Sears Death Spiral Accelerates: Vendors Halt Shipments As Cost Of Default Insurance Soars

When we commented back in March on the unexpected "going concern" notice in Sears" 10-K which sent the stock crashing, we pointed out the immediate spin provided by Eddie Lampert"s distressed retailer which promised that its comeback plan may help alleviate the concerns, “satisfying our estimated liquidity needs 12 months from the issuance of the financial statements", to which however we added the footnote that "the question is what happens when vendors start demanding cash on delivery as concerns about SHLD."s liquidity concerns continue to grow."

Shortly after, we wrote "Sears Enters Death Spiral: Vendors Halt Shipments, Insurers Bail" in which we described that as Sears financial condition deteriorated, vendors were boosting their "defensive measures", such as reducing shipments and asking for better payment terms, to protect against the risk of nonpayment as the company warned about its finances.

The managing director of a Bangladesh-based textile firm said his company is using only a handful of its production lines to manufacture products for Sears" 2017 holiday sales. Last year, nearly half of the company"s lines in its four factories were producing for Sears. "We have to protect ourselves from the risk of nonpayment," said the managing director, who declined to be identified for fear of disrupting his company"s relationship with Sears.

Furthermore, precisely as we predicted, Mark Cohen, the former CEO of Sears Canada and director of retail studies at Columbia Business School said vendors will keep a close eye on Sears" finances. "Whatever vendors continue to support them are now going to put them on even more of a short string. That means they’ll ship them smaller quantities and demand payment either in advance or immediately upon delivery."

He added: "Sears stores are pathetically badly inventoried today and they will become worse."

Fast forward five month when just after Sears reported another quarter of painfully bad results including an unexpected double-digit drop in same store sales, Reuters writes that the "worst case" scenario we envisioned for Sears is now accelerating, and that Sears is having trouble stocking shelves, "as some vendors have fled while others are demanding stricter payment terms because of difficulties hedging against default risk."

One reason why Sears" supply chain is in greater turmoil than ever - in addition to Sears" woeful financials of course - is due to the scarcity and high cost of a type of vendor insurance known as accounts receivable puts, which ensure a supplier will be paid even if the retailer files for bankruptcy. Think of them as CDS contracts vendors can buy on a counterparty, in this case their (increasingly insolvent) client, and just like CDS, the puts become prohibitively expensive the closer the underlying entity is to bankruptcy.

“It’s too expensive,” Michael Fellner, owner of Montreal-based women’s wear company Lori Michaels Apparel & Manufacturing Inc, told Reuters about the specialized vendor insurance. He also said he stopped shipping to Sears in March, when his insurer stopped providing coverage.

Two other small vendors told Reuters they stopped supplying Sears this year because they could not afford the insurance, whose cost spiked after Sears warned in March of “substantial doubt” over its ability to continue as a going concern. They asked not to be identified discussing confidential commercial arrangements.

Most concerning, however, is the discovery that Eddie Lampert himself appears to be throwing in the towel on the supply chain: as Reuters explains, Sears’ vendors had previously benefited from support from Sears CEO, billionaire Eddie Lampert, who owns almost half of the company’s shares and is also its largest lender.

Through his hedge fund, ESL Investments, Lampert invested in vendor insurance contracts worth $93.3 million in 2012, $234 million in 2013 and $80 million in 2014, according to SEC filings. Lampert"s implicit support of vendors however ended one year ago: filings show no investment by Lampert in vendor insurance contracts since 2015.

A Sears spokesman said the 55-year-old billionaire is not currently investing in these contracts and declined to say why.

In addition to Sears" top stakeholder dropping support, for whatever reason, other hedge funds such as Avenue Capital Group, and traditional credit insurance firms such as Euler Hermes Group, have also exited the insurance market, brokers and investors said. They did not specify the timing of their withdrawal.

Predictably, as the number of market participants in the receivables puts market collapse, the cost of insurance contracts surged as they became harder to come by, putting pressure on Sears’ ability to maintain a robust inventory of goods. As a result, merchandise inventory at Sears fell to $3.4 billion as of July 29 from $4.7 billion a year ago, the company disclosed on Thursday. Sears has attributed the inventory decline to its transformation to an online-oriented business from bricks-and-mortar stores.

“We continue to work to manage our vendor relationships in a constructive manner… we will continue to ensure that our vendors deliver on their obligations to Sears,” Sears said in its second-quarter earnings statement on Thursday. The reality is that it simply does not have as many suppliers as it once did.

Meanwhile, those who can find puts to buy are simply unable to afford them: brokers and investors said that Sears insurance contracts for vendors are currently quoted at more than 4 percent of the value of the vendor’s shipment per month, making them uneconomical for many suppliers whose profit margins are in the single digits. Three years ago, the contracts were being quoted at about 3 percent per month.

LG Electronics Inc, which makes Kenmore-branded washing machines and refrigerators as well as LG-branded appliances, told Reuters it has not bought vendor insurance in the past year because of the cost.

Instead, LG said it negotiated shorter payment schedules to minimize the risk of not being paid by Sears. It declined to say how short the payment period was. The typical payment schedule in the industry is close to 90 days, though it can vary by item.

