The Truth About Cars » Bailout The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Mon, 28 Jul 2014 14:03:43 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Bailout Was The Government’s Divestment of GM Stock Insider Trading? Fri, 23 May 2014 14:43:01 +0000 Department of the Treasury

Back in 2004, perfectionist homemaker and well known TV personality Martha Stewart was charged with insider trading. As presented, the facts in the case were simple. Martha owned stock in a medical research company called ImClone and, like a lot of people who invest in tech firms, she was hoping for a big payout when their product, a promising new cancer treatment, went on the market. Unfortunately, the FDA chose not to approve the drug and the value of the stock looked set to take a beating once the decision was announced. According to the charges initially brought against her, Martha and many of the company’s top executives learned of the FDA’s decision though their inside connections the day before it was publicly announced and were able to sell their shares before they crashed. That’s against the law and many of the people caught up in the scandal, including Martha who was convicted on the charge of making false claims to a federal investigator, ended up going to jail.

The above case is a useful example because it offers a clear cause-and-effect pattern and plays out along such a short timeline. Despite Martha’s protestations that she was innocent, the dots here appear to be easily connected. Most insider trading cases, however, require a little more imagination. The connections aren’t always so clear cut and sometimes the cases play out over a period of years. Take, for example, the US Government’s recent divestment of its massive amount of GM stock and the subsequent recall debacle that now threatens to drive that company’s stock prices through the floor. Coincidence? Some people think not.

Last December, the US Government sold its remaining shares in General Motors and ended a controversial bailout program that ultimately cost the American taxpayer something on the order $10 billion. At the time, the move puzzled many investment experts who argued that the government could have lessened its losses by simply holding onto the stock, which was trending upward at the time, and selling when its value was higher. It makes sense, right? The USG bought high and then sold low, even a novice investor like me knows that’s the opposite of what you’re supposed to do, so why not simply wait?

Recalled GM ignition switch

The move that looked so stupid then looks like genius today. In February of this year, just a couple months after the sale, GM announced the recall of 1.4 million cars for faulty ignition switches. In the months since, more GM vehicles have been recalled for other problems and, if you have been following the reports here on TTAC, you know that that the number of vehicles involved now exceeds GM’s total sales for the past 5 years! The question is did the government have inside knowledge that this was on the way? Well, evidence is emerging that GM had data going back to at least 2007 that the ignition switches were failing to function properly and the government’s own safety watchdog, the National Highway Traffic Safety Institute (NHTSA) shows the company was actively investigating the problem during the 2009 bailout. At some level, then, the government did know.

Whether or not the timing of the stock sale rises to the level of insider trading, however, remains to be seen. The US Government is bigger and more complex than most of us will ever know and the individual agencies don’t always communicate with one another with the efficiency we might expect. The NHTSA has an entirely different focus than the Treasury Department and the chances of their reports coming across the desk of the person charged with maintaining that portfolio are extremely small. Still, the appearance of malfeasance is enough to send the tin foil hat wearers into a frenzy and damage the public’s confidence in the markets. The matter needs to be looked into.

GM RenCen

Thomas Kreutzer currently lives in Buffalo, New York with his wife and three children but has spent most of his adult life overseas. He has lived in Japan for 9 years, Jamaica for 2 and spent almost 5 years as a US Merchant Mariner serving primarily in the Pacific. A long time auto and motorcycle enthusiast he has pursued his hobbies whenever possible. He also enjoys writing and public speaking where, according to his wife, his favorite subject is himself.

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GAO Report: GM Has Improved Since 2008 But Still Faces Challenges Wed, 30 Oct 2013 14:31:53 +0000 -1628080508

The Government Accountability Office issued a report on the U.S. Treasury’s investment in General Motors (and Ally Financial, the former GMAC credit arm of GM) which says that the automaker has improved since 2008 but that there still are concerns about competitiveness and market share as well as pension and labor costs. “Although GM’s financial performance has improved significantly since the company initially received federal assistance, questions remain about competitiveness, market share and costs,” the GAO said.

While GM sales were up 15% between 2010 and 2012, the North American market overall grew by more than 23% so GM lost market share. “GM’s North American market share generally has declined,” the report said. “In 2008, GM reported capturing 21.5 percent of the North American market, compared with 16.9 percent in 2012. GM reported that its North American market share was 17.2 percent through the second quarter of 2013.”

The report also said GM’s negotiations with the United Auto Workers when the current contract expires in 2015 will be key to the company’s future. “GM’s ability to remain competitive will also depend on its ability to continue to control costs, in particular its labor costs. Labor costs refer to the costs that GM incurs to pay workers to build its vehicles at factories in the United States and elsewhere. Through its restructuring, GM lowered labor costs, in part by reducing its workforce and making more efficient use of its remaining workers,” the report said. In addition to labor costs, funding pensions could have an impact, “GM’s large pension obligations could have a potential impact on GM’s costs.”

Full report (PDF) here.

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Government Reports $9.7 Billion Loss On GM Shares Tue, 29 Oct 2013 17:04:30 +0000 RenCen

With the vast majority of the government’s General Motors shares sold, the U.S. government is reporting a $9.7 billion loss, according to a Congressional report cited by the Detroit News.

With the government’s stake now down to about 7 percent, the report states that

“Because the common stock sales have all taken place below Treasury’s break even price, Treasury has so far booked a loss of $9.7 billion on the sales,” 

The United States Treasury would have to get $147.95 to break even on its GM stake – an unrealistic proposition given that the stock currently trades at $35.80. Once the government unloads the last of its stake (worth about $3.6 billion), the total loss should amount to $10 billion.

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U.S. Treasury Sells 110 Million Shares of GM Stock, Reducing Stake to 7.3% Thu, 19 Sep 2013 16:45:03 +0000 GM-building-US-Flag

The United States Treasury has reduced its stake in General Motors to 7.3% after selling off  another block of the shares it acquired during the bailout of the giant automaker. According to documents released earlier this week cited by Reuters, the Treasury sold at least 110 million shares between May 6 and September 13, raising more than $3.82 billion.

