No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

Archive for the 'Business' Category

April 29, 2010

The death of small business – courtesy PlaceboCare

by @ 13:18. Filed under Business, Politics - National, Taxes.

(H/T – Ed Morrissey)

Chris Edwards over at the Cato Institute found a significant penalty for anybody doing business in the recently-passed PlaceboCare bill – essentially every business transaction aggregating to $600 in a given year must be reported to the IRS and the payee starting in 2012.

First, let’s review the current state of the applicable law (Section 6041 of the Internal Revenue Code) – An entity that, in the course of engaging in a trade or business, pays more than $600 (or less, as noted) in a taxable year of the following categories of payments to an individual (generally-speaking; there are some limited instances where that entity must report payments to a corporation) must report the aggregate amount to the IRS and the payee:

  • Wages
  • Salaries
  • Rent
  • Premiums
  • Annuities
  • Compensations
  • Renumerations
  • Enoulments
  • Dividends (including patronage dividends – threshhold of $10)
  • Interest (threshhold of $10)
  • Royalties (threshhold of $10)
  • Stock ownership plan distributions (threshhold of $0.01)
  • Other fixed or determinable gains
  • Other fixed or determinable profits
  • Other fixed or determinable income

There were a trio of changes buried on page 737 of the 936-page engrossed version of PlaceboCare, specifically in Section 9006, titled “Expansion of Information Reporting Requirements”. In order:

  • A new section (h) is created to require reporting payments made to corporations that do not qualify as tax-exempt organizations. That’s right – rent paid by a business entity to a corporation would have to be reported to the IRS.
  • “(A)mounts in consideration for property” would also have to be recorded and reported. I’m not a tax lawyer, but my read of applicable definitions does not limit this to real estate. Rather, it includes any good purchased for the business, from computers to raw materials to fuel burned in business vehicles. That’s right – if you are a contractor who uses your vehicle for business, and you spend $600.01 at a chain of gas stations owned by a single entity, you must add up the amount and report it to both the IRS and the gas station owner.
  • “(Other) gross proceeds” would also have to be recorded and reported. That captures every business transaction.

When this was part of the original version of PlaceboCare that came out of the House, the Air Conditioning Contractors of America noted the following (emphasis added):

Consider all the payments you make in the course of your business for property, such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services. If you paid more than $600 over the course of the tax year, you’ll need to file a Form 1099.

Did the roundtrip ticket for your air travel to the ACCA Annual Conference cost more than $600? If you answered yes, then you would have to issue a 1099 to American Airlines. This enormous impact will hit all businesses, but especially small businesses that don’t have a large administrative staff.

Don’t forget that in order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.

April 27, 2010

GM didn’t exactly pay back the loans – expanded version

by @ 22:59. Tags:
Filed under Business, Politics - National.

I really should’ve done this last week, but I really need to walk through the numbers behind Government Motors. First, let’s review what went to General Motors before and during its bankruptcy:

  • The US Treasury provided the following loan facilities to General Motors before and during bankruptcy – a total of $19.76 billion in unsecured and $30.1 billion in senior secured debt facilities ($22.58 billion used), or $49.86 billion offered ($42.34 billion used):
    • $13.4 billion on 12/31/2008
    • $2 billion on 4/22/2009
    • $4 billion on 5/20/2009
    • $0.36 billion for warranty obligations on 5/27/2009
    • $30.1 billion in Debtor-In-Possession facility during the bankruptcy, with only $22.6 billion ultimately used
  • The Canadian and Ontario governments provided the following loan facilities to GM before and during bankruptcy:
    • $6.3 billion in unsecured loans at times unknown
    • $3.2 billion in DIP facility during the bankruptcy, with only $2.7 billion ultimately used

The entirety of the unsecured debt from all governments, except for the $0.36 billion warranty loan (repaid on June 10), as well as a significant portion of the DIP facility, was forgiven to seiz…er, credit bid for 73% of Government Motors (60.8% to the US, 11.7% to Canada). In addition, $1.175 billion of the DIP financing facility ($0.986 billion from the US, $0.189 billion from Canada) remained with Old GM, with first-right claims on the assets generated from its wind-down.

Meanwhile, only $8.9 billion of the DIP facility was tapped during the under-6-week bankruptcy. As mentioned before, $1.2 billion remained with Old GM, to be repaid with the proceeds from its wind-down. The other $7.7 billion of DIP financing used during the bankruptcy was also part of the credit-bid and forgiven outright. The US portion of that is approximately $6.98 billion.

That left $24.4 billion unused in the DIP facility ($22.11 bilion from the US) on July 9, the day before Government Motors assumed its present form. The Treasury and the Canadians could have taken all of that back, but they decided that their new business venture needed $16.4 billion in “seed money”, as well as some help in the creditworthiness department. They structured $8 billion ($6.71 billion from the US) as a “loan” to be immediately used by GM as it saw fit and to be “repaid” from part of the unused DIP facility, with the other $8.4 billion ($7.89 billion from the US) initially requiring Treasury approval to spend but eventually being under GM’s control. The remaining $8 billion of the DIP facility ($7.52 billion from the US) was effectively returned to the loaners (the Treasury and the Canadians) unused either during or after bankruptcy.

So, how far on the hook are we? Let’s review:

  • $19.3 billion in pre-bankruptcy loans forgiven upon exit from bankruptcy
  • $0.99 billion of DIP financing owed by Old GM (likely to be repaid only in part)
  • $6.98 billion of DIP financing forgiven upon exit from bankruptcy
  • $7.52 billion given to Government Motors upon exit from bankruptcy, originally in escrow and now theirs to spend as they see fit
  • $6.71 billion “loaned” to Government Motors upon exit from bankruptcy and “repaid” with other government money

We’re still on the hook for about $42 billion. Meanwhile, the Canadians are still on the hook for about $9 billion. Who here thinks GM is worth $69 billion (the market capitalization required to make the Treasury whole)-$75 billion (the market capitalization required to make the Canadians whole)?

