KeNo's Housing and Economic Portal: Friday June 19 Housing and Economic stories

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Sympathy for the Car Dealers? - (angrybear.blogspot.com) A Washington Post article suggests that car dealers may be getting a bit more sympathy than other stakeholders in the GM and Chrysler bankruptcy adventures: The dealer complaints have resonated in a way that the objections of bondholders and others have not. Many are leaders in their local communities, where they are a source of jobs and philanthropic dollars, and they are a potential political force for disrupting the Obama administration's effort to quickly restructure the nation's ailing auto giants. (It also notes that it takes in substantial advertising revenues from Jack Fitzgerald, a Washington-area dealer profiled in the article.) As Gail Collins says in a different context, "Hell hath no fury like a middleman scorned." I probably shouldn't underestimate Congress's inclination to protect those undeserving of protection, but remember these are car salesmen, fer goodness sakes. If you wouldn't bail Joe Carsalesman out from the jaws of the Ravenous Bugblatter Beast of Traal, then with respect to John Cardealer, keep in mind that the Cossacks work for the Czar. While Fitzgerald suggests he's been targeted for criticizing GM and Chrysler for weak product, it's worth remembering that dealers have played their own role in the decline of the Domestic Three. And a central irony is that the terminated dealers' biggest problems stem in no small part from dealer-friendly state franchise laws that among other things helped shield these dealers from certain forms of competition. More below the jump. For instance, terminated dealers in Wisconsin are subject to state laws which prohibit them from selling "new" cars without a franchise agreement; absent an ad hoc reprieve from the state, they'd be forced to hold onto unsold inventory until the model-year turnover when they could legally sell the cars as "used." This is a particularly pressing issue for Chrysler dealers as their termination date is June 9. Now who do you suppose would (ordinarily) want to keep non-franchisees from selling "new" cars? Pick a state and you can almost certainly find franchise laws intended to insulate car dealers from competition but which may boomerang on dealers ejected from the club. Dealers also shoulder some of the blame for the current market's coolness to the Detroit automakers. Those of us of an age to remember family loyalties to particular domestic makes may also remember that their automotive nadir was also a dealer-service nadir. GM, in particular, implicitly acknowledged this through the Saturn dealership model, with its customer service aspirations styled on Japanese makes and low-pressure sales approach. That must have done a pretty good job of reforming widely detested sales practices and lousy after-sales service, since it's hard to pin Saturn's goodwill and modest early success on its cars. (My receptiveness to "oh but early Saturns really were wonderful" arguments is tempered by 2-1/2 years of living with my wife's late '96 SL1, which admittedly wasn't remotely as bad as my mother's long-deceased '85 Buick [the car which drove her to Hondas].) It's been a measure of how screwed-up GM is that Saturn now has a sensible lineup of decent cars (which could be further improved by reference to GM's latest European models) and the closest thing to a rationalized dealer network in the GM brand family, yet seems never to had the chance afforded GM's more damaged traditional brands that had, pre-crisis, much lower sales to boot. We're encouraged to feel a little sympathy for small businessmen whose lots were stuffed with cars using what sound like high-pressure sales tactics. Some of the reported sales methods sound like they're somewhere between 'bullshit promises' and mild deception. Then again, it's car dealers on the other end of the transactions. Should they not be able to resist pitches of the "I gotta meet my quota and we'll remember you for helping" form? My problem with "travesty" theories of the Chrysler and GM bankruptcies is that they tend to lose sight of the basic situation that the automakers are well and truly busted, and that the next best alternative to the "travesty" is liquidation in a highly unfavorable market. There's especially little reason to believe that New Chrysler has a future with all of its legacy franchise agreements dragged along.

Brain Dead Union Leaders - (Mish at globaleconomicanalysis.blogspot.com) Unions just don't get it. People are fed up with paying higher taxes to support their wages and their ridiculous pension plans. Amazingly, unions are even biting the Democrats' hands that feed them. Please consider State's budget crisis opens rift between unions and Democrats. The relationship between Democratic leaders and some of their labor benefactors has turned particularly frosty: Many of the programs union members rely on for paychecks -- and the unions rely on for dues -- have been slated for deep cuts. For example, there are pledge forms being passed around to lawmakers by a major labor union that might have attracted takers in budget battles past. The union, the American Federation of State, County and Municipal Employees, wants the legislators to sign statements of support for up to $44 billion in new or higher taxes on the wealthy, oil companies, tobacco and other industries, products and people. But so far the drive hasn't produced a single signed form, even from the Democrats who normally march into California's budget fights in lock-step with organized labor. "Many public employee unions, teacher unions [are] thinking that they were thrown under the bus in the last budget," said Assemblyman Charles Calderon (D-Montebello). "So now they're asking themselves: If these Democrats are not going to stand up for us, then what good is it to have them there?" The union leaders say they are appalled that Democratic leaders are talking openly now about decimating government programs without first making a stand for bigger, broader tax hikes that could substantially offset budget cuts. "Democrats came to Sacramento to help people," said Marty Hittleman, president of the California Federation of Teachers. "I know they did not go there to destroy government. For some reason, they are unwilling to stand up and say 'This is not what I was elected for.' " The next step for unions could be going directly to voters…..