The U.S. government’s stake in GM is now down to 101 million shares, which means that more of GM is currently owned by the provincial Ontario and federal Canadian governments, 110 million shares, than by the U.S. Treasury. The U.S. government’s share in GM was originally almost 61%. Treasury put $49.5 billion into General Motors during the bailout and the agency says that it has recovered $35.4 billion so far.

“We remain on track to complete our exit from GM by early next year at a cost far less than originally projected,” Treasury Assistant Secretary Timothy Massad said in a statement. GM shares closed Tuesday at $36.71, making those 101 million remaining shares worth about $3.7 billion. If current stock prices hold, once divested, Treasury will likely lose about $10 billion on the bailout of GM.

Some analysts have predicted that once that full divestment is completed, GM may again start paying dividends on common shares, which it hasn’t done since the second quarter of 2008. GM executives have declined to comment on possible dividends, saying that the automaker’s current focus is on reinvesting in company operations.


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U.S. Treasury Continues Sell-Off of GM Shares, UAW Sells Warrants Tue, 13 Aug 2013 19:46:56 +0000 ten_dollar_bill_American_back

Continuing its divestment of the shares it obtained in General Motors for bailing out the automaker in 2009, the United States Treasury told Congress yesterday that it has sold $876.9 million dollars worth of GM stock last month, somewhere between 23 and 26 million shares, based on the trading prices during July. By those calculations, the U.S. government still holds about 136 million shares of GM, which closed yesterday at $35.98. At the rate that Treasury is selling off its GM shares, the government’s equity will be completely divested by early 2014. The government originally held a 61% stake in GM following the $49.5 billion bailout, over 500 million shares. By selling some of those shares, Treasury has recouped $34.6 billion of the $49.5 billion.

Also yesterday, the UAW’s health care trust finalized it’s sale of 45.4 million warrants that allow the holder to buy GM stock at a price of $42.31 before the end of 2015. The warrants were sold for $171 milion. According to the Detroit News’ David Shepardson, they were sold in a “modified Dutch auction” and can now be purchased on the open market. Shepardson told TTAC that large institutional investors were the likely buyers. At the offered price of $3.85 per warrent, GM stock would have to rise over $12 a share from its current price for it to be profitable should the purchasers exercise their rights. Since the UAW had no problem selling the warrants, it stands to reason that at least some of those large investors think that GM, or buying the warrants, which can be traded, is a good bet.

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Canada Preparing to Sell Its 10% Stake in GM, Reports Say Fri, 02 Aug 2013 17:26:44 +0000 GM Oshawa Plant Closure

Bloomberg and Sky News have reported that the Canadian government has started a selection process to find investment banks for selling off of the stake the government took in General Motors as part of its own contribution to bailing out the automaker. Late last year, Finance Minister Jim Flaherty said that Canada had no intention of holding those shares long-term. Together the federal Canadian and provincial Ontario governments own 140 million shares of common GM stock, valued at $5.1 billion (US), a 10% stake in the automaker, which makes Canada the company’s third biggest shareholder behind the U.S. Treasury and the UAW’s VEBA health plan. The governments had originally invested $9.5 billion in GM back in 2009, selling off 35 million of its shares when GM made its initial public offering of stock in the reorganized company.

In response to the news reports, a spokeswoman for Flaherty said in an email, “The government of Canada remains committed to exiting from ownership of GM as quickly as feasible, while maximizing the value of the government’s interests for Canadian taxpayers.” GM shares are now trading at 11% above the post-bankruptcy IPO price, and are up 27% this year. Around the same time that the Canadian finance minister made his remarks last December, GM announced that the U.S. Treasury would be selling it’s entire stake in the car company within 15 months.

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Ally Financial Explores Options For Treasury Exit, Seeks Immunity From ResCap Related Lawsuit Thu, 18 Jul 2013 13:00:00 +0000 ss_homepage

Ally Financial, what used to be known as the General Motors Acceptance Corporation, GMAC, before GM’s bankruptcy and bailout, itself received over $17 billion from the U.S. Treasury during the bailouts of 2009. On Tuesday the company said that it was looking into options on how to repay that money and comply with the Federal Reserves’ latest stress tests for financial institutions. Ally is 74% owned by Treasury and it is trying to buy back some taxpayer-owned stock and reach an agreement with the Fed on its capital structure (known as the “Comprehensive Capital Analysis and Review”) so it can offer stock in an IPO. Ally had originally planned on a 2011 IPO but having to resolve claims against its bankrupt Residential Capital mortgage unit delayed that. ResCap hopes to be out of bankruptcy by 2014.

More recently, in March the Fed said that Ally didn’t have enough capital, should there be another economic meltdown. Ally objected and they’re trying to come up with a plan that will get the Fed’s blessings.

In a filing with the SEC, Tuesday, Ally said that they are “exploring a number of alternatives in furtherance of repaying Treasury and supporting its Comprehensive Capital Analysis and Review resubmission to the Federal Reserve Board, including a possible primary issuance of common stock by Ally, and the use of available cash (and the proceeds of any stock issuance by Ally) to address Treasury’s mandatorily convertible preferred shares. No decision has been made to pursue any approach under consideration and the implementation of any such approach may require regulatory and other approvals.”

In a related matter, Ally won a small legal victory. In its role as conservator of Freddie Mac, the Federal Housing Finance Agency sued Ally, ResCap and affiliates alleging that there were false and misleading statements in documents concerning mortgage-backed securities that were bought by Freddie Mac. When ResCap filed for bankruptcy last year, the FHFA dropped them from the lawsuit but pursued it against Ally.

Ally responded by having ResCap sue the agency, claiming that to sue Ally and other non-bankrupt affiliates was a violation of bankruptcy’s automatic stay. The Bankruptcy Code in the U.S. automatically halts lawsuits against bankrupt companies.

A federal district court judge ruled that FHFA’s lawsuit against Ally could proceed and ResCap appealed, resulting in Tuesday’s ruling from the U.S. Court of Appeals that kicked it back to district court, instructing that judge that “automatic stay may apply” to non-bankrupt affiliates “in some limited circumstances”, that the stay would apply if the FHFA’s lawsuit would have “immediate adverse economic consequences” on ResCap, that the lower court should make “explicit findings” on the matter of if continuing the suit against non-bankrupt affiliates would have such consequences on ResCap.