Revisions/extensions (11:53 pm 4/27/2010) – Two more plot twists:

  • (H/T-Phineas) Forbes reports that Government Motors is using this sham of a “loan payback” to justify getting $10 billion from the Department of Energy to retool their plants. Of note, the “sham loan” carried a 7% interest rate, while the DOE loan carries a 5% interest rate.
  • (H/T-Fausta) Fox Business found that, unless Government Motors comes up with $12.3 billion for its pension fund in the next 5 years (with Chrysler UAW Motors needing to come up with $3.4 billion) we’ll be on the hook for most of that shortfall. Fox News analyst James Farrell provides the following scenarios if we still have stakes in Government Motors and UAW Motors when the butchers’ bill comes due in 2014:

    *It can approve the payments to the pensions, which would benefit the union pension holders but reduce the likelihood that taxpayers will get their money back on the involuntary investment made in GM and Chrysler stock as well as taxpayers’ status as lenders to the automakers; OR

    *Decline to address the underfunding and let the plans get involuntarily terminated–costing union members approximately $23 billion in overall lost benefits ($18 billion for GM; $5 billion for Chrysler), and costing the PBGC (taxpayers) approximately $14.5 billion.

    “The only option where GAO sees taxpayers not getting the short end of the stick?” Farrell says. “Praying that the auto companies rapidly return to profitability and find $15.7 billion in excess cash lying around in the companies’ corporate couches between now and 2014.”

Revisions/extensions (5:59 pm 5/1/2010) – I did forget to factor in the value of the $2.10 billion of prefered stock the Treasury has in Government Motors, the 9% annual dividend it is due ($189 million per year, payable each quarter), and the fact that they’ll be holding onto that until at least the end of 2014 and until GM comes up with both the liquidation value ($25/share, or the full $2.10 billion if they get want to get rid of it all) and any unpaid dividend.

GM did pay out the first two scheduled distributions on September 15 and December 15, giving the Treasury just over $81 million. It is unknown at this point whether they paid out the March 15 distribution of just over $47 million. That leaves the minimum payback value of the Treasury’s prefered stock at $3.04 billion.

Also, related to that, the federal government (as well as the Canadians and the UAW VEBA, the other holders of the prefered stock) will hold that prefered stock until at least 12/31/2014, as part of the terms of the seizu…er, creation of Government Motors. It is only at that point when GM can buy out those prefered shares, for the aforementioned $25/share plus any unpaid dividend (at the aforementioned 9% per annum).

April 23, 2010

Did Government Motors really pay back its post-bankruptcy loan? Not exactly.

by @ 17:37. Tags:
Filed under Business, Politics - National.

(H/T – Sammy Benoit via Ed Morrissey)

There is something I didn’t know about the Government Motors numbers when I ran them in September – the portion of the Debtor-In-Possession financing unused during GM’s bankruptcy, specifically $16.4 billion total (or about $14.66 in Treasury funds) went into an escrow account and were used to “repay” the post-bankruptcy loans GM had with the Treasury and Canadian governments. Quoting from the year-end 10-K filed with the SEC (emphasis added):

Proceeds of the DIP Facility of $16.4 billion were deposited in escrow and will be distributed to us at our request if the following conditions are met: (1) the representations and warranties we made in the loan documents are true and correct in all material respects on the date of our request; (2) we are not in default on the date of our request taking into consideration the amount of the withdrawal request; and (3) the UST, in its sole discretion, approves the amount and intended use of the requested disbursement. Any unused amounts in escrow on June 30, 2010 are required to be used to repay the UST Loans and the Canadian Loan on a pro rata basis. Any proceeds remaining in the escrow account after the UST Loans and the Canadian Loan are repaid in full shall be returned to us.

In November 2009 we signed amendments to the UST Credit Agreement and the Canadian Loan Agreement to provide for quarterly repayments of the UST Loans and Canadian Loan. Under these amendments, we agreed to make quarterly payments of $1.0 billion and $192 million to the UST and EDC, which began in the fourth quarter of 2009. Upon making such payments, equivalent amounts were released to us from escrow.

In short, the $6.7 billion post-bankruptcy loan should not really have been counted as a “new” loan.

April 21, 2010

Does Any Doubt Remain?

by @ 8:35. Filed under Business, Economy, Politics - National.

The “coincidental” timing of the SEC charges of fraud against Goldman Sachs as Obama launched his effort to further control the banking industry, left many wondering whether there wasn’t a coordinated effort between the White house and the SEC to sway public opinion on the legislation.

Well, wonder no more!

CNBC is reporting that the SEC’s own investigation and interviews have uncovered evidence that will undercut the core accusation of the SEC’s case.

The SEC accuses Goldman of breaching its fiduciary responsibility and committing fraud by not disclosing that a hedge fund was planning to short its offering of mortgage backed securities.  Unfortunately for the SEC, it’s own interviews show that the company who planned to short the CDO specifically met and told the impacted companies, that it was planning to do so.

If Perry Mason were on a murder case where his defendant had been accused of murder but had someone else admitting to the murder, I’ll be he would at least follow up on the lead.  Of course he would because Perry Mason had principles, fought for the truth and wasn’t persuaded by political gain.

April 6, 2010

“Net Neutrality” down, not out

by @ 12:18. Filed under Business, Law and order, Politics - National.

(H/Ts – Ed Morrissey and Owen)

The DC Circuit Court of Appeals ruled that the Federal Communications Commission does not have the statutory authority to regulate an Internet Service Provider’s network management practices. That regulation is at the surface (do note I didn’t say heart) of “Net Neutrality”.

This is a good thing. Anybody who has tried to download multiple items at once knows what happens when there’s congestion. There are certain web applications, from VOIP phones, to IP-based television (present both on Time Warner in a limited form and on AT&T’s U-verse as its sole video delivery method), that need a certain amount of bandwidth to operate.

While the ruling pretty much deep-sixes the plan to use the FCC to regulate the Internet without any specific statutory authority from Congress, Americans for Prospoerity’s Phil Kerpen warns in his latest podcast that the plan is afoot to try to have the FCC declare the Internet as a “market failure” and reclassify it from a Title I information service to a Title II telecommunications service (i.e. Plain-Old-Telephone-Service), and regulate every aspect.

March 25, 2010

Just how unfriendly is Wisconsin toward new business?

by @ 11:16. Filed under Business, Politics - Wisconsin.

