Auto bailouts on firing line at presidential debate

Paul Sancya / AP file

The Obama administration's bailout of General Motors was one of the hot-button issues dividing President Obama and GOP challenger Mitt Romney during Tuesday night's presidential debate.

By Paul A. Eisenstein, NBCNews contributor
This week’s second presidential debate focused on a wide variety of issues from the economy to foreign policy, and the health of the auto industry was one of the most significant topics touched on by President Barack Obama and his GOP challenger Mitt Romney.

The two couldn’t be further apart on the subject of the 2008–2009 bailout of General Motors and Chrysler. The Democratic president touted the Treasury-funded rescue of the two automakers, which the Republican challenger has long opposed.

But while he once supported clean energy programs, Romney has also come out against the government-funded, low-interest loan program that has helped fund a number of battery makers, automotive startups and other green firms. In the first presidential debate in Denver, he referred to several firms by name, dubbing California battery-car startups Tesla Motors and Fisker Automotive “losers.”

There’s no doubt that the Department of Energy's loan program has picked some clunkers, notably the solar panel maker Solyndra, which received $527 million before going bankrupt. This week, another firm that was helped out by the Energy Department also filed for Chapter 11. But the results may turn out better when it comes to Massachusetts-based A123 Systems.

A producer of lithium-ion batteries, A123 is one of many once-hopeful suppliers stung by a slower-than-anticipated ramp-up in demand for battery-electric vehicles. Its situation was complicated by manufacturing issues and a costly recall earlier this year. But A123’s doors aren’t closing. After rejecting a potential rescue bid from China, it has instead agreed to sell its auto business to mega-automotive supplier JCI.

“We believe the deal makes very good strategic sense,” writes Rod Lache, senior automotive analyst with Deutsche Bank. If anything, under the new — and well-funded — parent, he contends, that automotive battery operation could now do even better. The purchase by well-run JCI “should likely allay customers’ concerns” about whether A123 would be able to survive an ongoing shake-out in the battery market.

Meanwhile, the sale of A123 comes as good news for one of the companies Romney cited by name: Fisker Automotive. The California plug-in hybrid maker is one of A123’s most visible customers and was hurt by the battery-pack recall. But Fisker was facing the possibility it might run out of batteries by next year if A123 had folded.

Nonetheless, the fate of Fisker remains far from certain. Its first product line, the Karma, got off to a slow start that led the Department of Energy to freeze its $529 million loan after the automaker had drawn only $193 million of that cash.

That has complicated plans to develop a second, lower-cost and higher-volume model, the Fisker Atlantic, that will be much more critical to the automaker’s bottom line. Fisker officials have privately complained that they’re caught in the crossfire due to the politicization of the Department of Energy loan program and have been scrambling to replace that money with private funds. They’ve raised about $300 million this year, but new Fisker CEO Tony Posawatz this week told investors the launch of the Atlantic will be delayed to 2014 or even 2015 — leading some to question the company’s future.

As for Tesla Motors, its outlook is also up in the air, depending upon whom you ask. Founder and CEO Elon Musk — a PayPal pioneer who also runs private space firm SpaceX — has acknowledged production of the new mainstream battery-electric vehicle, the Tesla Model S, is way behind schedule and that is putting a serious strain on the company’s finances with few other sources of revenue to tap.

Up to speed
Nonetheless, Musk and others at Tesla insist they will be up to speed and in the black by next year when a second product line, the Model X crossover, debuts. Tim Draper, a legendary Silicon Valley entrepreneur and early investor in the firm, is so confident he recently told Detroit to “create something different because you’ve lost the electric-car battle.” Asked what they might turn to, he suggested, “flying cars.”

While the Department of Energy loan program might be controversial, the real point of contention between Obama and Romney concerns the bailouts of GM and Chrysler. Both companies were surviving on lifelines thrown to the automakers by President George W. Bush when Obama took office. Obama eventually approved the rest of what turned into an $84 billion rescue.

Romney called for both carmakers to be cut loose, despite his family ties to Michigan. He continues to insist he opposes the bailout, although the former Massachusetts governor has also taken credit for nudging the Obama administration into pushing GM and Chrysler through managed bankruptcies before approving further cash aid.

Bailout proponents insist the rescue effort saved as many as 1 million jobs. And they have some significant momentum on their side as the auto industry gains credit as one of the leading factors in the revival of the U.S. economy. Between them, Chrysler and GM have also added tens of thousands of new direct and indirect jobs since their rescues as their sales increase.