Of course, the shorter the payment terms, the bigger the hit to Sears" working capital and, thus, liquidity, with the most dire option being cash on delivery in which vendors simply will not provide the much needed inventory unless they are paid on the spot. Here"s Reuters:

Sears has promised to pay some suppliers within 15 days, according to a source familiar with the matter who requested anonymity to discuss confidential commercial arrangements. Sears declined to comment.

A 15-day payment schedule gives a vendor priority for repayment in the event of a bankruptcy. This is because claims received within 20 days of a bankruptcy filing are typically repaid in full.

Some vendors are so keen for this protection, that they have offered Sears a small discount of around 5 percent on their merchandise, the source said.

As noted above, the increasingly shorter terms means a sharp erosion in working capital: William Danner, president of CreditRiskMonitor.com told Reuters that at the end of the second quarter, Sears would likely have used $587 million to boost working capital – mostly from asset sales – due to the decision by some vendors to not extend as much credit. Sears’ available liquidity at the end of July was $810 million.

“Even for a huge company like Sears, finding this much more capital is a burden. This apparent loss of confidence in Sears by its vendors is greater now than it was at the end of 2016,” he said. Should more vendors demand the same payment terms, there is a risk that Sears entire liquidity cushion could disappear.

Eddie Lampert, who has valiantly fought for years to delay Sears" inevitable bankruptcy, has complained on several occasions that vendors are trying to exploit Sears’ woes to negotiate better terms. He said last month that some of its vendors reduced their support, “thereby placing additional pressure” on Sears.

Sears took the issue to court in June, when it sued Ideal Industries Inc after the maker of Craftsman-branded tools declined to fulfill purchase orders because of Sears" "known fragile financial condition," according to court documents. Ideal Industries declined to comment.

And while Lampert may no longer be funding vendor insurance, he is still supporting Sears in more "brute force." He held about $1.7 billion in debt mainly backed by the company"s real estate and inventory as of April 29, according to regulatory filings.  The reason for this shift is that unlike secured debt, vendor insurance contracts are not backed by any collateral. Underscoring his "support", last month, Lampert extended a $200 million 151-day credit line to Sears at an annual interest rate of 9.75 percent.

To be sure, not everyone has thrown in the towel on Sears: at least one investment firm, Blackstone Group LP"s distressed credit arm GSO Capital Partners is backing Sears contracts through December although they did not disclose their value to Reuters.

However, it"s only a matter of time - in this case a few more quarters of declining same store sales - before virtually everyone gives up on Sears, forcing Lampert to decide between directly funding the company"s inventory or finally admitting defeat to the Jeff Bezos juggernaut, and pulling the plug.

DeSoto To DeLorean - 14 Defunct Car Brands (& How They Failed)

Automobile enthusiasts around the world know brands like Studebaker, Plymouth and Packard, but you’d be hard-pressed to find any of these on the roads today. Former powerhouses in the American auto market, as Visual Capitalists"s Chris Matei notes, they have since become beloved by collectors, but lost to the general public.

Today’s infographic comes from TitleMax and it looks at 14 now-defunct car brands and the circumstances that took them from highways to bygones.

These are only a selection of a much longer list of car brands that have not survived to see the present day. What accounts for the churn rate of these brands?

BOLD EXPERIMENTS, BOONDOGGLES, AND BURNOUTS

Some car brands, like Tucker and Saturn, introduced new ideas that the market simply didn’t care for, didn’t perform as well as the competition, or were too ambitious for the industry climate.

Others, like Edsel and DeLorean, met swift ends as they hemorrhaged money far faster than their owners anticipated. Even more brands were simply folded into the ever-expanding portfolios of either Ford or General Motors, the two biggest auto conglomerates ever to rule the roads.

BAD TIMING, OR WORSE ECONOMY?

Car sales rise and fall with broader economic trends because they are tied into so many different variables: raw materials, production costs, labor costs, oil prices, and interest rates among others.

We can look at two time periods in which the combination of these conditions caused many of the brands on this list to fail.

Post-war Doldrums (1950-1958)

Based on the timeline above, we can see that 1950s were a terrible time for the smaller players in the auto industry. The explanation as to why so many brands declined over this decade has to do with the highly competitive, oligopolistic business practices of market leaders Ford and General Motors. Both of these market titans were locked in a battle to lower prices by taking advantage of economies of scale, while wooing customers who were feeling the economic pressures of a postwar recession.

Smaller volume manufacturers like Packard and Studebaker could not keep up, even when they attempted to merge. As a result, these and many other smaller brands were forced out, or absorbed into the portfolios of one of the “big two.”

Same Car, Different Name (1998-2008)

A similar stretch of declining sales plagued the late 1990s and early 2000s, as the trend of “badge engineering” caught up with manufacturers.

Rather than designing new models at high cost, conglomerates like GM simply engineered new brand “badges” and marketed the same basic models under a variety of names like Pontiac, Plymouth, Mercury, or Oldsmobile. The same tactic was later used to take mid-market designs, such as the Ford Fusion, and style them for a luxury audience as a new model – in this case, the Lincoln Mk. Z.

Badge engineering curbed the appeal of a number of American brands under the GM and Ford portfolios. The nail in many of their coffins was the major auto industry downturn in 2008. That year, GM restructured as it underwent Chapter 11 bankruptcy.

As a result, GM removed the majority of its badge engineered brands, including many of those listed above, from dealerships in the following years.

