29 May 2009
Michigan Attorney General Mike Cox filed a petition Thursday to stop proposed individual rate hikes for more than 400,000 individual Blue Cross Blue Shield of Michigan customers.
"Blue Cross should stop putting profits over people and focus on its mission as the insurer of last resort," Cox said in a statement announcing the challenge.
Overall, average increases sought would be 56% for non-elderly people buying their own insurance; 42% for group conversion policyholders who purchase coverage they once had at work, and 31% for seniors with supplemental Medicare, also known as Medigap policies.
Michigan's Office of Financial and Insurance Regulation was to have ruled on the rate hikes by June 2. Now the office has 30 days from Thursday to hold the hearing.
Blue Cross has said it needs the rate hikes to offset mounting losses for its individual policies, to exceed $1 billion through 2011, according to Blue Cross estimates. It also is laying off or not filling 1,000 jobs, has frozen executive and board salaries and cut spending on advertising, lobbying and other expenses, the Detroit-based company has said.
In a statement, Blue Cross said that it would prefer not to raise rates but "unfortunately our broken regulatory system puts us in this uncomfortable position."
Cox has had mixed results with rate challenges.
He and Ann Arbor attorney Joe Aoun lost a challenge earlier this month of 2007 Blue Cross rate hikes for non-elderly people who buy their own Michigan health insurance. But Cox won a separate challenge in 2007 to raising Medigap rates.
Cox has issued his own 10-point plan to reform Michigan's health insurance industry. He said challenges like the one he filed Thursday will be reduced by proposals pending in the House.
Rep. Marc Corriveau, D-Northville, said he has tried unsuccessfully to work with Cox to frame the bills to retain his oversight. His proposals would allow the Attorney General to file a challenge to a rate hike, but would shorten the time he could do it.
28 May 2009
MACKINAC ISLAND, Mich. - Energy baron T. Boone Pickens said Thursday the Great Lakes region has great potential for generating wind power, although he has no immediate plans to back up the assessment with his own money.
Pickens, who made his fortune as a Texas oil producer, preached his newly minted gospel of alternative energy during the Detroit Regional Chamber's annual policy conference. The billionaire shared the stage with Gov. Jennifer Granholm, who has made renewable energy the centerpiece of her push to diversify Michigan's economy.
Both said Michigan can play a key role in weaning the U.S. off foreign oil -- an essential goal for protecting the nation's security and economy. Without a national energy plan focused on alternatives, Americans will be importing three-fourths of their oil at a staggering cost of $300 a barrel within a decade, Pickens said.
Despite promises from presidents going back to Richard Nixon, the nation has yet to confront its oil addiction, Pickens said. Soaring fuel costs last year were one consequence of inaction, he said.
"Cheap oil continued to be a bailout to us over those years," he said. "Consequently, America was never asked to look at what would happen" if supplies tightened and prices soared. "For 40 years, I have watched us having no energy plan and wondered when we were going to hit the wall."
He is funding a $60 million campaign to boost wind power and natural gas, and is trying to develop a gigantic wind farm in western Texas. Pickens said he isn't looking for investments in Michigan projects because he is focusing on his home state, but would encourage others to do so.
"Michigan is a big state and you have a lot of resources here," he said. "I would think people would see it as an opportunity."
Winning energy independence, he said, will require cultivating a wide variety of sources -- including manufacturing cars powered by batteries, natural gas and other unconventional fuels.
"I'm for anything, just so it's American," he said in an interview. "I want off foreign oil. I don't want the oil from Venezuela or the Mideast or Africa."
He also endorsed an energy tax to reduce demand for oil and generate revenue for renewable energy development but said he wouldn't make it a priority. "I don't stump for taxing anybody," he said, adding that the politicians he'd spoken with "get a tight collar" when he raised the issue.
Granholm agreed: "It's hard. Citizens are hurting."
Wind, solar and battery technology hold the best promise for Michigan, although the state is promoting other forms of alternative energy such as biomass, Granholm said. Legislation enacted last year requires that 10 percent of the state's energy come from renewable sources by 2015.
"In the next few years, we are going to create an entire new industry in designing and manufacturing advanced batteries for green vehicles," the Democratic governor said.
The state is offering $700 million in tax credits to encourage development of battery technology and hopes for a share of federal economic stimulus money earmarked for the purpose.
Many of Michigan's auto suppliers are well positioned to manufacture components for wind turbines, such as gear boxes, drive trains and carbon fiber moldings, Granholm said.
"It's far less expensive to ship a wind turbine blade or tower to Duluth from Bay City or Port Huron or Muskegon than from Denmark," she said. "We have the deep water ports and the manufacturing supply chain, and we're putting on a full-court press to attract more wind turbine manufacturers to Michigan."
Another state tax credit aims to lure solar producers to join Hemlock Semiconductor and United Solar Ovonic, two Michigan companies already in the business.
27 May 2009
Story from the Wall Street Journal
Michigan's economy is the worst in the country, dragged down by its dependency on an ailing auto industry. But in a lab at Accio Energy in Ann Arbor, engineers Dawn White and David Carmein are driving in a different direction.
They have built what they call an "aerovoltaic" device, a two-inch loop of piping that generates electricity -- without moving blades or turbines -- when air flows through it. The engineers' next step: linking a series of these loops into screens that they see eventually generating wind electricity where windmills are too big, dangerous or noisy to go.
Innovative companies like Accio are common in Ann Arbor, home to the University of Michigan, where a highly educated population has created a burgeoning economy, and a street-corner conversation can develop into a company and create jobs.
Michigan's economic future rests on making the state look more like Ann Arbor, and less like Warren, 50 miles to the northeast, where factory buildings and warehouses built on the riches of the Big Three auto makers bear signs saying they are "priced to sell." The latest blow came earlier this month, when Chrysler LLC shut down its two plants in Warren as part of its bankruptcy filing.
It won't be easy. Much of the Michigan economy has been shackled to Chrysler, Ford Motor Co. and General Motors Corp. Yet even after years of watching the auto industry decline, the state has struggled to free itself from dependence on the Big Three.
"The old economy made Michigan rich and it made its work force get wages and benefits that were beyond anybody's dream," says Donald Grimes, a University of Michigan economist who paid his way through college in the 1970s by working summers at Ford and GM plants. "There is absolutely nothing that is going to replace those jobs."
