communications practice in Canada. He set the tone by asking audience members if their employer was prepared to withstand an attack launched on YouTube or Twitter.

Peter Acteo was on hand to share his reasoning for tweeting as the CEO of ING Direct Canada. You can find them on Twitter. But simply put, he thinks anyone who can talk openly and honestly online as an executive, without plugging products, has an opportunity to better connect with consumers.

Suzanne Fallander, Intel’s manager of corporate responsibility, flew in from the States to explain why her company runs CSR@INtel. The intent is to use social media to create greater transparency through an open dialogue with Intel bloggers, who manage Intel’s CSR strategy in the areas such as environmental sustainability and philanthropy.

My job was to express my opinion on social media as a print journalist. “In all the discussion about the impact of social media on the declining financial health of print and broadcast media, the most interesting question,” according to Boyd, “is whether journalism today is surrendering its role as the watchdog of political and business behaviour to a much broader cadre of watchers, which sometimes includes members of the public who are simply in the right place at the right time.”

“Is this true?” Boyd asked me. My answer, of course, was: “No.”

I wasn’t just offering a self-serving answer. It is a free market. The advertising revenue that supports traditional media is obviously free to (and should) search out the best means possible to attract eyeballs. There will be an adjustment period for news organizations. There will be lost print publications. And the survivors will have to explore the proper mix of paper-based and electronic forms of information delivery. But there will always be a need and demand for traditional journalism.

As I told the Empire Club audience, anyone can run around screaming like the town crier, but they can’t deliver information with the same authority. I do not, in any way, dismiss the power and reach of bloggers. I just do not feel that my profession (trade actually) is threatened by bloggers like Toronto’s Neil Pasricha. He posts about things like loving warm underwear on 1000 Awesome Things, which recently won a coveted Webby Award in the best personal/cultural blog category. He could report news as well, but the coverage would not necessarily be awesome.

I am privileged to work for Canadian Business magazine, which frequently allows me to spend months chasing major feature stories that could not be told, at least not nearly as well, without the resources of a traditional media organization. That includes folks in the art department, not to mention the editors, who help me package my stories and investigative reports. It also includes the researchers and fact checkers and lawyers who help me report complex and controversial tales the right way.

I don’t know exactly how daily news and magazine-style journalism will be delivered a decade from now, but I do know there will always be a market for the kind of unique content that recently helped Canadian Business land a nomination for best magazine of 2008.

In the meantime, corporation must indeed take note that social media has empowered consumers. Last year, I wrote about the Canadian investors who used Facebook to face down Bay Street insiders during the ABCP restructuring. A similar event just took place in the UK, where Busts for Justice, a Facebook campaign launched to support large-breasted women, just forced Marks & Spencer to admit it “boobed” when trying to charge extra for bras with a DD cup or larger.

But be advised, social media also has made journalists of all stripes more powerful than ever before. I just published a massive feature in Canadian Business after an 8-month investigation into UK-based shareholder complaints directed at three Montreal businesses, including the former Canadian franchise partner of socially responsible Ben & Jerry’s. I used the Internet to collect information while joining overseas chat groups to see if other shareholders had similar concerns with these companies. What I found is a fascinating tale of international investor protection woes. To find out more, please check out the current issue of our magazine, which is also jammed with other interesting features and our I500 market data on Canadian companies. And, hey, you really can’t get that combination of informative goodies anywhere else.

Flu infecting fund managers

Tom Watson — Mon, 04 May 2009 14:05:51 +0000

Much of the media coverage of the global flu outbreak has been sensational drivel. Unfortunately, the N1H1 strain still has a 50-50 chance of becoming a large-scale killer, at least according to leading epidemiologists at the Milken Institute Global Conference, who should be taken more seriously than Fox news.

Fund manager David Kotok, who runs New Jersey-based Cumberland Advisors, is now in the “hope we’re wrong” camp. His firm has distributed masks and hand sanitizer to staff and activated a pandemic contingency plan. “I wear an N-95 mask in public places like airports and on flights,” he says.

As a risk manager, Kotok has made it his business to study the big three flu shocks. He notes the most infamous occurred in the 1918-20 Spanish flu period, which also involved a variety of the H1N1 strain. The first signs of outbreak came in the spring of 1918 and it was as small as the current flare-up. The killer phase occurred in subsequent flu seasons, when estimated deaths hit between 40 and 100 million, or somewhere between 2% and 5% of the total world population. In the U.S. about 25% of the population was infected and 500-700 thousand died.