Christian Schneider at the Wisconsin Policy Research Institute illustrates just how unfriendly. If you prefer a pictoral, just click the thumbnails below.

Revisions/extensions (11:43 am 3/25/2010) – I should’ve taken a look at the WPRI post – Christian posted it just after noon yesterday. My screenshots were taken about 11:15 am this morning.

R&E part 2 (1:05 pm 3/25/2010) – Guess it takes Charlie Sykes pointing this out to get results. The site’s fixed.

February 26, 2010

Last call for Midwest?

by @ 17:35. Filed under Business.

Arriving at the story only 4 weeks after Mark Belling, the Milwaukee Journal Sentinel is now reporting that Republic Airways, owners of both Midwest Airlines and Frontier Airlines, is planning on a “unified” brand for the two airlines sometime after Labor Day. I’ll miss the name, mostly because of what it used to stand for.

I still remember my first flight on what was Midwest Express at the time – a midday trip to Cleveland in 1994. The soft-brown 2×2 leather seats on the DC-9, the complimentary glass of champagne, and the very-fresh sandwich offered (since it was a short flight, the full meal wasn’t an option) were all very nice. I guess it was inevitable that the best care in the air would be no more, but I didn’t expect the flight attendant on the Kansas City-to-Milwaukee leg of my return trip from CPAC to say that it was a Frontier flight before correcting herself.

January 18, 2010

Monday Hot Read – The WSJ’s “The ‘Responsibility’ Tax”

by @ 7:42. Tags:
Filed under Business, Politics - National.

The folks on The Wall Street Journal’s editorial board fired for effect on the “Subsidize Government Companies” proposal from Barack Obama on Saturday (emphasis in the original):

Mr. Obama’s new “Financial Crisis Responsibility Fee”—please don’t call it a tax—is being sold as a way to cover expected losses in the Troubled Asset Relief Program. That sounds reasonable, except that the banks designated to pay the fee aren’t those responsible for the losses. With the exception of Citigroup, those banks have repaid their TARP money with interest.

The real TARP losers—General Motors, Chrysler and delinquent mortgage borrowers—are exempt from the new tax. Why the auto companies? An Administration official told the Journal that the banks caused the crisis that doomed the auto companies, which apparently were innocent bystanders to their own bankruptcy. The fact that the auto companies remain wards of Washington no doubt has nothing to do with their free tax pass.

Also exempt are Fannie Mae and Freddie Mac, which operate outside of TARP but also surely did more than any other company to cause the housing boom and bust. The key to understanding their free tax pass is that on Christmas Eve Treasury lifted the $400 billion cap on their potential taxpayer losses expressly so they can rewrite more underwater mortgages at a loss.

In other words, the White House wants to tax more capital away from profit-making banks to offset the intentional losses that the politicians have ordered up at Fan and Fred. The bank tax revenue will flow directly into the Treasury to be spent on whatever immediate cause Congress favors. Come the next “systemic risk” bailout, taxpayers will still be on the hook. “Responsibility” is not the word that comes to mind here.

It also notes that the $50 billion in assets floor for this new tax is not exactly a “too big to fail” threshhold.

January 14, 2010

There’s no way out of TARP, part 243,129

by @ 12:51. Tags:
Filed under Business, Politics - National, Taxes.

I’ve done so many of these that I’ve lost count. Fox Business has the dirty details on a brand-new attax…er, attack…er, tax on the cream of the American financial sector:

President Obama will announce today a new “financial crisis responsibility fee” on the top 50 financial firms that is designed to recoup at least $90 billion in projected losses in the government’s bank bailout program, a senior Administration official said….

The official said the fee would be set at 0.15% and, if approved by Congress, would be assessed starting in June for at least a decade on firms with assets of more than $50 billion, including U.S. subsidiaries of foreign banks and large insurance companies with bank or thrift subsidiaries.

If you thought that the biggest vacuums of TARP, specifically the now-government-owned companies which will never repay the money, were going to be part of this, or that those institutions that managed to not get strong-armed into TARP will escape this, think again:

The fee would be paid not just by some firms that received investment capital from the government’s $700 billion Trouble Asset Relief Program (TARP) and by many banks that have already repaid their TARP funds, but also by some firms that did not take TARP money. “All of them have benefitted both from the stabilization (measures), as well as the exceptional, extraordinary Federal Reserve actions,” the official said.

But the two auto companies that the government bailed out last year, General Motors and Chrysler, would not pay the fee, the official said, and neither would mortgage giants Fannie Mae and Freddie Mac, which the government also took over in 2008. He said the fee “does not and cannot work for a more industrial company like an auto company” and that charging Fannie and Freddie would amount to moving taxpayer money “from one pocket to another.”

That’s right; this is another wealth transfer from responsible companies to the most-irresponsible, government-subsidized companies. But wait, there’s more. Do note the “at least a decade”. If the TARP losses are less than the $90 billion that it’s “likely” going to be, where’s the rest of that money going?

January 8, 2010

How the healthy banks were strongarmed into TARP

by @ 7:58. Tags:
Filed under Business, Politics - National.

(H/T – The Right Scoop via Ed Morrissey)

BB&T CEO John Allison spoke with Fox Business Channel’s John Stossel about how BB&T was forced to take TARP money despite being sufficiently capitalized…


To wit:

– The Bush-era regulators “kindly informed” BB&T that the capitalization rules would be changed for banks who did not succumb to TARP to levels that even BB&T could not meet.
– Fed chair Ben Bernanke, Time’s “Person of the Year” for being instrumental in the federalization of the economy, didn’t want we the people to realize which banks were in trouble.

Revisions/extensions (8:32 am 1/8/2010) – Had the hat-tip links reversed. OOPS!

October 13, 2009

Kohl’s to close Menomonee Falls distribution center

by @ 10:52. Filed under Business, Politics - Wisconsin.

That is the word that just came in from

The Kohl’s Corp. announced Tuesday that it would close its huge distribution center in Menomonee Falls on Jan. 29, 2010.

The decision affects approximately 250 workers, according to Vicki Shamion, a Kohl’s spokeswoman.

However, the workers will be offered their identical jobs at the company’s network of 10 other distribution centers around the country if they stay at the company through Jan. 29, when the center is scheduled to shut down….