The divide between Ann Arbor, with a population of 116,000, and Warren, population 126,000, is large and widening. Ann Arbor's unemployment rate of 8.5% in March trailed the nationwide rate of 9% and was well below Michigan's overall rate of 13.4%, based on nonseasonally adjusted figures. By contrast, Warren's unemployment rate of 17.3% is among the highest in the state. The average family income in Ann Arbor was $106,599 in 2007, compared with $69,193 nationally and $60,813 in Warren.
That economic gulf wasn't always there. In 1979, the average family in Warren made $28,538 annually, not much below Ann Arbor's average of $29,840. But in the past 30 years, the U.S. economy has undergone a sweeping transformation that has benefited cities like Ann Arbor and hurt manufacturing hubs like Warren.
As transportation and communication costs fell, and countries like Japan and, now, China, increased their manufacturing capability, Michigan's advantages have faded. Those same forces of globalization benefited educated workers -- an area where Michigan largely fell short.
Except in Ann Arbor.
Over the years, the city developed the types of schools, cultural institutions and amenities that made it an attractive place to live and work. Google, whose co-founder Larry Page attended the University of Michigan, opened an Ann Arbor campus in 2006. About 70,000 people commute to this city, about 40 miles west of Detroit, each day.
Accio Energy got its start in 2007, based on plans two of the founders hatched at Zingerman's Deli, Ann Arbor's renowned gourmet-food destination.
Accio got some of the seed money for the three-person start-up from Mary Campbell, an area venture capitalist who met Ms. White in a running group. Jeffrey Basch, a former General Electric automotive development worker, is Accio's general manager. Ms. White met him while helping shuck corn at an organic produce company that Mr. Basch's wife, another former Ford engineer, started and Ms. White helped fund.
In Warren, which has the largest concentration of auto workers in the country, job transitions are more difficult to make. Just one in five of Warren's workers between the ages of 25 and 64 holds a bachelor's degree or higher, a relic of the days when a college degree wasn't necessary to find a job that paid well. By comparison, three-quarters of Ann Arbor's work force has at least a college degree.
"I got out of high school and went right into it," says Arthur Kupiec of the Chrysler job he started in 1972, when he was 18. "Back then, jobs were all around and the economy was booming."
Mr. Kupiec worked at Chrysler's truck plant in Warren until last year, when he took an early retirement package. "Believe me, I didn't want to leave, but I said, 'You know what, I have to get something while I have something,' " he says. "I'm only 55 years old, and I'm just at home putzing around."
Ann Arbor's burgeoning start-up culture hasn't fully shielded it from the economic downturn. The city's shops and restaurants are a weekend destination for many in Michigan, but with the state in trouble, they have seen business drop.
And despite Ann Arbor's educated work force, employers here find Michigan's reputation as a failing manufacturing economy can deter potential hires from moving to the state.
At HandyLab, an Ann Arbor firm that makes a DNA-analysis device, Chief Executive Jeffrey Williams says he has had a hard time finding Ph.D.-level workers with highly specialized skills. His company, which has doubled to roughly 60 employees in the past year, has 10 job openings.
"It's definitely gotten much harder with all the stigma around Detroit," he says. "Somebody tries to pigeonhole us as Detroit, we say, 'No, it's Ann Arbor, it's a completely different environment.' "
In another blow to Ann Arbor, Pfizer Inc. in 2007 announced that it was closing its research facilities in the city, where 2,100 people worked. But unlike idled auto workers, who often find there is no market for the manufacturing skills they have honed over the years, Pfizer's researchers generally found work elsewhere.
While some of America's once-dominant industrial centers, including Pittsburgh and, a generation earlier, New York City, have been able to make the transition away from a manufacturing-dependent economy, others, such as Cleveland and Buffalo, have floundered. Warren, for its part, does have well-trained engineers and designers -- GM's technical center is there -- and Wayne State University is building an advanced technology education center in Warren. Web design, internet marketing, and Michigan SEO companies thrive in a strong tech sector.
Meanwhile, with the automotive industry's latest troubles, more people in Michigan are breaking with the past and coming to see a college education as an economic necessity.
Treashure Banks, 20, is studying business at Macomb Community College and working at the school part time. She still isn't sure what sort of company she wants to work for, but there is one thing the Detroit native has always been clear on when contemplating her future career.
"It was never automotive, never," she says. "We need to have some new ideas. We need something new."
26 May 2009
DETROIT — The calls from Chrysler officials were coming nearly every day, sometimes several times a day, right through the final weeks before the company filed for bankruptcy. And the message, said Robert Archer, who runs three Chrysler dealerships in the Houston area, was simple: Take more cars.
"They tell me, 'The only way that we can survive is if you order cars and Fiat and the government see money coming in,' " Archer said.
He acquiesced, Archer said, thinking he was doing his part to save the company. "I'm a team player and I don't want them to go out of business, so I ordered a ton of cars."
Then, a week ago, Chrysler told Archer, a dealer for three decades, that his three stores were
among the 789 dealerships the company was eliminating as of June 9. Archer had 700 new vehicles and $1.7 million in new parts in stock when the letters arrived.
Now Archer is among 330 dealers, calling themselves the Committee of Chrysler Affected Dealers, who are contesting the company's action. This week and on June 3, the bankruptcy judge handling Chrysler's case will consider their objections.
Many of those fighting the hardest are dealers who recently spent huge amounts of money to stay in Chrysler's good graces, who sacrificed their own profits to help keep the company intact or who otherwise thought they had bent over backward to ensure that Chrysler could survive, only to learn that they were the ones who would not.
"I'm mad at myself for being duped all these years by them and going along with all of the things they wanted me to do," said Homer Cutrubus, a Chrysler dealer in Utah since 1969. "If I treated my customers like Chrysler treated me, I wouldn't have any business."
For years, Chrysler had been urging Cutrubus and other dealers to combine dealerships with just one or two of the company's brands into "alpha" stores selling all three: Chrysler, Dodge and Jeep. It stepped up that pressure in February, he said, and in April he finally agreed to move his Dodge store in Layton, Utah, into a Chrysler-Jeep showroom half a mile away, even though he thought the change made little sense financially and had to be done at his own expense.
Included in the exhibits filed in bankruptcy court is an e-mail message from a Chrysler official in Denver to Cutrubus that said the company wanted to keep only one of the four area dealerships, preferably him. It concluded, "Are you our guy?"