In the Asian flu episode of 1957-58, Kotok notes, the virus form was H2N2. Estimated global deaths were 1 to 1.5 million. The third reference is the Hong Kong flu of 1968-9. It was the H3N2 strain and had a low death rate but a high infection rate. Globally it killed about 1 million people.

Cumberland is naturally also practicing risk management with the portfolios it manages, playing it safe by raising cash reserves. “This was easier to do after an eight-week, 30% stock market rally,” Kotok reported in a recent commentary. “So I guess it’s fair to say that the swine flu timing was opportunistic.”

Like Kotok, I have no idea how the current H1N1 risk will play out. But I do know that some of the smart money is leaving the market again and that poses yet another risk to the folks who are just talking themselves into buying equities again.

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DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates. THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

One free Canadian Business subscription (and my thoughts on Chrysler)

Tom Watson — Fri, 01 May 2009 18:32:46 +0000

The former merger of Chrysler to Daimler-Benz was billed as a “marriage made in heaven,” so perhaps we should not get too excited about the recently arranged union to Fiat, which is a doomed relationship forged out of desperation.

With all due respect to the new guy in the White House, it takes a skilled sophist to claim (at least straight-faced) that Chrysler’s bankruptcy filing in the United States wasn’t a sign of weakness. That’s almost as silly as any expectations of public understanding by the small group of Non-Tarp Lenders who attracted President Obama’s wrath for looking out for their own investors (which include teachers unions, major pension and retirement plans and school endowments).

Understood or not, this group of bondholders are senior secured creditors, who are typically paid in full before anyone else in a restructuring gets anything at all. In this case, they claim to have “offered to take a 40% haircut even though some groups lower down in the legal priority chain” were being offered recoveries of up to 50%. And yet, they are blasted for expecting their legal right to get more than non-secured creditors.

That’s almost as ridiculous as CAW head Kenny Lewenza, when he stated it is “shocking that a company with Chrysler’s stature and history should be forced into bankruptcy protection.” Hmmm. Isn’t this the Detroit automaker’s fourth kick at the viability can? Didn’t it lose something close to US$8 billion last year? And hasn’t it been living off the public purse for months? The only thing surprising here is the U.S. government’s claim that Chrysler’s bankruptcy process will be clean and quick.

It will be surgical, but with plenty of complications.

Lewenza, of course, wasn’t really shocked. He is another self-serving rhetorician. After aggressively demanding a taxpayer bailout to save Chrysler jobs, the new CAW head actually claimed his union went above and beyond the call of duty when agreeing to cuts (apparently worth $19 per hour) that do not touch wages or pensions. He didn’t mention that saving Chrysler puts healthier automakers and the jobs of other autoworkers at risk.

Simply put, the North American auto sector needs fewer players, not more. That’s why the Chrysler restructuring is a fiasco with no noble sides and little justification beyond the votes it is designed to buy for politicians.

Fiat will not help. It isn’t even bringing any cash to the marriage. In fact, Chrysler’s shining corporate knight lost almost US$800 million in the first quarter. For this union to work, Americans must fall in love with small Italian cars (which will never happen) from a company with a brand that put a bad taste in the mouths of North American consumers decades ago. For this union to work, Chrysler must make small cars profitable in North America, which would be shocking. Meanwhile, whether it works or not, Fiat now has instant access to a shrinking market that is supposed to support a restructured General Motors and keep Ford out of the insolvency garage.

READER CONTEST: A free one-year subscription to Canadian Business magazine (paid for by me) goes to first poster to this blog who knows what jokesters used to say Fiat stood for the last time it tried to win over North American customers. Winner must email me name and address.

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DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates. THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Horn Tooting

Tom Watson — Mon, 27 Apr 2009 15:21:47 +0000

FULL DISCLOSURE: The following is a self-serving blog from a shameless self-promoter. (Then again, if I have nothing to promote, why are you reading my blog, right?) First, let me apologize for not posting for a while. I am always opinionated (except when reporting), but I have an old-school print media job that often demands my full attention. Indeed, Canadian Business magazine will soon publish its Investor 500 issue, which has kept me away from this space during the day, not to mention my family and boat on evenings and weekends. But I have still seen things in the past two weeks that made me shake my head, which, of course, is the subject matter of Double Take.