Shamion said the decision to close the center was based “on the overall effectiveness of the distribution network.” She said that, after study, the company concluded that the Menomonee Falls center could not be reconfigured to “allow for expanded capacity.”

“It was a difficult decision,” she said.

The inventory at the Menomonee Falls site will be moved to the Kohl’s distribution center in Ottawa, Ill.

Left unmentioned in the article or by the PR flack are a couple of key items:

– The deteriorating tax climate in Wisconsin, specifically several mandated increases in the unemployment tax due to both the insolvency of the fund and actions of the Legislature.

– The weight limits in the not-soon-to-be-rebuilt Zoo Interchange, specifically the 30-ton limit on the northbound I-894-to-northbound US-45 ramp. Since almost all of the inbound truck traffic would use that ramp, that puts a crimp in the flow of goods into the distribution center.

I have to wonder how long until the corporate headquarters follows the distribution center to the land of the toll booths. After all, even though it is a Wisconsin company, it is called “Kohl’s Illinois, Inc.”

September 9, 2009

As the wheels turn, UAW/Government Motors edition

by @ 12:24. Tags:
Filed under Business, Politics - National.

Revisions/extensions (6:45 pm 9/9/2009) – With a tip of the hat to Owen, we have some more-daunting US-specific numbers from the AP, as well as a Idiotic Quote of the Day nominee. Given that, and a review of the actual report, I’ve decided to ReWrite™ the entire post. The original post is archived and struck through below.

The Congressional Oversight Panel, in charge of keeping track of money expended by TARP, issued a report asserting that most of the $14.3 billion spent on UAW Motors and its predecessor, Chrysler LLC, the $49.9 billion spent on Government Motors and its predecessor, General Motors Corporation, and $16.9 billion spent on other elements of the automotive industry will never be repaid. I’m shocked, SHOCKED to find this out.

Let’s review what happened to the money that went out the Treasury door to the two big auto companies:

  • Chrysler LLC (now known as Old Carco LLC)/Chrysler Financial/UAW Motors:
    • Originally-loaned-and-used amounts ($14.31 billion total; does not include credit facilities not used):
      • $4 billion went to Chrysler on 1/2/2009
      • $1.5 billion went to Chrysler Financial on 1/16/2009
      • $280 million went to Chrysler for warranty obligations on 4/29/2009
      • $1.89 billion in used Debtor-In-Possession financing went to Chrysler in May
      • $6.64 billion went to UAW Motors in the form of senior secured debt when it emerged from bankruptcy
    • Repaid amounts ($1.78 billion total):
      • $1.5 billion (the entirety) of the Chrysler Financial loan repaid
      • $280 million (the entirety) of the Chrysler warranty loan repaid
    • Remaining obligations ($12.53 billion):
      • $7.14 billion owed by UAW Motors in the form of senior secured debt (includes $500 million of the original $4 billion loan assumed by the new company)
      • $5.39 billion owed by Old Carco LLC in the form of unsecured debt, not expected to be repaid as the assets of the old company are expected to be exhausted before secured debtors are paid in full
    • Assets owned by the US Treasury:
      • 9.85% of UAW Motors common stock (to be reduced to as low as 8% if Fiat meets up to alll three of its goals to raise its stake from 20% to 35%)
      • A claim of the greater of 40% of Chrysler Financial’s equity value or $1.135 $1.375 billion, to be applied toward repayment of the original $4 billion loan
  • General Motors Corporation (now known as Motors Liquidation Company)/Government Motors:
    • Originally-loaned-and-used amounts ($49.89 billion total; does not include a $880 million loan to GM made on 12/29/2008 in exchange for GMAC equity):
      • $13.4 billion went to General Motors on 12/31/2008
      • $2 billion went to General Motors on 4/22/2009
      • $4 billion went to General Motors on 5/20/2009
      • $360 million went to General Motors for warranty obligations on 5/27/2009
      • $30.1 billion in Debtor-In-Possession financing went to General Motors in June and July
    • Repaid amounts ($360 million total):
      • $360 million of the DIP financing repaid (the report scores it as a Government Motors debt repaid, though it was repaid before Government Motors assumed its portion of the DIP debt)
    • Obligations that went toward buying 61% of Government Motors common stock ($39.7 billion total) and $2.1 billion of Government Motors prefered stock (all toward the common stock unless otherwise noted):
      • $13.4 billion (the entirety) of the 12/31/2008 loan
      • $2 billion (the entirety) of the 4/22/2009 loan
      • $4 billion (the entirety) of the 5/20/2009 loan
      • $360 million (the entirety) of the 5/27/2009 warranty loan
      • $19.94 billion of the DIP financing for common stock
      • $2.1 billion of the DIP financing for prefered stock
    • Remaining obligations ($7.7 billion):
      • $6.71 billion of former DIP financing owed by Government Motors in senior secured debt
      • $990 million of former DIP financing owed by Motors Liquidation Company in a Wind-Down Facility, which is secured debt
    • Assets owned by the US Treasury:
      • 61% of Government Motors common stock
      • $2.1 billion of Government Motors prefered stock

The CNN story referenced in the original post notes that the $5.4 billion given to UAW Motors is as good as gone. I haven’t seen any plans on how the US and Canadian governments plan to divest themselves of their stakes in the company, but I doubt they’ll get more than $1.1 billion for the remains of Chrysler Financial or $4.3 billion for an 8% stake in UAW Motors.

Meanwhile, The Wall Street Journal reported in July that Government Motors plans on having an IPO sometime in 2010, with full divesture in 2018. Does anybody believe they’ll get $40 billion for 61% of GM or $2.7 billion for the non-voting prefered stock?

That does not address the possibility that UAW Motors and Government Motors will either dip back into the public trough or re-enter bankruptcy. In that case, even the secured debt might not be paid back in full.

That brings me to the Idiotic Quote of the Day. Let’s have the AP deliver it:

“I think they drove a very hard bargain,” said Elizabeth Warren, the panel’s chairwoman and a law professor at Harvard University, referring to the Obama administration’s Treasury Department. “But it may not be enough.”