"I called them the next day and said, 'Yeah, we've got a deal,' " Cutrubus said. Six weeks later, after he already had spent $100,000 making the move, he got the letter cutting all his franchises.
Chrysler executives last week defended their decision to cut a quarter of its dealers and the process they used to determine which dealers should be eliminated. They said stores were evaluated on a number of factors, including sales, customer satisfaction, location and condition of the dealership.
If Chrysler does not streamline its operations and complete the proposed sale of its good assets to the Italian automaker Fiat, "the stark reality is all 3,181 dealers will face elimination," Steven J. Landry, the company's vice president of North American sales and marketing, said in a statement.
"It was not an easy decision to ask the court to reject a portion of our dealer contracts, but the reality is Chrysler's viability depends on a vibrant, profitable dealer network," Landry said. "As presently configured, Chrysler's dealer network does not meet that test."
Landry also argued that the company "is treating the rejected dealers fairly by assisting in the redistribution of remaining vehicle and parts inventory, paying incentive and warranty payments due."
But many dealers disagree.
Chrysler is not buying back any inventory, including the vehicles and parts that dealers say they never wanted and bought only under pressure. And the entire process, which gives them only until June 9 to liquidate everything, is far from fair, they contend.
The company's actions have bewildered William Coulter, a dealer in Phoenix. Several years ago, Coulter spent $2.7 million to buy out a competitor because Chrysler wanted him to sell all three of its brands. More recently, he paid $3.5 million for 12 acres of land in a more upscale, fast-growing suburb. Chrysler approved the relocation, but Coulter had to delay moving because the recession had cut deeply into sales.
"All the local people were telling us we had nothing to worry about," he said. "We were pretty confident, having invested all this money. And after making all these investments, I don't have a choice."
Chrysler said 89 percent of the dealers being cut sell more used vehicles than new ones and are, therefore, expected to keep selling and servicing used vehicles. It said 44 percent of the dealers being cut also sell a competing manufacturer's vehicles at the same store, something it does not like.
In Panama City, Fla., Buzz Leonard Chrysler Jeep used to also sell cars from Mazda and Mitsubishi. But the owner, Gerald Spitler, dropped the Mazda franchise a year ago and in February he paid $200,000 to give up Mitsubishi, even though it did decent sales, to show that he was fully committed to Chrysler. Right before Chrysler filed for bankruptcy, he said, he tried to help the company by taking on 25 new vehicles, when he needed only 10.
"I was told several times that I was doing all the right things and that going forward I was going to be one of their guys," Spitler said. "I thought I was right on track with them. I thought this was going to be fun."
On May 14, Spitler learned that his efforts were wasted, while the Dodge dealer across the street, which also sells Lincoln, Mercury and Hyundai, would survive.
22 May 2009
Southfield (WWJ) -- A new Senate Fiscal Agency report released Wednesday projects Michigan's 2010 budget deficit will climb to $2.4 billion.
The 48-page report predicts a $1.5 billion general fund deficit and a nearly $1 billion dollar school aid fund deficit for the new budget.
The state still is implementing plans to deal with a $1.3 billion shortfall in the current budget year. Federal stimulus money is expected to be used to offset $1 billion. Governor Granholm recently issued an executive order cutting $300,000 from the current budget.
The Senate Fiscal Agency projects that the U-S economy will grow weakly in 2010 while Michigan's economy will remain in recession, specifically the US Economy down 4%, but Michigan economy down 3.4%.
The report predicts light vehicle sales down almost 4 million units. And says while most recessions average 10 months, now at 15 months into recession, declines in Michigan are accelerating, not slowing yet.
The report says there are risks to achieving forecast:
1) "weakness in housing market, and how it will influence both consumer behavior and credit market liquidity"
2) " high levels of risk aversion in financial markets and how it will affect wealth, consumer and business borrowing, and investment"
3) "the international economy..."
4) "the degree to which consumers increase their savings in response to the economic collapse"
"If energy prices begin rising sooner or more rapidly than expected, such increases will likely reduce growth and/or prolong the recession," the report said.
A more complete picture of the state's budget situation will be determined Friday when state economists get together for an official revenue estimating conference.
WASHINGTON, May 20 (Reuters) - The Obama administration has no plans to dictate to General Motors Corp (GM.N) specifics on dealer cuts, vehicle production or what plants to close as part of its restructuring, U.S. Treasury Secretary Timothy Geithner said on Wednesday.
"We are trying very carefully not to be involved in those decisions," Geithner told the Senate Banking Committee about government oversight of operations at GM and bankrupt Chrysler LLC.
"We think those are the decisions for the board and management of these companies," Geithner said, adding that the administration's goal is to ensure restructuring that results in a viable industry.
A White House/Treasury task force is overseeing the restructuring of GM and Chrysler LLC, which sought Chapter 11 protection on April 30.
Chrysler plans to emerge from bankruptcy under management control of Italy's Fiat SpA (FIA.MI).
GM faces a June 1 task force deadline to win steep concessions from debtholders and labor and show the government it can survive on its own.
Failure on either front would prompt bankruptcy, a step GM has said is probable.
The automaker is currently locked in negotiations with the United Auto Workers on plans to close 16 factories, cut 21,000 jobs and shift some vehicle production to China, Mexico, Korea and Japan.
The union objects to the plan, which GM Chief Executive Fritz Henderson has said is open to negotiation. Henderson was in Washington earlier this week for talks with UAW President Ron Gettelfinger.
The UAW has asked the White House and Congress to intervene with GM on the production plan.
Lawmakers with at-risk facilities in their states or districts have met with Henderson and pressed the task force to minimize job losses.
The task force must sign off on any GM business plan since the company now depends on federal bailouts. GM has received $15.4 billion in emergency government loans since January.Both GM and Chrysler have unveiled plans to cut more than 2,300 dealerships combined and drop unprofitable brands.
DETROIT -(Dow Jones)- Chrysler LLC (C.XX) revealed plans Thursday to cut a quarter of its U.S. dealer network, though some outlets vowed to fight the proposal in court.
The company has requested a June 3 court hearing to approve the planned cull of 798 of its 3,188 dealers nationwide.
The dealer restructuring is being driven by Fiat SpA (FIATY), the Italian group that plans to take an initial 20% stake in Chrysler when it emerges from bankruptcy protection.
In a court filing, Chrysler said the move was needed to restore competitiveness with rivals boasting leaner distribution networks.
Chrysler said its dealers sold an average of 303 cars last year, compared with the 1,292 sold by each Toyota Motor Co. (TM) outlet.