The CAW negotiations are on my mind, but I will get to that soon enough. Today, I want to point out a line in a recent Globe story that I playfully find worthy of rebuttal. Last week, the National Magazine Award nominations were announced. The Globe reported the news, noting “Report on Business Magazine, published by The Globe and Mail, again dominates the business periodical category with a total of 19 nominations.” And that made me laugh, cause the awards do not have a business periodical category.

For the record, ROB, which I highly respect, was nominated for more awards than Canadian Business. There is no question that it dominated the Photojournalism and Portrait Photography categories. But then again, CB dominated in Illustrations. And as far as writing goes, ROB’s well-deserved nominations were for various categories, ranging from Science and Politics to Profiles and One-of-a-Kind articles. When it comes to Business Affairs, ROB actually tied with Canadian Business, which, of course, was also nominated for Magazine of the Year.

CB was nominated for features on the Asset-Backed Commercial Paper fiasco and the fall of hedge fund Amaranth Advisors. And believe it or not, each of these tales were told through the eyes of two different Calgary guys, both named Brian Hunter, both from the oil and gas sector. So if anyone dominated anything, it was CB in the Brian Hunter from Calgary category.

For an independent summary of who should be tooting journalistic horns, go to: www.magazine-awards.com

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Read this if you want a free car

Tom Watson — Wed, 08 Apr 2009 18:53:29 +0000

OK. Nobody is giving anyone a free car, at least not yet. But please forgive me for wondering if government-funded auto giveaways are next, especially after the free ride to the public piggy bank that has been handed to troubled Detroit-based automakers. Expecting Ottawa to buy a car for every Canadian would be nuts. Then again, according to auto sector analyst Dennis DesRosiers, a lot of the bailout spending aimed at saving General Motors and Chrysler is already “insane”—unless, of course, you think buying voter support is a fair public expenditure.

The recent government decisions in Canada and the United States to back warranties for new GM and Chrysler cars will not guarantee a successful restructuring of these companies. But it will cost Canadian taxpayers as much as $185 million while guaranteeing more difficult times for healthier North American employers, including Toyota and Honda, not to mention Ford, which may soon jump in on the bailout game because the industry dogs are being kept alive.

This week, Ottawa also found an additional $700 million to ensure accounts receivable for autoparts manufacturers. “This is good news,” says Ontario Economic Development Minister Michael Bryant, “because it provides stability to both parts suppliers and consumers at a time of volatility for the auto industry.”

But DesRosiers says the total sticker price of Canadian aid to the auto sector now sits somewhere between $20 billion and $30 billion. And all this, he estimates, is being spent to save about 50,000 jobs that would be lost if we let market forces restructure the industry. “Do the math and that is about $500,000 to $600,000 per job in Canada with about half of that amount needed each and every year in order to maintain these jobs in the long term. … Wouldn’t we be better off to take this money and put it to use promoting new innovation in the automotive sector in Canada. … Absolutely every blue collar job lost in Canada could be replaced with a higher paying innovation job if the right set of policies were in place.”

DOUBLE TAKE: Aside from trying to promote myself while generating Web traffic that helps put bread and butter on my table, this blog aims to stir debate by taking a harder look at current news and events. I obviously enjoy voicing my own opinions, but I am a big boy and I welcome all comments that don’t require R ratings. So let me have it via this blog or send me an email at tom.watson@canadianbusiness.rogers.com. I reserve the right to post email comments without disclosing the sender’s name. If you don’t think I am a total twit, follow my DOUBLE TAKE posts via my NotSOCRATES Twitter site at http://twitter.com/NotSocrates. THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Don’t believe reports of Magna pay cuts

Tom Watson — Wed, 01 Apr 2009 16:33:02 +0000

The Globe and Mail reported today that Magna International had “taken an axe to executive pay.” It didn’t.

In 2009, company officials will not take home as much as they have in other years, but not because of any cuts agreed to by management. In fact, if truth be told, the Magna gang will get more than can be justified by the Magna constitution, which has been used so well to justify past compensation levels.

