US Auto Sales Wobble; GM Plunges

Plagiarist! I think this is the default title for Reuters-sourced stories. One just does not see “wobble” enough in the news. I love it.

Bad news for workers, bad news for shareholders (maybe), bad news for short-selling hedge funds, good news for lingering Equity groups looking for a deal.

General Motors Corp.’s (GM) results were particularly weak, with June sales down 21.3% from a year ago amid weaker retail sales and continued reduction in sales to rental-car fleets. The company’s shares fell as much as 4.8% after hours following a shortened holiday trading session.

Ford Motor Co. (F) and DaimlerChrysler AG’s (DCX) Chrysler Group posted more modest declines for the month. Unlike its rival GM, Ford’s shortfall was entirely due to a decline in sales to fleet customers, notably rental-car companies.

Japanese auto makers defied the downturn, however, with Toyota Motor Corp. ( TM), Honda Motor Co. (HMC) and Nissan Motor Co. (NSANY) posting double-digit increases as customers flocked to their fuel-efficient cars and responded to their heavy incentives.

Interestingly,

For the past 18 months, GM has been working to lessen its reliance on incentives, such as discounts and low financing programs, in order to boost its profitability and improve the resale value of its new vehicles.

I’d say that hasn’t worked out the way they’d have liked? A last-minute ‘go’ was beaten by Toyota, anyway:

GM boosted spending on incentives late in the month in an effort to lift sales, only to be “surprised” by the incentive spending at some rivals, company sales analyst Paul Ballew said on a conference call. Toyota”>Toyota, for example, offered rebates starting June 15 of as much as $3,500 or no-interest loans on the new Tundra pickup truck. The offer runs through July 31.

There’s that easy credit again – I also doubt that’s really a “no-interest” loan, but I could be wrong. So US auto sales have declined. Meanwhile, Asian automakers are increasing their shares of the US market.

Toyota, Honda Motor Co. and Nissan Motor Co. each boosted sales by more than 10 percent to lead the Asians to 42.7 percent of the U.S. market, according to Bloomberg data. U.S. automakers, paced by a surprise 21 percent decline at GM, fell to a record low. Overall industry sales slid 3 percent from June 2006 levels.
….
The U.S. brands of GM, Ford and Chrysler accounted for 50.3 percent of the U.S. market, according to Bloomberg data, down from the previous low of 50.6 percent in January. The previous high for the Asians was 42.1 percent, also in January.

By the market, there isn’t a great deal to distinguish the American firms

From the Asian firms:

The systematic difference that I see between the two are that the US automakers are being targeted by Private Equity, while cashing in on some of their divisions for – we presume – the popular purpose of buying their way out of future obligations to future retirees. Everyone’s shares seem to be up (we’ll see how that looks this time tomorrow), but I reckon only the latter 3 firms are so for reasons of sales. I also wonder if any Hedge Funds had been betting against Detroit, and by how much.

Amazon, Wal-Mart and Harry Potter warfare

What, pray, is this Harry Potter warfare? This:

That’s right, you save 49%. How many firms d’you think can afford that? Big ones? Small ones? Only a couple. Amazon has around 1.6m pre-orders for a book upon which it will not make a profit. But it’s made damn sure nobody else will make a profit on the books, either. Why? Amazon reckons on being able to sell almost anything else to the people pre-ordering the book. They made out in terms of market capitalisation. They did it for their shareholders:

Business Week has a great article on the Twisted Economics of Harry Potter. If you thought JK Rowling was the only one making money, you’re out of your mind. Entire publishing houses and film companies rely on the franchise to turn a profit (and what a profit they turn – the years when Harry Potter books and films are released, anyway).

Me, bleh. If it comes down to Harold Bloom and me fighting the rest of you off with sharp-corner’d copies of Winnie-the-Pooh and Alice in Wonderland, so be it. Sorry, mother (my mother likes the books. So do my cousins. So does bloody everyone).

If God hadn’t promised no more floods, would we take climate change more seriously?

I’m serious – is the sub-conscious defence against (what to my mind is) overwhelming evidence that the polar ice caps, like the Presidents of the USA, are not going to make it, that the rainbows tell us it cannot happen? Could we be so hard-wired to our Judeo-Christian upbringing?

Monbiot’s latest post is a splendid one.

The IPCC predicts that sea levels could rise by as much as 59cm this century. Hansen’s paper argues that the slow melting of ice sheets the panel expects doesn’t fit the data. The geological record suggests that ice at the poles does not melt in a gradual and linear fashion, but flips suddenly from one state to another. When temperatures increased to 2-3 degrees above today’s level 3.5 million years ago, sea levels rose not by 59 centimetres but by 25 metres. The ice responded immediately to changes in temperature.

We now have a pretty good idea of why ice sheets collapse. The buttresses that prevent them from sliding into the sea break up; meltwater trickles down to their base, causing them suddenly to slip; and pools of water form on the surface, making the ice darker so that it absorbs more heat. These processes are already taking place in Greenland and West Antarctica.

The paper by Hansen et al (2007), to which Monbiot refers, is pretty bloody fascinating. He discusses the positive feedbacks inherent in climate change, and something call the ‘albedo flip’, which is the key to these results – the climate operate not according to snakes and ladders, but switches. So as Monbiot’s quote says, the ice doesn’t ‘merely’ melt, glaciers don’t ‘merely’ disappear – I mean that one literally:

The report Climate Change 2007: The Physical Science Basis. Summary for Policymakers, put forward by the IPCC, fills in quite a bit of the detail. I’ve had a few conversations, particularly with colleagues who are skeptical of the numbers and the method employed for this sort of thing. Which is fair. As I’ve said, it comes down mostly to prior prejudices, and mine favour the truth of this over the self-interest of climatologists, as we like to call them. I recommend skeptics check out the IPCC report – particularly the sources, and the Hansen et al (2007) paper – and again the sources. And bear in mind the point Monbiot has always made: there are almost innumerable studies supporting this thesis, all in peer-reviewed journals. There are none that counter the thesis (barring, I believe, a couple that have since been discredited).

