Huge payout to investors would leave city near bankruptcy, analyst says

BY ZACHARY GORCHOW • FREE PRESS STAFF WRITER • January 7, 2009

The City of Detroit’s finances slid into crisis Tuesday after one of the country’s leading credit rating agencies downgraded the city’s rating to junk-bond status, a move one financial analyst said could eventually push the city into bankruptcy

One official expected the move to lead to a substantial increase in the interest the city pays on its debt, which could affect how the city delivers services. The downgrade also enables investors with which the city engaged in so-called credit swap agreements to request a payout from the city totaling $400 million.

Either scenario would rob the city of money from its general fund at a time when it faces a $300-million deficit and by most accounts already is failing to deliver adequate services to residents.

City officials say they are assembling a plan to avoid having to come up with $400 million and instead offer guarantees to the investors, such as collateral.

“We are resolved to ensure that Detroit is financially stable,” Mayor Ken Cockrel Jr. said at a news conference at Cobo Center.

Credit swaps are agreements between the city and investors. In exchange for a lower interest rate on bonds, the city agrees to maintain an investment-grade rating.

City’s options

Joseph Harris, the city’s chief financial officer, said officials are putting together a plan so that holders of the credit swaps will be convinced not to demand their money. He declined to offer details, but said it would involve putting up city assets as collateral or other measures.

“We won’t be able to come up with $400 million,” Harris said. “We don’t expect anyone to ask us for $400 million. What we expect them to ask us for is some guarantees or some assurances.”

Irvin Corley Jr., the City Council’s fiscal analyst, said a $400-million payout could push the city into bankruptcy.

“I would think they would understand that the city is not in a position to come up with $400 million,” he said.

Corley said the downgrade could result in the city’s interest rates rising between 50% and 75%, meaning a 5% rate could rise to 7.5%-8.75%.

Junk-bond status is not unheard of for major U.S. cities. New Orleans, Miami and Pittsburgh all spent time in junk-bond status in the last 10 years. So has the Detroit Public Schools.

Late audits a problem

In a statement, Standard & Poor’s explained it lowered the city’s ratings from BBB and BBB- to BB for two kinds of debt because the city had failed to meet promises to eliminate its deficit and turn in its annual audit on time, because of the local economy and because of perceived instability in the city with multiple mayoral elections this year.

There was no word on whether Moody’s or Fitch Ratings, the other major credit rating agencies, would follow suit.

Detroit has failed to submit its audit on time for years, and is more than a year late in finishing its 2006-07 fiscal year audit, which has caused the state to withhold $42 million in revenue sharing aid and require prior approval to issue any bonds.

Terry Stanton, spokesman for the Michigan Department of Treasury, said the state is not considering an emergency financial manager as a result of the city’s lowered bond status.

“Obviously the downgrade is unfortunate, though not necessarily a surprise,” he said.

The state is in contact with city officials and “will assist in any way we can,” Stanton said. No other Michigan city is in junk-bond status, Stanton said.

Just a year ago, then-Mayor Kwame Kilpatrick had boasted of S&P boosting the city’s outlook from negative to stable. But Cockrel, who became mayor Sept. 19 after Kilpatrick resigned, said S&P officials feel deceived.

Cockrel is expected to unveil his deficit-elimination plan this month and also must present a fiscal year 2009-10 budget to the council in April.

“We’ve got to put together a budget whereby our revenues either equal or exceed our expenditures,” Harris said.

Councilwoman Sheila Cockrel, chairwoman of the council’s Budget, Finance and Audit Committee, called the downgrade “as serious as you can get.”

She said the situation should prompt everyone in the city — elected leaders, business, labor and residents — to make the sacrifices necessary to finally balance Detroit’s budget.

“We as a City Council, as a community and as a group of city leaders are going to have to address the fundamental restructuring of city government,” she said.

Besides the potentially severe financial cost to the city, the downgrade also is a major image blow to the city.

“Ultimately the only way to deal with the problem is to fix it,” Mayor Cockrel said.

Contact ZACHARY GORCHOW at zgorchow@freepress.com or 313-222-6678. Staff writer Naomi R. Patton contributed to this report.