As I noted in my blog yesterday, the global auto-parts company has long justified its huge executive paycheques, not to mention the mountain of cash it hands out to part-time chairman and controlling shareholder Frank Stronach, by noting executive compensation is tied to a fixed percentage of pretax profits by the so-called Magna Carta. Nobody has cut that percentage. What has happened is that Magna’s pre-tax profits have been hit hard by economic turmoil and exposure to the fate of Detroit’s Big Three.

During tough times, Magna executives are supposed to live off their salaries, which are still a significant six figures. The salaries have not been cut, either. Instead, the company is topping them up because performance pay has tanked with profits and Magna now insists that its officials, including Stronach’s daughter Belinda, should not be forced to live up to the spirit of the constitution.

Stronach loves to boast about being different. He has repeatedly insisted that the big payouts only happen at Magna when there are plenty of pre-tax earnings to distribute to executives, workers, investors and society. But under the direction of lead director Mike Harris, who took home more than $600,000 last year for being a self-proclaimed slave to the Magna constitution, the rules have been changed to ensure Magna executives don’t have to survive on less than seven figures. That’s despite all the money they accepted under constitutional rules in the past.

Stronach himself isn’t getting a top-up, which he would not deserve. After all, he has always told me that his real role at Magna is to make sure that the executives and directors he put in place live by the constitution that justifies his dual-share powers and multi-million-dollar consulting fees.

_________________________

THOMAS WATSON is a Senior Writer and editorial board member at Canadian Business magazine. Since winning a community journalism award as a cub reporter with the Hamilton Spectator in the early ’90s, he has covered business, finance, politics and technology for various news outlets. Prior to joining CB in 2001, he reported on the steel and automotive sectors for the Financial Post. Watson received his first magazine award nomination for exposing a stock manipulation plot aimed at Waterloo, Ont.-based Open Text in 2000, when he was head of investor relations for an international venture capital outfit in the City of London. Watson holds graduate degrees in journalism, international relations and public finance and undergraduate degrees in history and politics.

Frank, baby, our bromance is over

Tom Watson — Tue, 31 Mar 2009 18:17:19 +0000

It is no secret that I am a fan of Frank Stronach, Canada’s king of dual share corporations. If truth be told, a lot of other journalists actually think a desire to become Stronach’s PR guy generated my man-love for the founder and chairman of Magna International. Not true.

Magna is perhaps the best-run automotive play on the planet. But Stronach has never let a reporter’s tape recorder stop him from speaking his mind—despite all the controversy that typically surrounds his way of doing business. I like that.

Furthermore, the self-made empire builder doesn’t accept that institutional shareholders should have excessive powers over executive pay or judgment, not to mention the lives of a company’s workers. I like that, too. Why should hedge funds be able to force companies to borrow money to pay special dividends to short-term investors?

Stronach, of course, isn’t perfect. I frequently use the word “king” to describe the man—but he does, too. He is a megalomaniac. But as a journalist in need of good quotes, that just makes me like him even more.

Anyway, I have always accepted that Magna’s legendary corporate constitution is worthy of respect. Simply put, it was designed to make sure corporate profits are shared with employees and society. The Magna rulebook requires the company to spend 2% of pre-tax earnings on charitable works, twice the benchmark for corporate giving recommended by the Canadian Centre for Philanthropy. It allows managers to roll the dice as entrepreneurs, but sets limits on their ability to play around with shareholder money, which is why I always thought investors had no right to argue about Magna’s foray into the airline business or the nightclub scene or magazine publishing or horse racing or whatever.

I have repeatedly attacked critics of Stronach’s multimillion-dollar annual pay, because, thanks to the Magna constitution, compensation for the company’s chairman and top executives has long been linked to a fixed percentage of pre-tax profits. That means whenever there was more money for management, the constitution made sure there was also more money for investors, employees and society. This, of course, is supposed to work both ways. Indeed, I once asked Stronach’s lead director, Mike Harris, about the naysayers who called Magna’s board a bunch of sycophants. “Magna is unique. Magna is different,” he said. “The corporate constitution is essential to the success of the company. And if rigorously upholding the constitution means Magna’s directors are yes-men, then we are yes-men to the constitution, not Frank.” I ate it up—which is why I am now choking.