Some Chrysler dealers questioned the methodology used by the company and Fiat in their deliberations, and have vowed to battle the planned cuts.
Leo Jerome, owner of Story Chrysler Jeep in Lansing, Mich. and targeted for closure, said he has about $2 million in inventory and Chrysler informed him that the company will not buy any of the cars or parts back.
Chrysler, which filed for bankruptcy protection April 30, warned that it would need to trim its dealerships to cut costs and boost profitability.
The auto maker said all of its dealer contracts allow the company to terminate its relationship for any reasons with 30-days written notice.
Chrysler said it sold 1 million cars and trucks through its 3,298 dealers in 2008.
General Motors Corp. (GM), attempting to avoid bankruptcy protection, is also planning to cut dealers. About 1,000 GM dealers will receive letters Friday notifying them of their status. GM is planning to cut about 2,600 of its 6,246 outlets.
19 May 2009
Plunging auto sales are making this one of the worst times ever to sell cars. But if you're one of the relatively rare consumers shopping for a new vehicle, you're already in the driver's seat.
Many dealers have unusually high inventories they want to sell in a hurry, so buyers willing to research price trends, visit numerous dealers and negotiate assertively can pick up a set of wheels at discounts unheard of just a few months ago.
Overall, the average transaction price for passenger vehicles has fallen 2.9% in the past six months, to $27,941, while the average cash-back incentive rose 2.3% in April from a year earlier, to $2,628, according to market research firm J.D. Power & Associates.
But for shoppers, the potential savings are substantially greater. Auto makers are offering generous deals, including cash-back offers and low financing rates, across a wide range of vehicles. Many that once sold at a markup are suddenly available for well below the sticker price -- and often less than dealer cost. Flashy new cars, even some 2010 models, already come with low lease rates and hundreds or thousands of dollars in rebates.
"There's no question that you should get a screaming deal," says Scott Painter, chief executive of TrueCar, an online service that tracks new-car purchases. He says the slump in sales has resulted in discounts so steep that new cars can sometimes be less expensive than comparable used ones.
According to data from TrueCar, in July 2008 dealers sold about 21% of 2009 model year vehicles for less than what they paid for them. By March this year, they were selling 25% of 2009 vehicles below cost.
Dealerships, meanwhile, have been closing at an alarming rate -- 960 in 2008 and an estimated 1,200 by the end of this year, according the National Automobile Dealers Association -- driven mainly by slack demand and tight credit. Now car makers General MotorsCorp. and Chrysler LLC are planning to close thousands more, opening the door for even better deals.
"With excess supply, it's going to get very aggressive out there," says Gary Dilts, a senior vice president at J.D. Power. "Dealers have to get rid of a lot of 2009 vehicles, so we think it's going to continue to be a consumer's market for the next three months."
Some of the best deals are available on once-hot models. Until recently, you could get $12,000 cash back on the purchase of a leftover 2008 Range Rover, for example. Just two years ago, this handsome luxury sport-utility vehicle was a popular rolling fashion statement.
It isn't just last year's models that are available at a discount. Cadillac's slick, sporty and reasonably practical new CTS sedan comes with $7,000 in incentives. Ford Motor Co. has barely begun selling its 2010 Transit Connect van, and is already offering $300 cash back.
Eric Sample, a 42-year-old election official in Portland, Ore., says he bought a 2008 Mazda Miata roadster with a sticker price of $27,235 for about $18,000 three weeks ago. A combination of a $5,000 rebate from the manufacturer and more than $4,000 in dealer discounts was more than he could resist. "I didn't think it would get much better," says Mr. Sample, adding that he hadn't bought a new car since 1999.
Chevrolet's 2009 Tahoe hybrid, a large SUV that promises the fuel economy of a smaller vehicle, is in some cases selling for nearly $6,700 off its $51,405 sticker price. Hyundai's new 2009 Genesis luxury sedan can be had for $2,500 below sticker price, and even the long-awaited 2010 Honda Insight hybrid on average is selling at more than $500 below sticker price, according to TrueCar data.
Falling prices and rising rebates reflect the economic uncertainty that has kept many people away from auto showrooms since late last year. This forced car makers to cut production in an effort to keep inventories from growing too quickly. But in many cases demand has retreated even faster than supply, leaving dealers with a glut of unsold cars they are desperate to sell.
Selling at a Loss
Paul Taylor, chief economist at the National Automobile Dealers Association, says GM has 111 days' worth of inventory, Chrysler has 114 and Volkswagen AG has 115. With inventories so high, car makers are offering bigger incentives than usual, and dealers are sometimes willing to let cars go even at a loss.
Among the biggest price swings are those in categories that were popular last year even as the overall auto market sagged, driven by rising fuel prices and a general glut of new cars. Some models that were new at the time attracted buyers seeking the latest design, but mostly it was small cars and gasoline-electric hybrids that dealers couldn't keep on their lots.
Many people recall how hot the Toyota Prius hybrid was last summer when gasoline rose beyond $4 a gallon. People lined up for a chance to buy the fuel-frugal sedan, and many paid above sticker price. Dealerships nearly never had any on the lot because most were spoken for and snapped up as soon as they arrived. Trying to keep pace with rising demand, Toyota Motor Corp. increased production.
Today there are Priuses gathering dust in showrooms and dealer lots, largely because falling gas prices have made them less desirable. According to data from TrueCar, buyers have recently paid an average of $23,324 for the Prius Touring, the top-of-the-line model. It seems like a good deal because it is well below the $25,020 sticker price but less than $100 above the invoice price of $23,269. Yet several buyers have paid below the dealer cost of $22,784.
As Toyota launches a new Prius for 2010, today's price for 2009 models could be $8,000 lower than six or eight months ago, according to Jesse Toprak, an analyst with Edmunds.com, the car-shopping Web site. He says some people paid $3,000 or $4,000 above sticker price for the Prius when fuel prices were near their recent peak. Now prices have swung to the opposite extreme -- $3,000 to $4,000 below dealer cost -- in some cases.
Sites for Car Shoppers
The Internet continues to grow as an aid to shoppers looking for the best deals. TrueCar, which launched last month, uses dealer sales data to show how much people are actually paying for vehicles. The goal, the company says, is to give shoppers the most realistic starting point for negotiation. Eventually, says Mr. Painter, TrueCar hopes send car salesmen "the way of the travel agent."