Link to story

Survey: Detroit second-worst place to live

BY LATESHIA DOWELL • FREE PRESS STAFF WRITER • January 7, 2009

Detroit is the second-worst city in the United States to live and work in, according to a survey listed on Yahoo Real Estate.

The survey commented that Detroit has an image problem — citing the dwindling population, poverty, auto industry woes and, of course, the text message scandal.

This survey was completed by 2,500 employees and entrepreneurs across the country.

• SURVEY: See the complete results

The respondents were asked about 40 large cities. The questions asked were “Imagine you were offered your dream job that required you to relocate. Which region in the following list would you be most likely to choose? … and which city region … would you be least likely to choose?”

Out of the 2,500 workers surveyed, 14% said they would not like to move to Detroit.

The survey takers were asked to choose the top three attributes for each city. The top two negative attributes of the city, according to the survey, were health and safety (55%) and image (49%).

The best and worst cities were then ranked based on the total number of first-, second-, and third-choice votes as a percentage of total votes.

Americans have a love/hate relationship with New York as it topped both lists as being the best and worst city to live and work in. San Diego and San Francisco came in second and third place on the best list, and Los Angeles took third place on the worst.

Link to story

Leonard N. Fleming and Christine Macdonald / The Detroit News

DETROIT — The city, already grappling with a $300 million budget shortfall and future layoffs, is now bracing for a $400 million payment that must be made to bond investors because Detroit’s credit rating was downgraded, the Detroit News has learned.

The decision by Standard & Poors to lower the city’s rating to junk bond status Tuesday has triggered what city officials have described as a ‘termination event” that requires the city to pay millions.

“It’s as serious as you can get,” said Councilwoman Sheila Cockrel. “It is not doomsday, but it is a very, very serious situation and requires everybody to step up and understand that there’s no political solution to this.”

Irvin Corley Jr., the city’s fiscal analyst, said the downgrade was bad news for the already struggling city and will mean further cuts. Harris has already said the city’s deficit could reach $300 million.

“Oh wow,” Corley said when told of the downgrade. “It just exacerbates our budget challenges.”

Corley said he is hoping the city can put together a payment plan so that it doesn’t have to come up with the full amount at once.

“Given the magnitude, I am assuming the city wouldn’t have to come up with the full amount,” Corley said. “Obviously that would crash the city.”

Mayor Kenneth Cockrel Jr. was unavailable for comment.

Cockrel is currently putting together a deficit elimination plan, which likely will include layoffs and sale of city assets.

This financial calamity happened because the city entered into a swap agreement that sought to secure the city’s interest rates as if the bonds had always been issued at a fixed rate, city officials said.

“No one is going to expect us to come up with $400 million tomorrow,” said Joe Harris, the city’s budget director, in an interview Tuesday. “It has to be handled. They have to be reasonable when this termination event happens.

The tough year that financial markets had in the past few years caused interest rates to drop and the trigger amount — which once stood at $90 million if the city fell into junk bond status — to increase.

You can reach Leonard N. Fleming at (313) 222-2072 or lfleming@detnews.com.

…

She married Lou Beatty and they have two children. The marriage ended in divorce in 2006. Beatty recently dropped out as a law s

Beatty was named in a slander lawsuit along with Kwame Kilpatrick and police chief Ella Bully-Cummings brought about by two police officers that claimed to have been slandered in the media by the trio. ^[4]

