Felix Salmon

Eduardo Porter has a very good explanation, today, of why it makes much more sense, from an economic perspective, to simply start raising gasoline taxes than it does to implement ever-tougher fuel-efficiency standards. But before we get to the meat of his argument, it’s worth correcting his numbers. Here’s his conclusion:

In Britain, where gas and diesel are taxed at $3.95 a gallon, the American automaker Ford sells a compact Fiesta model that will go nearly 86 miles on a gallon. In the United States, where gas taxes average 49 cents, Ford’s Fiestas will carry you only 33 miles on a gallon of gas.

This is an apples-to-oranges comparison on not one but two different levels. I’m not sure about the gas taxes, I think they’re correct. But the mileage figures are misleading. Yes, UK Fiestas are more fuel-efficient than US Fiestas. But not by nearly as much as Porter suggests.

For one thing, the mileage tests are different. The test you use makes a huge difference, to the point at which the 2025 fuel-economy standard of 54.5 mpg actually corresponds in the real world to cars bearing window stickers advertising 36 mpg. The US Fiesta is already there, or extremely close. On top of that, UK gallons, also known as Imperial gallons, are significantly larger than US gallons. (Which is why a pint of beer in the UK is larger than a pint of beer in the US.) As a result, 85.6 miles per Imperial gallon is 71.3 mpg in American. And only one expensive “ECOnetic” Fiesta model gets that mileage in the UK; the other ones go as low as 42.8 miles per Imperial gallon, which is 35.6 mpg in the US.

I’s hard to say for sure which cars are more efficient, because the tests are different. To be sure, any UK fleet will be more efficient than any US fleet, for three main reasons: the UK has smaller cars, with more manual transmissions, a higher proportion of which are diesel. These are consumer choices driven by high gasoline taxes, and that really makes Porter’s point for him: raise taxes, and people will automatically start driving more efficient cars. But let’s not kid ourselves that Ford could simply import UK Fiestas into the US and overnight start shipping cars getting 86 mpg.

Porter’s central point is absolutely right: there are two ways to reduce the amount of fuel that people use. The first is to make cars more efficient; the second is to reduce the number of miles that people drive. Higher gasoline taxes work on both fronts, while higher fuel-economy standards only work on the first. Indeed, at the margin they increase the number of miles people drive: since more efficient cars cost less to drive per mile, people drive further when they get more efficient cars.

Porter is also right that in countries with higher gas taxes, fuel economy tends to be much higher. But he’s not necessarily right that the higher gas taxes alone are responsible. Porter implies that the US only has fuel-economy standards just because “a tax on gasoline doesn’t stand a chance” of being passed. But the fact is that even countries with very high gas taxes have fuel-economy standards as well. And, guess what, they’re significantly tougher than ours, and they always have been.

The fact is that the US has pretty much the lowest fuel-economy standards in the developed world, and it still will in 2025, even after the new standards are fully phased in. If US carmakers want to be internationally competitive, they’re going to need to develop more fuel-efficient cars anyway, no matter what happens in the US.

As a result, I really don’t buy Porter’s scaremongering about the cost of the higher standards:

According to the government’s analysis, the additional production and maintenance costs made necessary by the mileage rules will rise gradually to about $31.7 billion in 2025 — which will add about $1,900 to the average price of cars and light trucks. There are other costs, too. Some Americans will not be able to afford a new car. Profits of some automakers and dealers are likely to decline. Greater congestion will impose an added burden on health.

The idea here is that the average price of cars will go up over the next 13 years; it’s far from clear why that would decrease profits at automakers rather than increasing them. What’s more, it’s equally far from clear that the average price of cars would go up significantly less if the new standards were not put into place. The question isn’t how much cars in 2025 cost compared to cars in 2012; it’s how much cars in 2025 will cost under various possible future regimes.

And when Porter starts talking vaguely about the health burden of greater congestion, you know he’s grasping at straws. Auto emissions pollution was a problem in the 70s and 80s; it’s not a problem now, with today’s much cleaner cars.

The fact is that fuel-economy standards are a pretty good way of ensuring that carmakers can plan for a more fuel-efficient future, without worrying about competitors undercutting them with gas-guzzlers. If the US government ever comes to its senses and increases the gas tax, or if it — wonder of wonders — actually implements a broader carbon tax, then at that point you would have three different forces conspiring to make America’s fleet more efficient. You’d have the tax, you’d have the fuel-economy standards, and you’d have the general global increase in fuel efficiency.