Snap IPO Opens At $24 - Almost Three Times The Size Of Twitter

Having priced at $17, Snap Inc. opened for trading at $24, valuing the company over $34 billion - almost three times the size of Twitter, bigger than both HP and CBS, and almost as big as Ebay.

41% jump at the open from the IPO price and extending gains to $25..

Losses greater than revenues make for "hard math to work with" for investors, George Maris, portfolio manager at Janus Capital, says on Bloomberg Television.

At this valuation, Snap is almost three times the size of Twitter ($11.5bn)

Snap sold 200 million shares at $17 each for $3.4 billion, above the initial range of $14 to $16. It was oversubscribed by ten times, according to sources.

As The FT reports, John Colley, a professor at Warwick Business School, said the company faces significant challenges competing with Facebook and Google, makes substantial losses and is suffering from slowing growth. 

“Snap Inc is benefiting from institutions and individuals being awash with cash,” he said. “The top end valuation reflects high liquidity rather than a great prospect. There is far more cash than opportunities, which means pursuit of long odds risky options such as Snapchat.”

As a reminder for those who are buying SNAP with both hands and feet...

The company reported revenue of $404.5 million in 2016 and a loss of $514.6 million for 2016, compared with revenue of $57.7 million and a loss of $372.9 million a year earlier.

Snap said it had 158 million daily active users on average in the quarter ended in December, a 48% increase from the same quarter a year before.

If only the company had lost more money!!

Snapchat is expert at burning cash. Free cash flow was $678 million last year. THAT IS MORE THAN ITS REVENUE for the year.

US Auto Dealers Forced To Rent First "Overflow Lots" In 37 Years Amid Inventory Glut

Yesterday we noted that GM launched an aggressive incentive program in the month of February to clear out some of its pickup truck inventory.  In fact, incentives on the company"s Silverado were up 56% YoY to $6,996, while discounts on the Sierra were up 82% to $5,315 (see "GM Pickup Incentives Surge Over 80% As Auto Bubble Continues To Show Signs Of An Imminent Bust"). 

But apparently GM isn"t the only auto OEM who may have had to splurge on incentive spending in February to clear out inventory piling up on dealer lots.  Inventory days across the industry are up massively YoY and stood at 85 days at the beginning of February, up 22 days from January 1st and up 8 days compared to the same time last year.  As one Honda dealer told Bloomberg, the inventory pile up at his dealership has become so excessive that for the first time in 37 years of business he was forced to rent an overflow lot to park unsold cars in February.

For the first time in his 37 years working at New Jersey car dealerships, Larry Kull had to rent extra space to store unsold new Honda vehicles -- one of the latest signs that the record U.S. auto market is cooling.

Across dealer lots in America, inventory is piling up as automakers produce more cars than are being bought. Dealers had about 85 days worth of cars and trucks on hand at the beginning of February -- about 22 days more than at the beginning of 2017 and eight days more than a year earlier, according to Automotive News Data Center.

“The sales are good, I just have more product on the ground than I’ve had before,” said Kull, who has about 60 days of passenger cars including Civic compacts and Accord sedans stocked at an office parking lot down the road from his Honda store in Marlton, New Jersey. He prefers to have just 45 days worth of cars on hand.

Meanwhile, this news comes just as wall street prepares to digest new car sales data tomorrow.  Overall sales for February are expected to be down slightly while GM is expected to perform "best"  among the D3 on their massive incentive spending (though we"re not sure it"s much of a victory if you"re giving the cars way).

And the import brands are expected to have mixed results as well with VW benefiting from an easy YoY comp associated with their emissions scandal that effectively halted sales a year ago.

As we noted yesterday, there are only two ways to deal with the rising inventory conundrum: i) cut production or ii) splurge on incentives to sell more cars.  Unfortunately, financing terms for autos are about as loose as they can get and interest rates are now headed in the wrong direction so selling more cars the old fashioned way seems unlikely. 

Production cutbacks also have already begun. GM and Fiat Chrysler have eliminated shifts, laid off employees or scheduled days off early this year at plants making slower selling models including the Chevrolet Cruze compacts, Chrysler Pacifica minivans and Buick Lacrosse sedans.

While heavy inventory is a signal of potential pressure on automakers’ profits, it also boosts costs for dealers, which pay interest on inventory as well as any extra expense to store vehicles.

“No one likes to cut production or dial up incentives, and we’re seeing a bit of both,” Thomas King, an analyst with J.D. Power, said by phone. “We’ve got a lot of cars on the ground when the market is moving away from cars.”

Meanwhile, as one dealer points out, part of the inventory problem is a heavy mix towards cars when buyers are now looking to take advantage of low fuel prices and trade up to an SUV.

Raj Murjani, a sales manager at a Lexus dealership in Queens, said he’s selling about 40 or 50 fewer vehicles than usual this month. He sees the gap in popularity between SUVs and sedans continuing to widen, as low gasoline prices encourage consumers to switch to bigger vehicles.

“If it’s a person who’s been in a sedan and they got just the slightest taste of an SUV, they don’t ever want to go back,” he said. “They think going back into a sedan is a downgrade.”

Of course, we"re sure each of these buyers has done extensive modeling on the long-term equilibrium price for crude oil...

GM Pickup Incentives Surge Over 80% As Auto Bubble Continues To Show Signs Of An Imminent Bust

For months we"ve argued that record auto sales have been propped up by low interest rates, a perpetual loosening of auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments. 

