GM’s kids are moving back home

Almost a decade after spinning off the auto parts maker Delphi and more than two years after Delphi filed for bankruptcy, General Motors is still grappling with the costly legacy of its former subsidiary.

With credit markets in turmoil and the clock ticking to save a $6.1 billion financing package needed for Delphi to exit from Chapter 11 protection by its target, the end of March, GM has stepped forward as a lender of last resort.

GM’s latest offer: $2.25 billion that had been scheduled to be paid out to the automaker in cash can instead be converted into debt for Delphi.

…

If the current exit deal falls through and another is not cobbled together, GM said, that could disrupt production, complicate its relations with the United Auto Workers, and drive up the final cost of its exposure to Delphi, which filed for bankruptcy in October 2005.

I find this story an excellent metaphor for the New Suburban Fable: save like mad (possibly assume debt); send kids to University; have them end up moving back home for want of money, affordable housing, the comforts of your middle-class life. Watching them consume your golden years while you wonder exactly what it was all for. If The Corporation can be individual, it sure as hell can be a besieged parent of boomerang children.

It is also a nice example of the wonderous over-investment of the 90s, as well as the magical financial re-tooling of corporate America that continued until, say, last Summer. All this anti-vertical-integration behaviour, using private equity groups as a weird sort of anti-middle man (rather than adding to the cost of doing business – the reason why vertical integration makes sense in the first place – their leveraged buyouts of spun-off corporate sections were supposed to generate so much cash for a company that everybody would get well in the long run) – it seems like a funny thing happened, on the way (laughing, for a little while) to the bank.

I shouldn’t be the least bit surprised to see parent company having to re-embrace formerly spun-off critical suppliers, over the next year or so.

Oh, if only the easy money had continued. We should have known all along that Dad was getting wise to us now…

Mazda: William McDonough called…

William McDonough is, amongst other things, author of the utterly brilliant Cradle to Cradle. Short version: when we recycle, say, a plastic bottle, we do not get another plastic bottle. In fact we downcycle materials, making less and less-robust products with each iteration. We do, slowly, waste resources. McDonough’s call is for pure recycling, or upcycling, in which that plastic bottle gives us another bottle. A car, for example, can have all of its parts recovered (including paint, rubber, plastics, etc.) and used to make the same thing again on the next car.

Introductions over. I discovered another alternative universe for myself, this evening, reading this article in Wired magazine (Techno-Cowboys of the Deep Sea: The Race to Save the Cougar Ace).

Short version: incredible. And this isn’t just because I’m a weirdo who can read entire books about the Beaufort Scale while not actually liking the ocean’s role. It’s an incredibly interesting story.

However. This piece stood out the strongest, for me:

For more than a year, the 4,703 Cougar Ace Mazdas sit in a huge parking lot in Portland, Oregon. Then, in February 2008, the cars are loaded one by one onto an 8-foot-wide conveyor belt. It lifts them 40 feet and drops them inside a Texas Shredder, a 50-foot-tall, hulking blue-and-yellow machine that sits on a 2.5-acre concrete pad. Inside the machine, 26 hammers — weighing 1,000 pounds each — smash each car into fist-sized pieces in two seconds. The chunks are then spit out the back side.

Though most of the cars appeared to be unharmed, they had spent two weeks at a 60-degree angle. Mazda can’t be sure that something isn’t wrong with them. Will the air bags function properly? Will the engines work flawlessly throughout the warranty period? Rather than risk lawsuits down the line, Mazda has decided to scrap the entire shipment.

4,703 cars, reduced to nothing but unusable pills. Not a single part of the automobiles recovered or recycled. Insane.

Want to get more people on public transport? Facilitate more driving

Which means facilitate more driving intelligently. But hey – now that you’re here…

A critical shortage of commuter car parking is forcing thousands of would-be train users on to the roads adding to Sydney’s already chronic congestion, an NRMA report says.

More than 40 per cent of motorists who otherwise drive all the way to work would rather park at a station and commute if there were an adequate number of parking spots at the station.

