Randomly Noted

Ok, it might be a little much to suggest that there’s another gold rush going on in California. But investors did flock to the state’s latest municipal bond offering and they did so in such a way – like New Jerseyans queueing up days before tickets for a Bruce Springsteen concert go on sale – that California raised the size of its offering by 25%.

This speaks in part to how investors, individuals in particular, don’t believe California will default any time soon – as colleagues Kelly Nolan and Jodi Xu noted in a story today, the state does have a $20 billion budget hole. But perhaps more so, it speaks to how investors in general are wiling to take on some risk – call it measured risk.

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Ed Whitacre has decided to be GM’s permanent CEO, in addition to serving as its Chairman. Can he do for GM what Alan Mulally did for Ford? WSJ.com’s Deal Journal blog observes that having the same guy serve as CEO and Chairman is generally frowned on in corporate governance circles. Ironically, it was GM itself which advocated splitting the Chairman’s role from that of CEO – but that was in the early 1990s, when the auto maker’s straits weren’t quite as dire as they are now. Whitacre and his team must move fast to extricate GM from the U.S. government’s grip by making profitable cars people want to buy. If I were advising Whitacre, I’d tell him to follow Mulally’s lead and continue to slim down GM’s array of brands. The brilliance of Mulally’s Ford is it’s focused and disciplined, both internally and in the public mind. One quick step Whitacre could take is to kill the Buick brand – except in China, where it’s GM’s dominant marque. In the U.S., Buick’s musty image serves only to confuse potential customers. Whitacre should also fold the GMC brand into Chevrolet. GM’s product line-up in the American market should be trimmed to a Mulally-esque duo: Chevrolet for mainstream vehicles (cars and light trucks) and Cadillac (upscale vehicles.) “We have a lot of work to do everywhere, be it purchasing or development or quality,” Whitacre told a press conference this morning. Indeed.

Just because you are in the car business it doesn’t mean you can’t make money. Just look at Monro Muffler Brake, the auto reair and tire company with about 785 stores primarily in the eastern part of the U.S. The company’s sales in the most recent quarter were up 13.9% and net income increased 30.4%. Same store sales were up 7.4%. What’s beind the strong results? Two things, apparently. More and more consumers are delaying buying new cars. And that means you have to spend a little money to keep the jalopy on the road. But also, as Detroit automakers have suffered and been forced to close dealerships, that means a lot of service departments have closed as well and Monro has icked up a good slice of that business. One risk is that some of those dealers have tried to stay open just as service departments and have lowered their prices pretty significantly. But they still charge more than Monro – for now, anyway.

German politicians and labor unions are enchanted by the Opel job-protection pledges of Magna International and its Russian partners – so much so that Berlin appears willing to provide more government aid to Magna than to rival bidder RHJ, a private equity firm. The Germans need to get real. The Magna group may in fact prove to be a better owner of Opel than RHJ – we may know sooner than later if the deal goes to the consortium. But, to put it bluntly, protecting jobs shouldn’t be Magna’s priority if it wants Opel to survive and thrive. What auto makers such as dowdy Adam Opel AG need now is good hard-nosed business sense. Production capacity needs to meet demand, and if jobs and factories have to get cut, so be it. We’ve seen what happens when labor costs exceed profit margins (eg Detroit’s Big Three auto makers.) Wouldn’t it be nice if the Magna-versus-RHJ bidding war had been framed in these terms: “Which firm has the financial, operational, engineering, manufacturing, marketing and distribution wherewithal to protect Opel as a viable business?” Instead, it’s been politics as usual.

In 1996, General Motors moved its headquarters to Detroit’s Renaissance Center – an ugly complex of glass-and-steel skyscrapers. It left behind an impressive Alfred Kahn creation just off Detroit’s Woodward Avenue.  Not everyone could love GM’s headquarters; friends who worked there said it wasn’t especially comfortable. But it was memorable and grand. Construction began in 1919 and by 1923 it had grown to 15 stories and more than 1.3 million square feet, according to the Detroit News. Over the next half dozen or so decades, GM ascended to the status of the world’s dominant auto maker and biggest company by revenue. Back in the day, it made some splendid cars, their grace and style embedded in our collective memories. Now it’s poised to file for bankruptcy protection, with the U.S. likely to take some 70% ownership.  Have a look at the old building, now occupied by State of Michigan employees. When I covered GM for the WSJ in the mid 1990s, I loved going to the old GM building. I’d park my car a few blocks away on West Grand Boulevard and peek into the glorious art deco Fisher Building – home of the ornate Fisher Theater - en route to my interview or meeting. Visiting GM at the “RenCen” was a chore that required stamina and patience, thanks to a bizarre, byzantine layout. Jack Smith, the GM CEO who engineered the move, once “quipped that guests would be given navigation systems to find their way around,” according to a 2004 story in the News. 

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Today’s NYT story about the disintegration of the Saturn dealership network http://www.nytimes.com/2009/04/16/business/16saturn.html?hpw got me thinking about Saturn’s role in my married and professional life. When I met my eventual husband in the early 1990s, he was the ultimate Saturn geek, having bought one the year of its debut. Among our earliest outings was to a self-serve car wash in Pittsburgh, where I watched as he sudsed, polished and otherwise cuddled and cosseted his blue-green Saturn SL2. The car accompanied us to Detroit, where I covered Saturn’s maker, General Motors for the WSJ, and our first child was born – her first car seat strapped into the Saturn’s back set.

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“Four days to go,” says the website. http://tatanano.inservices.tatamotors.com/tatamotors/

Call me Grumpy but I can’t get excited about this tiny new car, due to be launched by Tata Motors on Monday. Having covered the auto industry in Detroit during the mid 1990s, I’m normally gripped by stuff like this: Indian auto maker launching the cheapest-car-ever to a billion people poised to scuttle their motorcycles (huge sellers in India) and snap up the little upstart sedan. Clouding the picture is the spectre of Tata Motors, burdened by last year’s ill-timed buy of Jaguar-Land Rover, facing a June deadline to repay $2 billion of debt from that deal. The Tata execs are putting on brave faces and doing a clever marketing job ahead of Nano’s big day. But it’s hard not to look at Tata Motors as yet another foolhardy victim-perpetrator of the boom-years’ excesses. Buying a pair of upscale, low volume, niche brands at the economy’s peak placed the company, its employees and its shareholders in great jeopardy. I can’t get this out of my mind even as the Nano countdown continues.