15 June 2011


Ford's shares recovered some of their losses, but still closed down 1.6%, or 21 cents, at $13.14 today on news of the $2 billion judgment against it in a class action suit by 3,000 Ford truck dealers. Shares had dipped as low as $12.78, or more than 3%, at midday.

The damages ruling in an Ohio state court came late Friday and was based on a February jury verdict against Ford.

A statement from Ford General Counsel emphasized that Ford believes the ruling is wrong and will appeal. They believe the decision made Friday by a state court judge in Ohio is highly flawed, and are appealing.

The judge ordered Ford to pay the dealers $781 million in damages and about $1.2 billion in interest in the suit, which alleged Ford overcharged them for 474,000 600-series and heavier trucks from 1987 through 1997. The suit, filed in 2002, claimed Ford violated its agreements with the dealers by not disclosing discounts on the published wholesale prices that it gave some dealers through its so-called Competitive Price Assistance program (CAP).

Ford’s attorney argued that the evidence they presented at trial showed clearly that the former (CAP) program – which was a common practice formerly used by companies selling in the extremely competitive medium- and heavy-truck market – resulted in thousands of additional sales benefitting customers and dealers, and it did not violate their agreement with dealers.

Ford also took strong issue with the expansion of the suit, initially filed by one dealer, into a class action, leading to the huge award:

They believe among the most egregious errors was the decision to apply alleged damages from this one case to each and every dealer in the class without allowing any evidence of how other dealers might have been affected.

The judge delayed his ruling pending the appeal on the condition Ford post a $50 million bond.

Ford’s statement expressed confidence about the appeal -- and indicated the dealers shouldn't expect a check any time soon. They feel the decision is far outside the bounds of normal legal process, and are confident that the Ohio appellate courts will reach the same conclusion upon review of the matter, which will take several years based on normal timing.

That also would leave time for Ford and the dealers perhaps to settle for a less eye-popping amount.

13 June 2011


Politicians should not play chicken with the country's credit rating, but need to focus urgently on finding ways to reduce the rising budget deficit, according to the head of General Motors Co.
The battle between President Barack Obama's Democratic Party and the opposition Republicans over whether to raise the limit on government borrowing from its current $14.3 trillion level plays a dangerous game with default, according to the executive of the largest U.S. automaker.
He added that we shouldn't underestimate that and play chicken with our national credit rating, our national honor.
If the government does not raise the nation's borrowing limit by August 2, the nation runs the risk of defaulting. That would shake the credit markets tremendously.
GM received a $52 billion taxpayer-funded bailout and the U.S. government still owns a 32 percent stake in its common stock, following the company's November initial public offering.
Some investors see the government's continued stake in GM as an overhang on the shares, which have lost some 22.5 percent of value so far this year, at a time when the broad Standard & Poor's 500 index is up 2 percent.
The stake remains a consideration for GM's board, which is delaying any decision on whether to start buying back shares until after the Treasury Department decides what to do with its stake.
The government has said it would review the situation in late summer after GM reports second-quarter results, and pointed out Treasury wants to exit its stake as soon as it can.
The Treasury Department plans to hold its shares until at least August. The primary driver of any further balance sheet activities will in the near term be driven by the government's decision of when or when they will not exit the company.
The shaky U.S. economy, facing stubbornly high unemployment and volatile oil prices, is one of the main worries facing GM. There's a lot of uncertainty about a jobless recovery, how strong is the recovery going to be? There's a lot of concern about oil prices. This company, more than any other he has been associated with, is more closely tied to the gross domestic product.
Economists and government officials have called recent U.S. economic reports on economic activity and employment disappointing, raising concerns that the nation may be sliding back toward recession.
U.S. automakers have been the nation's first major industry to show evidence that the economy may be slowing again after a tepid recovery from a brutal recession.
GM's U.S. auto sales in May fell short of analysts' expectations, as higher prices and lower incentives by the company and many of its larger rivals led consumers to put off purchases in the face of a weakening economy.
Industry-wide, May sales fell 3.7 percent from last year to an annualized rate of 11.8 million. That fell far short of the 12.6 million expected by a poll of economists and was the lowest rate since September 2010.
GM aims to increase manufacturing of its high-end Cadillac vehicles overseas in the next 18 to 24 months to strengthen that luxury brand outside the United States.
GM currently builds a small number of Cadillacs in a joint venture in China and sells it in European and Asian markets.
GM's shares rose 29 cents, or 1 percent, to $28.85 on the New York Stock Exchange in afternoon trading.
Investors will also get a deeper look into rival Ford Motor Co later on Tuesday when that company's management meets with analysts to lay out their long-term growth strategies, particularly for China and India.
GM still faces many challenges, but it is focused on building a fortress balance sheet. GM had about $36.5 billion in cash and available liquidity at the end of the first quarter.
They have strung up five consecutive quarters of profitability together, but no one said this was going to be a lay-up. There's a lot of work to be done over the next couple of years, not only at General Motors but throughout the industry.