Frank, you have looked me in the eye (over a nice “Frank Caesar” salad, at your posh investors-financed restaurant, which serves your posh investors-financed golf course) and told me your executives will only get big bucks if there are pre-tax profits. You boasted about how much of an incentive that provides, precisely because the base salaries you typically offer are relatively low (not to average folks, of course). But now, when push comes to shove and the empire hits hard times, Magna’s board has decided to offer “one-time” adjustments to executive compensation because “the severe economic downturn that had started in the late summer of 2008 was not a mere cyclical downturn.”

Magna’s two CEOs, Don Walker and Siegfried Wolf, along with its vice-chair, Stronach’s daughter Belinda, CFO Vince Galifi and COO Tom Skudutis, will be handed a combined salary top-up of more than $10 million (plus potentially lucrative stock options) for last year. In 2009, because this “one-time” assault on the Magna constitution will take place twice, they will split more than $14 million in addition to base salaries.

In the wake of hurricane Katrina, Stronach deployed his unique corporate powers as chairman of three dual-share Magana companies to whisk hundreds of storm victims to safety while Federal Emergency Management Agency officials were still untangling red tape. He then made a five-year commitment to help his chosen people rebuild their lives. He bought them land and built them a town. The Times-Picayune in New Orleans credited Stronach with being the individual who has done the most to shore up poor America’s leaking trust in capitalist society. They guy’s generosity “shames us,” it said.

But while Canadaville was a noble effort, it raised an interesting question for Magna apologists since it was actually built with shareholder resources. Magna initially announced it was going to make Stronach’s Louisiana purchase, but project costs hit the company’s constitutional limit on charitable projects, so a sister firm without a constitution to justify the action picked up significant costs. The sister firm in question was posting losses at the time due to its controversial ownership stake in Stronach’s horse racing company that led investors to drag Magna’s king to court.

At the time, my bromance with Frank (and a tour of Canadaville) convinced me this was somehow OK. I actually compared the guy to Thomas Jefferson, noting that when the former U.S. president made his Louisiana Purchase, in 1803, he decided it was a special case, one in which the greater good that came from controlling the Mississippi was more important than worrying about strict adherence to constitutional rules. I stand corrected. The Magna constitution is just for show.

What Team Obama really thinks about GM and Chrysler

Tom Watson — Mon, 30 Mar 2009 16:37:14 +0000

Washington hasn’t been offering General Motors and Chrysler bailout dollars simply to save the U.S. economy from more turmoil. According to the U.S. policy document below, which was made public this morning, the new president of the United States wants the two troubled Detroit companies to pay for government aid by making them pay for past roles as pushers of SUVs. In other words, if American auto companies need tax dollars to stay afloat, then they must be reborn as viable tools of U.S. energy policy. Investors and the CAW should take this seriously. After all, as far as the new guy in the White House is concerned, the cost cuts currently served up by industry executives and union leaders are not good enough—which is why the General’s Rick Wagoner is gone and GM and Chrysler are probably headed for some form of bankruptcy.

Obama Administration New Path to Viability for GM & Chrysler
In accordance with the March 31, 2009 deadline in the U.S. Treasury’s loan agreements with General Motors and Chrysler, the Obama Administration is announcing its determination of the viability of the companies, pursuant to their February 17, 2009 submissions, and is laying out a new finite path forward for both companies to restructure and succeed. These findings and new framework for success are consistent with the President’s commitment to support an American auto industry that can help revive modern manufacturing and support our nation’s effort to move toward energy independence, but only in the context of a fundamental restructuring that will allow these companies to prosper without taxpayer support.

Key Findings
• Viability of Existing Plans: The plans submitted by GM and Chrysler on February 17, 2009 did not establish a credible path to viability. In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources. Each will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability.

• General Motors: While GM’s current plan is not viable, the Administration is confident that with a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business. This process will include leadership changes at GM and an increased effort by the U.S. Treasury and outside advisors to assist with the company’s restructuring effort. Rick Wagoner is stepping aside as Chairman and CEO. In this context, the Administration will provide GM with working capital for 60 days to develop a more aggressive restructuring plan and a credible strategy to implement such a plan. The Administration will stand behind GM’s restructuring effort.

