Opening Bell: GM’s Gas-Guzzler Blues

Zero percent financing rides again; 100 percent financing rides again; Google News is overrated; etc.

General Motors continued its struggles, going back to its same old bag of tricks for another round of zero percent financing in a bid to spur cash- (and credit-) strapped consumers to take on yet more debt. The carmaker also will cut production of SUVs and pickup trucks for the second time in the last few weeks and increase the number of fuel-efficient cars it churns out.

The Wall Street Journal and Financial Times put the news on page one, while The New York Times drops it on C1. The Journal says it’s a move to fight the deep sales doldrums of the auto industry at a time when GM is about to fall to No. 2 in U.S. car sales to Toyota, an event that will be yet another reminder of its epic fall from domination. Just eight years ago, GM had 30 percent of that market, more than three times Toyota’s 9.3 percent, the WSJ reports. GM will offer up to six years of interest-free financing, though it’s raising 2009 prices by 3.5 percent.

Sky-high gas prices have consumers shunning gas-guzzling vehicles, especially pickups and SUVs. The NYT says Ford’s F-150 is selling so poorly (having been the top vehicle for twenty-six years in a row, it’s now No. 5) that the company is delaying the 2009 model by two months so dealers have something of a chance to clear some of their 2008 inventory. Pickup sales are down 32 percent and SUV sales are down 42 percent from 2007, the FT says.

But consumers are losing wealth in the housing bust, worried about losing their jobs, and they just aren’t buying cars much, period. The Times quotes an analyst saying so far June has been the industry’s worst month in fifteen years and Bloomberg, in noting that even Toyota may have to cut its sales goals, says auto sales are down 8.5 percent this year, and The Detroit News says GM is down 17 percent. The Journal quotes GM’s marketing chief summing up why:

“Zero percent seems to work,” Mr. LaNeve said. He added that recent declines in the value of used trucks have left some customers driving vehicles worth less than is owed on them, making it hard for owners to trade them in on new models. “A lot of customers are out of equity, and zero percent helps [with] that issue,” he said.

The Journal says GM’s stock is near a thirty-three-year low, while a Los Angeles Times blog notes that the entire market value of the company (about $7.3 billion) is less than that of the video-game retailer GameStop.

Just how much trouble is GM in? The Journal looks at the credit-default swap market, which sells insurance to protect against default. It’s pricing in a 70 percent likelikhood of GM defaulting in the next five years.

100 percent financing lives on

The Journal takes a page-one look at how it’s still possible to get no-down-payment mortgages and what that might mean for the government-insured loans.

The Federal Housing Administration is trying to crack down on down-payment assistance plans offered by nonprofits, which funnel money from sellers to buyers to help them close deals. The FHA requires a puny 3 percent down payment, which is a hurdle someone ought to be able to clear in order to purchase a house, especially in a market where prices are declining in many areas. That can leave the buyer with no equity cushion, making them more likely to default and put taxpayers on the hook.

A Journal chart shows the difference it makes: Borrowers who get down-payment help from nonprofits are about three times more likely to be delinquent in the first two years of their loan. And it’s a big problem: Down-payment assistance helped close more than one-third of all FHA loans this year, up from fewer than 2 percent eight years ago.

We thought this ended more than a year ago:

D.R. Horton Inc., the nation’s largest home builder by volume, is touting “100% financing” for its two- and three-bedroom condominiums near the beach in Maui, Hawaii, which start at $498,000. In the Seattle area, local builder Quadrant Corp. is advertising townhouses that can be purchased with as little as $500 down. “Use your coffee budget to move into a new home,” says an online promotion. In the St. Louis area, Vantage Homes recently promoted its suburban developments with ads suggesting a new home should be on the list of things to buy for those “looking for something to spend your economic stimulus check on.”

We note that the Journal did some good early reporting on the subject two years ago.

Men of steel

The Financial Times on page one and the Journal on B1 write that Chinese steelmakers agreed to increase what they pay for iron ore by an average 85 percent, stoking inflation worries. The FT says its a record increase.

The rise suggests that demand for commodities from emerging economies remains strong, in spite of the US slowdown, fuelling fears that global inflation will continue to rise.

The Journal:

For steelmakers, the news isn’t good, though it wasn’t entirely unexpected. There are just three major mining companies. The dozens of steelmakers face more competition and thus have little leverage on prices.

Regulating energy traders

In other commodities news, several hedge-fund managers and oil analysts testified to Congress yesterday that regulation of energy speculation could send prices tumbling back to more reasonable levels, the Journal says on A3.

