Bailout Debate, Part 1: GOP is CRAZY

There is so much I'd like to write about the Washington debate over making an emergency loan to the Detroit 3 that I don't have remotely enough time to do so. But I'll throw up a few thoughts over the next day or so.

Part 1: The GOP is CRAZY*.

The Republican party just got kicked to the curb by the American voting public. Not only did Obama win, resoundingly, but the Republican party managed to lose seats in the House and Senate, and is in danger of not even being able to filibuster effectively, because of a very slim 1 or 2 seat bulwark.

The GOP lost partly by losing the closely contested states of Ohio and Indiana. Which happen to be big automotive states.

It is nearly impossible for the GOP to put together a winning electoral map without Ohio.

Forget economics. Even of the Republicans are right (I don't think they are) that Chapter 11 protection is the best road , if the Democrats manage to stick in the voting public's memory that Bush and the Republicans fiddled while GM burned, the future gets dimmer in the midwest for the Republican party.

And if the doomsayers are even half correct, and a collapsing GM takes down suppliers, and other companies with it, if the Midwestern unemployment and home foreclosure rates skyrocket--the Republicans are dead.

DEAD.

Because people will remember who was in power when it started, and they will remember who sat there during the committee hearings and shook their fingers at the CEOs and lectured them that Chapter 11 was the best for everyone. And if people start to forget, the Democrats will gleefully remind them.

If the Republicans want to have a chance at regaining power any time soon, they had better come to the table with better ideas for the Detroit 3 than "let them fail, then we'll sort it out".

*I write this as a registered Republican, and former campaign volunteer (2004).

The Walmart Paradox

I went to my local Walmart today, to grab some assorted stuff. The place was packed, on a Sunday afternoon, with people of all backgrounds.

Interestingly, I saw a few cars with Obama stickers in the parking lot, and this made me wonder. Isn't this ironic? The left in general, including Obama, have long been pounding Walmart for their resistance to labor unions. Walmart has been accused of squeezing suppliers, being stingy with health insurance for its employees, and many other sins. So why are Obama people shopping at Walmart?

Could it be the low prices?

And what will happen those low prices, if Obama and the majority Democrat congress have their way, and make it easier for unions to organize by eliminating secret ballots and instituting card check elections? Aren't Obama's supporters trying to undermine the very thing they are using to save money?

And have you noticed, how some liberals, would-be defenders of the "working people" love to hammer Walmart as being a "white trash" magnet. But isn't it the "working people" who shop at Walmart, to stretch their paychecks further? And the very phrase "white trash" is inherently racist, because of the implied contrast to non-white trash.

Kroger, which is unionized, does not have elderly or disabled folks employed as greeters and return checkers, while my local Walmart does. Kroger's employees have gone on strike, causing inconvenience to their customers.

I am unrepentant Walmart shopper. I don't care if I am seen as downwardly mobile by my high-brow neighbors. I often shop at Target, the darling of the bargain hunting style conscious types, but I will not avoid Walmart if they have something I need.

Where else can you go to buy a wireless G router, and also score a good deal on pickles, pumpkin pie components, 9mm ammunition, toothpaste, and motor oil?

Video: Nasty Rollover

Video of a police chase from a Fox news chopper. Guy is fleeing in a white Suburban, goes off the road, rolls it over, and is ejected. There is a moment when it looks like the truck is going to roll over onto the guy, but it stops at the last moment.


Car Chase Ends in Rollover Destruction - Watch more Auto Videos

A Quick Tour Of The $25 Billion ATVMAP

Last night, the Dept. of Energy released a preliminary rule which gives the details of the $25 billion government program offered to automakers to help meet the new CAFE standards. The official name is "Advanced Technology Vehicle Manufacturer Assistance Program". I spent some time reading the paper over, and thought I'd share some details, many of which are not widely reported. The rule paper is located here.

First, the program has two parts: a direct loan program, and a grant program.

The money in either case is intended only to fund plant upgrades or engineering work for a future product, not ongoing operations. In fact, companies are explicitly prohibited from investing the money, and any investment income from the loans must be returned to the government (611.102, 611.105).

Loan Program:

• To qualify for a loan, a company must be working on an Advanced Technology Vehicle. An ATV is defined as a vehicle which has at least EPA Tier II Bin 5 emissions levels, and will have fuel economy that is at least 125% of a "substantially similar" vehicle from 2005. (611.2)

To determine how vehicles are binned for CAFE improvement requirements, DOE binned vehicles into 17 classes, such as Compact Sedan and Compact Performance Sedan. Vehicles are binned by EPA size class and also power/weight ratio (for the "performance" designation".