What the lower court may do is not clear, particularly because things have changed since ResCap’s suit was filed. Since then the mortgage unit has reached a settlement with all of it’s creditors and has filed a reorganization plan under Ch. 11 of the bankruptcy code that is up for court approval next month. That plan involves Ally paying $2.1 billion to ResCap’s creditors.

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Treasury Unloads GM Stock Wed, 05 Jun 2013 15:24:15 +0000

Now that the GM share finally is trading a wee bit above its IPO price, The Treasury is eager to bail from the bailout. The government’s  fiance department announced “plans to sell 30 million shares of General Motors Co common stock as part of its ongoing effort to wind down the government’s stake in the bailed-out automaker,” Reuters says.

On June 6, the formerly disgrace stock will rejoin the S&P 500, which usually provides a lift, because index funds must buy the stock. That’s when the gov’s shares will sold, along with 20 million shares of GM stock held by the UAW Retiree Medical Benefits Trust.

Nonetheless, the “government looks certain to end up billions of dollars in the hole on the cost of the bailout,” Reuters says.

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EU Red Flags Spain’s Help For Ford Wed, 15 May 2013 13:55:36 +0000 S

In America,  government bailouts of ailing car companies are (at least in some circles) viewed as an inalienable right. In the EU, government aid generally is forbidden by law. Ironically, Ford, the only un-bailed-out Detroit company, now is in collision with these quaint continental regulations.

According to Reuters, “ EU antitrust regulators will investigate whether a 25.2 million euros ($32.71 million) grant given by Spanish authorities to U.S. carmaker Ford Motor Co’s van facility in Valencia breached EU state aid rules.”

Ford wants to produce the new Ford Transit Connect in Valencia, and the  Spanish government contributed a little to the cause that costs around $540 million.

The rest is a bit technical. According to Reuters, “the European Commission said on Wednesday that a preliminary investigation showed that the project might exceed the authorized 5 percent increase in production capacity on a market in decline,” but the Commission doubts data by the Spanish government and whether “the market concerned is in decline.”

The EU forbids bailouts not because they are seen as inherently evil, but rather because this is not a zero-sum game, and helping some would mean state-sponsored damage to others.

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Peugeot To Move “Upscale”, PSA Remains Without Low-Cost Brand Thu, 14 Feb 2013 13:30:30 +0000

Stop us if you’ve heard this one before. Unlike the poorly interpreted plans for Mazda to be a “premium” brand, PSA really is planning to take Peugeot upscale, despite having zero brand equity, an upscale Citroen line and zero exposure to the profit center of the future, low-cost cars.

The announcement came as PSA announced a record $6.7 billion loss for 2012, compared with a $588 million profit in 2011. PSA also laid out its plans for a recovery, including the baffling upscale move for the quality-plagued Peugeot brand.

Automotive News reported on the developments, quoting PSA CEO Philippe Varin

“The Peugeot brand will move toward a more modern image,” led by the 208 subcompact’s high-performance GTI version and the new 2008 SUV-styled crossover, Varin said. “In 2013, the positioning of our brands will be supported by a very rich range of products and 17 vehicle launches,” he said.

Despite being fetishized by North American euro-philes, Peugeot is on the cusp of irrelevancy in the European car market. While they have had some success with their B and C-segment offerings, the market for D-segment and above sedans has been moribund since Mitterand was in the Élysée Palace, serving mostly as minicabs in third-rate British towns and transportation for the bad guys in Ronin. The notion of Peugeot as a premium brand is laughable, and complicated even further by their intra-group rival Citroen.

At the turn of the decade, Citroen launched their DS line of premium hatchbacks, models which won critical acclaim but have still yet to set the sales charts on fire (the DS5, above, is the ride of choice for France’s Prime Minister). That will leave PSA with two brands which are aspiring to play in the premium segment, but without any sort of strategy for a low-cost brand to be sold both in Europe and developing markets – a strategy that has helped Renault-Nissan reap fat margins even in the current lean times. Unbelievably  this strategy is a central tenet of PSA’s recovery plan, which was demanded in exchange for government help for its financing unit.

Among the other stipulations include targeting for 50 percent of its vehicles to be sold outside Europe by 2015 (a tough one, in light of having no low-cost product to sell in developing markets), doubling production volumes via its alliance with GM, and achieving a 13 percent market share in a market that PSA assumes will hold at 2012 levels of car sales. In the words of one Credit Suisse analyst “Both look unlikely now”. Given that the writing is on the wall for a continued decline in European new car sales it’s impossible to fathom how PSA could present these plans with a straight face.

But for a company like PSA, 2015 is a long way away. Let’s see if they make it through 2013 without becoming partially state owned, and then take it from there.

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PSA May Get French Government Bailout Fri, 08 Feb 2013 17:35:29 +0000

The French government is denying that it plans to acquire a stake in PSA, but France’s Prime Minister told reporters that mechanisms for providing government assistance have already been vetted.

At a time of high unemployment and factory closures across France, the fate of PSA is a sensitive one. PSA’s sales have been tanking, hampered by an uncompetitive product line, falling car sales in Europe and a lack of low-cost product to compete in emerging markets.

Peugeot has already cut 8,00 jobs in the country as part of its plan to break even by 2014. But the company’s losses, estimated at 200 million euros a month. Amid an announcement of a $5.53 billion writedown, French politicians began going on the offensive regarding PSA, with the country’s budget minister declaring that “Let’s be clear: this company cannot, must not disappear”.

French PM Jean-Marc Ayrault told Reuters that a more detailed plan had already been drawn up, while simultaneously denying that any action would be taken at this point

“We do have a tool, the FSI (France’s sovereign-wealth fund), which can if necessary take a stake. But today this question is not being looked at,”

Ironically, Peugeot, unlike its rival Renault, is entirely owned by private actors, while the French government owns a 15 percent stake in Renault. But that could change quickly given the way things are progressing.

