It's Official: We'll Lose Money on GM

Megan McArdle of The Atlantic reports The Government Isn't Getting Its Money Back Out of GM:

Well, they've priced the GM IPO, and it looks like they've valued the firm at just about what we lent it: $50 billion. Since the government only took a 60% stake, that's well below what would be needed for the government to recover its investment. Even with the billions they've already 'paid back'--by not using all the money--Uncle Sam needed the company to be worth more like $70 billion to break even on the bailout.

GM is a zombie. It will never be able to sell cars in the quantities that it used to because its brand has been tainted with the stench of the bailout. This is exacerbated by the fact that Ford opted not to take a bailout. In so doing, Ford burnished its brand. GM (and Chrysler) are marking time until they go back into bankruptcy.

It's also ironic that the GM IPO was announced the day before we learned about a massive new round of quantitative easing (what some are calling QE2). The portion of the GM bailout that is repaid will be repaid with devalued dollars. It's a perfect metaphor for the smoke and mirrors of DC.

Audi's Green Police Ad

Environmental Complexification Revisited

Just the other day I was blogging about the environmental complexification of cars and, now, another data point has appeared in the news [emphasis added]:

...Ford has reportedly issued a Technical Service Bulletin outlining a software update for its 2010 Fusion Hybrid and Mercury Milan Hybrid sedans.

Enviromental Complexification

Holman Jenkins writes in the WSJ about Toyota and the Curse of Software [emphasis added]:

Complaints of sudden unintended acceleration afflict all car makers and, as Toyota advised Congress recently, the cause is "very, very hard to identify." This reality, forensically and politically, is coming into collision with the growing reliance on computers and software in the vehicles we drive, which can now account for 40% of the value of a new car. And, yes, "feature wars" play a role, but we're here to tell you the biggest reason is government regulation requiring cleaner emissions.

A decade ago, what were single-purpose computers, each with its own software, began to merge into systems with many millions of lines of code...

But implementing so many vital and not-so-vital control features as a network system also creates complexity and multiplies the opportunity for unpredictable software bugs and circuitry mishaps.

Take Toyota's latest troubles with its marquee car, the Prius. Even amid its runaway-acceleration traumas, the company was hit this week with Japanese and U.S. government investigations of brake failures in the 2010 version of its iconic hybrid.

A bit of history: Brakes were first introduced to computers and software for the relatively simple purpose of anti-lock braking. Then came stability control, giving brakes an additional computer-and-software controlled duty to perform.

In the Prius, brakes have now acquired a third function, "regenerative braking," or generating electricity to recharge the batteries for fuel-saving purposes.

That's a lot of software that has to cooperate to decide how the brakes should behave from one nanosecond to the next. Toyota has yet to offer a detailed diagnosis of the latest Prius misbehavior, but it sure sounds like the trouble arises from some unexpected interaction of these systems—on slippery or uneven roads, at low speeds, the brakes reportedly refuse to respond to a driver's foot on the pedal.

Government mandated environmental requirements are one driver to the complexification of automotive software. As the intentions of those pushing environmental policy comes under greater scrutiny because of the loss of credibility associated with climategate, glaciergate, and the rest, we can expect a pull back from environmental regulation. As voters begin to understand that environmental legislation may harm them because their car's accelerator is more likely to fail and its breaks may not work, they'll vote for new legislators. Again, like other green issues, this is not going to help Russ Carnahan (D-MO) in this election cycle.

Ford gets some Love

This is a graph of short interest in Ford (F) falling through the floor:

I just posted this comment over at FabiusMaximus (graph above):

@FM: I think the prospects of Ford are looking up. The wreckage of GM and Chrysler must have put the fear of Godverment in them, the flexibility to build what they want gives them more agility in the industry, and lots of "Buy American" conservatives will never buy Chrysler or GM again. Others are bullish on Ford, too. Their short interest, as reported on Yahoo, went from 124.5M in April to 45k in May. Four orders of magnitude... I'm wondering what the story is there and whether that's a typo. Here's a graph.