Here is an excerpt of their examples:
This is the table that shows the fuel economy improvement requirement to be considered an ATV:
So for a Compact Sedan, to qualify as an ATV, the proposed vehicle would have to attain at least 42.2 MPG; a Compact Performance Sedan would have to have fuel economy of at least 29.5 MPG.

• For purposes of calculating the ATV's fuel economy improvement, if it is a flex fuel vehicle, its fuel economy must be calculated without credit for flexible fuel operation. That means that if burns E85, the ATV fuel economy is miles per gallon of E85, not gasoline equivalent. This would appear to penalize flex fuel vehicles compared to how they are treated currently.
• A loan applicant must be "financially viable", such that it does not require the government ATV loan to survive (611.100).
• Automakers and parts suppliers are eligible, as long as the the plant improvements or engineering is done in the U.S. So domestic arms of foreign based companies such as Honda could qualify.
• To qualify for a loan, an automaker's fleet average fuel economy (volume weighted) from the most recent year of data must be no worse than their fleet fuel economy in 2005. (611.100)

This is requirement is to make sure that the loans are only offered to companies who are already moving in the right direction with regards to fuel economy. This is probably a meaningless requirement now, because of the market shift to smaller vehicles, probably all of the automakers CAFE numbers have improved, because CAFE is based on sales volumes.

• Applicants must file environmental impact studies and economic impact studies to document how their plant changes will impact the community, both positive and negatively (611.106).
• Projects will be selected for approval based on technical merit, such as amount of fuel economy improvement, as well as other factors such as "economic diversity", and financial health. Older facilities will be given higher priority.
  
• Applicants must pay any workers that it hires to do the plant renovations a "prevailing wage" in the area the work is being done. This is probably a bone for the unions (611.101).
• A borrower can only borrow up to 80% of a project's projected cost (611.105).
• The loan terms are for 25 years, and the borrower may defer repayment for up to 5 years after the project is complete. The interest rate is to be based on "outstanding marketable obligations of the United States of comparable maturity", which I think means 25 year treasury bonds. (611.107) A 30 year U.S. bond currently pays 4.5%.
• The U.S. government gets a lein on any property which is acquired with loan funds, and any assets which are pledged as collateral for the loans.
  

Grant Program:

• If a grant is requested, the grant can be for no more than 30% of a project's cost. (611.204)
• Grants will be given preferentially for projects that re-tool facilities that are at least 20 years old. (611.206)
• 10% of the money used for grants (not loans) each year is set aside for small companies of 500 employees or less, or a consortium of such small companies (611.207).

Some observations.

This is not a "bail-out". The money can only be used for specific projects which are tied to fuel economy improvements. There are some significant strings attached to this program, and though the loans are cheap, they are expected to be repaid, or the government will be able to sieze the collateral of the borrowing company.

The program seems to be somewhat targeted towards unionized labor. There is a bias in the program to older plants (20 years), and plants which are shut down. There is a prevailing wage rule. There is also a carve-out for small suppliers.

This is not a quick fix. To apply for a grant or loan, a company has to generate a large amount of application paperwork, including environmental impact studies, economic studies, financial status information. A company also has to show with computer modelling or prototypes that their proposed project will improve fuel economy by a very significant 25%, and flexible fuels get no advantage in this calculation. The application and review process is likely to take many months if not years.

That is why, even with this program in place, the Domestic 3 are asking the government for direct aid right away.

The financial strength requirement could be a deal-killer for some or all of the Domestic 3 auto makers. If the DOE uses more stringent requirements for financial health, such as low debt/equity ratios, neither GM, Ford, nor Chrysler may qualify.

Chrysler's Fuel-less Cars!

More google ads silliness from Chrysler, spotted here. The Chrysler EV minivans aren't "Fuel-less", and they aren't for sale, until about 2011 model year.

Veyron in Birmingham MI

I was strolling in downtown Birmingham (MI) today, after cashing in my voting slip for a free Starbucks coffee, when I saw a crowd forming on the sidewalk up ahead. Parked in front of the Einstien Bagel was a Bugatti Veyron. It was black and red. I didn't have a camera with me (of course), and I didn't catch if it was a dealer car or not.


There were about 20 people crowded around the car, ogling and taking cell phone photos. It was as if some guy was hanging out on the sidewalk with a cocktail dress clad Angelina Jolie on his arm.

I can't think of a way to draw more attention for ~$2,000,000, other than maybe giving it away as $20 bills on the street corner.

Obama: Reading The Signs

This is a photo I took near my neighborhood the other morning. It sums up my position nicely.

(c) TheAutoProphet. Photo may be freely distributed and used as long as attribution is given.