Archive | 12:44 pm

Times Tough for the Rent-Seeking

17 Jan

Oh, the despair! How are landlords supposed to make a quick buck?

Aiming to avoid the crowds and make some money in the process, Washingtonians planned holidays for inauguration week and put their flats and houses up for rent. The city government temporarily suspended rent controls to smooth the process, prompting residents to ask $10,000 or more for the use of their homes. But supply has vastly outstripped demand; only 5% of properties listed on have been let so far, its founder reports, and prime real estate is going for only around $500 a night. Would-be landlords are slashing their prices and hawking their homes on Craigslist.

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A Slimmer Global Auto Sector

17 Jan

The snapshot of the global auto industry looks set to become simpler: no Chrysler, a weaker Renault, PSA Peugeot-Citroën, BMW, and Fiat; VW and Toyota in the lead. The question mark is GM.

GM’s position is more complicated and will prove a test for the new administration and Congress. For a start, it is bigger than Chrysler: so big, indeed, that its failure could bring down hundreds of parts suppliers on which Ford and the Asian “transplants”—Toyota, Honda and Hyundai—also depend. That almost systemic risk to America’s light-vehicle industry persuaded the reluctant Bush administration to stump up $13.4 billion to keep GM going until Barack Obama’s team decides what to do with it.

GM, unlike Chrysler, contains a profitable business struggling to get out. Its products have been improving rapidly and it has the technological resources to be a leader in low-emission powertrains. The Chevrolet Volt, a plug-in hybrid, is due to be launched next year. Despite its difficulties at home, it is strong in most big markets abroad, especially China, which within a few years will be the world’s largest.

That said, GM has well-known problems: too much debt, too many dealers and brands, high labour costs, and crippling liabilities to pensioners. In its plea for bail-out funds last month, the company promised to shed up to 31,000 jobs, close nine plants and renegotiate a four-year labour contract which it signed with the United Auto Workers (UAW) in 2007. GM also wants to close 1,750 dealerships, possibly eliminate its Saturn brand and convince banks and bondholders to swap two-thirds of its debt for equity. Under the terms of the loan, GM must show that all this is in place by February 17th to qualify for the final $4 billion payment. Unless the Obama administration is more sympathetic than its predecessor, GM must win the approval of its stakeholders by March 31st or be forced into repayment of the loans and certain bankruptcy.

If GM misses the deadline—possible, given displays of reckless brinkmanship by the parties involved—or scrambles over the line but still needs more money to stay in business, it will be at the mercy of congressional Democrats who would like to make it an instrument of their environmental agenda. Nothing would damage its long-term prospects more than being forced by politicians to build cars for which the market is not yet ready. If Congress wants GM to make more fuel-efficient cars it has a far better remedy at hand: raising taxes on petrol, which is once again absurdly cheap.

Whatever happens to GM, the effects will be felt throughout the industry. Its competitors may fear its demise; but a weaker, smaller GM, which looks the likely outcome, would suit them just fine.

The simple answer seems to be: sell the Volt to Ford, and liquidate the rest.

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The Final Word on George the Second

17 Jan

The Frat Boy Ships Out (The Economist)The Economist, in “The Frat Boy Ships Out”, dodges the question whether President George W. Bush was the worst chief executive in the history of the American Republic, but its opinion is dead on:

It is not all his fault. But for the most part, good policy repeatedly took a back seat to Mr Bush’s overweening political ambition. Both the country and, ultimately, the Republican Party are left the worse for it.

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