…

The NRMA’s audit of Park and Ride facilities, released today, shows some of Sydney’s busiest transport interchanges provide parking facilities so poor that public transport becomes untenable.

“Currently most motorists are left with no choice but to drive to work, which adds to traffic congestion, increases the weekly fuel bill and leads to more carbon emissions,” said the president of the NRMA, Alan Evans.

A report last year by the NSW Auditor-General discovered that in 2004, with so few dedicated parking stations at train stations, Sydney had the greatest number of cars parked on residential streets of any Australian city – 32,000 compared to 10,900 in Melbourne.

The report criticises the ad-hoc provision of these services, especially near poorer areas of Sydney where there are few effective public transport options.

I take issue with the suggestion that “most motorists are left with no choice but to drive to work”, but I’m an insensitive, non-driving, hippie scum. So.

I certainly understand the problem. Driving/parking and public transport are, in some ways, substitutes: we expect people to take the train to work, rather than drive. However, they are also, in other respects, complements: as more public transport is consumed, the demand for private transport (of a certain type, in this case passage to, and parking at, train stations) will increase.

People’s behaviour being what it is, we can see parking spaces being a necessary condition for the use of publc transport. People drive for convenience, for privacy – they will take a train to work, but they won’t (or won’t at all happily) take a bus to the station to take a train to work. In places like Woy Woy:

(and, yes, people commute that distance – crazy people, but people) that bus probably doesn’t exist. In most inner-city suburbs bus services exist but, having built our environments around our cars, many people just don’t live near these amenities (or, rather, sufficiently near for them to countenance using them).

Is this irrational? Oh, possibly. Driving to work, the frustration of the traffic and finding parking, the costs thereof – to me, the non-driver, the money, time and frustration are very high prices to pay. I’d sooner just take public transport and be a permanent passenger. People value their perception of “freedom” that their car affords them, though, and, if we want them to join our game, we do need to make the game itself appeal to them.

Just ask Tim Hartford (or any economist at all, actually – but he’s the famous one): for a driver, going through all the shit of driving to, and trying to park in, the city simply because it’s (most likely less) hard to do so 5 minutes from their house, is perfectly logical. If we can’t beat their logic, we need to accommodate it.

London to penalise gas-guzzling cars

Eeyess.

Owners of gas-guzzling cars will have to pay £25 ($49) a day to drive them in central London from October, mayor Ken Livingstone said on Tuesday.

The decision, following a year of consultations, is part of a package that Livingstone is bringing in to cut London’s carbon emissions by 60 percent by 2025.

…

The 25 pound daily tax on vehicles in central London’s Congestion Charge zone emitting 225 grams of carbon dioxide per km would apply in the same way as the normal 8 pounds daily charge does to all but the cleanest cars.

But to force home the environmental point of a congestion scheme that initially had no green goal, the exemption granted to residents in the zone will be removed from drivers of the polluting four-wheel drive and top-end luxury cars.

That means that the owner of a gas-guzzler who chooses to drive in the zone every day will end up paying 6,500 pounds a year for the privilege.

Should be interesting. “Gas guzzling” cars are something akin to Giffin goods (unlike normal goods, Giffin goods break the law of demand: as price increases, so too does quantity demand). Hummers, for example, are ever-more popular, despite being ever-more expensive to run – which is precisely where the popularity comes in.

A tax that makes such cars GBP6,500 more expensive to run in the city may send exactly the same “opulence signal”.

Ken Livingstone is gambling however that the other signal will be more important: by sending such a strong signal that society frowns so heavily upon their ass-headed mode of transportation, he is hoping to appeal at least to impure altruism (if not to their bank-books) in getting them to down-size.

Either way, it ought to be fun to watch.

GM, unplanned investment, and what about the environment?

Unplanned investment, as opposed to planned investment (yes, economists’ obsession with the incorrect use of ‘un’ bites us, once again). This is the measure by which we can determine, after the fact, how the/an economy is doing, macroeconomically.