Chrysler, the smaller of the two automakers, has shown a 24 percent sales gain this year — about 10 points ahead of the overall automotive recovery. It's doing so well that Chrysler could be the financial foundation for its Italian partner Fiat SpA, which is struggling during the collapse of the European car market. That’s doubly ironic considering that Obama approved a rescue of Chrysler only after Fiat agreed to take it over.

General Motors' story is a mixed one, though investors have given the maker an increased vote of support despite some serious, ongoing issues.

GM sales are up this year, though not quite keeping up with the overall market revival. But it is the powerhouse in key emerging markets such as China. Its biggest issue is Europe: GM's Opel subsidiary will post its 14th year of red ink in 2012 with no clear turnaround in sight.

That was a key reason for the sharp downturn in GM stock following its November 2010 IPO. But over the last three months it has staged one of the market’s stronger rallies, rebounding from barely $18 a share to nearly $25 a share. Upcoming third-quarter earnings could determine whether it maintains that momentum.

And the pre-election announcement will likely only add to the sniping between Obama and Romney. The latter has insisted he would have immediately sold the Treasury’s remaining shares over the summer, which would have meant billions of dollars more losses than if the White House walked away today.

Nonetheless, GM would have to climb all the way to $54 a share for taxpayers to break even on the bailout, so the president seems in no rush to sell those shares despite the ongoing debate.

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Driver, the prosecution of insurers sparks privacy debate

California turns into a battlefield for the technology, which allows track car insurers handling their customers and offer them lower premiums, but that advocates as an excessive interference with serious consequences reject privacy.

Insurance companies are increasingly small boxes customers install cars that where they drive everything from how much customers drive to their average speeds to monitor.

Auto insurer progressive Corp., leads the market for so-called usage based insurance, estimates that about enough drive 70 percent of the people who sign up for the program well to get a discount.

But privacy advocates say that the lower premiums, not the trade-offs are value, because the data could, unexpected purposes are used such as punishment of the driver, to visit the unsafe areas. This argument holds rule with the California Department of insurance, which is opposed, the development of technology.

"There are, although occasional discussions with certain insurers and providers the Department no immediate plans, usage-based evaluation factors that initiate has", said Pat McConahay, a spokeswoman for the California Department of insurance, in an e-Mail.

The State opposition is a problem for insurers. Nearly 10 percent of the cars on the road in the United States are in California and almost 13 per cent of all car insurance companies are there written (more than twice next largest state), making it an important market for the highly fragmented industry.

"We have tried for quite some time, some movement," said Richard Hutchinson, general manager of the usage-based insurance program with progressive, in a recent interview. "It may in fact require the legislature."

In California it is complicated, insurance rules change. California voters has a law, known as prop 103 1989 strict setting rules for how car insurance be priced could be. At the time only a few imagine a day when insurers could insert a small box into their cars and track how, when and where they go.

It looks like the only metric that the State allows to track is miles hazard-admittedly a crucial component of any usage-based program, but not the only factor for most of them. Most programs should you distances driven, stop and restart of host of other variable speeds and times of day driven.

Insurance Commissioner of the State has at least two concerns about the technology: questions of privacy and fears that insurance be punish drivers for factors beyond their control, such as charge more for a person, Beruf forces them to drive at night.

Legislators could overrule the Commissioner, but it would be difficult. Would have to prop 103 to change, to the legislature the original objectives of the proposition sponsored and passed every Bill then show that Bill is a with a two-thirds majority, all but hopeless task in the fractious California Assembly and Senate.

Already before 10 years sound privacy advocates alerts over the misuse of vehicle tracking data. The Electronic Frontier Foundation, focuses itself, law, the driver, has aggressively against changes to California the prosecution would allow on digital privacy issues.

"There is real danger, that this information would be used not only to examine the political or connecting lines of the rider, but also to charge more if you drive and Park in neighborhoods with high vehicle theft and crime rates", said the group in a 2009 statement.

Insurers could also "Associate your health insurance rates with location data that shows your lunch break trips to McDonald's," the group added.

These may legitimate concerns, but many Americans seem either ignored or discounted the risks. At least eight of the country's ten car insurers have a type of program, full roll-out or in studies.

Many customers end up with lower premiums-most insurers promise savings of up to 30 percent. And drivers can be ready, settle for even less. A recent Deloitte survey found that 52 percent of insured consumers 20 percent or less would accept a discount, to install the necessary hardware.

A spokesman for Ron Calderon, the Chairman of the Insurance Committee in the Senate, said that his Office allow not aware any planned legislation was usage-based insurance in California, although he supported the idea.

An industry source said, Department speak insurers and their representatives at the insurance and that officials are "open to listen to input from the industry", but no actual progress is pretty far away.

Copyright 2011 Thomson Reuters.

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