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The TARP Is Lifting: Government Motors No More, In About A Year Or So Wed, 19 Dec 2012 15:00:30 +0000

It has been repeatedly suggested that GM should use its ample profits to buy back the shares held by the U.S. government (don’t forget the Canadians.). Finally, GM listens to reasons. Or, possibly, strong suggestions from Washington. GM will purchase 200 million shares of GM common stock held by the U.S. Department of the Treasury for $5.5 billion, or $27.50 per share, the company said in a statement  The share buyback is part of the Treasury’s plan, also announced today, to fully exit its entire holdings of GM stock within 12 to 15 months, subject to market conditions.

Stock buyback plans usually lift the price of the share. Promptly, GM shares were up some 8 percent to 27.57 at the open.

After the buyback, Treasury will still own a stake of about 19 percent, down from about 26 percent currently. Treasury said it will sell its remaining stake of about 300.1 million shares “through various means in an orderly fashion” over the next 12 months to 15 months, and could begin the process as soon as January. That could bring the price down again.

According to Reuters, Treasury has agreed to relinquish certain governance rights, including required levels of U.S. manufacturing and barring the purchase of corporate jets. Senior executive payment caps under TARP remain in place. Once Uncle Sam is completely out of the picture, it will be bonus time at RenCen.

The Canadians remained unmentioned in the declarations of impending independence. Canadian Finance Minister Jim Flaherty told Reuters that his government has no immediate plans to sell its stake in General Motors. Not now, maybe later. Oh well, maybe Government Motors a little longer.

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FT: GM-PSA Tie-up On The Ropes Due To Irreconcilable Differences Wed, 14 Nov 2012 12:17:23 +0000

A while ago, I chatted with an industry executive who had “done time” (his words) at GM. I asked him how that was, and he said: “There is always that talk about the current Big Deal that will bring the company back to its former glory. When that Big Deal fizzles, it’s on to the next Big Deal.” A formerly Big Deal is fizzling in Europe.

As we reported yesterday, General Motors and PSA have put the brakes on a broader alliance. Allegedly after PSA accepted financial assistance from the French government, as Reuters says, which broke the story. GM’s stock price immediately changed course southwards, because the consequences  can be enormous..

You have a right to be curious why GM, itself no stranger to government assistance, suddenly can’t stand it when an alliance partner receives a much smaller alm from a sympathetic government. As so often, the ostensible reasons mask the true ones. Not to our surprise, Financial Times Deutschland heard from its informants that the couple has irreconcilable differences, and GM is begging for a reason to get out. Says the FTD:

“The French are disappointed about the alliance with GM: PSA hopes for financial assistance for their expansion into growth markets such as China. All GM is looking for is a partner to help them with the rehab of GM’s problem child Opel. The alliance is at the end of its rope.”

Isn’t it always like that: The girl dreams of a log lasting future, of travel to far away lands. All the boy wants is to deposit his wad and run.

What have the French been drinking anyway if they thought GM would help them break into China et al, where a scrappy Volkswagen most likely already unseated GM as China’s largest automaker (pending Volkswagen data)? GM’s again ostensible reason to deny Saab its licenses were to avoid competition in China. As for what GM has been smoking if they thought PSA would volunteer to be used as a hazardous waste site for Opel– we have asked this repeatedly.

Another reason: France’s new socialist government has been openly opposed to PSA’s diddling with Les Américains, and money talks. Not that  France’s new industry minister Arnaud Montebourg is totally against alliances, mais non,  but they must be with the proper people:

“Peugeot needs to build alliances. But we need to … measure their consequences for our country and obtain Peugeot’s commitment to preserve all its French sites.”

And wouldn’t you know, a day after the story breaks,  PSA is said to be in talks with India’s Tata Motors about an alliance, Reuters reports. Now this one would be a better fit. Growth markets beckon for PSA, Europe beckons for Tata, everybody happy.

The Big Deal du jour was for PSA and Opel to move in together in a joint-venture type setting. A joint study found by la Tribune envisaged the automotive arm of PSA and GM form a new entity. GM would contribute Opel, along with $5 billion, and GM’s best wishes for a happy future. That would have been a Very Big Deal for GM. Adam Jonas, an analyst at Morgan Stanley, figures $13 billion would be more like the proper dowry to off-load sick Opel.  Hear the fizzling sound?

PSA has been bailed out by the French government with a $24 billion rescue package, ostensibly to shore-up Peugeot-Citroen’s bank. Giving it directly to PSA would have violated EU rules. The Germans promptly cried foul and may sue. If Brussels says no, then Paris can (as it had done before) throw up its arms, say “we have tried” and the romantic couple can be at it again.

Spokesfolk at PSA and GM say it’s business as usual, and that an unbroken alliance will focus on “logistics, purchasing and product development.” Of course they would say that. However, if you lose between $1.5 and $1.8 billion in Europe, you won’t make it up with group purchases of wiper blades. As far as PSA is concerned, it has received nothing but grief from the deal with GM. BMW dumped them after BMW found a new lover in Toyota. Much more painful: PSA had to sacrifice a juicy parts and components deal with Iran, after a U.S. pressure group created a stink. Doubly painful: Having no American beau, Renault’s business with Iran thrives.

Messy, messy, messy.

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Ed Niedermeyer In Today’s Wall Street Journal Sat, 03 Nov 2012 19:18:12 +0000

TTAC alumni Ed Niedermeyer has an op-ed in the Wall Street Journal. The piece discusses the spin surrounding the bailout in this year’s campaign. Check it out here.

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Auction Day: The Euro Bailout Wed, 31 Oct 2012 16:36:59 +0000

What percentage of new cars sold this year in the United States have European badges?

3%… 5% maybe? Not even close! Through September 2012 it stands at approximately 9.5%

The recent successes of VW, Audi and BMW/Mini are quite noteworthy. 10 years ago, European marketshare in the U.S. was only at 7.1%.

However this isn’t the entire story. Used European vehicles are often considered to be pricey to fix and expensive to own. At a recent sale in Atlanta this week the percentage of Euro vehicles was nowhere near 7%, or 9%.