• Chrysler: After extensive consultation with financial and industry experts, the Administration has reluctantly concluded that Chrysler is not viable as a stand-alone company. However, Chrysler has reached an understanding with Fiat that could be the basis of a path to viability. Fiat is prepared to transfer valuable technology to Chrysler and, after extensive consultation with the Administration, has committed to building new fuel efficient cars and engines in U.S. factories. At the same time, however, there are substantial hurdles to overcome before this deal can become a reality. Therefore, the Administration will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed. If an agreement is not reached, the government will not invest any additional taxpayer funds in Chrysler.

• A Fresh Start to Implement Aggressive Restructurings: While Chrysler and GM are different companies with different paths forward, both have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way. Unlike a liquidation, where a company is broken up and sold off, or a conventional bankruptcy, where a company can get mired in litigation for several years, a structured bankruptcy process – if needed here – would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities so they can get on a path to success while they keep making cars and providing jobs in our economy.

• A Commitment to Consumer Warrantees: The Administration will stand behind new cars purchased from GM or Chrysler during this period through an innovative warrantee commitment program.

• Appointment of a Director of Auto Recovery: The Administration also announced that Edward Montgomery, a top labor economist and former Deputy Secretary of Labor, will serve as Director of Recovery for Auto Workers and Communities. Dr. Montgomery will work to leverage all resources of government to support the workers, communities and regions that rely on the American auto industry.

Detailed Findings on GM and Chrysler Plans

GENERAL MOTORS
Viability Determination: Based on extensive analysis and the advice of a range of financial and industry advisors, the Administration has determined that GM has not presented a viable plan that would succeed, even in an improved economic environment. While GM has made progress in its turnaround to date, GM’s current plan will not result in a healthy company that is meaningfully cash flow positive in a normalized business environment and thus able to support its operations and obligations without continued government support. (A summary of the Administration’s findings is provided separately). The Administration does believe that there is a path to a viable GM and is confident that the company can emerge from this crisis as a strong, competitive business. However, this will require a more aggressive strategy to transform the company’s operations than the current management has designed and deeper stakeholder concessions than those specified in the initial loan agreement.

New Framework for a Fresh Start Restructuring: Today, GM is announcing that Rick Wagoner is stepping aside as Chairman and CEO. Kent Kresa will serve as interim Chairman and current President Fritz Henderson will serve as CEO. GM is embarking on a process with the goal of replacing a majority of the board over the coming months. When complete, these changes will bring fresh thinking and new vision to the Company while maintaining a degree of continuity in the current challenging environment.
In this context, the Administration is willing to provide GM with adequate working capital for a finite period of 60 days to develop and implement a more aggressive plan. During this period, the Administration team, consisting of Treasury officials as well as private sector auto industry and restructuring experts retained by the Administration, will work closely with the company. These industry and restructuring experts will help focus this process on:
• Sustainable profitability: A viable GM should be able to generate meaningful positive free cash flow in a normalized business environment, generate net free cash flow over the course of a business cycle and invest capital in research and development and capital expenditures sufficient to maintain or enhance its competitive position while also earning an adequate return on its capital.
• A healthy balance sheet: The restructuring must substantially reduce GM’s outstanding debt and existing liabilities to a level where they are consistent with both its normalized cash flow and the cyclical nature of its business. Given the deterioration in the auto market since late last year, this will require substantially greater balance sheet concessions than those called for in the existing loan agreements.
• More aggressive operational restructuring: The restructuring plan must rapidly achieve full competitiveness with foreign transplants and more aggressively implement significant manufacturing, headcount, brand, nameplate and retail network restructurings.
• Technology leadership: The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe. In order to execute a new, more aggressive restructuring plan within 60 days, we will work with GM to use all available tools to implement this plan. The best path to achieve this may well be an expedited, court-supervised process to extinguish unsustainable liabilities, should an out-of-court restructuring not be possible. The Administration is prepared to stand by GM throughout this process to ensure that GM emerges with a fresh start and a promising future. Consumers thinking about buying a GM car and workers and communities that depend on this iconic American company should have confidence that GM can and will come out of this crisis as a stronger, leaner and more competitive car company.