Without new taxes, we’re down to two; and without new fuel-efficiency standards either, we’d be down to just one. And that’s dangerous, because the US market is big enough that at that point there’s always a risk that we could replay the era of SUVs and Hummers, with manufacturers of small, efficient cars running a risk that they might get crushed if oil prices fall.

Fuel-efficiency standards are a way of preventing car companies from being forced to hedge their bets by working on gas guzzlers as well as efficient runabouts. As a result, those companies can take the money they’d otherwise spend on developing six-ton monsters, and invest it instead in the efficient cars of the future. Everybody wins, and the cost — contra Porter — is negligible. He’s absolutely right that higher gas taxes are a very good idea. But that’s no reason at all not to implement higher fuel-economy standards as well.

Brian Chen has the news today that Uber is rolling out a cheaper version of its service:

Uber’s convenience comes with a cost. People are paying not just for the service, but also the gas used by the big sedans. That’s where hybrid vehicles will help bring down the price: drivers will spend less time and money fueling up…

In San Francisco, for example, the hybrid cars will cost $5 for the base fee, and then $3.25 a mile after that. By contrast, the town cars cost $8 for the base fee and then $4.95 a mile.

A quick back-of-the-envelope calculation shows that this has very little to do with the amount of money that drivers spend fueling up. Compare a Prius (51 miles per gallon) to an Escalade (10 miles per gallon): if gas is $3.78 per gallon, that puts the cost of gas per mile at 7.4 cents for the Prius and 37.8 cents for the Escalade — a difference of 30 cents per mile. Whereas Uber’s price for the Escalade is a premium of $1.70 per mile.

What’s more, since the drivers of these cars can’t pick up hails on the street, they have a lot of downtime waiting for the next gig. As a result, it doesn’t really cost the Escalade driver extra money if she ends up having to refuel once a day rather than once a week. Obviously, the fuel costs are higher — but the opportunity cost of her time is negligible.

Here’s Chen:

The company convinced its car-service partners to buy a total of 50 hybrids just for customers coming through Uber — a sign that drivers are making money with the start-up.

But of course it’s more complicated than that. If drivers were happy with the money they were making with Uber, then they’d stick happily with what they’ve got. In order to be persuaded to switch over, they have to believe that they’ll make more money in a hybrid than they would in a sedan. And that’s despite the fact that “in general”, according to Uber’s Scott Munro, “hybrids will cost 30 to 40 percent less than Uber’s black town cars”.

If that’s the case, then if you compare a sedan driver and a hybrid driver, the hybrid driver will need to be making three trips for every two the sedan driver makes, just to end up with the same amount of money. In order for the hybrid to be more attractive than the sedan, and taking into account the fact that at the margin you’d rather make fewer trips than more trips, a typical driver would realistically be hoping to double the number of fares she was getting before she was happy switching to the cheaper car.

But I suspect that the real relationship here is not between Uber and its drivers, so much as it is between Uber and car-service companies. Any given driver might well prefer to continue driving a sedan, rather than being moved over to a hybrid. But the car-service companies make money on every fare, and so their best interest is served just by increasing the total number of fares, rather than the average income received per driver per day.

As a result, I suspect that this move is going to decrease Uber drivers’ take-home income, on average, rather than increase it. As you might expect, when prices drop. But it will increase income for both the car-service companies and for Uber itself — and it will increase the total number of Uber drivers.

It’s easy to sign up with Uber if you’re a company; much harder if you’re a single driver. The Uber model is that Uber contracts with the owners of capital, who then employ the labor needed to provide the service. And once again, the rich will end up making more, the not-rich will end up making less, and the rich will present the whole thing as a victory for all concerned.

But there’s something else going on here, too, which is the way that companies love to push the idea that we’re paying for extra costs, even when we’re not. Uber sedans are more expensive than Uber hybrids because Uber reckons that’s the way it can best maximize its revenues and profits — not because the sedans are significantly more expensive to drive. Another example of this? Gas stations which offer different prices for cash and credit.

I like this idea, in theory, because gas prices are the most salient prices in America: we’re much more conscious of how much gas costs than we are of how much anything else costs. And if the price for gas on credit is significantly more than the price for cash, then that will help drive home just how big those credit interchange fees are.