The lawsuit stems from a 2004 incident in which the two police officers pulled Beatty over for speeding. Beatty was irate at being stopped and bluntly asked the officers, “Do you know who the fuck I am?” when the officers came to the vehicle. ^[4] While stopped, Beatty called Police Chief Bully-Cummings to have the officers called off, which the officers allege they were ordered to do. When reports of the incident started to surface in the media, Beatty, Kilpatrick, and Bully-Cummings all claimed that the traffic stop was some type of “set-up” to harass Beatty. ^[5]
The parties in the law suit entered into mediation which recommended a settlement of $25,000 which was rejected twice by the Detroit City Council. ^[6]
The attorney for the officers said “The mayor has been exposed and I may want more money for my clients now,” after it was revealed through text messages that Kilpatrick and Beatty were involved in a sexual relationship that both denied under oath. ^[5]
The lawsuit was settled for $25,000 and the attorney for the officers said of the officers,”They don’t want to be embroiled in this whole [text messaging] scandal
exchanged between Beatty and Kilpatrick on their city issued SkyTel pagers between September-October 2002 and April-May 2003. The dates are of importance because they encompass the time periods of the alleged Manoogian Mansion party and the ouster of Gary Brown respectively. ^[7]
Beatty and Kilpatrick, both married to other people at the time, did discuss city business. However, many of the series of messages described not a professional relationship but an extramarital sexual relationship between the two, often in graphic detail which included Ms. Beatty’s desire to give Kwame some “good head” and his acceptance of that offer. The text messages further described their use of city funds to arrange romantic getaways, their fears of being caught by the mayor’s police protection unit, and evidence the pair conspired to fire Detroit Deputy Police Chief Gary Brown. ^[7]
In an August 2007 trial, Kilpatrick and Beatty both denied that they had a sexual relationship or that they fired Brown while under oath.
Beatty resigned as mayoral chief of staff stating “I believe that it is clear I can no longer effectively carry out the duties of chief of staff.” ^[2] She did not indicate if she would resign from her position of the Detroit Medical Center board of directors.
Wayne County Prosecutor Kym Worthy began an investigation of perjury charges after the Detroit Free Press revealed the existence of text messages which supported allegations that Kilpatrick and Beatty lied under oath about an extramarital affair during a lawsuit brought by Detroit police officers. ^[9]
The investigation ended with Beatty being charged with seven felonies consisting of perjury, conspiracy to obstruct justice, misconduct in office and obstruction of justice. The charges carry a maximum sentence of five to fifteen years
On December 1, 2008, Beatty admitted lying under oath and was sentenced to 120 days in jail. She will also be on probation for five years and, during that time, will have to reimburse the city of Detroit $100,000, if she is capable of doing so. On January 5, 2009 she will begin her sentence at the Wayne County Jail. ^[10]

Detroit Mayoral Texting Scandal and Cost Of Lawyer by lemacks

Taxpayers Unit. Tell Pres. Obama An Auto Czar .. by lemacks

…..
Moderator Note: I read this insightful and passionate commentary by Tom Walsh of the Detroit Free Press. Please read it and comment on it.

TOM WALSH
Car czar should be named now
BY TOM WALSH • FREE PRESS COLUMNIST • January 6, 2009
This may sound pushy, or even panicky, but President-elect Barack Obama needs to name a car czar immediately to clear the air about the terms and conditions of federal aid to our quasi-nationalized automobile industry.
That’s immediately, as in right now. This week.

The longer Obama waits to name a point person for the overhaul of Detroit, the longer the domestic auto industry will remain stalled and the longer it will take a crippled General Motors Corp. and a crippled Chrysler LLC to stabilize, if indeed they are to avoid bankruptcy.

Monday’s monthly reports of December car and truck sales were stark reminders that outgoing President George W. Bush’s Dec. 19 promise of $13.4 billion in bridge loans for GM and Chrysler was only an emergency transfusion, not a cure for what ails Detroit.

Chrysler sales fell a staggering 53% from December 2007 levels, while GM and Ford Motor Co. sales were off more than 30% each. Sales are not expected to improve during the next three months.

Meanwhile, GM and Chrysler face a Feb. 17 deadline to provide Uncle Sam with updated, detailed plans to achieve viability and profitability by making vehicles with “a product mix that is competitive in the United States.” If the federal government isn’t satisfied with progress by March 31, it can call the loans and force one or both companies into bankruptcy.

Also looming next week are deadlines for GM and Chrysler to provide the first biweekly “liquidity status reports” on their shaky finances, as required by the bridge loan deals.

One monumental problem with this pressing timetable is that key parties to the viability plans — like the UAW and investors in GM and Chrysler bonds — may be balking at the sacrifices outlined in the terms of the Bush bridge loans.

UAW President Ron Gettelfinger has already stated that he plans to appeal to Obama and the new Congress to remove targets from the Bush rescue plan that call for UAW wages and work rules to match those of foreign-owned competitors by the end of 2009.