It was over 23%.

VW 1.8 Liter engine with sludge issues? Present.

Audi in need of ride suspension elimination kit? Yeps!

Volvo with transmission issues. Audi with transmission issues. Saab with transmission issues. You.. bet… cha!

Out of 113 vehicles sold during the run, 27 of them were European… and metro-Atlanta tends not to be nearly as popular with European models as the folks up in the Northeast.  This auction may have been little more than a statistical quirk. But it was quite amusing to see.

There were also a few other surprises.

This 2002 Ford Focus SE wagon with 28,000 miles

And this 2004 Jaguar XJ8 with 181,000 miles.


Sold for nearly the same price. the Focus sold for $4600 (plus auction fee) while the Jag with the Tony the Tiger imprint on the steering wheel sold for all of $4800 (plus fee). No announcements for either of the two.

My beloved Tauruses continue to do well. A 2002 SES model with cloth and 79,000 miles sold for $3500, which happened to be the exact same price I sold a 2001 model with leather and 95,000 miles not too long ago.

Then there was the big kahuna. In this case it was a 2006 Land Rover Range Rover HSE (try to say that ten times really fast.) Two dealers got in a dogfight at around 18 grand and the final tally was $24,200. It had 109,754 miles and I hope the groom of this beastly bride will enjoy being married to it for quite a while. Either that or the Landy had a built in distillery in the back.

I managed to come in second a lot… which is fine. For the last couple of months I have been busy buying up whatever seems to be in decent in full knowledge that when tax season comes around, prices will go up, and quality will go way, way down.

One other thing. Convertibles. Why do some folks feel the need to trade-in their convertible during the mid to late fall? Dealers have to sit on that opportunity in most areas of the country which means the price you get will border on bupkis.


2002 Jaguar XKR, no defect announcements, 106k, – $9800

2001 Saab 9-3 SE, Frame Damage, Non-visible, 128k – $2700

2001 Volvo C70 HT, (Tranny Needs Service, Prior Fleet, Frame Damage, Title Branded, Miles Exempt… but looked nice!), 109k- $1900

The last one sold to a guy know who liquidates vehicles at a public auction north of Atlanta. A couple of weeks ago he told me he sold 15 out of 20 at a nearby public sale, and I don’t doubt it. Every dealer has a niche. Although I never would have the stomach for something like that.

This auto auction was ground zero for the falling of the Euro… car. And guess who eventually pays for the bailout? On the cheap of course.


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How The GM Bailout Turned Into Foreign Aid Sat, 13 Oct 2012 10:20:49 +0000

Longtime reader and new contributor Tyler Vandermeulen is a financial analyst by day. He took a deep dive into the EDGAR database to unearth how much of GM’s money flows abroad. Please welcome Tyler with the respect he deserves. Rude comments will not be tolerated.

Before the bailout of General Motors, it was well understood that the world’s largest automaker was losing huge amounts of money in the US and was staying afloat thanks to stronger performance in overseas markets. Since the bailout, however, that dynamic has been turned on its head. Thanks to a leaner manufacturing footprint, debt eliminations and steadily recovering sales, GM’s US operations have generated the lion’s share of the company’s profit since the bailout. And now, as the rest of the world economy slows, GM is spending more and more of its taxpayer-enhanced cash pile to shore up its faltering foreign divisions. In fact, according to an analysis of GM’s SEC filings, the company is likely to incur over $6.5 billion in losses and expenditures overseas in the 2011-2014 period, not counting over $1.6b in foreign potential legal liabilities or several other incalculable expenses that could add up to billions more. Not only are these expenses a challenge to GM’s overall financial health at a time when it also faces billion-dollar expenditures on pensions in the US, it shows the basic problem with national bailouts of global companies. Taxpayers who were told they were saving an American company are now seeing their tax dollars flowing overseas by the billions.

A full calculation of GM’s overseas expenditures since the bailout would be a daunting task indeed. Simply by scouring GM’s latest SEC filings, one finds no shortage of losses and one-time expenditures abroad. In fact, nearly every division of GM’s global empire has required some kind of assistance over the last year or so. These expenditures come in many forms, from tax assessments to investments, from bailouts to severance deals, and due to the complex nature of GM’s global finances they cannot be fully accounted with precision. But they all emphasize the reality that, after years of living off foreign operations, GM’s bailed-out North American division is now bailing out the rest of the world.

Europe: Black Hole Opel, Unions, PSA

GM’s European losses currently get the most attention from analysts, and are nothing new for The General, which has reportedly lost over $14b in Europe over the last decade. Those losses and expenditures continue to add up. In the two full years since GM decided to cancel a planned sale of its European division Opel, GM Europe’s losses have added up to $2.74 billion, with another $617m lost in the first half of 2012 (EBIT). Additional goodwill adjustments of $590m in the first half of 2012 and $621m in 2011 further added to the losses. Additionally, GM has spent some $313m on voluntary severance for European workers, and expects to spend another $100m on the same program through the end of next year. Finally, GM has an undisclosed agreement with European labor unions to spend as much as $265m per year between 2011 and 2014. The company has pledged some $406m in inventory as collateral for that agreement. Not counting the spending agreement with European unions, this puts GM’s losses and outlays on Opel and GME in the last two and a half years at more than $4.25 billion.

GM’s losses in Europe aren’t likely to end there. This year, GM spent $400 million on a 7% stake in Peugeot-Citroen PSA, an investment that GM admits has already lost value. GM says it plans to hold onto that stake for the long term, and has chosen not to write down that loss… yet. Just today, rumors surfaced that GM could spend even more money on its Peugeot tie-up, possibly providing capital for an Opel-PSA joint venture. Meanwhile, the worst-case scenario for Opel involves an estimated $13b outlay to shut down plants and prepare Opel for a sale, according to Morgan Stanley analyst Adam Jonas. In this scenario, GM could spend as much as half of its cash pile extricating itself from its money-losing European operations.