And so far, this perfect alignment of the stars has propelled U.S. auto sales to record highs.

That said, with rates recently on the rise and a flood of lease returns driving down used cars prices (see "Record High Lease Returns Set To Wreak Havoc On Used Car Prices"), the tailwinds that have propelling auto sales to record highs over the past several months look set to change course.

As we noted recently, a quick look at the 61+ day delinquencies in General Motors" subprime securitization book would seem to support our rather negative thesis on future auto sales with January 2017 delinquency rates soaring to the highest levels since late 2009 / early 2010.

Meanwhile, looking at GM"s subprime data going back to 2001 implies that historical spikes in 2-month delinquency rates is a fairly decent indicator that all is not well.

Unfortunately, at least for the auto OEMs and their investors, at this phase in the cycle the only way to "juice" volume is through artificial market share gains courtesy of excessive incentive spending...which, as we all know, likely signals the beginning of the end of the auto cycle which will quickly be followed by a race to the bottom for OEM profits. 

And, right on cue, it looks as if General Motors has kicked off the "Incentive War" with massive YoY increases in incentive on the auto industry"s most profitable segment, pickup trucks.  Per Bloomberg:

General Motors Co. boosted incentives on its pickup models this month after its biggest foes gained ground, intensifying a price war within the U.S. auto market’s most hotly contested segment.

Discounts averaged about $6,996 for the Chevrolet Silverado and $5,315 for the GMC Sierra this month through Feb. 12, according to J.D. Power dealer data obtained by Bloomberg News. Incentives on GM’s models surged 56 percent and 82 percent, respectively, from a year earlier as Fiat Chrysler Automobiles NV and Ford Motor Co. dialed back their spending, according to the researcher.

“It’s taking a lot more incentives now to move the metal than it did last year or certainly the year before,” said Michelle Krebs, senior analyst with car-shopping website Autotrader.com. “Things are slowing.”

Of course, the increased incentive spending from GM comes as they ceded market share to both Ford and Chrysler in 2016.

Of course, we suspect that this kind of aggression will not be allowed to go unchecked and will inevitably be matched by Ford and Chrysler.

On your mark, get set, go....

Corporate America Setting Up "War Rooms" To Prep For Potential Trump Tweets

Since November 8th, several public companies have unsuspectingly fallen into the cross hairs of Trump tweets sending their stocks gyrating violently while adding or erasing millions of dollars worth of market cap in a matter of seconds.  Here is just a small sample:

Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.

— Donald J. Trump (@realDonaldTrump) January 5, 2017

I am working hard, even on Thanksgiving, trying to get Carrier A.C. Company to stay in the U.S. (Indiana). MAKING PROGRESS - Will know soon!

— Donald J. Trump (@realDonaldTrump) November 24, 2016

Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!

— Donald J. Trump (@realDonaldTrump) December 3, 2016

General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!

— Donald J. Trump (@realDonaldTrump) January 3, 2017

My daughter Ivanka has been treated so unfairly by @Nordstrom. She is a great person -- always pushing me to do the right thing! Terrible!

— Donald J. Trump (@realDonaldTrump) February 8, 2017

Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!

— Donald J. Trump (@realDonaldTrump) December 6, 2016

As we pointed out back in January, Toyota"s shares, along with the Mexican Peso, tumbled on Trump"s threat to impose a "big border tax" on their Corolla imports as the unprepared and shocked company frantically drafted a response.

As Mr. Trump posted his message, Toyota’s chief communications officer, Scott Vazin, was packing his suitcase and preparing to leave his hotel room in Las Vegas, where he had been holding meetings around a trade show organized by the Consumer Technology Association. Mr. Vazin’s phone began to buzz as he faced a deluge of text messages and calls from his communications staff and reporters.

Once the tweet was sent, Mr. Vazin called Messrs. Lentz and Nagata to discuss the statement he would craft, as the company’s stock began to inch downward. The auto maker posted its response on Twitter less than two hours later.

“Toyota has been part of the cultural fabric in the U.S. for nearly 60 years,” said its statement, which bolded the name of the Mexican city where its plant will be located—Guanajuato, not Baja. The company touted its “$21.9 billion direct investment in the U.S.” and its number of employees and facilities in the U.S. Mr. Vazin said the company hasn’t been contacted by Mr. Trump since the statement.

Now, according to the Wall Street Journal, Trump"s Twitter blasts, which often drive "yuge" market reactions and come without warning, are forcing companies across the country to draft plans for “war rooms” to address a surprise presidential tweet.  Moreover, other companies are actively exploring strategically placing ads on MSNBC’s “Morning Joe,” CNN and “The O’Reilly Factor”—programs and networks fro which Trump has often appeared to draw inspiration for his tweets.

“Every business and association in Washington is thinking about how they would respond to a tweet from Donald Trump,” said Alex Conant, a partner at the communications firm Firehouse Strategies and a longtime Republican strategist.

In one recent simulation to prepare for a public attack by Mr. Trump, says consultant Eric Dezenhall, top executives of a science and technology company spent an afternoon in a room responding to various fallout scenarios, such as a stock-price plunge, congressional hearings or questions from investigative reporters.

Mr. Dezenhall says the company that
rehearsed the drill is now looking for something it can use as a potential peace offering to the president in the event of a critical tweet or other Trump tirade, “an equivalent to ‘we’re no longer building a plant in Mexico.’”