Except, gas stations have no particular reason to charge just the interchange fee as a premium. Is the difference 10 cents a gallon? That’s about 3%, which is at the high end of credit interchange fees. After that, it’s all just pure profit for the gas station — and sometimes the difference can be as much as 2 dollars a gallon.

That isn’t a condign surcharge; it’s price gouging. And even a relatively common 20-cent surcharge is basically a convenience or ignorance fee, a way of extracting extra money from people who don’t have the cash or who don’t realize how much extra they’re paying. The rate of paying-with-plastic ranges between 60% and 100%, which means that realistically what we’re talking about here is essentially a bait-and-switch: attract customers with a low headline price, and then charge them a higher one.

Part of modern life is the way in which we naturally gravitate towards easy and automatic ways of paying. If you give Uber your card number once, you never really need to pay at all; you just find the charge on your credit-card statement. It’s certainly convenient — but it also allows Uber to charge quite enormous sums for what they provide. And similarly, at the gas pump, we just want to swipe our cards and get out of there, rather than faffing about with cash. And so there’s an incentive for companies like Uber and gas stations to inexorably increase the implied convenience fee we get charged for using easy payments methods — even if those payments work out cheaper for them. (After all, it would cost Uber a fortune if we paid our drivers in cash and then Uber had to try to reclaim its share from those drivers.)

My radical new universal payments system would help a little bit here, since it would make it impossible for vendors to claim that the more convenient payments method was somehow more expensive for them. But it wouldn’t solve the deeper problem, which is that the more painless payments are, the less we feel the pain. And so merchants will always find ways to charge us more now, if we’re not going to really feel how much we paid until much later. And then, when customers start revolting at the high prices they’re paying, the merchants will act like they’re doing us a favor by offering an inferior and cheaper option.

Mark Perry is convinced that the recent uptick in vehicle miles is a good sign, economically speaking; Calculated Risk is not as convinced. Both, however, are working on the assumption that vehicle miles are an excellent proxy for economic activity as a whole, and that the more they rise, the better the economy is doing.

Perry’s chart, in particular, would seem to back that up:

The way in which vehicle miles fell steadily over the course of the recession is startling. But look at CR’s chart:

And suddenly recessions don’t seem as big of a deal: vehicle miles simply tend to rise over time, except for during oil spikes.

It’s worth remembering here that the recession started in December 2007, while oil prices were still rising; they didn’t reach their all-time (nominal) high until July 2008. Given that gas prices lag oil prices, a large part of the fall in miles can probably simply be attributed to high gas prices, rather than to the recession — especially since, as Nate Silver notes, “the cost of gas twelve months ago has historically been a much better predictor of driving behavior than the cost of gas today.”

More generally, vehicle miles are a cost of economic activity, and to the extent that they can be minimized through various kinds of efficiency gains, they should be. Things which are good for a vibrant economy — mass transit systems, telecommuting, e-commerce, walkable neighborhoods — tend to mitigate against driving, while — to take the extreme counterexample — I’d guess that people who have been foreclosed upon tend to spend a lot more time in their cars.

My feeling is that what we’re seeing in the latest driving numbers is no more than the fact that gas prices were low a year ago. I do hold out some hope that we’re decreasing our national reliance on autos, if only a little bit; it would be sad if any economic recovery had to be associated with a concomitant rise in driving. As America moves back into the cities from the crumbling suburbs, is that really too much to hope?

(HT: AR)

Andrew Ross Sorkin loves private equity.

Sorkin finally get around to responding to Malcolm Gladwell today, and he’s unimpressed. Here’s how he frames the question:

Can financiers ever do anything beyond financial engineering?

With General Motors planning an initial public offering for Thursday that values the once-left-for-dead company at more than $50 billion, the answer to that question is more than theoretical.

How did G.M. become one of the greatest turnaround stories, at the moment at least, in history?

You can guess where Sorkin ends up. While Gladwell gives a lot of credit for GM’s current health to Rick Wagoner, Sorkin dismisses Wagoner as the CEO under whom GM went bankrupt. Instead, he says, “the GM turnaround is ultimately an act of financial engineering”—the financial engineering that Steve Rattner takes lots of credit for in his book, and which Sorkin is happy to ratify as one of the greatest turnarounds in history.