CHRYSLER
Viability Determination: After extensive consultation, the Administration has determined that Chrysler has not demonstrated that it can achieve long-term viability as a stand-alone company. In particular, Chrysler’s plan contains a number of assumptions that are unrealistic or overly optimistic. (A summary of the Administration’s findings is provided separately). Independent financial analysts and industry experts are nearly unanimous in their views that, to be competitive in the decades to come, auto companies will need to transform their processes and products to improve efficiency, reduce costs and offer a higher-quality, more fuel-efficient fleet. These transformations will require substantial investment that Chrysler – according to its own plan – is not capable of making. Therefore, the Administration does not believe that on its own, Chrysler can achieve
the scale or depth of product mix necessary to compete in the 21sst century global auto market.
Chrysler/Fiat Partnership: Chrysler has also proposed a partnership with Fiat, which has the potential to address some of these problems and provide Chrysler with a path to viability. A Chrysler/Fiat alliance could lead to Chrysler manufacturing fuel-efficient vehicles using Fiat’s technology while benefiting from the managerial expertise of the Fiat senior leadership that successfully led a turnaround in Fiat over the past five years. In addition, the product mix and geographic reach of both companies is very complementary. The original partnership was unacceptable for several reasons, including the fact that Fiat could have gained majority ownership of Chrysler before American taxpayers had their investment in the company paid back. After consulting with the President’s Auto Task Force, Chrysler and Fiat have agreed to important changes to their original agreement that would provide greater protections for U.S. taxpayers and would help ensure that new, fuel efficient Chrysler cars and engines are built in the U.S.
Finite Period to Pursue a Deal: However, while the Administration sees promise in this deal, substantially more needs to be accomplished to make this plan viable. In this context, the Administration is willing to provide Chrysler with 30 days of working capital to execute an acceptable partnership. The Administration believes Chrysler is being given a reasonable opportunity to finalize the agreement but is unwilling, in the absence of a long-term solution, to continue to invest taxpayer dollars in this company. If a definitive agreement is reached, the Administration is willing to consider lending up to the additional
$6 billion requested by Chrysler to help the plan succeed. If the Chrysler/Fiat partnership has not been successfully concluded within 30 days, and in the absence of another viable partnership, the government will not invest any additional money in the company.

Requirements for Additional Government Support: Fiat, Chrysler and all of Chrysler’s stakeholders must clearly understand that for this deal to succeed, significant hurdles must be cleared:
• First, Chrysler must restructure its balance sheet so that it has a sustainable debt burden. This at a minimum will require extinguishing the vast majority of Chrysler’s outstanding secured debt and all of its unsecured debt and equity, other than trade creditors providing normal trade terms.
• Second, Chrysler, Fiat and the UAW need to reach an agreement that entails greater concessions than those outlined in the existing loan agreements.
• Third, Chrysler and Fiat need to demonstrate with a greater degree of detail an operating plan that is truly viable, that can generate meaningful positive cash flow in a normal business environment and that can demonstrate credibly that taxpayer loans will be repaid on a timely basis.
• Fourth, the final plan agreed by Chrysler, Fiat and their stakeholders must not, under appropriately conservative operating assumptions, require than $6 billion of post-restructuring loans from the U.S Treasury.
• Fifth, Chrysler must have a viable, adequately capitalized mechanism to finance the purchase of Chrysler cars by its dealers and customers.
• Finally, Chrysler needs a credible plan to execute this restructuring. Given the magnitude of the concessions needed, the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities.

SUPPORT FOR CONSUMERS AND THE AUTO INDUSTRY
The Administration is committed to standing behind a tough but necessary industry restructuring that will result in stronger, more viable American car companies. During this process, the Administration wants to ensure that consumers have confidence in the cars they buy and suppliers that depend on viable auto companies have some support to weather this storm. Our actions are not intended to slow the necessary consolidation and rationalization of key elements of the auto industry, but will help stabilize the industry during this period of transition.

Protection of consumer warrantees: Consumers who are considering new car purchases should have the confidence that even in this difficult period, their warrantees will be honored. That is why the Administration is launching an innovative new program that will provide government-funded protection for warrantees issued by participating domestic auto manufacturers. The program will be available for all new warranties on new vehicles purchased from participating auto manufacturers during the period in
which those manufacturers are restructuring. Both General Motors and Chrysler have already indicated their intention to participate. Details on this program are provided HERE.