Bondholders, meanwhile, may be reluctant to exchange two-thirds of their debt for equity in the automakers, even though the bridge loan deal sets that as a target.

In the recent move to convert the GMAC finance unit into a bank holding company, GMAC aimed to convert 75% of its debt into preferred stock but fell well short of that target, convincing less than 60% of bondholders. The government gave GMAC a $6-billion cash infusion anyway, which could make GM and Chrysler bondholders hesitant to trade debt for less-secure equity.

Auto parts suppliers, amid the jockeying, are hurting from production cutbacks and slow payments, while being hounded by their own banks. They could start toppling rapidly, absent signs that somebody is riding herd on the auto industry rescue effort.

Treasury boss Hank Paulson is in charge for the final days of the lame-duck Bush regime. But he’ll be on some tropical island, if he has any sense, before Team Obama has to buckle down and get tough with all the Detroit stakeholders.

Right now is the time to get the future car czar revved up.

Contact TOM WALSH at 313-223-4430 or twalsh@freepress.com

Dear President Obama:

I read this article today and wondered why can’t the rest of the country be as innovative, dynamic and fiscally responsibly as Oakland County, MI.  Please remember that Oakland County is near the epicenter of economic destruction called Detroit and auto. Oakland Couny is also directly adjacent to Macomb County which is running a huge deficit. I guess you could call this a tale of two counties. I invite you to visit Oakland sometime to see that good governance does help weather an economic tsunami.

Signed,

A Republican Taxpayer In Macomb County

—————————-

Financial wiz Bob Daddow keeps Oakland County out of the red

Deputy county exec is hard-nosed, step ahead

BY JOHN WISELY • FREE PRESS STAFF WRITER • January 5, 2009

December photo by PATRICIA BECK/Detroit Free Press

Deputy Executive Bob Daddow

When the economy still was humming along in 2005, Bob Daddow was troubled by a bar graph showing property tax assessments in Oakland County.

They continued to rise, but the growth rate had slowed three years in a row, and foreclosures were threatening to turn them negative, reducing money for county government. As Oakland County’s chief money man, he urged spending restraint and later ordered monthly reports to track home sale prices.

Last fall, when the data showed his fears were coming to pass, the county froze hiring, engineered the retirement of 150 employees and gave department heads orders to cut their budgets. The county budget is balanced through 2010, and Daddow and others are working on 2011.

“He was way ahead of everybody else on the declining revenue,” said Louis Schimmel, a retired financial manager who supervised the receiverships of Ecorse and Hamtramck. “He’s a hard-nosed finance guy.”

Daddow’s critics are less complimentary to the man who has been a chief architect of Oakland County’s AAA bond rating and gatekeeper of the public dollar, working beside Oakland County Executive L. Brooks Patterson for 16 years. But even his critics acknowledge his smarts.

While Patterson is a household name in metro Detroit, Daddow has been his unheralded yet reliable deputy, serving as Patterson’s envoy on contentious issues, like the finances of the Detroit Water and Sewerage Department and the Cobo Center expansion talks.

When the Cobo discussions began, Patterson assigned Daddow to examine the financial details. Daddow wrote a 38-page paper questioning costs for everything from pensions and health care for Cobo retirees and litigation to hundreds of millions in deferred building maintenance that will drive up costs for any regional group taking it over.

“But nobody wants to talk about that,” Daddow said.

Playing defense

Daddow, 57, of Oakland Township is a former partner in the accounting firm of Ernst & Young and is known for his mastery of government finance and his blunt demeanor. He wears bulletproof-thick eyeglasses and has the skin to match.

The Southfield native’s leisure reading includes local government financial statements.

Daddow analyzes the reports, gauges their impact on Oakland County and summarizes them in pithy e-mails to Patterson and other officials. He’s not bothered by his penny-pincher reputation.

“I sometimes don’t get invited to meetings,” he said. “A lot of people don’t like the way the message is delivered, but the message gets delivered.”

Often Daddow’s message can be summed up in a single word: “No.”

Expand Cobo without full financial details? No.

Hire more employees? No.