Hard bargain? For full repayment of the TARP moneys, the Congressional Oversight panel estimates Government Motors would need to reach a total market capitalization of $67.7 billion and UAW Motors would need to reach a total market capitalization of $57.5 billion. That compares very unfavorably to General Motors’ peak market capitalization of $57.2 billion in 2000 (not adjusted for inflation). Further, if memory serves, Chrysler was never worth more than about $25 billion.

Shoebox pointed to a CNN story that says that much of the $60 billion in tax dollars provided to both UAW Motors (nee Chrysler) and Government Motors (nee General Motors) will not be paid back. I’m shocked, SHOCKED to find this out.

Let’s review what happened to the money that went out the door:

– Something north of $13.4 billion from both the US and Canadian governments went to UAW Motors and its predecessor, Chrysler LLC, with $6 billion of that converted to senior secured debt held by the new UAW Motors, and an additional $2 billion spent to buy the assets of Chrysler LLC in exchange for 12.31% of UAW Motors (to be reduced to as low as 10% if Fiat meets certain goals). The remaining $5.4 billion, all unsecured debt, remained with Old Carco LLC, which will almost certainly run out of money and assets before it completes paying the $5 billion it owes its secured debtors.

– Somewhere around $50 billion went to Government Motors and its predecessor, General Motors Corporation, with $7.07 billion in Debtor-In-Possession financing converted to senior secured debt held by the new Government Motors and an additional $1.18 billion in DIP financing converted into a Wind Down Facility loan held by Motors Liquidation Company and given senior secured debt status. The remaining $42 billion was forgiven in exchange for the governments’ nearly-73% share in Government Motors.

The CNN story notes that the $5.4 billion given to UAW Motors is as good as gone. I haven’t seen any plans on how the US and Canadian governments plan to divest themselves of their stakes in the company, but I doubt they’ll get $2 billion for less than 10% of the company.

Meanwhile, The Wall Street Journal reported in July that Government Motors plans on having an IPO sometime in 2010, with full divesture in 2018. Does anybody believe they’ll get almost $42 billion for 73% of GM?

That does not address the possibility that UAW Motors and Government Motors will either dip back into the public trough or re-enter bankruptcy. In that case, even the secured debt might not be paid back in full.

August 1, 2009

What can we learn from CARS, Part II

by @ 11:47. Filed under Business, Politics - National.

Yesterday, Shoebox explored the early drain of the “Cash for Clunkers” program. Allow me to take it a slightly-different direction.

Last week, Edmunds estimated that car/light truck sales for July would be roughly 950,000. Given that the “Cash for Clunkers” program was designed to get 250,000 new cars into the hands of those that were driving “clunkers”, does anybody really believe that one out of every four car sales this month involves a vehicle traded in surrendered to the government shredding machine that would both qualify for the program and make economic sense?

Related to that, I wonder how many people are going to flip their new cars and buy something they really want. Prime example – you’re ready to move up from a 1996 Honda Passport EX 4WD (private-party value of $1,817, trade-in value of $1,194; all numbers from Edmunds and, other than a mileage adjustment for the Aveo5 trade-in, unadjusted) for a 2004 Honda Pilot EX (private-party value of $12,886, dealer-retail value of $13,914). Normally, if you’d go through the dealer process, you’d have to come up with, before tax/title/etc., $12,730.

Thanks to the “Cash for Clunkers” deal, there’s a money-saving way to do that. First, you walk into a Chevrolet dealer, divest yourself of the Passport, and pick up a new 2009 Chevrolet Aveo5 1LT (MSRP $14,820, “True-Market Value” price of $14,315, less an existing $1,000 rebate makes it about $13,315 before the $4,500 “Cash for Clunkers” credit). That means, again before tax/title/etc. (which is a bit more this time in most states because they add more fees to new-car transactions), you’re ponying up $8,815. You then drive to the used-car dealer with that 2004 Honda Pilot EX, give your $11,010 for trading in the Aveo and $2,904 in cash (plus tax/title again) to the dealer, and drive out with the Pilot. Thanks to the bipartisan Party-In-Government and us the suck…er, taxpayers, you’re paying roughly $1,000 less for that two-step transaction than you would otherwise have paid. It just gets worse for the taxpayer if you’re willing to do the second part yourself rather than going through the dealer.

Exit question that I’m sure nobody in the House bothered to ask before they authorized another $2 billion to be thrown down this hole – what’s going to happen in a few months when a lot of these people stop making their monthly payments? After all, there is a reason why they were driving “clunkers” rather than buying a nice $10,000 used car – they couldn’t afford even that.

July 24, 2009

Eau de Cadillac

by @ 11:30. Tags:
Filed under Business, Politics - National.

The editorial writers at Investor’s Business Daily slice and dice the first significant post-bankruptcy move by Government Motors – “Cadillac, the new fragrance for men”. That’s right – if you can’t afford a new car, at least you can smell like one (or more likely, just plain smell).

Seriously, there are two GMs – the one that saw a 22% drop in sales for the first 6 months in the US, and the one that saw serious growth nearly everywhere else on the globe. GM sales in China grew by 38%, and sales in several Latin American countries set records. I do discount the market-share growth in Europe, as GM has shed or is about to shed its two major European brands, Opel and Saab.

The money quote from IBD – “We hope GM can survive in the U.S. But we rather doubt it can with a management that thinks that perfume will cover up the stink of political meddling and the lingering bad odor of its ruinous retirement and health care costs.”

July 23, 2009

Standing up – okay for roller coasters, not good for airplanes

by @ 16:30. Filed under Business.

(H/T – Fausta)

The WSJ’s Real Time Economics blog has a real stinker of an idea from Ireland’s Ryanair – “vertical seating” on its fleet. Presumably, since there would be requirements for passenger restraint, the “seats” would look a lot like stand-up roller coaster “seats”, with a seat-like appendage at the bottom designed more to prevent submarining below the over-the-shoulder restraint system than actual sitting.