Chrysler Group, newly profitable and confident in its revamped products, will soon sever its ties with the U.S. government after most, but not all, of the bailout loans it got two years ago are repaid.
Italian automaker Fiat agreed late Thursday to buy the U.S. Treasury's 6% interest in Chrysler for $500 million. Once the deal closes, the government will no longer hold a stake in the auto company. Treasury officials said it could take up to three months to make sure the agreement meets regulatory approvals, but it will likely close more quickly than that.
The deal will give Fiat a majority 52% stake in the automaker, just two years after it agreed to manage Chrysler after its bankruptcy.
President Obama announced the agreement during a trip to a Chrysler facility in Toledo, Ohio.
The U.S. government will ultimately lose around $1.3 billion in the deal. The government authorized $12.5 billion in loans for Chrysler from the end of 2008 through Chrysler's bankruptcy filing in the summer of 2009. The Treasury Department said Thursday that Chrysler has repaid $11.2 billion — including $2 billion in undrawn loans — but it is unlikely to recover the rest. Government officials have long said that they didn't expect to recover the full amount they loaned to Chrysler and General Motors during the auto industry downturn, and that their top priority was saving thousands of auto jobs.
A representative from the Treasury stated they didn't do this to maximize return - they did it to save jobs. He noted that GM and Chrysler are hiring again and making new investments at U.S. plants, which wouldn't have happened had they gone bankrupt.
Fiat also agreed to pay $75 million for the right to purchase the Chrysler shares held by a trust for retired autoworkers. The Treasury Department will receive 80% of those proceeds, or $60 million, while the government of Canada will get $15 million. The trust holds a 47.5% stake in the company. It is expected to sell its shares when Chrysler holds an initial public offering, which could happen later this year or early next year.
Chrysler has made a remarkable turnaround in that time. Before entering bankruptcy proceedings, the company was nearly out of cash, starved after a decade under the ownership of German automaker Daimler and a private equity firm. It needed U.S. government money to survive. But in the first three months of this year, Chrysler made a net profit of $116 million and is forecasting 2011 earnings of $200 million to $500 million.
Under the leadership of the Fiat CEO, the company has cut costs and revived its sales by refurbishing most of its lineup of Jeep, Chrysler, Dodge and Ram vehicles. Sales of the Jeep Grand Cherokee were nearly three times higher in May than in the same month a year ago.
Fiat received a 20% stake in Chrysler after it emerged from bankruptcy proceedings in exchange for management expertise and technology. The Italian automaker has gradually raised its stake by meeting benchmarks set by the government. Last month, it paid about $1.3 billion to buy another 16% of the company.
Chrysler repaid the bulk of its loans on May 24, when it paid off $7.6 billion from the U.S. and Canadian governments. Chrysler repaid that money through a combination of bank loans, bond sales and money from Fiat.
Fiat's stake is likely to rise to 57% before the end of the year, when Chrysler meets another milestone set by the U.S. government: Producing a 40 mpg small car in the U.S. All told, Fiat has the right to purchase more than 70% of Auburn Hills, Mich.-based Chrysler.
This wasn't the first time Chrysler had to be rescued by the U.S. government. In the early 1980s the company, led by legendary pitchman Lee Iacocca, paid off $1 billion in government-guaranteed loans in three years.
The government still owns 26.5% of GM after selling part of its stake in GM's initial public offering in November. GM received $49.5 billion from the government in exchange for a 61% stake in the company. The Treasury Department has said it will hold off selling the rest of its shares until at least August, after GM reports its second-quarter results. The government would need to sell its remaining shares at $53 apiece to break even on its investment. On Thursday, GM's shares closed at $29.60.
The third Detroit automaker, Ford Motor, didn't seek a bailout.