The financial engineering at GM was difficult and impressive. But in principle it’s neither difficult nor praiseworthy to take an insolvent company, put it through bankruptcy, and let it emerge under the ownership of its former creditors and people who provided DIP funding.

Bankruptcy, in theory and in practice, is essentially just a change of ownership. It’s not easy, and it carries non-negligible costs; Rattner did a good job of minimizing those costs and therefore maximizing the value of the post-bankruptcy GM. But you don’t need PE honchos to orchestrate a bankruptcy filing and rid a company of its liabilities. And the main thing that Rattner did with GM was to lubricate the process with something over $50 billion in US taxpayer money, most of which went to pay off GM’s creditors, and much of which is unlikely to ever be repaid.

Rattner deserves praise for what he did. But so does Wagoner, and so do all the workers who have worked and who continue to work to actually make the cars that GM sells. The financial engineering might have been a necessary part of the turnaround process. But it wasn’t remotely sufficient.

I’m a fan of Steve Rattner’s book about the auto bailout, Overhaul, and I’m also a fan of Malcom Gladwell’s very tough review of it.

There are lots of reasons to read the book: it’s a surprisingly candid and open account of life in the early days of Obama’s White House, and Rattner is happy going public with a lot of information that the White House officials in question simply assumed was tacitly off the record. He’s also happy being very rude about lots of people who rubbed him the wrong way, from Sheila Bair to former GM CFO Ray Young.

Gladwell’s main problem with the book is Rattner’s view of former GM CEO Rick Wagoner. That view is pretty simple: Wagoner had overseen the decline of GM to the point at which the only choices were bankruptcy, bailout, or both. He therefore had to go. Gladwell, by contrast, is much more charitable: he sees Wagoner as a man who fundamentally transformed GM into a competitive powerhouse, and who, in doing so, did a certain amount of unfortunate collateral damage to GM’s balance sheet.

Gladwell’s view understates the financial nightmare that was GM pre-bailout: at one point its book value was negative to the tune of $98 per share. Wagoner caused billions of dollars in unnecessary bankruptcy costs by refusing to consider or prepare for any kind of bankruptcy at all, despite the fact that his quarterly SEC statements had been showing that GM was insolvent since 2006.

On the other hand, Rattner is comically out-of-touch when it comes to running companies: finance is all that he cares about, and it’s a very narrow view of what corporate finance can and should be, too. Let’s see if you can detect a pattern here.

On Ron Bloom: “Unlike most aspiring labor activists, he went to Harvard Business School”

On Rick Wagoner: “By most accounts, he had been a golden boy at GM. After graduating from Duke University and Harvard Business School, he’d begun as an analyst”

On Harry Wilson: “Harry had been the first in his family to earn a college degree, from Harvard, and he’d gone on to earn an MBA at Harvard Business School.”

On Sadiq Malik: “a skinny, intense Pakistani American who had graduated near the top of his class at Dartmouth, taken a Harvard MBA, and worked at the Blackstone Group”

On Bob Lutz: “Harry had admired Lutz ever since hearing him speak at Harvard Business School”

On Rob Fraser: “resumed his position at his private equity firm and then matriculated at Harvard Business School”

No other institution gets this kind of obeisance in the book: Harvard gets 17 citations in an Amazon search, while Princeton and Yale get precisely one between them. And it seems that what Rattner loves about HBS — and his own Team Auto taskforce more generally — is the way that everything can be reduced to clever questions about capital structure, and decisions can then be made in an incredibly dispassionate and pseudoacademic way. For instance, the bailout of Chrysler was a very close-run thing, and the company could easily have been left to die. Here’s how it was saved:

Larry pressed us to attach probabilities to our recommendations and countered with odds of his own… he confessed that as we gave our answers, he was discounting our probabilities based on what he thought we would say… Plainly, Larry was loving this debate…

Larry called for a show of hands. His question was precise: “If you assume that the probability is 50 percent or greater that Chrysler would survive for five years, would you save it?”

This says volumes about Larry Summers: how he acts, how he thinks, how he operates politically. And it’s clear from this book that it was Summers, rather than Rattner, who ultimately made the decisions which would then be presented to the president for sign-off. (Geithner was nominally involved too, but let Summers take the wheel when it came to Team Auto.)