California Governor Schwarzenegger Slashes Spending - (www.cnbc.com) As California faces a $24.3 billion deficit, Governor Arnold Schwarzenegger has ordered state agencies under his control to stop paying contracts signed since March 1st.It's unclear how much the effort will save. There are plenty of exemptions. Goods and services already delivered will be paid for. Contracts considered necessary for public safety will continue. Also exempt are "projects funded by the American Recovery and Reinvestment Act, or projects funded by bonds, grants or projects specifically mandated by court orders, or public-private partnerships that require no direct state expenditures." There will also be a process to test if other contracts should be saved, because exempting them would mean "avoiding significant revenue loss; achieving significant net cost savings; maintaining multi-year IT system and service contracts approved by the Office of the Chief Information Officer; or providing critical services and functions." The Governor is also asking state agencies not under his control, such as the legislative and judicial branches, and the state college/university systems, to implement similar cost-saving measures. Governor Schwarzenegger has also ordered all state departments to submit plans to reducefuture spending by 15 percent within 30 days of California adopting a revised budget which closes the $24.3 billion gap. The State Controller wants it done by Monday of next week, to give him enough time to sell investors on the idea of buying short-term warrants before the state runs out of cash July 29.

Vehicle fraud cases heat up amid economic downturn - (www.latimes.com) Suspicious car fires or arson rise 27% in the first quarter compared with a year... Reporting from Sacramento -- Motorists unable to afford payments on pricey cars and gas-guzzling sport utility vehicles in this recession are turning to a time-tested financing solution: matches. Insurance cheats are torching their vehicles in remote deserts. They're pushing them off cliffs. They're sinking them in lakes or ditching them in Mexico in the hopes of getting their policies to pay off, fraud investigators say. Nationwide, suspicious vehicle fires or arson increased 27% in the first quarter of this year compared with a year earlier, according to the National Insurance Crime Bureau, an industry-supported agency that investigates all types of insurance fraud. So-called owner give-ups -- cars intentionally destroyed or abandoned -- jumped 24%. Barbecuing a Beamer is one of the more dramatic types of suspected insurance fraud that's increasing in this economic downturn, the deepest in more than half a century. But it's not the only one. Suspicious personal injury slip-and-fall claims increased 60% in the first quarter; staged car accident cases were up 34% and commercial property fire/arson cases jumped 76%. Some consumers figure that they've paid premiums year after year, experts said, and that their insurers might not closely check every single claim. In fact, investigators say they tend to be particularly busy during tough economic times when an increasing number of policyholders are caught in financial crunches. "When the economy goes south, crime goes up," said Frank Scafidi, a crime bureau spokesman in Sacramento. Investigators say the number of suspected give-ups, which are often hard to prove, is minuscule compared with the more than 1 million vehicles reported stolen each year. They acknowledge that suspected fraud may be underreported because insurers can't meticulously investigate every vehicle fire or disappearance. Nevertheless, they said, the trend is clearly accelerating with 757 suspected vehicle fires nationwide in the first quarter of 2009, up from 596 in the same period last year. Crime bureau investigators found a direct correlation between owners missing multiple car payments and the filing of false insurance claims. Rising gasoline prices also appear to be linked to suspected fraud cases involving fuel-sucking SUVs. A soft used-car market also has consumers looking to their insurers for relief -- albeit illegally.

Obama confronts doubts on stimulus - (www.latimes.com) His assertions -- that 150,000 jobs have been saved or created already, and that the summer goal is 600,000 more -- appear to be elastic and are hard to verify. President Obama billed it as an adrenaline jolt -- a $787-billion stimulus package that not only would put people back to work, but also underwrite construction and energy projects the country had long neglected. But with the economy still sputtering and some experts doubting the program was meeting its goals, Obama vowed Monday to accelerate stimulus spending with the goal of creating or saving 600,000 jobs by summer's end. Opening a meeting with Cabinet members and Vice President Joe Biden, Obama sought to claim substantial progress while holding down expectations. "We've done more than ever, faster than ever, more responsibly than ever, to get the gears of the economy moving again," Obama said, and "we're in a position to really accelerate." Still, he acknowledged that job losses -- while lower than expected in May -- remained high. "We're still in the middle of a very deep recession," he said, and "it's going to take a considerable amount of time for us to pull out." Results of the stimulus spending are difficult to measure, and so far the promised federal money has been slow in coming. As of May 29, just over 100 days since Obama signed the bill into law, only about 6% of the funds had been spent. And on the jobs front, an early target was missed: Two of the president's top economic advisors put out a report Jan. 9 predicting that with the stimulus spending, the U.S. unemployment rate this year would not exceed 8%. It now stands at 9.4%. That figure is higher than Christina Romer and Jared Bernstein had said it would be even if the stimulus package had not been adopted.