GM losses and outlays in Europe, 2010-June 2012: $4.5b+

Asia: Korea Debt, Murky Hong Kong Dealings 

GM’s Asian operations are consolidated as GM International Operations (GMIO), a division that includes Korea, China, Australia, India and other Asian markets. Prior to the bailout, GM’s Chinese operations were widely considered to be a major profit center for the company, while Korea has become increasingly important as a development center and India has potential for future growth. However, GMIO’s profitability has been weak in comparison to the revitalized North American division, generating just $400m in consolidated adjusted EBIT in the first half of 2012. And since 2011, GM has had several expenses associated with its Asian operations.

In 2011, GM spent $100m for 7% of its GM Korea subsidiary, increasing its holding to 77%. This year, GM has recorded a $27m Goodwill impairment related to its Korean operations, and has paid $22m to Korean workers as part of its severance program there. GM Korea also carries significant amounts of short-term and long-term debt to Korean creditors that GM will have to pay down.

More puzzling is GM’s strange Indian joint venture with its Chinese partner SAIC. In late 2009, GM rolled its Indian operations into a 50-50 joint venture with SAIC, known as the Hong Kong Joint Venture, or HKJV. By the first quarter of 2011, that venture had lost enough value for GM to record an impairment of $39m and “other charges totaling $67m.” From there things get strange. According to GM’s 10-Q:

“We were informed of SAIC-HK’s intent to exercise its right to not participate in future capital injections in HKJV. If this occurs we plan to settle the promissory note in the three months ending September 30, 2012 and provide an additional equity investment of $125 million into HKJV. As a result SAIC-HK’s interest in HKJV would be diluted from 50% to 9%. We also anticipate that the shareholders agreement would be amended such that we obtain control of and consolidate HKJV.”

It would seem that GM is buying its partner out of the Indian arrangement at a cost of $125m, however, GM has had several convoluted transactions with SAIC in the past, most notably in the sale of its “Golden Share” in the Shanghai-GM joint venture, which was offset by a Chinese bank loan and was eventually rolled back. It’s too early to say for sure whether GM will purchase the controlling stake in HKJV, and thereby regain full control of its India business. It is unlikely that SAIC will relinquish its grip on India, just because it suddenly can’t service the capital requirements of the HKJV. Possibly, more information will become available when GM files its Q3 paperwork, or possibly later. With some 30% of GM’s global sales in China, GM shareholders  deserve more visibility into this byzantine part of GM’s world.

GM Outlays on GMIO, 2011-2012: ~$380m

South America: Tax Assessments

GM’s South American unit dipped into the red in the second quarter of this year, and its $64m net EBIT through the first half of 2012 is just $7m better than its Q1 2011 performance alone. But even if GMSA’s performance improves this year, it has paid out around $100m this year between the purchase of GMAC’s Venezuelan financing operation and a worker severance program in Brazil. $700m was also spent in 2011 to retire debt facilities at GMSA. Furthermore, GM has run into several tax assessments in South America, including a $292m assessment for the years 2002-2004 by the Mexican government and a $180m assessment for 2007 by the Brazilian government. GM says it has “adequate reserves” to meet these obligations, but notes:

“Certain South American income and indirect tax-related administrative proceedings may require that we deposit funds in escrow or make payments which may range up to $0.9 billion.”

GM Outlays in South America, 2011-2012: ~$1.7b

Legal Liabilities

Due to the unpredictable nature of legal disputes, the amount of overseas legal liability carried by GM may not result in actual expenditures. That said, the following legal liabilities are noted in GM’s SEC filings:

Settlement of class action suits regarding Canadian pricing policy: $21m

GM Canada “Lock up agreement” lawsuit: potential liability $918m

Korean labor law suit: $152m in accrual, $556m in further potential liability.

Potential overseas legal liability: ~$1.65b

Without including potential liability costs or the more inevitable costs associated with Opel’s restructuring, GM has spent or lost in excess of $6.5b overseas in the last 30 months or so. With more losses and expenses coming, taxpayers can expect to see their investment in GM’s North American operations continue to support a steady flow of cash to GM’s overseas operations. Perhaps taxpayers should have been told that they weren’t simply bailing out an American automaker, but a variety of overseas operations as well.

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Rattner Defends Bailout With Old Talking Points Tue, 09 Oct 2012 16:15:12 +0000

Ford did not receive a government bailout. Not directly. It would have gone down the tubes along GM and Chrysler, if they would have been allowed to die, Steve Rattner, the head of the auto task force, told Bloomberg.

Said Rattner:

“Ford would have closed because it wouldn’t have been able to get parts, because the parts industry in this country was in arguably worse shape than the assemblers.”

Rattner repeated another favorite talking point of bailout supporters, namely that the U.S. government was the only entity that could save the domestic automakers because no one, including banks that were dealing with their own financial crises, was willing to put private capital into GM and Chrysler at the beginning of 2009.

But then, as the head of the taskforce, what should he say?



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In Pain, European Carmakers And Unions Turn To Obama For Inspiration Mon, 03 Sep 2012 08:37:38 +0000

People in Europe had a lot of time to think about their troubled future during their long vacation. Coming back to work, they are “ready to shut plants and lay off staff,” as Reuters observes. Executives and union leaders are said to be in rare agreement over who to emulate: Obama, the UAW, and Detroit. Europeans want their bailout too. Some do, at least.

“Barack Obama said the federal government was ready to help (GM and Chrysler) on condition they carry out the necessary restructuring,” said Laurence Parisot, head of French employers’ organization Medef. “”If we want our companies to be competitive market leaders again in five or 10 years, we have to accept some adjustments.” Likewise, some union leaders “are calculating that cuts now can save more jobs later,” says Reuters.

Those “adjustments “ could be brutal if the U.S.A. is taken as an example. At GM alone, the adjustments did cost four brands, 14 U.S. plants and 21,000 jobs. The fact that employers and employees in Europe start thinking about cutting off the leg to save the body illustrates the level of pain they are going through

“Higher restructuring hurdles, from bankruptcy law to labor protection, also mean European cutbacks will never match Detroit’s for depth or speed” says Reuters.”Still, the U.S. example is too recent and, so far, successful to ignore.”