The fact is that neither Rattner nor Summers nor just about anybody else in Team Auto knew anything much about Detroit, about car manufacturing, or about running industrial companies. They did know that GM’s treasury was a shambolic organization which could require weeks to find out how much money it had — so they judged the treasury operation, because they were good at doing that, and then they damned the whole company by association.

There’s another fact, too, though — which is that Team Auto did wonders for the future health and sustainability of GM by forcing it into bankruptcy and extinguishing large chunks of its actual and contingent liabilities. Gladwell is far too grudging here:

Team Auto was engaged in an act of financial engineering: it used the power of the bankruptcy process to rid G.M. of some of the liabilities that had been holding it back. This was cleverly and swiftly done. It was badly needed. But, at the end of the day, cleaning up a balance sheet is cleaning up a balance sheet.

In fact, it’s not remotely as easy as that, and the restructuring needed some very inventive bankruptcy lawyers, some extremely hard-nosed negotiators, the jettisoning of a lot of conventional wisdom about the abilities of automakers to withstand bankruptcy — and, of course, many billions of taxpayer dollars.

That Rattner’s team managed not one but two insanely complex bankruptcies in a hitherto unimaginably short timeframe is a real and noteworthy achievement of the Obama administration. Rattner is right about that. But Gladwell’s got a good point too. This kind of biz-school restructuring is easy to show off about. What’s hard is making millions of cars which are so good that the picky US consumer will buy them rather than the incredibly well-made competition — and making a profit by doing so. Eliminating GM’s monstrous debt burden by sending it through bankruptcy was a necessary step in getting there. But it’s not at heart what managing a company like GM is or should be about.

Google’s driverless car is one of those technologies which makes me feel old, in a bad way: I would dearly love to have been able to grow up with this technology. And I can’t wait for it to arrive: I’m not a very good driver, and I’m sure that taking a Google car would be much safer for both me and for other road users.

It could also cause a radical change in the economics of cars, making it much less attractive to buy them, and much more attractive to buy into something much closer to the NetJets model. Doron Levin has a keen insight:

Cars that don’t need drivers also may not need private owners – since they could be summoned remotely and returned once their journey is complete. Why take on a lease if you can purchase a subscription to a car instead? Car owners who never want to spend a saturday under the hood or in the waiting room of a mechanic’s shop again might quickly adapt to a car subscription model.

My guess is that in the first instance, at least, driverless cars are still going to require a driver sitting behind the wheel, much as airplanes on autopilot still require a pilot at the controls. So sending a driverless car back to its depot at night will be non-trivial. But eventually we’ll get there, and you’ll be able to rent a truck when you need a truck, or a zippy sportscar when you’re so inclined, or a big family wagon only when you need it.

One of the big problems with cars right now is that families buy the biggest car they’re ever likely to need. The family car might just be used to drive a single person to work and back most of the time, but because it might used for a family camping holiday once every year or two, the family ends up buying something huge, and the expense of that work commute rises substantially as a result.

Similarly, one of the big reasons why people are wary of electric cars is that every so often they want to take long car journeys which can’t be managed on a single charge. Up until now, the only solution to that problem is either to have a second, gasoline-based, car, or else to have a nationwide network of recharging stations which in any case are likely to take far too long to recharge the battery.

Car subscriptions would be a much better solution. You use an electric car most of the time, and then when you need something with greater range, you just swap it out for one of those instead.

So bring on the self-driving car! It could be exactly what we need to get most of us driving electric.

Quite aside from the costs of rescuing GM itself, the U.S. government spent a whopping $17.2 billion bailing out GM’s subprime lender, GMAC. It’s never going to get repaid in full: at the moment estimates of total losses on that deal are running at about the $6 billion mark.

So the government knows full well how dangerous and costly it can be for GM to own a subprime lender. What’s more, the government currently controls GM, holding an equity stake of about 61% of the company.

So what on earth is GM doing spending $3.5 billion on buying a subprime lender? It’s not enough to simply bail them out, it seems: the government is now using taxpayer money to buy out AmeriCredit’s shareholders at a 24% premium to Wednesday’s closing price.

I do appreciate that GM needs to be able to sell cars to people with bad credit. But there’s no indication that GM is a good owner of subprime lenders — quite the opposite. AmeriCredit is already working with thousands of GM dealers, and the two could easily start rolling out GM-branded products across GM’s dealer network even without an acquisition.