Rival online service Edmunds.com is testing a formula that calculates what would-be buyers should offer a salesman to get the negotiation started. Several sites, including cars.com, MSN Autos and Edmunds, also list incentives like cash-back and discounts that dealers don't necessarily share with customers.
Jeremy Anwyl, president of Edmunds, says the company considered providing data on individual transactions years ago, but found when it tested the concept that the additional information overwhelmed customers. Its latest service it is testing in a few markets uses similar data to establish an initial offer price that consumers can use when they are ready to buy.
A group representing Chrysler dealers said Monday it is in talks with the automaker in hopes of getting it to scale back plans to terminate the franchise agreements of about a quarter of its dealers. Michael Bernstein, an attorney for the Chrysler National Dealer Council, said that while it's unlikely that Chrysler LLC will change its mind about eliminating dealer franchises, he's optimistic that the company will at least agree to end fewer than the 789 originally listed in its court motion.
In addition, he said the group wants to ensure that the dealers whose franchise agreements ultimately are terminated get the help they need from Chrysler for a smooth transition.
"Certainly the dealers have an interest in a successful restructuring of Chrysler and the National Dealer Council doesn't want to do anything that would interfere with Chrysler's ongoing viability," Bernstein said. "But we're hopeful we can reach an agreement on terms that will allow it to have as little adverse impact as possible on the dealers."
The talks also include representatives from Fiat Group SpA, which is leading a group attempting to buy the majority of Chrysler's assets, along with Chrysler's creditors committee, Bernstein said.
On Thursday, Auburn Hills, Mich.-based Chrysler asked a New York bankruptcy court to end its franchise agreements with 789 dealers, as part of its plan to restructure into a new company with a leaner network of about 2,400 showrooms.
The need to pare down its dealer ranks was one reason Chrysler ended up filing for Chapter 11. Dealers are protected by strict state laws that make it tough for automakers to rescind franchise agreements, but once a company files for bankruptcy protection, the judge overseeing its case can decide that those laws no longer apply.
General Motors Corp., which faces a June 1 deadline to restructure itself or file for Chapter 11, also is trying to slash its dealer ranks. On Friday, the Detroit-based automaker notified 1,100 of its 6,000 dealers that would not renew their franchise agreements when they end late next year.
Bernstein said a big part of what his group is hoping to achieve is a way for the dealers that lose their franchises to either sell their vehicles back to Chrysler or transfer them to other dealers without having to hold "fire sales" that could result in steep losses.
Chrysler has said that it expects its remaining dealers to need to take the cars and trucks because all of Chrysler's manufacturing plants have been shut down since it entered bankruptcy on April 30 and May vehicle sales have been stronger than expected.
Dealers losing their franchises will get Chrysler warranty reimbursement and sales incentives such as rebates and low-interest financing until June 9. But after that, they won't be reimbursed for either. That means the dealers have a big reason to get rid of the cars before their franchise agreements end. Without incentives they won't be able to compete with the remaining dealers.
Chrysler spokeswoman Carrie McElwee declined comment on the talks, saying that the issues would be addressed through the bankruptcy process.
Bernstein said the dealer group hasn't decided whether to file an objection if a deal cannot be reached, but added that some of the dealers slated to lose their franchise agreements may decide to mount their own legal fights.
A hearing on Chrysler's motion to terminate the dealer franchise agreements will be held on June 3 in front of U.S. Judge Arthur Gonzalez. Objections are due May 26.
Mike Boudreau, a director at O'Keefe & Associates, a Bloomfield Hills, Mich.-based turnaround firm, said the dealers would have a tough fight on their hands if they decided to object to the franchise terminations in court.
Boudreau said the dealers can argue that they cover their own costs and have the ability to ride out tough times, but the fact is the dealerships Chrysler put on its list were already struggling and losing money.
"The dealers are saying 'hey, we'll figure this out,' but hope isn't a strategy," Boudreau said. "It stands to reason that as Chrysler shrinks, its suppliers and dealers will shrink too."
17 May 2009
More distress was handed down to car dealers across the country May 15 as General Motors (GM), facing a White House-imposed deadline to restructure or file for bankruptcy by June 1, notified 1,124 of its 6,200 dealers that the automaker intends to end their franchise agreements by late next year. The word—delivered in FedEx letters to affected dealers—went out a day after Chrysler, operating in Chapter 11 bankruptcy, tagged nearly 800 of its dealerships for termination.
Dealers handling the Big Three are feeling the brunt of Detroit's woes—first with the cratering of new car sales in the last 12 months, and now by losing their businesses altogether. Hundreds of dealers predominantly handling U.S. brands have gone out of business on their own in the last six months as sales have slowed to beyond the point where they could pay their bills.
The letters bearing the bad news began arriving Friday morning at GM franchises around the country. The letter states that dealers were judged on sales, customer service scores, location, condition of facilities, and other criteria. "Based on our review and current foreseeable market conditions and your dealership's historical performance, we do not see that GM have a productive business relationship with (your dealership) over the long term," according to the letter, a copy of which was obtained by the Associated Press.
Reversing the Decision?
The letter left open the possibility, however, that the decision could be reversed. "Please understand that our planning in this regard is not finalized, and we are prepared to give you until the end of the month to submit any information you would like us to see," the letter said.
While an extensive dealer network was once thought to be a competitive advantage, in a shrinking market it is becoming a liability, GM officials and analysts said, as dealers compete with each other to snag sales. By cutting dealers, the companies can also reduce the costs incurred in supplying so many more dealers than they need. In addition, it should make the remaining dealers more profitable and willing to invest in their stores and customer handling. "Too many dealers, in actuality, are a problem," Mark LaNeve, GM's vice-president for North American sales and marketing, said in a conference call with reporters as the letters went out.
Dealers are angry, peppering their legislators with pleas to intervene, as well as hiring lawyers to appeal the decisions by Chrysler and GM. The National Automobile Dealers Assn. said Friday that GM's plans to cut the dealers will affect more than 63,000 employees and thousands of their customers. "We view GM's action with a profound sense of sadness and disappointment," NADA said in a statement posted on its Web site. "GM's decision comes through no fault of the dealers, who are, in many cases, family-run businesses that have been loyal partners with GM—through good times and bad—for multiple generations."