There is a much bigger hurdle: Not everybody in Europe is hurting: “Two in five European plants are running below 75 percent, deemed the minimum profitable rate, while Volkswagen’s factories are close to full tilt. The laggards are concentrated in Italy, France and Spain,” says Reuters.  Government bailouts are against EU regulations. Those regulations can be changed or flouted – but that needs unanimous consent. So far, the call for government help come from Fiat’s Marchionne and now  from GM-partner PSA. Volkswagen says “let them die” and is getting ready to pick up the pieces. But what if Volkswagen also gets affected?

Germany’s Automobilwoche [sub] reported over the weekend that Volkswagen is getting ready to cut its currently red-hot production by ten percent. Nonsense, says Volkswagen.

“The given scenarios are speculative and factually not correct,” a Volkswagen spokesman told Reuters. He also added that the situation in some markets is “tense” and that the coming months will be “significantly more difficult and demanding.”

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GM, Chrysler To Political Candidates: GTFO Mon, 27 Aug 2012 20:49:17 +0000 Click here to view the embedded video.

Auto plant visits, long a staple of election-year vote-courting for politicians, are now banned at both GM and Chrysler plants until after the votes have been counted.

GM and Chrysler implemented the move in response to the highly politicized nature of the auto industry following the bailout. An article in the Detroit Free Press contains a summary that could have been lifted right from the TTAC comments section, complete with references to “Government Motors”, the Chevrolet Volt and the question of when the Treasury will dump GM’s stock.

The most encouraging quote comes from GM’s Bob Ferguson, VP for global public policy, who told the paper

“We would like to put all of our energy behind selling our cars and trucks…it’s an understatement to say we can’t wait for November to get here.”

Amen to that.

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Report: Treasury Behind Delphi Pensions Debacle Tue, 07 Aug 2012 17:21:58 +0000

The Daily Caller says it has emails that prove that the pensions of 20,000 salaried retirees at Delphi were terminated “solely because those retirees were not members of labor unions.”

The emails, says the conservative website “contradict sworn testimony, in federal court and before Congress, given by several Obama administration figures. They also indicate that the administration misled lawmakers and the courts about the sequence of events surrounding the termination of those non-union pensions, and that administration figures violated federal law.”

In 1994, GM spun off its parts business into Delphi.  In 2005, the company went Chapter 11.  Later, parts of the business was sold, wound down, or sold back to GM. Says the Daily Caller:

“Twenty thousand of its workers lost nearly their entire pensions when the government bailed out GM. At the same time, Delphi employees who were members of the United Auto Workers union saw their pensions topped off and made whole.”

In sworn testimony, former Treasury official Matthew Feldman and former White House auto czar Ron Bloom, stated that the Pension Benefit Guaranty Corporation (PBGC), and not the administration, “led the effort to terminate the non-union Delphi workers’ pension plan,” the Daily Caller says. “The emails TheDC has obtained show that the Treasury Department, not the independent PBGC, was running the show.”

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Dead Brand Pool 2014: The Brutal Retreat Sun, 05 Aug 2012 00:07:17 +0000

The most successful brands in our industry don’t have much meaning to them.

Toyota, Chevrolet, Ford, Hyundai, Kia, all of these are names that wouldn’t evoke much of any imagery had their manufacturers never existed.

Mercury and Saturn are popular planets that make you think of space and the futuristic pursuit of those faraway places. Acura should be quite accurate and precise. Rams are tough. Infiniti pays homage to the outer limits of capability and performance.

Yet all of these names experienced failure, or ultimately failed, due to the key essential ingredient within any brand’s reputation.


Scion now finds itself on the edge of irrelevance due to a series of bad products. Although I believe that Scion is essential to Toyota’s long-term performance in North America, other experts have plenty of good reasons to disagree with me.

The most obvious loser these days is smart, which has turned out to be a failure par excellence. You didn’t need a brilliant iQ or bat 500 with our prior features on dead brands to figure out why. Bad product will always be to cars what bad loans will be to the banks.

A risk free opportunity to shed debt, liquidate assets, and drink deeply in the vassals of government loans and grants.

Doubt me?

You should, if the automaker you are considering is headquartered in Europe.

Opel, Fiat and Peugeot appear to be suffering a decline that is, in part, due to their dependence on home markets that are stunted by an endless sea of bad governance and legacy costs.

A lot of folks believe that European consolidation has been due ever since British Leyland got sliced, diced and sold to whatever foolish suitors were willing to buy their market sizzle. Those rotten stakes didn’t add up to very much back then. Today the sizzle of a brand name means even less since the profit in mature markets may be non-existent.

Now these victors of yesteryear find themselves competing against global automakers that are not dependent on mature and declining markets with little to no profit. Europe’s long cold recession may only give VW the smallest of sniffles. While Opel, Fiat and Peugeot are now suffering with varying levels of flu like symptoms, and unprofitable products developed for a home audience that is simply not there.

The historians among us may look back on the past failures of these three in North America and wonder, “Does a lack of success in major overseas markets eventually yield itself to domestic weakness?” If this is the case, does the ‘new’ GM and Chrysler stand even a shadow of a chance over the long run?

As for Japan Inc., Mitsubishi seems to be tanking it here in North America… even as a Hertz special. Suzuki is hanging on in a near zombie state of North American product rot. Not too far away in India, Jaguar and Land Rover are still not quite ready for a prime time hit. Should they pack up their star spangled tent and focus their limited resources on the emerging economic engines of East Asia and the Pacific Rim?

Then we have the high end of the market. Too many names and certain pseudo-elite manufacturers are playing too many games with an information enriched public.

The shakeout is already taking place. Maybach never could muster up the prestige of Mercedes. But how about Maserati? Will their social equity investments continue to yield a small dividend of increased sales? Or will the better funded competitors in Germany and Japan turn the beleaguered trident into an archaic pitchfork?

Change in the global auto industry is always slow. You always see the dimming headlights well before the automaker sees the cliff. But time and money are finite, as is the future for some modern day manufacturers and their brands.