Supplier support program: Trade creditor support will be essential to the success of the effort to restructure GM and Chrysler. The vast majority of the trade at GM and, as part of the Fiat deal, at Chrysler, will carry through the process and be fully paid. In addition, the Administration recently announced a new $5 billion Supplier Support Program. This program is already providing suppliers with the confidence they need to continue shipping their parts and the support they need to help access loans to pay their employees and continue their operations. The Administration will work closely with the car companies to implement this program in the weeks ahead and monitor closely the state of the automotive supply base.

Unlocking the Flow of Credit for Consumers and Dealers: A healthy automotive industry requires consumers who want to buy cars and are creditworthy to have access to credit. Unfortunately, in the current financing environment, even consumers with excellent credit histories have difficulty gaining access to credit. The Administration remains committed to improving access to credit in general and with respect to automotive purchases specifically. The launch of the Term Asset-Backed Securities Loan
Facility (TALF) has expanded the funding available for retail auto loans, thereby directly helping consumers. And the Administration remains committed to facilitating the access to funding for the automotive finance companies that provide credit to these consumers. These efforts will be continued and expanded upon to ensure that consumers have the financing they need to purchase vehicles going forward.

AUTO TASK FORCE INITIATIVE TO SUPPORT AND REVITALIZE AUTO INDUSTRY WORKERS AND COMMUNITIES
The President is fully committed to standing behind the American auto industry, which is the backbone of our manufacturing base. To this purpose, the President’s Task Force on Autos is launching a new initiative to support and help revitalize American auto communities. The Administration’s goal is to both help revitalize the American auto industry and to help manufacturing communities in Michigan create new businesses, new jobs and bring in new industries for a stronger economic future. And when despite all of our best efforts, individuals and communities are hard hit — we will take all possible steps to ensure we are working as swiftly and in as coordinated a fashion as possible to provide relief and paths to reemployment. This government-wide effort will require substantial leadership and coordination. Today, the President appointed Ed Montgomery, former Deputy Secretary of the Labor Department and current Dean at the University of Maryland, to become Director of Recovery for Auto Communities and Workers. Dr. Montgomery has more than 25 years experience working on issues related to worker training and local economic development and has worked first hand with State and local government agencies and nonprofits in Michigan and Ohio on strategies to revitalizing areas hit by job loss. In his new role, Dr. Montgomery will bring all parties – workers, firms, unions, other private sector employers, community-based organizations, state and local governments, and foundations – to the table to maximize communication and cooperation and to develop innovative strategies for relief and recovery. He will ensure that communities and workers can take full advantage of all available resources and to ensure that the funds are distributed quickly, efficiently and equitably. He will work with the Administration, relevant Governors and Congressional leaders to launch new executive and legislative initiatives to support these distressed communities and help them retool and revitalize their economies. He will identify and pursue all possible opportunities, including for example, initiatives to:
• Maximize the effectiveness of Recovery Act funds for new and more diverse economic
development for new jobs, business and industry through various means including local
infrastructure, housing, education and new industry.
• Deploy rapid response unit to communities facing plant closings to both meet immediate needs and to develop strategies for new job growth.
• Extend Trade-Adjustment-Assistance (TAA) to the auto industry, including retraining, healthcare extensions, income support and wage insurance.
• Attract major defense, research, green industry and other project to the region. Channel Workforce Investment Act (WIA) and other emergency grant funds to the region.
• Work with stakeholders to develop new legislative efforts to direct emergency support to affected communities and regions, and bring new jobs and economic opportunities to these areas

Watch out for Fed hitting the brakes

Tom Watson — Fri, 27 Mar 2009 17:37:03 +0000

I recently noted a warning to take all of the hype around positive U.S. housing numbers with a grain of salt. It was issued by Robert Brusca, an always entertaining independent Wall Street economist who isn’t easily swayed by numbers. I am now posting again because Brusca just sent me a report via an email that read: “The trends are beginning to look friendlier for a widening array of reports. Look at consumer spending, income, the savings rate, Core PCE and U of M expectations and sentiment. Oh yeah.”

According to Brusca, optimism is still optional, but with inflation (CPI and PCE core) returning to pre-Lehman trends, Fed policy could get “real different, real fast.” Simply put, if deflation stops looking like a threat, the Fed will start back-tracking, maybe even at WARP speed.

Brusca has his own blog called GPS for Investors at http://robertbrusca.blogspot.com/

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