Lobbying shops are telling their clients to do a thorough review of their business interests, especially as they relate to federal contracts, so they can tell a story about how the firm invests domestically.

Still others companies have begun aggressively promoting previously announced job creation numbers in an effort to head off any criticism from the White House.  The latest example of such a move came from Intel"s CEO, Brian Krzanich, who recently visited the White House to tout a $7BN investment in a facility in Chandler, Arizona which was already announced under the Obama administration.

Other companies have taken more proactive steps. Intel Corp. CEO Brian Krzanich last week traveled to the White House to roll out the company’s plans for a $7 billion investment in a major manufacturing plant in Arizona—plans that had been in the works for several years. Mr. Trump said following the announcement: “We’re very happy.”

Other companies, including Wal-Mart Stores Inc. and Amazon.com Inc., have issued press releases touting U.S. job creation numbers from previously planned store openings and expansions. Some are also turning to “social-listening” tools to monitor mentions of their products on social networks, analyze the fallout from Trump tweets about other companies and track what’s said on the accounts that Mr. Trump follows.

General Motors Co.—whose CEO Mary Barra has frequently spoken with Mr. Trump—said last month it would invest at least $1 billion across several U.S. factories, days after the president accused it on Twitter of moving Mexican-made vehicles across the border.

Guess we can add the cost of establishing these "war rooms" to the list of excuses as to why companies will inevitably miss Q1 2017 earnings...at least they get to blame something other than the "weather" for once.

Verizon Unlimited, T-Mobile Upgrades, Sprint Drops Prices Through Floor: The Deadbeat Carriers are Beating Themselves To Death

 T-mobile eliminated plan contracts, eliminated handset financing (at least usury style financing) and made the unlimited data plan a mainstay. Look at what those changes did to T-mobiles subscription business

 

Of course, like any truly economic market, gaps and inefficiencies tend to get filled and rectified. The T-Mobile net adds came directly from AT&T, Verizon and Sprimt. Thus...

Sprint offers five unlimited lines for $90, but only for a year

In comparison, you"d have to pay $180 a month for five unlimited lines on T-Mobile, or $270 a month for AT&T, and now apparently Verizon is dropping prices significantly, reference "Verizon Brings Back Unlimited Data Starting At $80/Month"...

4 lines $45/line
3 lines $54/line
2 lines $70/line
1 line $80/mo.

So, T-Mobile, the original disuptor shaves pricing once again, throuh fee inclusion...

So, what does all this mean? Well, T-Mobile reports Q4 2016 results tomorrow, but until then...

•  

Be aware there is a lot more to this story... A proponent that makes me think one of carriers may bold and merge (by force). Subscribers can hit me directly and ask my opinion via email (regge AT the site"s name). Click here to subscribe.

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Delta Lifts Stop Grounding All Domestic Flights For Over Two Hours Due To Computer Glitch

Update: as of 9:30pm ET, Delta said in an advisory that the ground stop has been lifted.

* * *

One week after United Continental was forced to ground its flights for nearly three hours due to a computer failure, on Sunday around 7pm Eastern, Delta Air Lines - the second-largest US airline  - halted all U.S. flights because of another technology glitch.

Can confirm. Stuck on the tarmac at MSP ???? https://t.co/xSOvNIql6U

— Thrifty Traveler (@thriftytraveler) January 30, 2017

Still no real info from @delta as we are counting down over two hours since the screeching ground halt. #infosec pic.twitter.com/JOzvIw8tu8

— Michael J Daugherty (@DaughertyMJ) January 30, 2017

#BREAKINGNEWS #Delta update. Ground stop in effect until at least 8:30p EST Captain added this could be an extensive #deltaoutage pic.twitter.com/G94a4uKrcK

— Craig Lucie (@CraigLucie) January 30, 2017

"Our systems are down," Delta tweeted, adding "the IT department is working to rectify the situation as soon as possible," said Atlanta-based Delta.

Delta teams are working to fix a systems outage that has resulted in departure delays. Flights in the air remain unaffected.

— Delta (@Delta) January 30, 2017

Delta apologizes to customers for the inconvenience and will provide updates as they become available on https://t.co/QS4ugj8hOa.

— Delta (@Delta) January 30, 2017

The company"s international flights are exempt from the grounding, which was caused by “automation issues,” the Federal Aviation Administration said in a statement.

The second consecutive froced grounding at Delta struck as airlines struggled to comply with new travel restrictions following President Trump’s executive order blocking travelers from seven predominantly Muslim nations. As Bloomberg adds, last year, a rash of computer failures disrupted flight operations at U.S. airlines. Thousands of passengers were stranded as carriers struggled to keep older information systems working. 

Delta took a $100 million hit to sales after a power-control module at the company’s Atlanta command center caught fire in August, cutting power to computers. Southwest Airlines Co. had to halt flights the month before that because of issues with “multiple technology systems.”

Ground stops, as the FAA calls them, are relatively common reactions to thunderstorms and other disruptions in the U.S. aviation system. They are typically short-lived and narrowly drawn, such as halting departures to a congested airport for an hour or two.

Nearly two hours after the FAA first notified about the ground halt, Delta still has to resolve the system outage.