Update: Some readers may not know what short interest is or what it tells us. Everyone's familiar with the adage: "buy low, sell high." That's how you make money on a long position. A short position reverses the timing: "sell high, buy low." How can you sell something you don't have? Well, your broker borrows the shares for you. Your brokerage account shows a negative number of shares until you "buy to cover your short position." If everything goes according to plan, you make money.

I think the change in Ford is important, because short interest was almost 300M for a long time and then fell to 45k over the course of a few months. Savvy investors, or at least investors who short stocks, decided en mass that they could no longer expect Ford's share price to go down. Some might argue that this was a long drawn out short squeeze and maybe it was. Still, market sentiment is more favorable towards Ford Motor Company than it has been for quite some time.

Chrysler Dealers: Urban-Rural Census Data

The Census Bureau helpfully aggregates their data by zip code, so I downloaded their Rural and Urban data sets. In the chart below values close to 1.0 are more urban and values closer to 0.0 are more rural. The cut dealerships tended to be slightly more urban, so there does not appear to be an administration bias against rural dealerships.

	All	Cut	Kept
Median	0.7980	0.8850	0.7734
Average	0.7355	0.7804	0.7208

This analysis and my previous analysis showing no correlation with state-level vote results does not invalidate the work done by Doug Ross, Gateway Pundit, and others on specific abuses. It does tend to support Megan McArdle's view that it's crony capitalism:

I would be less surprised to find out that the administration rescued specific donors from the hit list than to find that they deliberately closed Republican dealerships.

I still think there's a strong argument that the administration (not Chrysler) did close dealerships that donated to Republicans. Doug Ross and Gateway Pundit are pursuing a more fruitful path than mine by focusing on the donor data.

Spreadsheet is too large (1.7M) for Google docs, so email me if you want it.

More later....

Chrysler Dealers: No Correlation at State Level

There is no correlation of Chrysler Dealer closings at the state level.

I began my analysis by first downloading the "cut" list and "kept" list in PDF format. I reformatted those into a spreadsheet (in MS Excel). Next, I got a copy of the state-by-state returns for the 2008 election from wikipedia and added those to the spreadsheet. This allowed me to compare the ratio of Obama vs McCain to the ratio of kept vs cut dealers. You'll find those numbers on the "analysis" tab of the spreadsheet. My thinking was that there would be a direct correllation between how strongly a state supported Obama and how many dealers it lost.

There were no dealers in DC, so I threw it out. I believe that states with ten or fewer total dealers (cut plus kept) are not relevant statistically, so I also took out DE, HI, RI, and AK. With that I got a coefficient of corelation of 0.1361. A value close to 1.0 would indicate a strong correlation—Obama favored states that supported him. A value close to zero indicates that there is no correlation. And a value close to -1.0 would imply that Obama favored states that opposed him.

For the ten states with the largest total number of dealers (TX, PA, IL, NY, MI, OH, CA, FL, WI, and IN) the coefficient is higher: 0.3069. However, if we extend that to twenty states (adding MO, IA, MN, NC, NJ, VA, GA, OR, TN, and KY), the coefficient goes negative: -0.1049. It's really a mixed bag.

I'm not a statistician, so there are may be problems with my approach. Leave your corrections and suggestions in the comments! And, please download the spreadsheet (MS Excel) and perform your own analysis! I've put the zipcodes in their own column; however, I do not have county/zipcode level voting data. I'm hoping someone out there might be able to either email that to me (dsm012 -at- gmail -d0t- com) or do the analysis themselves and leave a comment with a link to their work!

Now to look at the OpenSecrets donor data...

Make sure you checkout the Doug Ross's latest work.

Update: After my initial post I remembered that I had omitted the first page of data from the "kept" PDF. It was formatted differently so my plan was to incorporate it last. This data does not change my belief that there is no correlation at the state level. I have corrected the numbers above to reflect the new data.