As long as GM stays out of bankruptcy, GM dealers have a good bit of legal recourse. States have varying franchise laws that date back to the 1930s. Back then, dealers who were investing in the growing auto industry sought protection to keep the dozens of early car companies in the U.S. from manhandling them. If a dealer, for example, was having an argument with a manufacturer, the independent dealer wanted protection from the company selling a distributorship to another, more friendly dealer across the street from his or her store.
Generally, to cut a dealer a company has to demonstrate cause. For instance, it may have to prove the dealer is not meeting standards and practices in the agreement, such as failure to maintain an up-to-date store or inadequate service facilities. Indeed, the state laws very much favor dealers rather than the automakers. And the panels that review the disputes at the state level usually include other dealers, consumers, and state bureaucrats.
The result: When GM set out to close its Oldsmobile channel in 2000, the final cost of buying out its dealers was in excess of $2 billion. GM executives have often said they would not follow that same costly process again.
On the other hand, with Chrysler operating under Chapter 11, there is legal framework to challenge the dealership cuts. "About the only avenue in the Chrysler case is to show that the company's analysis is wrong about how much cutting dealers will save and the benefits to the operation," said Scott Silverman, partner in Boston at law firm McCarter & English, which is representing dozens of GM and Chrysler dealers.
GM has until June 1 to demonstrate to the White House auto industry task force that it has lined up enough concessions from bond holders and the United Auto Workers union to prove "viability," and justify continued government loans to keep it afloat. If not, GM is prepared to enter Chapter 11, and the Federal government intends to provide it with debtor-in possession financing that will allow GM to operate in bankruptcy and re-emerge a smaller, more streamlined company.
A Chapter 11 filing, though, could enable GM to more quickly trim its dealer network from the 6,200 it has today to the 3,600 it believes it needs to compete against Toyota (TM) and Honda (HMC). Toyota has just 1,200 dealers. Honda has 1,029 dealers.
GM reckons it can use a network larger than Toyota's and Honda's to its advantage as well as hold its position in rural markets where imports are still scarce. GM, which has announced its plans to shut the Pontiac division, cut or sell Saab and Saturn, and sell Hummer, will keep the Chevrolet, Cadillac, GMC, and Buick brands.
The third U.S. automaker, Ford (F), agrees. "Rural coverage is an advantage we and our domestic rivals have in the U.S., and we aren't going to give that up," said James Farley, Ford sales and marketing chief. Farley, which came to Ford in 2007 after a long career at Toyota, says imports will move into those markets if GM, Chrysler, and Ford abandon them. Ford, which is in better shape financially than GM and Chrysler, has a plan to reduce its dealer network, too, though, it hasn't made the sweeping announcements as GM and Chrysler have.
The dealer networks across the country are legacies of a different time. Many of the stores Chrysler and GM are cutting haven't invested in their facilities in decades. Others are in markets where too many dealers are fighting for too few sales.
In the 1980s, GM, Chrysler, and Ford controlled more than 75% of U.S. sales, but that dropped to 48% last year. GM alone held nearly 51% of the market in 1962, but only 22% last year.
14 May 2009
LANSING, Mich. — Roughly half of Michigan's 1.2 million uninsured residents could wind up with subsidized, relatively low-cost health coverage under a proposal rolled out Thursday by some key Senate Republicans.
The proposal will add to the long-simmering debate regarding what to do about rising health care costs and the growing number of uninsured in Michigan. Democrats in the state House have introduced a competing plan, and while there appears to be some common ground between the two approaches, major differences must be resolved before any new laws could be passed to guide the Michigan health insurance market.
The Senate proposal calls for an assessment on all claims paid by health insurance companies in the state to help subsidize the cost of basic coverage plans for relatively low-income residents who don't buy coverage because they can't afford it. The bill as introduced would allow an assessment of up to 1.8 percent, although it's possible a much lower rate could provide enough money to fund the program. A board established by the legislation would help determine the assessment rate.
"We're asking everyone to chip in," said Sen. Tom George, a Republican from Kalamazoo County's Texas Township and the chief architect of the Senate proposal. "We're stepping on everyone's toes a little bit in order to expand access to health care."
That's better than the current system, bill supporters say. People with insurance coverage pay significantly higher costs because they are helping offset the estimated $2 billion in annual uncompensated health care provided to the uninsured in Michigan. Supporters of the George plan say broadening insurance coverage could help lower costs overall.
House Democrats who sponsor a competing plan are wary of a broad assessment on health insurance claims, saying it could raise costs for automakers and businesses that can least afford it. But some provisions of the Senate and House plans appear to overlap and could lead to a compromise.
"We're both headed in the right direction, which is encouraging," said Rep. Marc Corriveau, a Democrat from Northville and a key sponsor of the House plan.
Both plans feature somewhat similar provisions to help cover people who have claims of $25,000 or more in a given year through assessments on companies competing in Michigan's individual health insurance market. Both would require more payments from nonprofit Blue Cross Blue Shield of Michigan in lieu of taxes. In exchange, Blue Cross could get some relief from some of the costs associated with its role as the Michigan health insurance company of last resort.
Both plans would increase consumer protections, including provisions aimed at preventing insurers from dropping people when they become sick.
Another piece of the Senate plan is aimed at getting more federal money tied to Medicaid to help expand coverage. It would include incentives for healthy behavior.
11 May 2009
09 May 2009
We were told all throughout the 2008 presidential campaign and on up into the debate over the stimulus that the way out of the current economic malaise is through growing a green economy. “NBC Nightly News” is still on message.
On the May 6 broadcast of “Nightly News,” anchor Brian Williams explained that Ford Motor Company (NYSE:F) didn’t accept federal bailout money, but all the while it has been producing green cars – as if the two were related.
“We have a report tonight on the car industry,” Williams said. “The Ford Motor Company has its own challenges ahead, but they are rightfully proud of being the only one of the Detroit big three not to accept taxpayer bailout money. Ford announced today it's retooling a plant that made big gas guzzlers in order to produce smaller, greener cars. And this comes at a time that other automakers are cutting production and thousands of jobs.”
However, Ford’s success has little to do with the green cars, but instead its success with its restructuring plan, as a May 6 Reuters story pointed out.
“Ford Motor Co remains on track in its restructuring and has sufficient liquidity to fund the plan which includes conversion of plants and investment in future products, company executives said,” Soyoung Kim and Chelsea Emery wrote for Reuters. “Ford, the only U.S. automaker not operating under bailout funds, also has continued to consolidate its dealer network, but sees no need for the type of aggressive culling rivals GM and Chrysler plan, Chief Executive Alan Mulally told reporters.”