Wait to make budget cuts? No.

Daddow insists that Patterson sets county policy while he and others carry it out. But does he ever say no to Patterson?

“All the time,” Patterson said. “I hired him to play defense.”

Daddow spent years going over the books of cities — rich and poor — spotting trouble in odd places. When the Detroit Pistons played at the Silverdome in the 1980s, Daddow was auditing Pontiac’s books and found a contract required the city to keep the floor temperature at 72 degrees for games. Problem was, the Silverdome roof is more than 200 feet above the floor and hot air rises.

“They lost a fortune on the heat bill,” Daddow said.

Other accountants say Daddow is well-respected in their circles, in part for his willingness to voice unpopular views. He’s not a yes-man, and he doesn’t sugarcoat things. Oakland County routinely wins national awards for excellence in financial reporting.

“I think it’s a real strategic asset to have someone of his background and training and raw intellect,” said Frank Audia, a partner with Plante & Moran who heads the firm’s government auditing practice.

Patterson met Daddow in 1992 when a deputy, Doug Williams, recommended him for the finance post in Patterson’s incoming administration.

“I had breakfast with him, and I hired him halfway through the scrambled eggs,” Patterson said. “After talking to him, I just put down my fork and said, ‘You’ve got the job if you want it.’ ”

Daddow remembers the meeting, too, though he recalls Patterson missed an appointment. “He stood me up,” Daddow said.

When they did finally meet, they hit it off immediately.

Daddow’s reputation preceded him with county employees.

“We’d heard all these things about him and how he never smiles,” said Laurie Van Pelt, the county’s director of management and budget. “But he’s actually wonderful to work for.”

Van Pelt said that while she was completing a project several years ago, she stayed at the office until 10:30 p.m.

“He drove by and saw my car in the lot and came in and told me to go home,” Van Pelt said.

A voice for privatizing

Patterson’s administration, with Daddow’s urging, has privatized the county nursing home, food service in the jail, the bump shop that repairs county cars and other functions. It’s a governing approach advocated by the Mackinac Center for Public Policy, a free-market think tank in Midland, with which Daddow has long been associated.

“He and the Mackinac folks would privatize everything they can get their hands on,” said County Commissioner David Coulter, D-Ferndale. “I think it’s all the small-government, no-regulation philosophy that has just been repudiated at the national level.”

Daddow counters that the moves save the county millions annually and provide better services.

When Daddow was named liaison to an outside group, Coulter quipped: “Are we going to put money in the budget for charm school?”

“He’s smart as hell,” Coulter said. “But sometimes Bob likes to flood you with information to try to make you feel less than smart.”

Wayne County Executive Robert Ficano, who is spearheading the latest Cobo talks, said Daddow is a good accountant, but not necessarily a great negotiator.

“From a philosophical standpoint, we like to hear people who won’t just tell us how we can’t do something, but how we can,” Ficano said. “It’s one thing to say no, but it’s another skill level to get to the yes.”

Patterson said Daddow can intimidate, but his advice has been invaluable.

During those early Cobo talks, Daddow demanded detailed financial information on Cobo, which he never received. Patterson suspects that was because two former Cobo directors, who have since pleaded guilty, were taking kickbacks from a contractor.

“Bob would have spotted that in a New York minute,” Patterson said.

Contact JOHN WISELY at 248-351-3696 or jwisely@freepress.com.

December auto sales: Chrysler drops 53%, GM 31%

Scott Burgess / The Detroit News

December marked the end of the worst U.S. automotive sales year for carmakers in more than two decades.

Detroit and Japanese carmakers that make up the collective Big Six all reported double digit sales drops for December. General Motors Corp. reported December sales dropped 31 percent; Ford Motor Co. reported a drop of 32 percent; Chrysler LLC reported sales plummeted 53 percent; Honda Motor Co. said its sales fell 34 percent; Nissan North America said its sales fell 30 percent and Toyota Motor Co. said its U.S. sales fell 37 percent.

While the monthly sales reports were collectively abysmal, many carmakers tried to cull good news out of it bad numbers.