I can see a whole host of problems with this one:

  • Since the goal would be to increase capacity by 50-60 on Boeing 737-sized aircraft, the additional weight of both the “seats” and the passengers would be very detrimental to both the range and the luggage-carrying capacity of the aircraft.
  • Again given the increased capacity, there would not be room to store carry-on luggage under the seat. Combined with the necessity to get rid of overhead bins for height clearance, there would not be such a thing as carry-on luggage.
  • Speaking of height, the very-short (mostly children), the very-tall, the very-heavy and the very-buxom would likely be excluded from air travel.
  • The seat-like appendage will get a wee bit uncomfortable for the male population rather quickly, for obvious reasons.
  • A somewhat-similar problem would exist for the skirt-wearing population, especially if there needs to be a strap connecting the seat-like appendage to the over-the-shoulder restraint.

Their fellow countrymen (or at least some “brilliant” Madison Avenue ad agency) already conceptualized this in between hangovers…

July 16, 2009

If Microsoft did this…

by @ 20:15. Filed under Business.

Yesterday, Apple broke the ability of Palm’s Pre smartphone to sync with iTunes. It would be as if Google had somehow figured out how to fully-implement MSHTML in Google Chrome, and then Microsoft shut that off in Chrome to protect the elements of MSHTML that are only available in Internet Explorer.

Of course, the Apple fanboys, the same ones that would be the loudest whiners (yes, even louder than the Google fanboys) if Microsoft did that, are happier than pigs in wet shit that their company is making the mistake it did with MacOS – namely, shutting out any and all third-party developers. I hope they’re happy with a 10% market share for iTunes/iPhone in 5 years.

July 8, 2009

$236-$410 million, as well as an “in” with Obama, DOES beat $195-$215 million

The Milwaukee Journal Sentinel’s Thomas Content reported on the elements of Wisconsin’s $195 million play for General Government Motors’ new subcompact car production facility, and despite the claims at the time from Gov. Jim Doyle that Wisconsin’s offer was better than Michigan’s, Wisconsin’s offer fell far short by every objective measure. The summary:

– The biggest chunk of the $195 million offer was a 10% tax break on the value of new capital investment plugged into the DemoBudget. Since it was estimated that retooling the plant would cost GM $700 million, the break would be $70 million.

– An additional $45 million in state aid included an unspecified amount of “stimulus” money. The Janesville Gazette reports that the $45 million also included a 7% payroll tax credit.

– Rock County, the county in which Janesville lies, was willing to kick in $20 million.

– The city of Janesville offered to provide $15 million in cash, as well as take over the GM plant’s wastewater facility, worth $1 million per year. The wastewater offer was not included in the $195 million total above, but would add $20 million to its worth over 20 years.

– The city of Beloit, just a bit south of Janesville and hurting in its own right, pledged $2 million.

– The Gazette also reported that private interests were willing to kick in $42 million, including reductions on health insurance premiums from a local insurance company.

Meanwhile, Michigan offered a total of $779 million-$1,011 million in incentives over, depending on the news source, 20 to 25 years, for not only the subcompact production facility, but also the non-closing of a Pontiac stamping facility originally slated to close and the promise of at least 20,000 Michigan GM employees over that 20 years. The AP, via WILX-TV, reported that most of the money was a continuation of tax breaks GM had previously received, but that $300 million was new tax breaks. The Journal Sentinel stated that $236 million was directly related to the Orion facility deal.

The Wall Street Journal reported that local moneys were worth an additional $102 million and that Michigan was going to use $130 million in federal money for “worker training”. Since a total of 1,600 jobs would be “saved” between Orion and Pontiac, and that 1,200 jobs were in Orion, I would estimate that, on top of the $236 million of Michigan state money the Journal Sentinel said was directly related to the Orion deal, another $174 million of federal and local money is related, making the total haul for GM $410 million.

In comparison, Tennessee, the third wheel on this bicycle, offered a “mere” $20 million in job-training funds and an unspecified amount of long-term tax breaks. Tennessee was counting on GM factoring in a nearly-new $225 million painting facility built at Spring Hill as part of its recent $1 billion retooling of the facility, compared to a requirement to build a new painting facility in Orion (and presumably, Janesville) to carry the day, but Tennessee Gov. Phil Bredesen said that GM wanted something north of $250 million to stay in Spring Hill.

Even if Wisconsin, or Tennessee for that matter, matched Michgan’s offer, The Wall Street Journal reports there were also poltiical considerations. The first two criteria for the competition, as told to Tennessee’s delegation, were “community impact” and “carbon footprint”. While Rock County’s unemployment is, at the moment, slightly higher than Oakland County’s (the county where Orion lies), the fact that those formerly employed by GM in Janesville are already on the unemployment line, while those employed by both GM and Chrysler in Oakland County are not yet counted, skews that. Further, the Journal Sentinel reports that the Orion facility is powered by methane from surrounding landfills, a “green” energy source.

The bad news doesn’t end there. The Journal Sentinel further reports that, while Janesville is still technically on “standby”, the local incentives to reactivate the plant are now off the table.

July 1, 2009

Everything you need to know about the DPW and business in WI

by @ 16:56. Filed under Business, Politics - Wisconsin.

Earlier today, WisBusiness ran a story on the state budget which featured the following about and from Sen. Ted Kanavas (R-Brookfield):

In a letter to constituents on his website, he labeled the spending plan “nothing short of a job killing, taxpayer harming, disaster of a budget, complete with billions of dollars in new taxes and fees” that will force companies to leave Wisconsin.

He wrote of a recent meeting with a Milwaukee-area business attorney who specifically mentioned “Doyle’s budget” as the reason why two executives he knows are making plans to move their firms to the Texas, which Kanavas said has a much friendlier business climate.

“People have to take a long hard look at the policies being pursued in Madison and realize they just don’t work,” he wrote.

“Our state is going to experience a net out-migration of producers and a net in-migration of people who are more dependent on government. We are killing our economy and our future.

“If we don’t change and change soon, I may bump into my lawyer friend again, but it just might be in Texas,” he said.

In response, the Democratic Party of Wisconsin issued this inane press release (via WisPolitics):

CONTACT: Jason A. Stephany, 608-260-2405,

MADISON – Democratic Party of Wisconsin Chair Mike Tate today released the following statement in response to reports that Senator Ted Kanavas’ may soon move to Texas.

“Don’t let the door hit you on the way out.”