Update 2: Check-out my analysis of urban vs rural closures!

The Rest of the Cut List

I missed several dealers in my initial Chrysler cut list; however, I just discovered that you can download the OpenSecrets.org data tables. I'm in the process of doing that now and will run the names through that data as time permits (not before tonight).

Gateway Pundit has a map that indicates that Conservative counties seem to have been targeted for for the Chrysler cuts.

It's Ford or Foreign from Now On (UPDATED AGAIN)

I've been wondering how Obama was going to sell Democrat cars to Republicans. Now that Chrysler and GM are puppets of the administration and the UAW owns and operates them, Republican car buyers must realize that an even larger portion of the purchase price of a new car is going to fund Democrat candidates and issues. As a result, they'll turn to alternatives that have less rent-seeking baggage. Megan McArdle observed a month ago that Ford is feeling really good:

Meanwhile, the folks at Ford have to be awfully glad they didn't take government money. They've apparently gotten quite a brand boost out of it, with a large number of their current customers trading in Chrysler or GM cars for a piece of the company that isn't teetering on the edge of receivership. It's not that Ford's future is necessarily that bright--but taking billions from the government sends a strong signal that there might be a problem with your cars in the future.

Now it looks like the Obama administration pressured Chrysler to make the dealer cuts and may have influenced which dealers are being shutdown. Doug Ross has the most complete coverage I've seen including complete lists of the dealers both cut and kept. If true, this represents a thuggish turn in Obama's brand of crony capitalism.

So, how is Car King Obama going to make up the revenue shortfall? Perhaps twead-jacketed, ivory tower lefties will be given "company" cars in lieu of a raise next year. They'll still drive their VWs and Volvos to work, of course. The GM and Chrysler zombies will be animated with student tuition and government grant dollars.

Cut Dealers:

This is a partial, crowd sourced solution. You are the crowd, so thanks in advance for helping out:

1. Check the comments for the name you'd like to search--make sure no one's already done them and go in order down the list.
2. Add a comment below to say that you're working on so-n-so--heck, claim three names at once if you want
   
3. Click so-n-so's link--it's best to open it in a new window or tab so you can refer back here
   
4. Check 2006, 2008, and 2010
   
5. Enter the code at the bottom of the search page and run the search
6. If the search doesn't return anyone, remove the zip and re-run
7. If the search still doesn't return anyone, remove the state and re-run
8. Look for so-n-so in the results
9. Add up all their donations by year and party
   
10. Add a comment below with so-n-so's full name and donation information
    

The links below were generated from the PDF of cut dealers linked by Doug Ross. The idea is that the link will pre-fill the opensecrets.org search form. I did this fast, so lots of things may be a little wrong--I know some of the zips are only four digits for instance. These people may not live in the zipcode or state that I specify.

Thanks again for your help! I will make the results available in a text file or spreadsheet when I can.

Update: I missed some cut dealers. It was late... I'll link those in a new post soon. I'll also get to the "kept" list, but you probably wont see that before Thursday morning. Special thanks to the Gateway Pundit for supplying the crowd! And many thanks to our hardworking crowd. cathy you sooo rock!

Update 2: After completing the cut list, I took a closer look at OpenSecrets and discovered that I can download their data tables. I'm in the process of doing that and will post my results for cut and kept dealers as soon as I can (not before late tonight and bet on the weekend for the kept list).

Update 3: Removed the list so this post wouldn't be so cluttered. You can download my Excel spreadsheet with the data here. I've done a follow-up where I analyze the correlation between states that voted for Obama and the dealer cuts (hint: no correlation). I highly recommend Doug Ross's post about partisan bias in the closings. Thanks again for all the help!

They're Just "Too Big"

Glenn Reynolds links to a CNBC post about big banks. It reminded me of something Christopher Hitchens said awhile back: "'too big to fail' is two words too long". I'm not sure how we undo decades of consolidation, but, like the banks, I think the auto industry would be better with the small thirty-three than with the big three.