First, consider the Business Cycle:

This is the cyclical pattern of Aggregate Expenditure – as ooposed to a nice, straight, increasing line (i.e. no business cycle, just steadily increasing wealth). The oscillations come with non-stationary investment expenditure (amongst other factors, but we’re interested, here, in investment).

Now then: equilibrium. Macroeconomic equilibrium occurs when Aggregate Expenditure, given by

Aggregate Expenditure = Consumption + Planned Investment + Government Purchases + Net Exports

At equilibrium this equals GDP. When Aggregate Expenditure is less than GDP, people are buying less than firms are producing: this is called an unplanned increase in inventories, or unplanned investment:

So to the news!

The way that auto executives here have been talking, 2008 will be a bad year to sell cars and trucks in the United States. Every time one company predicts how the industry will fare, another seems to come up with an even more dismal number.

Most forecasts now come in ranging from 15.5 to 15.9 million vehicles, an estimate that would mark the worst year for sales in the United States since at least 1998.

…

Meanwhile, G. M., which had a five-month supply of unsold pickup trucks at the end of November, said it is cutting first-quarter production by 11 percent. Ford has announced a 7.4 percent cut in the same period.

The combined market share of the three Detroit companies fell below 50 percent during two months of 2007, July and November, something that had never happened before. Their production cuts mean the chances of that happening in 2008 are even greater.

Remember that line about “as goes GM”?

(click for larger version)

Now, the environmental aspect:

… several big foreign carmakers, including Toyota and Honda of Japan, are projecting that their sales in the United States will increase in the coming year in spite of the housing slump, high gas prices and lackluster consumer confidence.

…

“I think we’re going to have a great year,” said Terry Baier, general manager of the Oakbrook Toyota dealership in Westmont, Ill. “I don’t think the market is going to hurt us like it’s going to hurt the domestics. Right now I have a showroom full of customers, and you don’t see that at a Chevy store. We’re looking for a phenomenal year.”

So: good for foreign auto-makers (since they make cars with actual standards of fuel efficiency, and that aren’t moronically over-sized). Also good for pedestrians: reasonably-sized cars means better fields of vision for us, crossing roads. It will be interesting to see the trade-off between this and the exchange rate – although the appreciation in petrol prices alone, not to mention declining disposable incomes, will be more than enough to offset any such advantage.

Bad for the environment. This gets back to my dislike for the Prius: if/as people ditch their idiotic American monster cars (since this argument presupposes that we’ll end up with more cars than otherwise would have been the case), those cars do not simply disappear. They still exist. This still just means more new cars, more old cars in landfills, etc.

Inflation hits, part II: say goodbye to the TruCoat money

Heh – TruCoat. On the off-chance that you’ve never seen Fargo, it isn’t real.

The news! This one is a manner of update on the iron ore stories (or, for this semester’s Economics class, mid-term exam). Short version: the price is going up. Longer version: so is every we use it for, you poor bastards:

General Motors Corp., the world’s largest automaker, is raising prices as much as $1,500 on its cars and trucks to help recover increasing costs for metals and other commodities.

Prices will go up an average of about 1.5 percent on most 2008 models, the Detroit-based automaker said today in a statement. The increases take effect tomorrow on vehicles shipped to dealers. GM last boosted prices because of material costs in November 2006.

Honestly, who’d be an auto-manufacturer, these days? With steel, health care, pensions. Even the price of instant coffee for the tea-room (or whatever they call it here) is appreciating.

Economics students:

“While most cars and trucks in our portfolio will go up between $100 to $500,” some vehicles “in hotly contested segments,” such as the Saturn Aura and redesigned Chevrolet Malibu sedan, will stay the same, Mark LaNeve, GM’s North American sales and marketing chief, said in the statement.

“Hotly-contested” means many substitutes, and much heavier price-based competition: i.e. relatively higher price-elasticity of demand. See if you can sketch out the neo-classical markets that explain why GM won’t be shifting up its Supply curve in that market, any time soon (yes, yes – boring. You’re all under 21: it isn’t as though you can go out and drink).