Trump Touts "People Are Seeing Big Stuff” After GM Unveils 7,000 New U.S. Jobs

Confirming rumors that leaked yesterday, GM has just announced plans to invest $1 billion in its U.S. manufacturing operations and add 7,000 jobs domestically, over the next "few years".  Of course, the move follows similar announcements from Ford and Fiat-Chrysler over recent weeks in an apparent effort to appease the incoming Trump administration amid threats of a 35% import tariff and after years of outsourcing automotive manufacturing jobs to Mexico.  To add icing to the cake, GM notes that 450 of the new jobs will come from insourcing jobs previously moved to Mexico.  Per General Motors:

General Motors today announced that it will invest an additional $1 billion in U.S. manufacturing operations. These investments follow $2.9 billion announced in 2016 and more than $21 billion GM has invested in its U.S. operations since 2009.

The new investments cover multiple new vehicle, advanced technology and component projects. A combination of 1,500 new and retained jobs are tied to the new investments. Details of individual projects will be announced throughout the year.

The company also announced it will begin work on insourcing axle production for its next generation full-size pickup trucks, including work previously done in Mexico, to operations in Michigan, creating 450 U.S. jobs.

"As the U.S. manufacturing base increases its competitiveness, we are able to further increase our investment, resulting in more jobs for America and better results for our owners,”  said GM Chairman and CEO Mary Barra. “The U.S. is our home market and we are committed to growth that is good for our employees, dealers, and suppliers and supports our continued effort to drive shareholder value.”

“We will continue our commitment to driving a more efficient business,” said Barra, “as shown by our insourcing of more than 6,000 IT jobs that were formerly outside the U.S., streamlining our engineering operations from seven to three, with the core engineering center being in Warren, Michigan, and building on our momentum at GM Financial and in advanced technologies.  These moves, and others, are expected to result in more than 5,000 new jobs in the U.S. over the next few years.”

GM also highlighted their efforts to work with tier two suppliers to "insource" those manufacturing jobs as well. 

GM has also been facilitating its supplier base to do the same. The company has been executing a strategy to create supplier parks adjacent to its U.S. manufacturing sites (already accomplished at GM’s Fairfax Assembly Plant in Kansas, Spring Hill Assembly Plant in Tennessee, Fort Wayne Assembly Plant in Indiana, and Lordstown Assembly Plant in Ohio), and will continue to expand this effort. Supplier parks locating near assembly plants result in significant savings from reduced transportation costs, higher quality communications and continuous improvement activities as suppliers are located closer to the final assembly location.

In addition, GM is confirming that another supplier has committed to make components for GM’s next-generation full size pick-up trucks in Michigan, moving 100 supplier jobs from Mexico to the U.S.

And, or course, it didn"t take Trump long to declare victory on Twitter:

With all of the jobs I am bringing back into the U.S. (even before taking office), with all of the new auto plants coming back into our.....

— Donald J. Trump (@realDonaldTrump) January 17, 2017

country and with the massive cost reductions I have negotiated on military purchases and more, I believe the people are seeing "big stuff."

— Donald J. Trump (@realDonaldTrump) January 17, 2017

* * *

For those who missed it, here is what we posted yesterday:

Not a week seems to pass without some an automaker, foreign or domestic, making an unexpected round of concessions when it comes to Trump"s ambitions to "Make it in the US."

And so, days after first Ford, then Fiat Chrysler announced major expansion plans in the US (to the partial detriment of Mexico) the latest automaker to respond to Trump"s Twitter criticism is General Motors, which according to the WSJ, will announce this week plans to invest at least $1 billion across several U.S. factories "a move aimed at underlining its commitment to U.S. manufacturing jobs in the wake of President-elect Donald Trump’s criticism of the auto maker’s imports from Mexico."

The company will also announce that it will create more than 1,000 new jobs stemming from the investment but doesn’t plan to specify which of its factories are in line for more work.

The move comes days after Mr. Trump publicly ratcheted up pressure on the nation’s largest auto maker. During his press conference last week, the president-elect thanked Ford Motor Co. and Fiat Chrysler Automobiles for recently announced U.S. investment plans that are expected to create a combined 2,700 jobs.

He then turned up the heat on GM to follow suit. “I hope that General Motors will be following. And I think they will be,” Mr. Trump said.

They did indeed, even if GM"s response was largely predictable. Recall that GM CEO Mary Barro was appointed to Trump"s Strategic and Policy Forum, which as a reminder "is composed of some of America’s most highly respected and successful business leaders, will be called upon to meet with the President frequently to share their specific experience and knowledge as the President implements his plan to bring back jobs and Make America Great Again."

It would look confusing if one of Trump"s own economic policy advisors looked the other way when practicing what Trump is preaching.

On January 3, Trump launched the opening salvo in this brief but productive "negotiation", when he tweeted that “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!.”

General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!

— Donald J. Trump (@realDonaldTrump) January 3, 2017

GM picked the middle option: to invest money in the US, creating new jobs.

In keeping with the narrative proferred by other carmakers, in an interview with the WSJ, GM general counsel Craig Glidden declined to confirm specifics of the announcement but said any investment the company might disclose has been long planned and isn’t a response to pressure from Mr. Trump.

“This is something we’ve been undertaking for some period of time,” he said. “It’s really getting our story told in a way that is I think complete and fulsome.”

GM Will Invest Over $1 Billion In New US Factories, Create More Than 1,000 Jobs

Not a week seems to pass without some an automaker, foreign or domestic, making an unexpected round of concessions when it comes to Trump"s ambitions to "Make it in the US."