CNBC Detroit correspondent Phil LeBeau touted Ford’s new plant which will build these beloved green cars.
“Working on the principle that less may be more, Ford is spending a half billion dollars retooling a plant that once made gas-guzzling SUVs, turning it into one that will churn out green, fuel-efficient cars,” LeBeau said.
However, LeBeau saved the best for the end and noted this gamble on green was contingent on other factors, specifically the price of gas.
“But with the American demand for compact cars and the success of electric models, dependent on gas prices, analysts say Ford’s bet on going green and small is not a sure one,” LeBeau explained.
“Smaller cars have smaller price tags,” auto analyst Efraim Levy said. “So therefore, you have less room to make the profits and if the car’s not successful, the losses are even more painful.”
Still, the new Ford plant was greeted as a welcome sign for workers in a beleaguered local economy, but just a drop in the bucket when the plant has only 3,200 workers while unemployment rates are over 12 percent in Michigan.
“In Michigan, an automaker retooling and keeping jobs is long overdue good news,” LeBeau continued. “This decade, the state has lost 700,000 jobs, with unemployment spiking 5 percent in the last year to a national high of 12.6 percent. Facing those numbers, the 3,200 people who will work at Ford’s rebuilt plant are relieved.”
Investment dollars may be scarce, but that isn't stopping venture capitalists and entrepreneurs from converging in Michigan early next week.
Employees from 60 venture capital and private equity firms and banks plan to attend the 30th Michigan Growth Capital Symposium on Tuesday and Wednesday at the Ypsilanti Marriott hotel.
In search of the next Google or Starbucks, these investors will hear presentations from 16 Michigan companies as well as 16 firms from other states and Canada in industries such as the life sciences, energy and information technology.
The Free Press recently spoke with David Brophy, who started the annual conference and still oversees it as director of the Center for Venture Capital and Private Equity Finance at the University of Michigan's Ross School of Business. Here are some excerpts from the conversation:
QUESTION: Given the depressed economy, what is your outlook for venture capital firms in Michigan?
ANSWER: It's tough for venture capitalists per se. But most of the firms successfully raised new funds last year. On balance, they have a little more dry powder than last year. I'm hopeful that even in this bad time, we're going to come out of it strong.
Q: What is your advice to Michigan entrepreneurs with promising businesses that are struggling to find capital?
A: Make connections. You have to go out and make yourself known. Talk to others, help others and they will help you.
Q: What can Michigan do to grow its venture capital industry?
A: Build better companies like Lycera Corp., a pharmaceutical firm that recently obtained $36 million in venture capital financing. We need Lycera to stay here. We need people to spin off from Lycera and make new companies. We need 10 other Lyceras. That's nothing but hard work.
Q: What is the major trend in venture capital these days?
A: Energy is dominant. Energy is very central to what's going on here in Michigan.
Q: How do you see Michigan's economy evolving?
A: Michigan has been characterized as big business, big labor and big universities, none of whom cared about tech-based companies. But Michigan has a very skilled workforce. If we play our hand right, this will emerge as a strength for Michigan.
Ford Motor Co. is giving southeastern Michigan’s economy a $550 million shot in the arm as it moves forward with plans to build small vehicles and electric cars at an assembly plant in western Wayne County.
The automaker said Wednesday it will launch within the next year production of the all-new Ford Focus along with a battery-electric version of the Focus at the Wayne plant.
“The transformation of Michigan Assembly Plant embodies the larger transformation under way at Ford,” said Ford chief executive officer Alan Mulally.
“This is about investing in modern, efficient and flexible American manufacturing. It is about fuel economy and the electrification of vehicles.
“It is about leveraging our expertise and vehicle platforms around the world and partnering with the UAW to deliver best-in-class global small cars,” Mulally said.
The retooling of Michigan Assembly, one of the world’s most profitable auto plants during the SUV boom of the late 1990s, is based on Ford’s plan to use the company’s global assets to bring six world-class small cars to the North American market by the end of 2012, Ford officials said.
Ford is converting three truck and SUV plants to car plants — Michigan Assembly, Cuautitlan Assembly in Mexico and an assembly plant in Louisville, Ky., which will be converted to produce small vans and other vehicles from Ford’s global Focus platform beginning in 2011.
The Cuautitlan plant will be used for building the subcompact Ford Fiesta, which Ford also plans to sell in the U.S.
“We’re changing from a company focused mainly on trucks and SUVs to a company with a balanced product lineup that includes even more high-quality, fuelefficient small cars, hybrids and all-electric vehicles,” said Mark Fields, Ford’s president of The Americas.
“As customers move to more fuel-efficient vehicles, we’ll be there with more of the products they really want,” Fields said.
The zero-emission battery-electric Focus vehicle, which is being developed in partnership with Magna International, features a high-voltage electric motor powered by a high capacity lithium ion battery pack and charged by plugging in to a 110-volt or 220-volt outlet.
Ford also plans to use its new agreement with the United Auto Workers to reduce job classifications and minimize the union work rules in the retooled factory.
Joe Hinrichs, group vice president for global manufacturing and labor affairs, said the new practices will enable the plant to operate at a high level of productivity while producing best-inclass quality products in a safe work environment.
“The UAW is a key partner in enabling us to build these worldclass vehicles competitively in the United States,” Hinrichs said.
“This agreement will allow the workforce to build on their quality commitment while improving productivity at the plant.”
The state of Michigan, Wayne County and the city of Wayne contributed more than $160 million in tax credits and grants to support Ford’s expansion opportunities.
“Ford is investing in both the future of the American auto industry and the state of Michigan by bringing together world-class products, advanced technology applications and strong partnerships with the UAW to build the next generation of vehicles that will help end our nation’s dependence on foreign oil,” Gov. Jennifer Granholm said.
“In these challenging economic times, we applaud and appreciate Ford's commitment to Michigan and to our talented workforce,” she said.
07 May 2009
This is about to turn real ugly.
The bankruptcy of Chrysler LLC -- promised to be "speedy" -- is shaping up to be anything but. The umpteenth restructuring of General Motors Corp. is giving new meaning to the word "draconian," mostly because the time for negotiation and cajoling is being replaced with the hammer -- take the deal or we'll see you in court.