It looks like nearly everyone will emerge from 2012 with a continuing lease on life. SAAB may even be revived. But how about everyone else by say… 2014?

Who do you believe is already on the slippery slope to a depreciation hell solely reserved for orphan brands?


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General Motors To Invest In Oshawa R&D Tue, 24 Jul 2012 15:04:40 +0000

The closing of the Oshawa Consolidated Line supposedly had GM in the bailout doghouse – the company was supposed to maintain a certain level of production in Canada according to the terms of their bailout package. As far as we know, GM hasn’t replenished that yet, but they are throwing the Canadian federal and Ontario governments a bone by investing an undisclosed nine-figure sum into R&D at Oshawa.

A report in The Globe and Mail explains the funding increase

“One of the promises GM Canada made to the two governments in 2009 was that it would spend about $1-billion on research and development projects between then and 2016…The projects to be initiated or expanded between now and 2016 are expected to focus on environmental technologies, electric vehicles, vehicle weight reduction and so-called intelligent transportation systems.”

Prime Minister Stephen Harper and Ontario Premier Dalton McGunity are expected to be in attendance, though the recent string of gun deaths in Toronto will likely dominate the media scrum. That means that nobody will ask GM how it plans on meeting other bailout conditions, like

“As part of its 2009 commitments, GM Canada also agreed that its Canadian plants would produce 16 per cent of the vehicles General Motors Co. assembled in North America between 2009 and 2016…a fuel-efficient transmission at its St. Catharines, Ont., operation and… assembly of five new vehicles in Oshawa or Ingersoll during the same period.”

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Paper: Auto Bailout Was A UAW Bailout Thu, 14 Jun 2012 07:15:29 +0000 Moody’s has been less than impressed with GM’s recent pension cuts/buyouts:

“GM’s plan has some constructive elements,” said Bruce Clark, senior vice president at Moody’s. “It will reduce the company’s pension assets and liabilities by $26 billion and relieve it of the obligation to make future payments to most of its salaried retirees. It will also free it from the volatility associated with pension investment returns, long-term interest rates and mortality rates.”

“These benefits come with a cost. GM will spend $3.5 billion to $4.5 billion on this undertaking, and when all is said and done, the company’s total underfunded pension liability will be reduced by only $1.0 billion. The aggregate underfunded liability will still be a very large at about $24 billion.”

There could have been a more cost-effective solution: Bankruptcy. Before you scream “unfair:” What about the nesteggs that had GM stocks and bonds in them? Why are GM pensions sacrosanct when others aren’t?

A new paper out today, by George Mason University prof/Mercatus Center scholar Todd Zywicki and Heritage Foundation scholar James Sherk, argues that the auto bailout was really just a transfer of $20+ billion from taxpayers to the UAW:

The U.S. government will lose about $23 billion on the 2008-2009 bailout of General Motors and Chrysler. President Obama emphatically defends his decision to subsidize the automakers, arguing it was necessary to prevent massive job losses. But, even accepting this premise, the government could have executed the bailout with no net cost to taxpayers. It could have—had the Administration required the United Auto Workers (UAW) to accept standard bankruptcy concessions instead of granting the union preferential treatment. The extra UAW subsidies cost $26.5 billion—more than the entire foreign aid budget in 2011. The Administration did not need to lose money to keep GM and Chrysler operating. The Detroit auto bailout was, in fact, a UAW bailout.”

Another summary in a Heritage blog post on the paper:

“We estimate that the Administration redistributed $26.5 billion more to the UAW than it would have received had it been treated as it usually would in bankruptcy proceedings. Taxpayers lost between $20 billion and $23 billion on the auto programs. Thus, the entire loss to the taxpayers from the auto bailout comes from the funds diverted to the UAW.”

Zywicki, argued in RealClearPolitics last year that GM could’ve been in a better competitive position had it gone through a normal bankruptcy:

“But perhaps most misleading about the myth of the auto bailout success is that by restructuring through a politicized bailout process both companies were left in a weaker competitive position than they would have been had they simply gone through a traditional chapter 11 process. Rather than a restructuring process focused on maximizing the economic value and viability of the firms, they were saddled with 535 new members of their boards of directors driving decision making through the lens of politics rather than economics.”

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Romney Says He Deserves “A Lot Of Credit” For Auto Industry Recovery Tue, 08 May 2012 16:46:08 +0000

Republican Presidential hopeful Mitt Romney told voters in Ohio that he deserves “a lot of credit” for the auto industry turnaround since the bailout era.

Romney told the Detroit News

“I pushed the idea of a managed bankruptcy, and finally when that was done, and help was given, the companies got back on their feet,” Romney said in an interview inside a Cleveland-area auto parts maker. “So, I’ll take a lot of credit for the fact that this industry has come back.”

What? On what planet does Romney deserve credit? As far as anyone knows, Romney published a New York Times op-ed…and that was it. Romney claims that Obama took his advice on a managed bankruptcy, but there’s no real proof of that ever occurring. Chrysler and GM did go through bankruptcy after a government bailout but their demise looks far from “guaranteed” at this point in time (as Romney put it in his piece). In the same vein, perhaps Romney will take credit for President Obama’s health care plan.

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Biden: “Osama bin Laden Is Dead And General Motors Is Alive”” Fri, 27 Apr 2012 17:02:00 +0000

Vice-President Joe Biden has been talking about the auto bailout frequently as the campaign for his re-election heats up in the coming months. A speech to NYU had him tout the record of the Obama administration, while also criticizing Gov. Mitt Romney’s famous “Let Detroit Go Bankrupt” op-ed.

“If you’re looking for a bumper sticker to sum up how President Obama has handled what we inherited, it’s pretty simple: Osama bin Laden is dead and General Motors is alive,” Biden said Thursday at New York University. “Gov. Romney is counting on our collective amnesia. But Americans know that we cannot afford to go back to the future.”

Is this a new bumper sticker slogan, or what? In the interest of not bringing on accusations that TTAC is an anti-GM, anti-democrat, anti-Volt yellow rag, we’ll leave it to the B&B to make what they will of the article.

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