And so, days after first Ford, then Fiat Chrysler announced major expansion plans in the US (to the partial detriment of Mexico) the latest automaker to respond to Trump"s Twitter criticism is General Motors, which according to the WSJ, will announce this week plans to invest at least $1 billion across several U.S. factories "a move aimed at underlining its commitment to U.S. manufacturing jobs in the wake of President-elect Donald Trump’s criticism of the auto maker’s imports from Mexico."

The company will also announce that it will create more than 1,000 new jobs stemming from the investment but doesn’t plan to specify which of its factories are in line for more work.

The move comes days after Mr. Trump publicly ratcheted up pressure on the nation’s largest auto maker. During his press conference last week, the president-elect thanked Ford Motor Co. and Fiat Chrysler Automobiles for recently announced U.S. investment plans that are expected to create a combined 2,700 jobs.

He then turned up the heat on GM to follow suit. “I hope that General Motors will be following. And I think they will be,” Mr. Trump said.

They did indeed, even if GM"s response was largely predictable. Recall that GM CEO Mary Barro was appointed to Trump"s Strategic and Policy Forum, which as a reminder "is composed of some of America’s most highly respected and successful business leaders, will be called upon to meet with the President frequently to share their specific experience and knowledge as the President implements his plan to bring back jobs and Make America Great Again."

It would look confusing if one of Trump"s own economic policy advisors looked the other way when practicing what Trump is preaching.

On January 3, Trump launched the opening salvo in this brief but productive "negotiation", when he tweeted that “General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!.”

General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!

— Donald J. Trump (@realDonaldTrump) January 3, 2017

GM picked the middle option: to invest money in the US, creating new jobs.

In keeping with the narrative proferred by other carmakers, in an interview with the WSJ, GM general counsel Craig Glidden declined to confirm specifics of the announcement but said any investment the company might disclose has been long planned and isn’t a response to pressure from Mr. Trump.

“This is something we’ve been undertaking for some period of time,” he said. “It’s really getting our story told in a way that is I think complete and fulsome.”

Fiat Chrysler To Invest $1 Billion In The US, Add 2,000 Jobs

Suddenly the coolest thing in corporate America is announcing major capital investments in the US while adding thousands of American jobs, in other words the opposite of the globalization trend of the past 30 years, in yet other words, doing precisely what Donald Trump demands. The latest to jump on the bandwagon is none other than Fiat Chrysler, the Italian carmaking giant which ironically acquired US automotive icon Chrysler"s assets after just a 42 day stay in bankruptcy during the financial crisis.

Just days after Ford scrapped plans to build a $1.6 billion plant in Mexico and invest $700 million in a factory in Michigan, following threats from Trump aimed at General Motors to focus on the US instead of Mexico which would be repeated just days later targeting Toyota, Fiat Chrysler (FCA, or Fiat) on Sunday said it will invest $1 billion to modernize two plants in the U.S. Midwest and create 2,000 jobs, in an attempt to placate the president elect as well as upping the ante as automakers respond to threats from President-elect Donald Trump to slap new taxes on imported vehicles.

Fiat announced that a plant in Warren, Michigan, near Detroit, would make the Jeep Wagoneer and Jeep Grand Wagoneer SUVs, while a Toledo, Ohio, factory would produce the Jeep pickup. The company said the production plans in Ohio and Michigan were "subject to the negotiation and final approval of incentives by state and local entities." 

That said, Fiat"s ulterior motives did not end with merely avoiding Trump"s wrath.

As Reuters adds, FCA"s announcement that it would retool factories in Ohio and Michigan to build new Jeep sport utility vehicles, including a pickup truck, and potentially move production of a Ram heavy-duty pickup truck to Michigan from Mexico, also highlighted the auto industry"s keen interest in getting relief from tough fuel economy rules enacted by the outgoing Obama administration. Many automakers plan to use the annual North American International Auto show in Detroit, which started on Saturday, to tout investments in the United States and a commitment to U.S. employment against the backdrop of Trump"s criticism of automakers for shipping vehicles into the U.S. from Mexico.

Automakers are girding for rounds of questions about Mexican investments and U.S. jobs in the wake of Trump"s harsh criticism of automakers.

Most of the major automakers in the U.S. have substantial vehicle making operations in Mexico, as well as complex networks of parts makers that supply their factories in the U.S. and support jobs and investment in states such as Ohio and Michigan.

Reuters adds that Fiat"s investment decision was not related to Trump"s recent attacks Ford,General Motors and Toyota for building cars for the U.S. market in Mexico, as the company had already signaled plans to expand truck and SUV production at its U.S. plants, and discontinued production of small and medium-sized cars in two U.S. factories.

And while it is likely that Fiat execs did not discuss the company"s plans with the president elect ahead of time, according the Reuters source Fiat CEO Marchionne wanted to get out the news about adding jobs and investment in the United States in case FCA encounters more criticism from Trump.

And that"s how Trump"s Twitter "bully pulpit", politically incorrect as it may be, gets the job done: in Reuters" words, "since Trump"s election, automakers and other companies have played up their investments in the United States." It"s almost amazing how a few well-timed threats can get companies to reevaluate their capex hurdle rates...

It"s not just the Italian who are eager to placate the president elect.