Meanwhile, Briggs & Stratton announced today that it is closing its Watertown and Jefferson facilities, moving the headquarters from Jefferson to Wauwatosa and moving the production at both facilities to facilities in the Southeast. That will result in 530 jobs departing Wisconsin, with only 90-100 workers being offered positions out of state.

Not only is the DPW happy with driving jobs out of Wisconsin, but their leadership team has a serious lack of reading comprehension.

June 29, 2009

The last NASCAR race at the Mile already run?

by @ 12:36. Filed under Business, Sports.

Don Walker reports that Wisconsin Motorsports, which promotes the races held at the Milwaukee Mile, owes NASCAR $1,878,228 for the races that ran earlier this month. Late last week, Claude Napier, head of Wisconsin Motorsports, acknowledged that he still owed NASCAR money, but it was not known at that time just how much money was owed.

As part of a deal Wisconsin Motorsports and NASCAR inked the day before before the scheduled running of the Camping World Truck Series Race on June 19, Wisconsin Motorsports acknowledged that it would not be able to pay the sanctioning fees in full, and that all the revenue generated by the races that would normally go first to Wisconsin Motorsports would instead go to NASCAR. Thanks in part to a rain delay in the Truck Series race, there were approximately 7,500 people that attended that race the early afternoon of June 20, while approximately 35,000 attended the Nationwide Series race held in the evening of June 20.

Meanwhile, questions are still swirling about whether the Indy Racing League was paid for its May race, and whether the IRL will return to Milwaukee next year. The IRL continues to avoid answering whether it got paid, while Terry Angstadt, the president of IRLs commercial division, told the Indianapolis Star that Milwaukee’s presence on their 18-race schedule was in doubt because of promoter issues.

Both Napier and the Legislative Audit Bureau both state that the Mile will lose money this year. What is telling is the State Fair’s reaction to the troubles of the company they brought in after firing the previous promoter earlier this year – they’re just going to sit back and watch the whole thing implode.

June 25, 2009

Yet another loss to Michigan

by @ 23:48. Tags:
Filed under Business, Politics - Wisconsin.

The Janesville Gazette reports that General Government Motors will be retooling its Orion, Michigan plant, which currently builds the Chevrolet Malibu and was slated to close later this year, to build its next-generation Chevrolet subcompact. The Orion plant beat out the already-shuttered Janesville plant, which built the Chevrolet Tahoe/Suburban (and GMC sisters), as well as the soon-to-be-closed Spring Hill, Tennesse plant, which makes the Chevrolet Traverse after being retooled away from the Saturn compact line.

Since there was no way that Government Motors would spare jobs in a Republican-leaning state, the race was really between Wisconsin and Michigan. When the business climate in Wisconsin is so bad that even a government-run operation won’t locate here, one has to wonder why we’re about to make it even worse.

Revisions/extensions (9:22 am 6/26/2009) – The Detroit News reports (H/T – FoxPolitics) that Orion offered GM a 100% tax break on new equipment and machinery for 25 years (up from a 50% tax break on same in an earlier offer) as well as a 50% tax break if it expanded the plant. Somehow, I doubt that it isn’t better than Jim Doyle’s offer (via the Milwaukee Journal Sentinel).

R&E part 2 (9:33 am 6/26/2009) – The folks who run the NewsHub Twitter stream just let me know they’re still working on trying to find out what Wisconsin’s offer was.

A couple things to keep in mind; the Janesville plant is already a shell – GM auctioned off pretty much everything that could be unbolted, including items that would have been useful in building subcompacts. While the cost of stripping out the unnecessary tooling has already been borne, the fact that they will be starting with nothing more than a shell of a building has to also be taken into account.

Speaking of the shell of the building, the Janesville plant is the oldest facility recently used by GM, opening in 1919. The Orion Assembly facility opened at the end of 1983. The ages of the facilities also comes into play, especially since energy costs are about to go through the roof nationwide.

June 24, 2009

iD bought out, no real changes

by @ 19:50. Filed under Business.

(H/T – Abraham)

This one hits a bit close to home because I’m a fan of iD Software and have just about every title they’ve published since Wolfenstein 3D (which reminds me; I need to get Wolf3D for the iPod Touch). Ars Technica reports that Zenimax Media, parent company of Fallout 3 and The Elder Scrolls series publisher Bethesda Softworks, has bought iD. The good news is that Zenimax plans on no changes at iD, with all the principals signed to long-term contracts. The better news is that it wasn’t UbiSoft, Activision or EA that bought iD.

Scratch Ford, Nissan and Tesla from the good cars list

by @ 10:22. Filed under Business, Politics - National.

Fox Business reported yesterday that Ford, Nissan and Tesla will partake in the Department of Energy’s Advanced Technology Vehicles Manufacturing program, a $25 billion loan program from the federal government ostensibly to finance plant changes “needed” for improved fuel-economy and improved-range electric vehicles. Ford’s $5,900,000,000 will go for converting a pair of truck plants into car plants, technology to improve the mileage of its core line (Focus, Escape, Taurus and F-150), and other improvements to its engines. Nissan’s $1,600,000 will go for electric vehicle production in its Tennessee plant. Tesla’s $465,000,000 will go to begin mass production of its first vehicle, as well as a battery pack designed for the Smart.

That’s right; your federal government is not satisfied with getting its meathooks into the Not-So-Big Three, and has decided to go whole hog into the Japanese Nissan (or is it the French Renault, as Renault holds close to half of Nissan?).

Any guesses as to what will eventually happen to Ford and Nissan? Here’s a hint…

June 23, 2009

Buh-bye cookies

by @ 14:56. Filed under Business.

Republic Airways Holdings, which already has a rather substantial relationship with Midwest Airlines, will be acquiring the whole kit and caboodle, 100% of the equity (currently split 53%-47% between TPG Capital and Delta Air Line) and a $31 million secured note held by TPG, for $6 million in cash and a $25 million/5-year note, which can be converted to Republic stock for $10/share. The press release linked to also states that the rest of the Boeing 717 aircraft owned by Midwest will be replaced by smaller, but longer-ranged, Embraer 190 aircraft already operated by Republic.