Monbiot’s post is partly about drawing attention to the Hansen, et al (2007) article, partly about drawing attention to the policy responses – the need for a political albedo flip.

The EU has set a target for 20% of all energy in the member states to come from renewable sources by 2020. This in itself is pathetic. But the government refuses to adopt it: instead it proposes that 20% of our electricity (just part of our total energy use) should come from renewable power by that date. Even this is not a target, just an “aspiration”, and it is on course to miss it.

Meanwhile, he has found several positive indications concerning our ability not only to safely meet but far surpass the 20% renewable figure:

• Last year, the German government published a study of the effects of linking the electricity networks of all the countries in Europe and connecting them to North Africa and Iceland with high voltage direct current cables (up to 80% of power would be sourced renewably – I just made that word up, I think).
• Mark Barrett at University College London published a preliminary study looking mainly at ways of altering the pattern of demand for electricity to match the variable supply from wind and waves and tidal power (up to 95% of our electricity would be renewable energy).
• A new study by the Centre for Alternative Technology (at which Monbiot, the bastard, got a sneak preview. We wait until July 10) suggests that, with some technolog and expansion of storage, not only 100% of domestic use for our heating and transport systems could be powered by renewable energy.

I’m impressed. I particularly look forward to that last paper, about which you’re bound to hear more, here. For me, there are two things going on here. Non-renewable sources of energy are running out. That fact, like climate change, is simply not a matter of any serious debate any longer. So one can believe or not believe that temperatures will rise 2 degrees, or that that increase will cause sea levels to rise 25 metres (metres! How can the chances of that not scare the hell out of you?), but moves such as these to take more and more of our energy away from fossil fuels, saving what remains for all the other shit up for which we burn it, makes perfect sense. We should at least acknowledge our interest in saving oil for cars and aeroplanes, irrespective of any other argument or incentive. Like I said, I will report back when report by the Centre for Alternative Technology comes out. I predict fascination.

Private Equity v. MPs: insert movie cliche here

Which is not to say the Guardian did, but I couldn’t just steal Graeme Wearden’s “Round Two” (and, as it turned out, I couldn’t think of anything myself. I also slept in, I’m still drinking coffee and I started reading the archives of Joe Loves Crappy Movies. So I’m distracted).

Four bosses of four equity firms: David Blitzer of Blackstone, Peter Taylor of Duke Street Capital, Alchemy’s Jon Moulton and CVC’s Donald Mackenzie (want to have some fun? Compare the front pages of Alchemy and CVC – the latter isn’t even trying) were up. Some of the preliminaries were interesting:

10.45am
The committee asks whether the FSA’s job of protecting the UK’s financial markets is made harder by private equity, and its use of debt from around the world.

Mr Sants admits that the disbursement of economic risk makes it very tricky to assess how the financial markets would react to the collapse of a large company.

“We are very clear that it’s very hard to calculate where all the economic risk exists.”

I really would like Graeme Wearden’s job. I mean one like his – I rather like Wearden, and I don’t want to see him lose his job, even for me. I hope somebody at the Guardian reads this and gives me one. I could be your economist Monbiot!

From the beginning discussion surrounds the health of the equity market – has it peaked? John Moulton says some deals are struggling to raise funding – Wesfarmers, the Coles Group and probably most Australians appreciate that struggle, thank you. The AA/Saga merger is predictably discussed (CVC owns some of AA, and the deal itself generates around GBP2bn profit for equity groups and around GBP4.8bn debt for the company created – the select committee is none too pleased with the idea. Nore are the unions, who’ve been placing increasing pressure on the government.

And on the question of taking risks with other people’s money?

11.30am
Mark Todd, MP for South Derbyshire, asks how much of their own money the employees and partners of these companies invest.

• Taylor of DSC: We’re currently raising a 1bn euro fund, and the staff are contributing 2.5%.
• Moulton of Alchemy: Very few firms still put in as little as 1%. Some large funds are as high as 15%, with senior partners reinvesting their earnings
• Blitzer of Blackstone: Our average is 6%
• Mackenzie of CVC: Average of 1.5%, but under pressure from industry to raise that.

That’s actually lower than I expected. Quite a bit lower. An average for 1.5% for CVC? Bloody hell. The rest, mind, is probably things like your pension money.

And that was it. For all the expectation (mostly mine) that something more important would come of the issue of carried interest and taxation, almost nothing did. Just the same – one side insisting there was abuse and trying to trap the other, who managed consistently to deny anything untoward or unjust. As with last time, too few pertinent follow-up questions seemed to hold affairs back. Disappointing, but still interesting to see something in the way of detail forming about the groups.

I expect legislation dealing with carried interest (reminder: this is the capital gain of a venture that is giving to the fund manager as earnings for their services – and taxed as capital gains, rather than as earnings. With the sort of money we’re talking, that’s a big difference). Between the departure of Peter Linthwait from the British Venture Capital Association and the glory of John Moulten calling Ronald Cohen the Enemy Within, Sir David Water’s declared intention with this review to force openness upon Private Equity groups and the unions, I think the UK will become unfriendly ground for private equity before too long.