I’m suspicious at the speed with which GM is moving back into the world of financial services: I’m not sure it bodes well for the company, which really should be sticking to building cars, keeping its credit operations outsourced.

If GM wants to build a strategic relationship with AmeriCredit, that’s fine, and anybody who’s bullish on GM would be more than welcome to buy AmeriCredit shares at the same time. But I see no great upside — and lots of danger — in bundling the two. And in any case the last person who should spend $3.5 billion on a subprime lender is anybody at the Treasury.

Jim Surowiecki didn’t even scratch the surface when it comes to the power of auto dealers in general and Big Three auto dealers in particular. They’re grossly inefficient, as this chart from Monday’s SIGTARP report on them shows.

Despite this, their political clout is enormous. When Treasury insisted on closing many dealerships as part of its restructuring of GM and Chrysler, the auto dealers went straight to Congress and managed to get more than half the 1,100 closed dealerships reinstated.

Treasury, failing to learn its lesson, then insisted that auto dealers wouldn’t get a carve-out from consumer financial protection laws. It failed there, too.

And now the auto dealers have managed to slam Treasury one more time, via the SIGTARP report, which the Washington Post describes as “mostly a rehash of familiar dealer complaints about the supposedly unfair process by which the companies selected dealerships for closure”.

In this case, however, I think that Treasury’s argument is weak. Herb Allison, the Treasury official in charge of such things, just says that closing some dealerships was obviously better than closing all the dealerships, which would have been the outcome if GM and Chrysler had been liquidated. Well, yes. But as the report responds, “this is a false dilemma with no factual support”. Keeping more dealerships alive would not have killed the entire restructuring.

A stronger argument, I think, is that the combination of Ron Bloom and Steven Ratner went in guns blazing with a strategy of getting as much pain as possible out of the way as quickly as possible — not only with respect to the dealers, but even more with respect to the bondholders as well. If you’re going to declare bankruptcy, get as much benefit as possible out of it and make it quick. And that’s exactly what they did.

So yes, with hindsight, it might have been possible to cause less pain. But the task facing Bloom and Ratner wasn’t to do the perfect restructuring, it was to get something done at all. And Ratner, in particular, has a big ego and is unlikely to have taken the dealers’ complaints seriously: I absolutely believe that he ignored them and felt quite proud of the fact that he was taking advantage of bankruptcy law to get a lot of them out of the way.

As such, the SIGTARP report — which was authored I think mainly by Kurt Hyde rather than Neil Barofsky — is worth listening to, rather than simply railing against in Treasury’s knee-jerk fashion.

A more realistic response from Treasury would be simply that the deal was rushed by necessity and that no one had the luxury of time to make sure that everything was optimal; what’s more, the dealers, once they knew that a deal was on, had everything to gain by being obstructive and could not easily be trusted in what they said: they were fighting for their very livelihoods, and would say anything to keep them.

Still, that’s no reason to ignore them completely and the Auto Task Force would have done well to task one of its own members with crunching the dealers’ numbers in good faith. I think that Ratner sometimes forgot that he was working for the nation as a whole and that every extra unemployed former auto dealer was an outcome best avoided if possible. Or maybe it wasn’t yet clear just how bad the national unemployment situation would get. I do think that he failed to give the dealers a fair shake; I understand why that would be the case; and I think that it behooves Treasury to learn from its errors, once in a while.

Back in 2006, I started writing about Zipcar insurance. Zipcar — which is going public in an offering worth as much as $75 million — has a history of being more than a little disingenuous about the degree to which its drivers are insured. I spoke to them in February 2007, and they promised to change the language on their website; instead, in May 2007, they decided to start leaving sock-puppet comments on my blog, rather than actually do what they’d promised. Eventually, in October, they merged with Flexcar, which had much better insurance policies, and as part of the merger they adopted Flexcar’s insurance plan. (They had to, or face mass defections by Flexcar’s corporate client base.)