Many legislators are seeking to curtail—or, in some cases, outright ban—swaps and bilateral trading in the energy futures markets, and set limits on investments on foreign exchanges operating in the U.S.

House Energy and Commerce Committee Chairman Rep. John Dingell, (D., Mich.), said lawmakers should set firm limits on the size of energy speculators’ positions, require full disclosure of all energy trading from investment banks; and prevent pension funds from investing in commodities as they seek to diversify their holdings.

The Journal on A4 says coal miners are having trouble keeping up with demand because of “a lengthy permitting process, lack of capital investment and a shortage of skilled miners.”

The Washington Post’s Dana Milbank reports on climate-change martyr James Hansen’s tour of the capital yesterday. He says forget about cutting oil use, stop coal now! Asked if he’s gotten to talk to the president, Hansen gave our Quote of the Day:

Hansen laughed at the thought. “Unfortunately, no, I’ve not had a chance to talk to the president,” he said. “I know that Michael Crichton did.”

The Journal’s page-one “ahed” notes that some in San Diego are making runs across the border to Tijuana to get subsidized Mexican gas. It says that “Mexicans aren’t happy about the gringo invasion and the long lines at filling stations near the border.” Ironic.

Baby with the bathwater?

The Journal reports on C1 that the Securities and Exchange Commission will propose rules that diminish the importance of credit-ratings firms like Moody’s and Standard & Poor’s, whose dismal performance in rating mortgage-backed securities and the like helped set off the credit bust.

The renewed effort is part of a wide-ranging regulatory push in the U.S. and Europe amid the credit crunch that has devastated many banks and investors.

The SEC will allow money-market funds to buy short-term debt regardless of what it’s rated by the credit-ratings folks. That’s one of a dozen changes, including one to “diminish the importance of credit ratings in determining the amount of capital that investment banks are required to hold.”

The question is: Is it better to have no ratings requirements at all or regulate them (largely by ending their huge conflicts of interest) to try to ensure their ratings are actually, you know, accurate? We’d say it’s the latter.

Google News gets beat

The Times on C1 looks at the overrated threat to newspapers posed by Google News, jumping off news earlier this week that the site ranked behind other news sites, including, in traffic.

The paper writes that Google News hasn’t changed much since it was launched, but contradicts that down low in the story when it rattles off several new features. It says the service can be slow, as when it was an hour behind everybody else on Tim Russert’s death with its computer-generated news-placement algorithm. That algorithm is pretty much why it’s so feared and loathed in the news business.

The Times quotes “people close to the company” saying Google doesn’t put ads on the site so as not to tick off news companies. It notes Europe has ruled the company has violated copyright laws by publishing links to news without permission and that Tribune owner Sam Zell has said it steals his company’s content.

Green Houses for gray heads

The Journal on A1 reports on a move to end the nursing-home business in favor of smaller facilities. It says the $10 billion Robert Wood Johnson Foundation is “throwing its considerable weight” behind the cause, dropping $15 million.

The so-called Green Houses have up to twelve residents compared to up to two hundred in regular nursing homes, and are meant to be more homey.

Green Houses face a host of hurdles. Many Green House builders say they’ve encountered a thicket of elder-care regulations. It takes enormous capital to build new homes from scratch. Plus, experts say the concept faces stiff resistance from many parts of the existing nursing-home system. Traditional nursing homes, many of which care for 100 to 200 patients, are predicated on economies of scale—the larger the home, the cheaper it is to care for each individual resident.

The WSJ says a five-year-old survey understandably found that just 1 percent of disabled Americans over fifty wanted to move into a nursing home.

Power outage

USA Today reports that more Americans are getting their utilities shut off for not paying. The paper says shutoffs are up more than 15 percent over last year “in several states”, and some utilities report their rates have doubled.

An NEADA survey this month shows 8% of four-member households earning $33,500 to $55,500 have had their power turned off for non-payment. “It’s hitting people in the suburbs with two cars and two kids,” Wolfe says.

The disconnects are rising as warm-weather power bills increase, some state moratoriums on winter shutoffs expire, and rates are climbing in many states.

Flacking for Home Depot

The Times for some reason thinks it should flack for Home Depot on its Business Day cover with a story about how the retailing giant is going to start recycling the newfangled compact fluorescent bulbs. This press release surely could have run inside.

Andrew Ross Sorkin makes up for that with a great column on Tom Wolfe’s thoughts on the latter-day “Bonfire” on Wall Street.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.