06 June 2011


Energy shots are pocket-sized bottles with names like 6 Hour Power, Nitro2Go and ZipFizz that are packed with caffeine, stimulants and blends of vitamins and herbs. They claim to keep those who drink them amped up for hours. Their makers pitch them as a youthful tonic when coffee just isn't enough.
Some teens down the shots to focus and stay awake while studying. For truckers, the two-ounce serving size means fewer pit stops.
Now, the shots are appealing to a growing number of people over 60 who aren't ready to slow down with age. At the Raleigh Costco, cases of energy shots are stacked beside Ensure nutrition shakes and across from tubes of wrinkle cream.
Living Essentials of Farmington Hills, Mich., which makes 5-Hour Energy, initially built sales by targeting students and people who work long hours, like cops. But when CEO Manoj Bhargava heard that aging Baby Boomers were increasingly buying energy shots, he looked to them for the company's next sales jolt.
Last October, the company handed out thousands of samples at the annual AARP convention in Orlando. The company was amazing to see the number of people who took it right there and then.
In January, 5-Hour began running full-page ads in the AARP Bulletin, which is delivered to 22 million households. The ad shows John Ratzenberger, best known as postman Cliff Clavin on "Cheers," holding a bicycle. "Getting older is fine," says the 64-year-old Mr. Ratzenberger. "But not having the energy to do the things I enjoy isn't."
5-Hour sales teams call on doctors, giving them coupons to pass out to older patients. Staffers tells physicians that 5-Hour's main ingredients appear naturally in foods and include niacin, often prescribed to lower cholesterol, and citicoline, used in some countries to fight dementia.
5-Hour Energy created the energy shot trend seven years ago and dominates the market, with a nearly 80% share. Annual sales of 5-Hour Energy total about $1 billion.
Mr. Bhargava says he isn't worried about the brand losing its cachet with young people, since it has always had cheesy commercials and a non-cool name.
NVE Pharmaceuticals, the market's second-biggest player with a 5% share, is also reaching out to older adults by advertising on the Learning Channel and the Discovery Channel instead of just MTV and Comedy Central.
Sold as dietary supplements, energy shots don't require Food and Drug Administration approval. A study in the journal Pediatrics in February warned that consumption of too many energy drinks can give children heart palpitations, seizures and other problems.
AARP says its health consultants vetted 5-Hour before allowing the company to advertise at its convention and in its publications. AARP refuses ads for controversial products such as reverse mortgages and tobacco, but found nothing worrisome about 5-hour Energy.
Energy-shot makers generally don't confirm the precise amount of caffeine in their shots, but a recent review found a 5-Hour shot has 207 milligrams of caffeine, while a tall-sized Starbucks coffee has about 260 milligrams. Another report said the caffeine would likely provide a lift but there was little if any research showing the other ingredients would help.
One geriatrician says she's a skeptic. Most adults get more than enough of the B vitamins and other nutrients found in energy shots, so any extras are just excreted from the body, she says. She claims medically and physiologically that it doesn't hold water.
Other skeptics say that older adults can get more energy by eating right and exercising, not by guzzling excessive amounts of caffeine. A well balanced diet will give you extended energy where the energy drinks just give you a caffeine rush.