Congestion pricing in New York: who’s in?

Streetsblog has almost been New York Local Politics And Congestion Pricing Blog, lately, but it’s still interesting. Today they have a discussion of the firms that have responded to New York City’s Economic Development Corporation’s call for expressions of interest concerning congestion pricing (inhale).

In response to its “Request for Expressions of Interest,” the New York City Economic Development Corporation has received proposals from 30 companies interested in implementing New York City’s congestion pricing pilot project. “This large number and quality of responses clearly indicates that the market place believes that the implementation of the City’s congestion pricing plan is feasible,” EDC writes.

Technologically and economically feasible, that is. As for political feasibility… still working on that.

The entire list of companies can be found on EDC’s web site along with proposals from 21 of them.

They aren’t half bad. As Streetsblog identifies, IBM’s contribution is pretty freaking impressive (that link is a .pdf). They’ve adapted Stockholm’s model to come up with their entire infrastructure for congestion pricing (click the picture for a bigger version):

As well as the scarily-familiar corporation risk-assessment of the entire affair:

Including billing and vehicle identification, traffic load forecasting, etc. It’s impressive. I still hold Hitler against them, though, so (that was possibly unfairly cynical. Yes, I’m still mad about it – mostly because nobody else is).

Siemens, also, put in some worthy work (also a .pdf); very thorough, very much related to billing/pricing. They contrast nicely with KPMG’s very short submission (theirs too) – which reminds me, rather starkly, of the sort of shot-in-the-dark work I’d expect from an undergrad.

Streetsblog’s complaint about the NYCECD’s withholding of “business sensitive” submissions is bang-on. I’d like to have seen what 3M’s consortium had to offer.

On Monbiot on speed cameras

Monbiot has written an excellent article (as though he has any other kind, the bastard) on speed cameras in the UK. Specifically the fact that they work, and that people who say that they don’t invariably sacrifice good analysis at the alter of their own recklessness and selfish libertarianism.

Last week the transport minister Jim Fitzpatrick said he intends to double the penalty for drivers who break the speed limit by a wide margin. This means that people could lose their licences after committing just two offences. The papers are furious. The petrolheads have called for a petition which “will get as big a response as the road pricing one.”

Yes it’s brave, but not quite as brave as you might think. Despite endless attempts by the media to trivialise it, an RAC survey reveals that 62% of drivers still regard speeding as a serious offence. Even more surprisingly, 82% of British people surveyed approve of speed cameras, and the percentage has risen slightly since the mid-1990s. There is a genuine silent majority here, which is rarely represented in the media.

Please bear in mind that I am leaving out his endnotes as I go (his references can be found with his article).

My interpretation of this is that the doubling of the penalty is a function of this “silent majority” (a term I tend otherwise to dislike, co-opted as it most often is by Tory/Conservative/Liberal/Republican racists – Liberal referring to the Howard government), rather than deterrence: re-doubling the number of speed cameras would do that.

Monbiot spends some time criticising the BBC and their programme Top Gear (about which the less said the better, other than that it is petrol-head/hoon-legitimising utter waste of spectrum). Then to the interesting parts:

In Saturday’s Telegraph, Christopher Booker and Richard North published a long article appropriately titled “Speed cameras: the twisted truth”. A sharp decline in the death rate on the roads suddenly slowed down in the mid-1990s. They attribute this to the government’s new focus on enforcing the speed limits, especially by erecting speed cameras. What they fail to mention is that deaths started falling sharply again in 2003, after the number of speed cameras had doubled in three years.

They use similarly selective data to argue that there is no evidence that cameras have reduced deaths even at the spots where they are deployed. They hang their case on an oversight in a government report published in 2003. The report claimed that the accident rate had fallen by 35% where cameras had been installed. Booker and North rightly observe that it had failed to account for a statistical effect called “regression to the mean”. There might have been an abnormal blip in the accident figures, which would have returned to background levels of their own accord. The truth, they maintain, is that “speed cameras actually increased” the rate of accidents.