Today, they still tout their “comprehensive insurance” (the image at right is from this page). But when push comes to shove, it seems they’re still interested in putting liability onto their members when there’s an accident, like the time when Zipcar member Dale Douglas rear-ended Leslie Minto. Minto took Zipcar to court, but Zipcar won, saying that it was not liable “for harm to persons or property that results or arises out of the use, operation, or possession of [their vehicles] during the period of the rental or lease”. As a result, Douglas has to personally pay Minto’s damages.*

In the short term, this is probably good for prospective shareholders in Zipcar, which don’t need to worry about large potential legal exposure. The bigger picture, however, is that Zipcar might not have put its insurance worries behind it. Anecdotally, I still speak to a lot of people who say that they won’t use Zipcar because they’re worried about the insurance situation. And if Zipcar starts to get a reputation for sticking its customers with damages after telling them that they had comprehensive insurance, that’s not going to be good for its business.

*Update: Zipcar’s general counsel, Maria Stahl, has now responded, via email:

Our insurance program covers our members for third party liability up to $300,000 per occurrence.  Accordingly, Mr. Douglas was in fact covered for this accident up to $300,000.  Your posting stated that “As a result, Douglas has to personally pay Minto’s damages.”  That simply is not true.  If Ms. Minto’s damages had been in excess of $300,000, Mr. Douglas may have been held liable, exactly as he would be had he been driving his own car and damages resulting from an accident had exceeded his own policy limits.

Ms. Minto had brought suit against Mr. Douglas as the driver of the vehicle and against Zipcar.  The court’s decision dismissed Zipcar from the lawsuit.  Zipcar’s dismissal from the action does not in any way affect Mr. Douglas’ coverage under the policy we maintain for members.

Good on the AP for FOIAing the details of how cash-for-clunkers played out:

The single most common swap — which occurred more than 8,200 times — involved Ford F-150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford F-150s. The fuel economy for the new trucks ranged from 15 mpg to 17 mpg based on engine size and other factors, an improvement of just 1 mpg to 3 mpg over the clunkers.

It gets worse:

In at least 145 cases the government reported consumers traded old vehicles that got better than or the same mileage as the new vehicle they purchased. A driver in Negaunee, Mich., traded a 1987 Suburban that got 18 mpg for $3,500 toward a new Silverado pickup that got only 15 mpg. An Indianapolis driver traded a 1985 Mercedes 190 that got 27 mpg for $3,500 toward a new Volkswagen Rabbit that got only 24 mpg.

In at least 15 deals in nine states, owners of large pickups cashed in old trucks for between $3,500 and $4,500 toward new Hummer H3 SUVs that got only 16 mpg.

I think this is safely the worst policy implemented to date by the Obama administration: it has almost nothing in the way of redeeming features. Let’s hope it was some kind of weird aberration.

(HT Hiskes, via)

Steven Rattner’s first-hand account of the automaker bailout is self-serving (of course), but still very much worth reading. He’s very much the office-bound technocrat: “we recognized the importance of a trip to Detroit,” he writes at one point, “so in March, several of us made the journey”. Well, yes, that would probably make sense.

At the same time, this financier understands clearly and intuitively that in bankruptcy proceedings, seniority of creditors doesn’t matter:

The lenders were particularly aggrieved that the UAW’s health-care trust, which ranked below the secured creditors, was slated to exchange an $8 billion existing claim for $4.6 billion in notes and 55% of the equity in the reorganized company. While arguably close to a 50% haircut, it was a higher-percentage recovery than we were offering the banks.

The lenders felt that this represented an ideological decision by the Obama administration to tilt in favor of labor and against capital. That was simply not the case. At no time during our months of work did the White House ever ask us to favor or punish any stakeholder.

Many other unsecured creditors — notably, suppliers and consumers holding warranties — actually received 100¢ on the dollar. The fact was, Chrysler had to have workers, suppliers, and customers to succeed and therefore needed to give them more than called for by their rank in the capital structure…

The outcome of the Chrysler restructuring had virtually nothing to do with the heavy hand of government and everything to do with the fact that Treasury was the reluctant investor of last resort.

Every stakeholder did better under our plan than they would have in the alternative: a liquidation, in which the lenders would have gotten far less than the $2 billion they wound up with.

Rattner’s job was to create a viable company, not to maximize recovery for bondholders. If those creditors wanted to put their own new money into Chrysler, and run it themselves, they were more than welcome to. But even the government came very close to simply letting Chrysler fail, until it worked out the magnitude of the knock-on effects on jobs at dealers and suppliers. No one else would put a penny in, and the fact that TARP money was found for the automakers meant that hundreds of thousands of jobs, and billions of dollars, were saved. The creditors really were lucky to get what they got.

