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Chewing on the year's business turkeys
Allan Sloan is a senior editor-at-large at Fortune
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TEXT OF INTERVIEW
Steve Chiotakis: Can you believe Thanksgiving is next week? And 'tis the season when millions of us will be devouring some plump, juicy turkey.
Fortune Magazine's Allan Sloan is looking at some turkeys of his own -- or as we like to call 'em, "foul" business dealings. Topping his list? The popular "Cash for Clunkers" program. He's with us now to talk about that and some other economic failures, in his opinion, of the past year. Good morning, Allan.
Allan Sloan: Good morning, Steve.
Chiotakis: All right, Cash for Clunkers. I mean, I thought, Allan, this brought people into the dealerships, I mean got 'em buying when they had no incentive to do so before. Are you saying it's a dud?
Sloan: Yeah. Because even though it did in fact increase sales while the program was on, it's decreased sales that would be happening now. Also, the used car market lost a whole lot of low-end used cars, which increases the price to the people who shop in that market, who are the lower income people, who are the people we're trying to help.
Chiotakis: All right, next turkey is Citibank and Fibro. I mean, if the U.S. government, i.e. the American taxpayer, owns 34 percent of Citi, right, these are bankers -- why didn't they know better?
Sloan: They sold Fibro energy trading business for a billion dollars under pressure from the government, and they could have easily gotten $1.5 billion probably more if they had been able to sell it freely instead of under the gun. And the reason they sold it, as I'm sure you remember, is that they were going to have to pay some of the people there so much money under their contracts that it would have brough afowl -- you should forgive the expression -- of the pay czar.
Chiotakis: All right, next turkey is TARP, right, these warrants.
Sloan: Right. The government got a piece of the action when it made TARP loans to banks. But under the rules, banks have the right ot buy back their piece of the action, which are known as stock purchase warrants, when they repay TARP. So most of the government's warrants got sold very, very early when the stocks of these banks was only starting to rise. And had they waited, we would have gotten a better price.
Chiotakis: What about future turkeys? More, or fewer turkeys in the future, Allan?
Sloan: Always more turkeys. Always more turkeys. You look around and there's a ton of cheap money now in the world and some deals are starting to get done. The government is holding interest rates too low, it's tryign to inflate the housing prices again. All of this is producing poults -- which are baby turkeys, to those of us who didn't grow up on farms -- and I am sure that next year or the year after, we will have, in time for Thanksgiving, another whole new batch of turkeys.
Chiotakis: Fortune Magazine's Allan Sloan joining us this morning. Allan, thanks.
Sloan: You're welcome, Steve.
"...which increases the price to the people who shop in that market, who are the lower income people, who are the people we're trying to help."
Incorrect. The people we're trying to help with all of these cash handout programs are business owners and their investors, not cash-strapped individuals.
That being said, "clunkers" still failed for the other reasons he cites.
Although I always enjoy Mr. Sloan's somewhat narrow point of view,I'm afraid he didn't consider his view carefully enough for my taste. As a career veteran of the auto sales and service industry I have a very different take on the cash for clunkers program. First, the surge in sales concurrent to the program in my area divided roughly 30% CFC, the rest "emotional" purchases. These purchases were not made by people who couldn't afford them, because credit was so tight. Those tradeins could be expected to be somewhat proportional thus in effect putting more inexpensive cars on the market rather than less; few of these tradeins were likely actually on the market until they were traded in. That's only the beginning. The obvious jump in employment across the huge automotive sector taking people off the unemployment rolls, adding them back to the tax-paying group, probably buying goods previously delayed. The Fed, states and municipalities got a sizable boost in sales taxes, further diminishing the program's cost to the taxpayer. The resulting rise in numbers of high value cars cause more spending for insurance now and down the road; tires and maintenance now and down the road; collision repairs now and, well, you get the picture. The numbers may show up in some obscure publication ten years from now, and they will probably be overwhelmingly positive and long lasting. Not to mention lowering pressure on fuel prices and reducing pollution related costs. Mr Sloan let out a few clucks of his own on this one. Thanks.
One item I rarely hear mentioned when economists discuss the "cash-for-clunkers" program is the environmental impact of taking these gas-guzzling cars off the road. Instead, the program is called a failure for a number of reasons, some of which Mr. Sloan mentioned. But does the environmental impact count for nothing? Has someone (not me, unfortunately) analyzed much less gas will burned and CO2 spewed because of the program?