But what Booker and North fail to tell their readers was that in 2005 the government conducted a new analysis, which took account of regression to the mean. The new figures showed an average reduction of 19% for collisions which caused deaths or injuries after speed cameras had been installed.

Not to pass up some decent statistics. The government’s report found statistically significant reductions in Killed or Seriously Injured and Personal Injury Collisions (KSIs and PICs – their terms of art):

Overall,

Eco 145 students: confidence intervals! Everyone else: when a 95% confidence interval is entirely negative (positive) the effect being estimated is statistically significantly likely to be negative (positive). I.e. irregardless of those ‘blips’ to which people best ignored like to refer.

The report itself is quite impressive. Specifically, they found that:

• Vehicle speeds were down– surveys showed that vehicle speeds at speed camera sites had dropped by around 6% following the introduction of cameras. At new sites, there was a 31% reduction in vehicles breaking the speed limit. At fixed sites, there was a 70% reduction and at mobile sites there was a 18% reduction. Overall, the proportion of vehicles speeding excessively (i.e. 15mph more than the speed limit) fell by 91% at fixed camera sites, and 36% at mobile camera sites.
• Both casualties and deaths were down – after allowing for the long-term trend, but without allowing for selection effects (such as regression-to-mean) there was a 22% reduction in personal injury collisions (PICs) at sites after cameras were introduced. Overall 42% fewer people were killed or seriously injured. At camera sites, there was also a reduction of over 100 fatalities per annum (32% fewer). There were 1,745 fewer people killed or seriously injured and 4,230 fewer personal injury collisions per annum in 2004. There was an association between reductions in speed and reductions in PICs.
• There was a positive cost-benefit of around 2.7:1. In the fourth year, the benefits to society from the avoided injuries were in excess of £258 million compared to enforcement costs of around £96 million.

Top Gear really is a stupid programme.

HowTo: Expected value

Found at Autoblog, via Opit:

Could Detroit be exporting cars to Europe soon?

With a weakening US dollar and more competitive union contracts, exporting vehicles to Europe from the US is looking more and more plausible with each passing day.

… Automobilwoche in Europe is reporting that Opel worker’s council head Klaus Franz called a US-built Zafira a “distinct possibility”

Many things are a distinct possibility. A strong holiday sales period over thanksgiving is a distinct possibility. I’d still keep my money under my mattress, though. In Euros.

If GM can pull off building a vehicle in the States destined for Europe, it would strengthen its plant utilization in North America while also increasing European capacity. While there is only a slight chance this will happen, we think it would be a huge stride towards profitability in the General’s largest market. While there is only a slight chance this will happen, we think it would be a huge stride towards profitability in the General’s largest market.

So. GM may pull this off, or it might not. It might make loads of money, or it might lose loads of money (although we’re talking about a company that can post a USD39bn loss and pretend it’s just a tax ‘thing’, no big problem). It’s also the company whose European arm had, last year, posted 6 years and USD4bn worth of straight losses.

GM’s auto profits, like most, are the poor cousin of its various income streams. Hell, they apparently lost USD2,311 per vehicle in 2004, with an average cost per vehicle of USD18,348. So these cars of theirs may (a) sell for a profit, (b) sell for a loss, or (c) not sell at all in Europe. Apparently there’s only a slight chance that they’ll sell.

Let’s assume, then, that GM will not manufacture cars specifically for the EU market, only to have them not sell. They’ll either manufacture-and-sell these cars or not: i.e., they will make some profit in Europe on these cars, or they will make zero profit because they won’t make the cars. This is probably a naive assumption, but it’s a nice conservative one.

Profit per vehicle? They apparently sold a little over 2 million vehicles in Europe, last year. They have 12 brands; those brands carry 42 models, between them. Clearly some brands and models are better sellers, but it’s late and I already don’t care that much. I’m going to call it around 50,000 sold per model (rounding makes my – admittedly abstracted, already – example easier), and a profit of who the hell knows, if they don’t make profits on their cars? Let’s give them Ford’s USD620 profit per vehicle (Ford had the highest for American firms – is it even worth making the damn things?).