Vehicle emissions are a major public health issue. We already know that the best thing you can do if you want to bring your crime rate down is to switch to unleaded gasoline and then wait for 20 years. Now we’re learning that if you want to improve the health of babies (and healthy babies become much more productive members of society when they grow up), simply installing an EZ-Pass tollbooth has a large and significant positive effect: the resulting improvements in congestion and emissions more than make up for any excess emissions from cars crawling through the toll plaza itself.

The negative externalities from driving, then, are significantly greater than the ones that the likes of Charles Komanoff calculates — and those are $160 per trip, in Manhattan. If we want to become a happier, healthier, more prosperous nation, then we have to wean ourselves off our car addiction. It won’t be fast, and it won’t be easy. But it’s profoundly necessary.

(Via Wessel)

Update: The E-Z Pass study can be found here; the link in the WSJ blog is broken. Thanks to Charles Kenny for the pointer.

These tables come from a study organized by the National Highway Traffic Safety Administration, and they’re sobering: they show that hybrid electric vehicles (HEVs) are in some times twice as likely to be involved in pedestrian and bicyclist crashes as their internal combustion engine (ICE) counterparts.

The first table shows 1.2% of hybrids being involved in low-speed crashes with pedestrians, twice the rate of old-fashioned cars; the second table shows 0.6% of hybrids crashing with bicyclists, again twice the rate of noisier cars.

The reason, of course, is that the hybrids are so quiet: bikers and pedestrians use car noises to help them work out which cars are moving and which aren’t. That’s why hybrid manufacturers are now talking about adding vroomtones. Sounds like a good idea!

(HT: Voiland, via Weisenthal)

From the WSJ:

Last month, Bill Wamsley, a commercial real estate broker in Mill Valley, Calif., hoped to replace his wife’s Lexus sedan with a 2009 Cadillac CTS.

From information Mr. Wamsley collected online he determined a CTS lease would run around $580 a month when all costs were factored in. After some shopping, he found he could lease a Mercedes C300, with roughly the same retail price, for about $450 a month.

General Motors spent so many years as a leasing company with an automaker attached that it must feel weird to see the tables turned like this.

$580 a month is $6,960 a year, or 19% of the $36,560 base price for the Mercedes. $450 a month, by contrast, is $5,400 a year, or 15.5% of the $34,650 base price for the C300 Luxury. The difference, of over $1,500 a year, is significant enough that GM is now faced with an invidious dilemma: either risk blowing up their loan book, or else reduce their prices so much that they’ll never make any money making cars.

A team of seven Spiegel staffers has produced a spectacular account of the big M&A story you’re probably vaguely aware of and find far too complicated to understand — the attempted sale of GM’s European car division, Opel. There’s lots of great stuff here, such as the games of phone tag being played out at the highest levels of the German and US governments (including Angela Merkel, Tim Geithner, and even Hillary Clinton and Dmitry Medvedev); and the spectacular own-goals being scored by the German government (like appointing board members to the German-American trust overseeing the sale of Opel who disagreed fundamentally with the government’s own plans for the carmaker).

Then there’s the even more spectacular own-goal made by at least one bidder, RHJI:

The plan offered by private equity investor RHJI would have been less expensive. It only requires government assistance to the tune of €3.8 billion.

However the fact that Magna was chosen in the end was a consequence of more than just political lobbying. It was also a result of a lack of tact on the part of RHJI representatives at a meeting in the Chancellery.

When Merkel asked Magna CEO Siegfried Wolf why he wanted to take over Opel, he said he believed in the company, in the future of the automobile market, and the value of the Opel brand. Merkel liked that.

Then she asked RHJI CEO Leonard Fischer why he was interested in Opel. The former investment banker answered very matter-of-factly that it was because the German government was assuming the risk. Merkel liked that less.

At this point, the chances of a deal being done before the German elections on September 27 seem to be negligible. After that, the political will behind bailing out Opel might well dissipate, to no particular sadness in Detroit, where important GM board members are asking why Opel need be sold at all. The most likely scenario could well be, now, that no deal will be done at all, and all the high-level politicking will be ultimately for naught.

(Via Hasselback)