According to Reuters, Hinrich Woebcken, CEO of the North America Region for the scandal-ridden German automaker Volkswagen AG, the automaker plans to invest $7 billion in the United States between 2015 and 2019 and will start building its new Atlas SUV in Tennessee later this year. Volkswagen has had a plant in Mexico for 50 years and it is not shifting any jobs to Mexico from the United States. "We do not make our investment decisions based on administrative cycles. Our business is really an 8-, 12-, 14-year horizon when we look at investments," Woebcken said on the sidelines of the Detroit auto show.

Right... but just in case, it never hurts to make such a strategic announcement just as Trump is unleashing all the fury of the US manufacturing class on automakers, both foreign and domestic.

A bigger question is whether Fiat is not doing a bigger mistake by focusing on SUVs and pickups at the expense of sedans just as gas prices are set to rise again. U.S. consumers have increasingly shifted toward SUVs and pickup trucks and away from sedans in recent years, as gasoline prices have remained relatively low. A year ago, Marchionne said FCA would cease production of two sedans and focus on SUVs and pickups.

In an example of verbal foreplay that would make a Chinese concubine blush, Marchionne touched on almost everything that was relevant in Fiat"s decision, except, well, what was relevant when he said in a statement on Sunday that the lineup changes were due to that consumer shift. "We continue to reinforce the U.S. as a global manufacturing hub" for SUVs and pickup trucks, he added.

And surely Trump"s fire and brimstone-spewing twitter altar had absolutely nothing to do with it...

Unruly Jet Blue Passenger Kicked Off Plane For "Accosting" Ivanka Trump - "Your Father Is Ruining The Country"

According to reports from TMZ, an unruly Jet Blue passenger has been kicked off a plane this morning after "accosting" Ivanka Trump and "verbally berating her and "jeering" at her 3 kids."

Ivanka, Jared and their 3 children were departing from JFK when the out-of-control passenger apparently took issue with the fact they decided to fly commercial, and coach class at that...

"Your father is ruining the country."

"Why is she on our flight. She should be flying private."

Moments before the encounter happened, apparently Matthew Lasner, a professor at Hunter College, decided to tweet the following about his husband (Lasner"s twitter account has since been deleted):

Really @mattlasner why did you delete this tweet about deliberately harassing the @IvankaTrump at the @JetBlue terminal? pic.twitter.com/Apm4M5XFjt

— Tammy Bruce (@HeyTammyBruce) December 22, 2016

That"s probably not something you should just be openly admitting publicly.

Jet Blue has since released the following statement about the incident:

"The decision to remove a customer from a flight is not taken lightly. If the crew determines that a customer is causing conflict on the aircraft, the customer will be asked to deplane, especially if the crew feels the situation runs the risk of escalation during flight. Our team worked to re-accommodate the party on the next available flight."

So a Trump supporter goes on a tirade on a Delta flight and gets a life time ban while this person openly admits to "harassing" Ivanka, in front of her three children no less, and has to suffer the inconvenience of being moved to the next available flight?  Seems reasonable. 

Ford CEO Folds? Trump Confirms Carmaker Won't Move Production To Mexico

Just hours after Ford CEO complained of the "huge impact" of Donald Trump"s proposed trade plans, following the company"s plan to move a substantial portion of its passenger-car production to Mexico from a factory in Michigan, Donald Trump tweeted “Just got a call from my friend Bill Ford, Chairman of Ford, who advised me that he will be keeping the Lincoln plant in Kentucky -- no Mexico," seemingly winning his first "america-first" victory. 

As WSJ reported yesterday, Ford Motor Co. Chief Executive Mark Fields issued a warning about President-elect Donald Trump’s proposed trade policies, saying high tariffs on automobiles and other products coming into the U.S. would be a blow to the auto industry and broader U.S. economy.

Mr. Fields, speaking with reporters on the sidelines of the Los Angeles Auto Show on Tuesday, said Ford has talked to Mr. Trump’s transition team and believes the company can work with the new administration. During a separate interview, he said, “We all share the same objective; we want a vibrant and healthy U.S. economy.”

The two sides, however, appear to be at odds on how to achieve that goal.

Ford’s plan to move a substantial portion of its passenger-car production to Mexico from a factory in Michigan was heavily criticized by Mr. Trump on the campaign trail. Like many of its rivals, Ford is building more-profitable light trucks in the U.S. while investing in new capacity in Mexico to produce lower-margin small cars.

And then hours later, Donald Trump tweeted...

Just got a call from my friend Bill Ford, Chairman of Ford, who advised me that he will be keeping the Lincoln plant in Kentucky - no Mexico

— Donald J. Trump (@realDonaldTrump) November 18, 2016

I worked hard with Bill Ford to keep the Lincoln plant in Kentucky. I owed it to the great State of Kentucky for their confidence in me!

— Donald J. Trump (@realDonaldTrump) November 18, 2016

Which was followed by a statement from Ford confirming Trump"s comment...

"Today, we confirmed with the President-elect that our small Lincoln utility vehicle made at the Louisville Assembly Plant will stay in Kentucky,” Ford spokesperson Christin Baker says in e-mail statement.

“We are encouraged that President-elect Trump and the new Congress will pursue policies that will improve U.S. competitiveness and make it possible to keep production of this vehicle here in the United States”

Leaving Donald Trump with his first victory since being elected.

The question is - why didn"t, wouldn"t President Obama do this?