GM said that it expects to have gained market share in December, as its share in the U.S. market jumped from 20 percent in November to around 24 percent for December. It expects to have about 22 percent of the market for 2008 by the time the final figures are tabulated. However, annual deliveries were down 23 percent when compared with 2007 sales. According to Automotive News, a trade publication, GM 2008 sales numbers, which totaled less than 3 million units, were at their lowest level since 1959.

“It’s not a number I’m going to put into my scrapbook, but it’s certainly better than the industry,” said Mark LaNeve, vice president of GM North America Vehicle Sales, Service and Marketing. “There were a lot of really ugly red numbers out there across the industry.”

Chrysler reported 2008 sales fell 30 percent compared with 2007.

The troubled company said sales increased slightly when compared to November but remain down.

“Last year, Chrisler and all of our stakeholders persevered through extraordinarily difficult economic conditions, made the adjustments and always kept our focus on serving our customers,” said Jim Press, president and vice chairman at Chrysler. “As a result, our company and our dealer network start this year stronger and beter positioned to succeed in today’s marketplace.”

Ford Motor Co. reported its 2008 sales fell 21 percent.

While the carmaker struggles in a vicious market, the company reported its redesigned F-150 pickup accounted for 8,600 vehicles sold in December, a jump of 84 percent compared with November. The F-Series finished the year with 515,513 total sales, down 25 percent compared with 2007.

While the market on the whole has shrunk during 2008, Ford noted it has gained market share for the last three months — something the company hasn’t done in more than a decade.

“This is a strong ending to end a very challenging year,” said Jim Farley, Ford’s group vice president, marketing and communications, in a statement.

The compact Ford Focus was the only vehicle in Ford, Lincoln and Mercury’s lineup to show a year-over-year increase in sales, jumping 13 percent for the year.

Honda Motor Co., while having a bad December, has weathered the market better than many carmakers. For the year, Honda reported sales falling 8.2 percent compared with 2007.

Toyota reported its 2008 sales fell 16 percent compared with 2007 sales figures. The Japanese automaker noted it sold more than 240,000 hybrids in the U.S. over the year.

“Our New Year’s resolution is to shift the focus back to where it belongs, to the consumer,” said Toyota Motor Sales president Jim Lentz.

You can reach Scott Burgess at (313) 223-3217 or sburgess@detnews.com.

More..

There’s a glimmer of hope for auto sales in 2009

Despite dire auto sales predictions for 2009 — some analysts are forecasting the worst year in more than two decades — there are glimmers of hope that the market might begin stabilizing after a tough first half.

Year-end auto sales scoreboard

CHRYSLER

30%

0% financing deals announced

HONDA

8.2%

Optimism isn’t shaken

GM

22.7%

An improvement over Nov.

FORD

20.7%

F-150, Flex sales strong

TOYOTA

15.4%

Dec. sales of each brand fall

By JEWEL GOPWANI • FREE PRESS BUSINESS WRITER • January 5, 2009

Despite dire auto sales predictions for 2009 — some analysts are forecasting the worst year in more than two decades — there are glimmers of hope that the market might begin stabilizing after a tough first half

Automotive analysts expect consumers, who are still wary over the shaky state of the economy, to buy between 10 million and 12.4 million new cars and trucks in 2009.

That’s down substantially from the 16.7 million in annual sales the industry has averaged over the past decade. And it’s even lower than the dismal 13 million or so in sales expected for 2008.

But there are bright spots on the horizon.

More than $23 billion in federal assistance is now on its way to General Motors Corp., its lending arm, GMAC, and Chrysler LLC. The money for GMAC, in particular, could begin thawing the credit market, which has been rejecting auto loans in droves. And that could help loosen consumer demand for cars and trucks, which has been pent up for months by the lack of credit and general caution over the economy.

“The first half is going to be quite a struggle, with some improvement in activity starting around spring,” said Jesse Toprak, senior analyst at Edmunds.com. “The things that need to be done to jumpstart demand in the marketplace are happening little by little.”

December freeze

Despite that, most analysts still expect auto sales in 2009 to be almost as bad, or worse, than in 2008.

For 2008, analysts predict that light-vehicle sales will drop to between 13 million to 13.2 million, which would be a decline of at least 18% compared with 2007 and mark the worst sales year since 1992.

