Chrysler to repay federal loans today

| Tuesday, May 24, 2011
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It's a great day for Chrysler and the American taxpayer as the once-bankrupt automaker is set to repay $7.5 billion in loans, including interest, to the U.S. and Canadian governments.

You'll recall that Chrysler CEO Sergio Marchionne once referred to the debt as "shyster loans" because of the high rate of interest some of the loans carried. (He later apologized.) Chrysler is refinancing that debt by obtaining new bank loans with better terms, much in the same way you or I would refinance a home mortgage.

Detroit News business columnist Dan Howes writes--correctly--that repaying the loans four years early validates the Obama administration's decision two years ago to rescue the automaker at a time when many thought Chrysler was too sick to survive.

There's certainly much to be done to ensure its long-term success, but Marchionne has done a masterful job of bring Chrysler this far. And the company's relationship with Italian automaker Fiat looks like a far better fit than the disastrous DaimlerChrysler hookup.

A Chrysler spokesman told me today's loan repayment ceremony at the Sterling Heights Assembly plant won't be as flashy as the event nearly 30 years ago when then-Chrysler Chairman Lee Iacocca displayed a huge cardboard check, representing repayment of Chrysler bailout loans seven years ahead of schedule.

"We're in a direct-deposit kind of world today," the spokesman said.

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Economist Paul Krugman gives a shout-out to manufacturing, Michigan

| Friday, May 20, 2011
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We've known for some time that manufacturing employment is on the rise. But now the East Coast media elite has taken notice.

New York Times columnist and Nobel Prize-winning economist Paul Krugman writes today that the numbers show America is making things again, with Michigan and the rest of the Midwest leading the way.

Krugman, an avowed liberal, also credits the Obama administration's rescue of General Motors and Chrysler for making the manufacturing renaissance possible.

Actually, we never really stopped making things. As Chicago Federal Reserve economist William Strauss wrote last year, U.S. manufacturing has boomed over the past 60 years. But employment stayed flat during most of that time due to remarkable increases in productivity.

The composition of U.S. manufacturing also changed, largely shifting from low-value consumer products to high-value airplanes, machinery, pharmaceuticals and other goods.

Hundreds of thousands of manufacturing jobs that were lost during the Great Recession are starting to return. But let's not confuse the manufacturing recovery with long-term growth in manufacturing employment. Chicago Fed economist William Testa is among those who say manufacturing employment is likely to level off once manufacturers rebuild inventories.

But kudos to Krugman for detailing a positive development in flyover land.

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No consensus on whether tax cuts create jobs

| Thursday, May 19, 2011
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Gov. Rick Snyder's plan to cut businesses taxes by $1.7 billion just needs his signature to become law after the legislature approved the plan last week. He and Republican lawmakers say the tax cut will create thousands more jobs.

But experts I spoke with in reporting on a story for Crain's Detroit Business disagreed on the impact of tax cuts. Even those who maintain lower taxes lead to job growth say tax rates are just one element in a mix of factors that produce a vibrant economy.

South Dakota, for instance, has the best business tax climate in the country, according to the conservative Tax Foundation. If simply having low taxes was all-important, businesses should be flocking to the Mount Rushmore State. But they're not.

Snyder's business tax plan also has been criticized by those who say it violates the governor's call for "shared sacrifice" in reinventing Michigan. While many pensioners and low-income families will see their taxes rise, about 95,000 businesses in the state won't pay any business taxes. Owners of those businesses will be taxed on their income through the personal income tax, though.

Nevertheless, Snyder might have been able to defuse the argument that businesses are avoiding shared sacrifice had he required all businesses (except maybe startups) to pay something in taxes. Even conservative tax policy groups advocate for low tax rates spread across a broad base of taxpayers.

Yes, I'm well aware of the argument that businesses don't actually pay taxes--they pass them on to consumers in their pricing structures.

But there's another argument that says businesses benefit from government services, including schools, and police and fire protection, and should therefore contribute to paying for those services.

Designing a business tax system that is competitive, fair and brings in sufficient revenues to support government services isn't easy. Snyder has quickly and successfully pushed his plan through the legislature. We'll see how it goes.

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Auto sales coming back strong

| Wednesday, May 18, 2011
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Sales of cars and trucks are expected to return to pre-recession levels by 2013, according to a new forecast by A.T. Kearney.

The management consulting firm said it expects sales to rise to 13.2 million vehicles this year from 11.6 million last year. Automakers are expected to sell about 16 million vehicles by 2013.

And the Detroit News reports that $4-a-gallon gas isn't killing auto sales. Yes, consumers are buying small, more-fuel efficient vehicles. But that's OK because the retooled Detroit Three are making money on smaller cars now.

Analysts also expect the Detroit Three to hold market share against foreign competitors over the next several years, which is good news for Michigan's economy.

The state already is starting to feel the benefit of rising auto sales through job growth and more money going into state coffers. A revenue estimating conference held earlier this week predicted an estimated budget surplus of $429 million for the current fiscal year.

But rising auto says won't exactly usher in the return of the good old days of auto jobs in Michigan. Domestic automakers and suppliers will be building all those new cars and trucks with about a third of the workers they employed 10 years ago, according to the Center for Automotive Research.

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Expected state budget surplus bad news for Gov. Rick Snyder's Michigan reinvention plan

| Tuesday, May 17, 2011
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Former White House chief of staff turned Chicago Mayor Rahm Emanuel famously said, "You never want a serious crisis to go to waste."

Emanuel made that statement to a group of CEOs just weeks after President Barack Obama was elected and faced the worst U.S. economic crisis in 70 years. Emanuel elaborated:

"Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with. This crisis provides the opportunity for us to do things that you could not do before."