If GM’s plan comes through, they’ll make π₁ = 50000 x 620 = USD31m; if it does not, they make π₂ = 0 (as opposed to making and not selling the cars, in which case π₃ = negative USD115.5m to negative USD916bn – though that’s clearly ridiculous).

The expected value, then, is the one in which we’re actually interested. When this is guaranteed to happen, we can become excited. Until then, we need to weight the payoff by the likelihood that it will occur, as well as weight the loss by the likelihood with which it will occur (in this case there is no loss). The expected value of GM’s deal is given by

EV(GM Zafria in Europe) = Pr(Zafria happens) x π₁ + Pr(Zafria does not happen) x π₂

EV(GM Zafria in Europe) = Pr(Zafria happens) x USD31m + Pr(Zafria does not happen) x 0

EV(GM Zafria in Europe) = Pr(Zafria happens) x USD31m

Now – what is Pr(Zafria happens)? A rule of thumb in statistics is that 5% is significant: a probability of 5% is small, but significant (unless it’s a risk of accident or cancer – then a probability of 0.005% is important). So I’ll split the difference and say that “slight chance” = 2.5%. Then

EV(GM Zafria in Europe) = 0.025 x USD31m

EV(GM Zafria in Europe) = USD775,000

Now, as I said, GME has posted losses of hundreds of billions for 6 straight years. A profitable car being sold would be good news indeed – it would be good news to any company (although it would absolutely blow the minds of companies that actually manufactured, say, plastic straws). Until those cars are wanted in – and/or get purchased in – Europe, we should work with our expected payoffs, accommodating the probability that there will be any payoff at all.

My numbers aren’t likely to be terribly accurate, but I also think I made kind assumptions, along the way, so I would not be surprised if my expected value was actually generous.

It certainly doesn’t seem like all that much about which to get excited.

UAW/Chrysler deal slowly not failing…

Chrysler workers at three of four key United Auto Workers union locals voting Wednesday approved a new contract with the company, the presidents of the locals said.

…

Votes were still being tallied Wednesday night at Local 1700 in Sterling Heights. That local represents 2,500 workers who make the Chrysler Sebring and Dodge Avenger midsize cars.

The votes were good news for UAW President Ron Gettelfinger, who has faced serious challenges from some members opposed to the deal. The tentative agreement must be ratified by a majority of members to go into effect.

The four union locals voting Wednesday represent more than 8,600 workers – or roughly 19 percent of the 45,000 workers who would be covered by the historic four-year agreement.

It is interesting to see that which, usually, has indicated success, across the board. This time, however, mere percentages aren’t helping. Somebody get Dan Rather.

Eight local unions representing more than 16,000 workers have now turned down the landmark pact, while nine locals representing about 15,200 workers have approved it. It’s nearly impossible to keep a running total because most local union officials give out only percentages and not the number of people who voted. Also, officials of some smaller locals could not be reached or would not give out results.

Gary Chaison, a labor specialist at Clark University in Worcester, Mass., said the discontent with the contract is a sign of a union in disarray.

“Each local is looking out for themselves now,” Chaison said. “The larger locals, the big assembly locals, see the most to lose in terms of job cuts. They feel they can oppose the national officers.”

Interestingly, little to no importance (either in reporting or negotiation) has been given to the (new) Cerberus ownership of Chrysler. I’m not suggesting this is related – it could have just been that such ownership made up the impetus needed to really push back against the UAW and extract some real concessions (and I’m not even convinced that manufacturing cars people only want thanks to tax cuts is in America’s real interests, anyway).

One has to hand it to them, though: a fractured union, two-tiered workforce, self-interested locals displaying little cohesion or solidarity. If Cerberus’d made a list of cool things to do when they bought Chrysler, these would have rated well above whiskers on kittens.