The Milwaukee Journal Sentinel reports that, prior to the takeover, Republic had loaned Midwest $31 million and assumed a $4.2 million judgement against Midwest relating to non-payment of jet and jet-engine leases.

June 10, 2009

UAW Motors is now official

by @ 12:21. Tags:
Filed under Business.

(H/T – The Focusing Brad V)

While I was on a conference call with Sen. Lamar Alexander (recap in the post immediately prior), Chrysler, Fiat, and the United States Treasury took immediate advantage of the denial of relief from several objectors, including three Indiana trust funds, and closed the deal for Fiat to buy an initial 20% stake in the “good” assets of Chrysler for $2 billion and give the UAW a 55% stake in the new company.

UAW Motors escapes bankruptcy with $6 billion in financing from the US Treasury, which according to previous reports will be of official senior secured status.

Conference call with Sen. Lamar Alexander re. govt. car cos.

by @ 12:10. Tags:
Filed under Business, Politics - National.

Thanks to Sean Hackbarth, I was part of a conference call with Sen. Lamar Alexander (R-TN), discussing his plan to distribute the Treasury-held common stock in Chrysler and GM directly to the taxpayers within a year and his new Car Czar award. Since I managed to have my digital voice recorder working, I was actually able to grab a few notes from that. Of course, partly because of my natural quietness, and partially because of a heavy-hitter lineup on the call so experienced that even Fausta didn’t get to ask questions, all I can offer is a writeup.

  • The Auto Stock for Every Taxpayer Act (S. 1198, no text available yet from THOMAS) would require the Treasury to distribute all of the common stock to the 120 million or so Americans who pay individual income taxes within a year of GM leaving bankruptcy (side note; Chrysler has now closed its “sale” to Fiat/UAW/US and Canadian governments and will henceforth be called UAW Motors on this blog).
  • Sen. Alexander describes it as the fastest way to get the stock out of the hands of government, and brought up the example of the Green Bay Packers and its community-owned structure (Sean’s influence at work).
  • The most-important thing is to stop the political meddling that results from government ownership, citing the White House-ordered firing of Rick Wagoner as CEO of GM, “suggestions” on where the HQ of GM ought to be, Rep. Barney Frank (D-MA) pressuring GM to keep a Massachusetts distribution center open, clamors from Congress on what models to make (do I hear Iowahawk’s Pelosi GTxi SS/RT Sport Edition?), the pay czar to “fix” the price of labor.
  • The rationale to the taxpayers is, “You paid for it, you should own it”.
  • As part of that, the Car Czar award, first given to Rep. Frank on Monday, will become a regular feature.

Of course, it wouldn’t be a conference call without questions. As I said, we had some heavy hitters.

  • Noel Sheppard of Newsbusters started up with a two-parter: How will the inevitable calls from the Democrats to include non-taxpayers be addressed, and will the stock distribution will be based on population or percentage of taxes paid? Sen. Alexander hasn’t heard much from the Dems yet, but the principle is that we should give the shares back to those who actually paid for them. As for the distribution percentage, he acknowledges that a percentage-based would be better, but the population-based split would “give the little guy a break” and be “simpler and cleaner”.

    Side note – the Treasury would have roughly 310,000,000 common shares in “new GM”, and an unspecified number of shares equaling 8% of the membership stake (all non-voting) in UAW Motors, so a population-based split would be “simpler and cleaner”.

  • Jennifer Rubin of Commentary Magazine and Pajamas Media wondered if the Chrysler and GM bankruptcies have changed the rule of law regarding private property owners. Sen. Alexander said that we’ve damaged the rule of law and the rights of private property owners. He pointed out that, in the future, private entities will be slower to lend money to enterprises and rely on contracts to pay the money back, and asserted that our system won’t “function very well” in that scenario.
  • Travis Griffith at asked about stock dumping by those that would get the distribution. Sen. Alexander notes that stock distributions happen all the time. The alternative would be for the Treasury to slowly divest over 5-7 years, and he expects the government to run both right into the ground before they can fully divest themselves.

    Side notes – I’d expect each invidiual 3-share stake in GM to be worth somewhere around $30 at the close (based on the $1 billion in VEBA funding the UAW is giving up for 17.5% of the common shares) and each individual membership stake in UAW Motors to be worth somewhere between $4 and $7 as of a couple hours ago (depending on which valuation method one uses). At the same time, the UAW will be looking to dump significant chunks of its holdings, which will depress the estimated values and limit the dumping.

  • Stephanie Davis from RFC Radio wondered whether the political meddling would be extended to Ford. Sen. Alexander hopes not, and the faster the stock gets out of the Treasury, the less likely it is that Ford will be meddled with. He read off a long list of enterprises government has been meddling in over the last 9 months.
  • Noel Sheppard asked about Sen. Alexander’s thoughts on the European rejection of their leftist leaders. Sen. Alexander pointed out he has been around a while, and he’s seen things change quickly. Europe has been at points in the past a leading political indicator of trends in the US, especially in right turns. Takeaway quote; “(T)he more the Obama administration practices politics of Washington takeover, the more wary Americans are going to be of one-party control in Washington, which is what we have today.”
  • Somebody from RedState (interference on my DVR prevented me from catching his name) asked about the politicization of the Chrysler dealership closings (which took effect at the close of business yesterday). Sen. Alexander noted that the mere odor of politicization is reason enough to end the “incestuous relationship” of the government owning the car companies.
  • Travis Griffith asked how often we can expect a Car Czar award. Sen. Alexander expects a couple a week because we’re in a target-rich environment. As part of previous answer, he mentioned that he might have to give one to himself for urging that the Spring Hill, Tennessee GM plant stay open.
  • Missed who asked this one, but someone asked whether Sen. Alexander had any confidence that the government control of GM will be transparent. He’s hopeful that the demand for transparency will make GM the most-public private company in America, and that the pressure will get the Obama administration to get the government out of GM.

Sean said he would get a recording out to those of us who participated later, so I won’t inflict you with my very-low-quality version.

Revisions/extensions (12:49 pm 6/10/2009) – Ask, and ye shall receive. Sean came through with audio.

I haven’t completed my thoughts on the bill, but it definitely sounds intriguing. One item I haven’t seen addressed yet – the preferred shares that the Treasury will be holding.

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