Automakers are expected to release their sales for December and 2008 on Monday.

Industry-wide auto sales are expected to be down about 40% in December compared with the same month a year earlier, according to predictions from several automotive analysts.

Analysts expect Chrysler to lead the decline with a drop of about 45% to 50% in sales. GM’s sales likely will decline by about 35% to 40% in December, based on a range of analyst estimates.

Analysts credit both drops not only to weak demand but to the prospect of both companies filing for bankruptcy protection. The auto companies have repeatedly warned that consumers would not want to buy vehicles from a bankrupt company for fear of not having their warranties honored.

“GM and Chrysler should still show the effects of consumer’s balking at buying their vehicles based on bankruptcy fears, though the effect should be diminished relative to prior months,” Chris Ceraso, auto analyst at Credit Suisse, wrote in a note to investors this week.

Ford’s sales are expected to drop by about 33%.

Cars beat trucks in 2008

Last year is expected to mark the first time in seven years that passenger car sales surpassed light-truck sales, said George Pipas, Ford’s U.S. sales analyst.

The shift reflects a rise in gas prices, the first of several waves of volatility that hit the industry this year, leading to a steep sales decline throughout 2008.

The industry’s collapse started in May, when gas prices topped $3.50 a gallon and the housing market, already in crisis, began to worsen.

In the fall, the credit crisis became acute as the nation’s financial institutions required a $700-billion federal bailout. Car and truck buyers were left without lenders to supply credit. The economy continued to deteriorate, with the nation’s unemployment rate reaching a 15-year high in November and consumer confidence reaching an all-time low in December.

Even Japanese automakers, whose sales increases continued even as gas prices spiked, saw severe sales declines toward the end of the year.

“It’s been a really challenging year to say the least,” said Pipas, who expects light-vehicle sales in 2008 to come in at about 13.2 million.

Despite that, truck sales, which tend to be important profit indicators for Detroit’s automakers, are thought to have ticked upward in December, compared with November levels.

Part of that is seasonal. Pickups and SUVs usually sell better as winter sets in. In recent months, however, they also have benefited from a drop in gas prices and near-record incentives that automakers offered on those vehicles, Toprak said.

More of the same

Pipas and most other automotive analysts believe that the beginning of the new year will be just as difficult as 2008.

“The first quarter is still going to be pretty rough. A lot of people are losing their jobs right now,” said Erich Merkle, lead auto analyst at Grand Rapids consulting firm Crowe Horwath. “But there are people who are still working that are going to hold on to their jobs that aren’t buying a new car either.”

Automakers have maintained a conservative and pessimistic outlook for the first part of 2009, and most have announced plans to slash production through the first quarter.

Compared with 2008, GM is expected to cut production by half during the first three months of 2009, according to Credit Suisse. Ford is expected to cut production by 42% during that same period.

Those production cuts could help automakers gain some pricing power if consumers who’ve been holding back on vehicle purchases begin shopping again.

Toprak expects lower inventories to allow automakers to raise prices in 2009, starting this spring.

“If you’re a consumer in the marketplace to buy a car, this is probably one of the best times to buy a car,” he said.

Contact JEWEL GOPWANI at 313-223-4550 or jgopwani@freepress.com.

More..

Sunday, January 4, 2009
Richardson withdraws bid to be commerce secretary
Nedra Pickler / Associated Press
WASHINGTON — New Mexico Gov. Bill Richardson has withdrawn his nomination to be President-elect Barack Obama’s commerce secretary amid a grand jury investigation.

Obama’s transition office said Sunday that Obama has accepted Richardson’s withdrawal.
A federal grand jury is investigating how a California company that contributed to Richardson’s political activities won a lucrative New Mexico state contract.

A person familiar with the proceedings has told The Associated Press that the grand jury is looking into possible “pay-to-play” dealings between CDR Financial Products and someone in a position to push the contract through with the state of New Mexico

Rallying to the cause

Rallying to the cause

Jan 4th, at 6:10am

Autoworkers and retirees joined current and former elected officials and ordinary taxpayers in a rally Saturday to defend the domestic auto companies…

Link here

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