Gov. Rick Snyder is describing Michigan in similar terms. He's taking swift, controversial actions to right the state's fiscal ship.

But the state's financial crisis is beginning to ease, threatening Snyder's momentum in cutting costs and implementing a long-term fix for the state budget.

Economists on Monday agreed that Michigan is likely to end this fiscal year with an unanticipated surplus of $429 million. That's touched off a debate about what to do with the extra cash. Restore some cuts to K-12 education and universities? Rebuild the state's rainy day fund? Undo the tax on pensions?

What do you think?

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How will we know if Gov. Rick Snyder's tax plan is working?

| Monday, May 16, 2011
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It's been called "historic" and a "game changer." Gov. Rick Snyder's plan to end the Michigan Business Tax and replace it with a 6 percent corporate income tax has passed the legislature and awaits Snyder's inevitable signature.

The governor and his supporters in the business community say the $1.7 billion tax cut will produce thousands of new jobs. But if the promised jobs materialize, how will we know if the tax cuts were responsible?

Tough question to answer, especially at a time when Michigan's economy already has started to recover from its so-called "lost decade." The state has added 87,900 payroll jobs through March since the low point of the Great Recession in December of 2009. (How about that jobs-killing MBT?) Michigan's unemployment rate has fallen for 18 straight months to a still too-high 10.3 percent.

University of Michigan economists George Fulton and Joan Crary have predicted that Michigan will have gained 126,100 jobs from the start of this year through the end of 2012. Their forecast, issued in March before Snyder's tax plan passed, assumed the MBT would remain in effect through 2012. Fulton wouldn't bite when I asked him, prior to legislative approval of Snyder's tax plan, how it might affect his jobs forecast.

Much of Michigan's recent job growth is a result of a resurgent auto industry. And many of the companies adding a significant number of new jobs are automakers and other large suppliers that don't get a big break under Snyder's plan. In fact, large "C" corporations that have stockholders are the only ones that will pay the 6 percent corporate income tax.

What this says is that job growth is dependent on a variety of factors, most of all a strong demand for goods and services in the national economy.

But the big tax cut could get the attention of out-of-state business investment decision-makers who've heard mostly bad economic news coming out of the state for the past decade.

Bold actions are sometimes necessary to change perceptions. Snyder's big tax cut for business is likely to be noticed around the country and could cause companies that didn't consider Michigan for investment in the past to take a second look.

Let's just hope they're not looking for lucrative tax credits as sweeteners to come here, though. Those have been eliminated in the newly approved tax plan.

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Debate still rages over the effectiveness of auto bailouts

| Thursday, May 12, 2011
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Speakers at a General Motors Co. plant investment announcement in Toledo this week issued a spirited defense of the federal government's $50 billion bailout of GM in 2009. That led to an outbreak of opinions about whether former President George Bush (yes, he cut the first checks) and President Barack Obama should have saved GM and Chrysler or let them fail.

The morning after GM said it planned to invest $2 billion in 17 plants, preserving and adding 4,000 jobs, Tom Gantert at the free-market think tank Mackinac Center for Public Policy wrote a piece drawing on views by the Reason Foundation and the Cato Institute that said the feds should have sent GM and Chrysler to the junkyard.

E.J. Dionne Jr., writing in the Washington Post, disagreed, citing GM's $3.2 billion first-quarter profit as evidence that GM has turned the corner and that the bailouts worked.

I agree that the government-backed bankruptcies of GM and Chrysler were necessary. Call me a homer if you like, but Michigan's already hard-hit economy would have been obliterated had GM and Chrysler been forced to liquidate.

Dan Ikenson at the Cato Institute doesn't see it that way, of course. Ikenson argues that had GM failed, Ford Motor Co. simply would have hired GM's engineers, captured most of its sales and life would gone on without much trouble.

The problem with that reasoning is GM and Ford (and many other auto companies) share the same suppliers. Many of them likely would have failed in the aftermath of a GM liquidation, threatening Ford's survival. Even Ford CEO Alan Mulally acknowledged that risk.

Many conservatives and free-market types have argued that GM and Chrysler should have gone through bankruptcy without the federal government's help. But as AOL Autos Editor David Kiley says in his in-depth analysis of the bailouts, banks that would normally would have provided bankruptcy financing to GM and Chrysler all were in trouble, leaving the federal government as the only option.

But maybe former President Bush provided the best explanation in 2008 for his decision to intervene and provide assistance to the automakers:

If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy," Bush said at the White House, in remarks carried live by the national broadcast networks. "In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed.

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Auto jobs boosting Michigan's economy (again)

| Tuesday, May 10, 2011
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General Motors Co. is expected to announce today that it's investing $2 billion in 17 plants and adding 4,200 jobs--$4-a-gallon gas be damned.

GM Chairman Dan Akerson and Ohio Gov. John Kasich are slated to make the announcement at a GM transmission plant in Toledo. But Michigan appears to be the big winner.

Akerson reportedly will announce that GM will add 2,000 jobs at its Detroit-Hamtramck plant to boost production of the Chevy Volt. Take that, all you naysayers who predicted the Volt would flop!

The prospect of long-term high gas prices, and the fact that the Volt is a great car, are fueling strong sales.

When gas prices last topped $4 a gallon three years ago, automakers were touting vehicles that got 30 miles to the gallon. Now, a few are boosting of models that achieve 40 mpg. Maybe automakers will be able to meet President Barack Obama's mandate that they meet a 62 mpg standard by 2025 after all.

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