Which is why a United Auto Workers vice president used an upbeat event at a rival plant Wednesday to send a clear message to the General, one day before last-ditch bargaining is scheduled to go into high gear: Avoiding bankruptcy may be preferable, but not if it means complicity in using taxpayer dollars to benefit foreign autoworkers and gut the union.
"There are some today that don't understand what the Ford leadership understands," UAW Vice President Bob King, head of the union's Ford Department, told an audience that included Ford Chairman Bill Ford Jr., CEO Alan Mulally and Gov. Jennifer Granholm. "There are some companies who want to sell products here that they're not going to build here.
"There are some restructuring plans that are saying they want to take the jobs out of America. And they want to build ... in Mexico rather than build in the United States of America." Then, his voice rising in expectation of a unanimous response from gathered members of UAW Local 900, King asked:
"If you're going to take American tax dollars -- our tax dollars -- where do you build?"
In these times, especially, the politically correct question answers itself: "America." This in front of the building-Ford-Fusions-in-Mexico execs, now that King clearly has established the Blue Oval as the standard by which the rest of Detroit Auto would be judged.
Yes, this is about to get real ugly, an archly political confrontation of organized labor and the depressing reality of GM's business prospects that will, before it's over, force the likes of Granholm, members of Michigan's congressional delegation and lots more to choose sides.
The problem here is that King, a likely favorite to succeed UAW President Ron Gettelfinger, implies the antiquated belief that all three of Detroit's automakers are equal, as if "pattern bargaining" and an alleged market parity between GM, Ford and Chrysler exist in the real world.
They don't, haven't for a long time and few know that better than the UAW's leadership. If parity existed, Chrysler wouldn't be bankrupt, GM wouldn't be on the way out and Ford wouldn't be sitting on the cash pile (and an intensely focused business plan) that is keeping it from joining the other two.
"The General Motors plan is not acceptable to the American public," King continued, assuming that who builds what where is as important in Los Angeles or Atlanta as it is in Detroit. "I don't think the American public will support their tax dollars being used to close more plants -- and then to openly say we're going to bring product in from China, Korea and Mexico."
Building cars in foreign markets to sell in foreign markets is acceptable, he said, conveniently downplaying the Mexican parentage of the Fusion and its siblings from Lincoln and Mercury. Or the fact that its GM counterpart, the Chevy Malibu, issues from UAW plants.
What we're witnessing here isn't so much a paroxysm of nationalistic fervor, because driving that line in the North American auto business means little if the automakers end up in liquidation. No, these are the opening salvoes in a political battle to win hearts and minds of competing constituencies.
First, to show union members that their leaders are fighting the good fight against punishing odds, a horrific economy, a skeptical Congress and a critical public. And, second, to show GM insiders that the union knows it has five days, starting today, to influence the "manufacturing footprint" (i.e., plant closing) plan scheduled to be presented to GM's North American Strategy Board on May 12.
Not much time. For years, UAW-Big Three negotiations have been the three equal parts of economics, politics and theater. Now, there's a fourth component -- survival. It's fueled by theater and shaped by politics, but it will be decided by the numbers, one way or another.
General Motors Corp. posted a $6 billion net loss in the first quarter, and revenue plummeted 47 percent amid a global economic downturn and low sales that have helped push the automaker to the brink of bankruptcy.
GM spent $10.2 billion more than it took in during the first quarter, a cash burn that was partially offset by $15.4 billion in federal loans that has kept the company afloat since December. GM ended the quarter with $11.6 billion in cash and marketable securities, down from $14.2 billion at the end of 2008.
The automaker's revenue was $22.4 billion down from $42.4 billion in the first quarter last year.
The loss of $9.78 per share, the automaker's eighth-straight quarterly loss, compares to a $3.3 billion net loss, or $5.80 per share, a year earlier.
Revenue in North America for the first quarter was $12.3 billion, compared to $24.5 billion a year ago.
The results fared better than the $11.05 per-share loss Wall Street was expecting, according to estimates of 10 analysts surveyed by Thomson Financial Network. With more than 610 million outstanding shares, that would have meant a loss of more than $6.7 billion.
The automaker, surviving on federal loans, has until June 1 to reach money-saving concessions with the United Auto Workers and bondholders or face a potential Chapter 11 bankruptcy filing. GM President and Chief Executive Officer Fritz Henderson has said a bankruptcy filing is probable but not the preferred route.
"The rumors and speculation about bankruptcy had some impact in terms of our overall retail share performance," Chief Financial Officer Ray Young said today. "That clearly impacted our overall level of sales and production."
Auto analyst Kip Penniman of KDP Investment Advisors said bankruptcy remains the most likely outcome.
"Results were awful, as expected. However, GM's cash burn was even worse than we were expecting," Penniman wrote in a research note today.
The loss comes on a day in which GM is restarting concession talks with the UAW and presses ahead with plans to cut plants, jobs, dealerships and eliminate about $44 billion in debt as part of a broad restructuring plan.
GM's restructuring plan involves cutting 21,000 U.S. factory jobs by next year -- 7,000 more than originally planned -- and closing 16 of its 47 U.S. manufacturing plants by 2012.
GM also reiterated today that it plans additional cuts among the ranks of salaried employees and executives.
"This is a defining moment in the history of General Motors, and we are committed to our plan, which we believe will lead to a stable and sustainable operating structure with a strong balance sheet," Henderson said. "Our goal is to fix this business once and for all to position ourselves to win in the long-term."
GM also incurred several one-time special items and charges, several of which were related to GMAC Financial Services, the automaker's lending division. The items included a $906 million gain on debt extinguishment.
The automaker retained a 49 percent stake in the finance company after selling 51 percent to Cerberus Capital Management LP in 2006.
GM also took an $822 million charge related to the reorganization of its Saab brand. Saab, which GM is trying to sell, filed for reorganization in February in the Swedish equivalent of a Chapter 11 bankruptcy.
Excluding those items and charges, GM lost $5.9 billion, or $9.66 per share.
GM's auto results were beaten down by falling revenue in all of the automaker's global regions as global production dropped 40 percent, or about 903,000 vehicles.
"This is a pretty significant reduction that has a dramatic impact on cash flows," Young said.
Those losses were partially offset by the company cutting $3.1 billion in structural costs.
During a conference call with reporters and auto industry analysts, Young would not address a report in the New York Times that GM is pursuing a stake in Italian automaker Fiat SpA in exchange for its Latin American and European operations.
"We are talking to different parties," Young said. "Over the course of the month of May, we want to advance those discussions."