Stockman Slams "Bubble Finance And The Era of No-See-Um Recessions"

Authored by David Stockman via Contra Corner blog,

Today"s single most dangerous Wall Street meme is that there is no risk of a stock market crash because there is no recession in sight. But that proposition is dead wrong because it"s a relic of your grandfather"s economy. That is, a reasonably functioning capitalist order in which the stock market priced-out company earnings and the underlying macroeconomic substrate from which they arose.

Back then, Economy drove Finance: You therefore needed a main street contraction to trigger tumbling profits, which, in turn, caused Wall Street to mark-down the NPV (net present value) of future company earnings streams and the stock prices which embodied them.

No longer. After three decades of monetary central planning and heavy-handed falsification of financial asset prices, causation has been reversed.

Finance now drives Economy: Recessions happen when central bank fostered financial bubbles reach an asymptotic peak and then crash under their own weight, triggering desperate restructuring actions in the corporate C-suites designed to prop up stock prices and preserve the collapsing value of executive stock options.

Accordingly, you can"t see a recession coming on Janet Yellen"s dashboard of 19 labor market indicators or any of the other "incoming" macroeconomic data---industrial production, retail sales, housing starts, business investment---- so assiduously tracked by Wall Street economists.

Instead, recessions gestate in the Wall Street gambling parlors and become latent in carry trades, yield curve and credit arbitrages and momentum driven excesses. Eventually, these latencies---central bank fostered bubbles-----erupt suddenly and violently. So doing, they spew intense, unexpected contractionary impulses into the main street economy via the transmission channel of C-suite "restructuring" actions.

Within weeks of a bubble implosion, therefore, a No-See-Um Recession is born and goes rampaging across the economic landscape. But it comes as a shock to economists and especially the Keynesian apparatchiks at the Fed because they are focused on the macroeconomic externals rather than the coiled spring internals of the financial markets.

In this context, it can be said that the Great Recession was the first major business cycle contraction that reflected the new regime of central bank driven Bubble Finance.

What happened was that a garden-variety macroeconomic slowdown which incepted in 2007 went rogue when it was monkey-hammered by the Lehman bankruptcy and the related crash of fundamentally insolvent Wall Street gambling houses thereafter.

This is evident in much of the macroeconomic data, but the snapshot of retail sales below aptly illustrates the case.

From July 2006 through August 2008 (the ninth orange bar in the shaded area) the US economy oscillated along a flatline of weak and inconsistent retail sales growth. Although in its wisdom the NBER dated the recession as incepting in December 2007, the retail sales pattern during the first nine months of the downturn was not appreciably different than during the 17 months just prior.

But in September 2008 retail sales went into free fall----coterminous with the Wall Street meltdown and the desperate Washington interventions via the massive Fed liquidity injections and the TARP bailout.  During that month, retail sales plunged at a 21% annualized rate-----followed by 50% annualized rates of collapse in November and December and nearly a 30% rate of shrinkage in January 2009.

As demonstrated more fully below, those four months were ground zero of the Great Recession. They constituted a macroeconomic air pocket ignited by panic on Wall Street and in the corporate C-suites---exacerbated by the frenzied sky-is-falling machinations of Treasury Secretary Paulson and Ben Bernanke.

Stated differently, the violently collapsing Greenspan mortgage, credit and Wall Street gambling bubbles triggered four to eight months of macroeconomic freefall that no one saw coming. As late as July, the Fed minutes denied that a significant downturn was even likely in 2008, while the Wall Street stock peddlers were insisting that the goldilocks economy was alive and well.

The clueless Keynesian monetary central planners in the Eccles Building had thus fostered the first big No-See-Um Recession, but remained ignorant as to why it suddenly happened; and, consequently, doubled down on Bubble Finance policies that were destined to generate a future replay of the same.

Needless to say, that"s where we are now. The Wall Street casino has again become a coiled spring of excesses, deformations and unsustainabilities---that is, recession latencies waiting to burst.

For instance, there is no other way to describe current razor thin credit spreads in the junk and investment grade sectors alike. Central bank financial repression has fostered a relentless scramble for yield among fund managers that has caused the high yield spread to contract by more than 700 basis points from its post-recession high.

Likewise, the investment grade BBB spread at 1.32% now stands at just 29% of its June 2009 level. And since then the massive explosion of investment grade corporate debt has been concentrated in the BBB tranche of the bond market (one notch above junk), where it now comprises 50% of outstandings compared to just 25% a decade ago.

Needless to say, cheap high yield and BBB debt has had but a single major application since the post-recession recovery of the corporate bond market. To wit, it has funded trillions of financial engineering deals in the form of LBOs and levered recaps in the junk sector and massive stock purchases and dividends in the BBB sector.

So doing, these Fed-fueled financial engineering flows back into the casino have functioned to shrink the stock float and balloon the supply of speculative capital on Wall Street. At length, stock bubbles get aggravated and recession latencies intensified.

When the bond bubble finally implodes, of course, the overwhelmingly largest stock purchaser of the present bubble cycle---LBO shops and financial engineering addicted C-suites---will be forced to the sidelines. The coiled spring of financial engineering will thereupon unwind violently, triggering the next No-See-Um Recession.

And it will be self-reinforcing in a manner that is obvious, but to which the nation"s monetary central planners remain completely oblivious. That is, they continue to pronounce the "all clear" on financial instabilities and signs of incipient financial bubbles based on the alleged improved condition of bank balance sheets---especially the dozen largest mega-banks which account for 80% of deposits.

But the coiled spring this time is not in the mega-banks, but in the trillions of fixed income and high yield mutual funds and ETFs which have arisen to absorb the massive flow of corporate debt. And their liabilities are the ultimate "demand deposit", callable by investors on a moments notice and at the hint of a financial crash.

Nor is the $6.1 trillion corporate bond sector---double the $3.3 trillion outstanding in late 2007----the only coiled spring of recession latency lurking on Wall Street. The massive expansion of the ETF market since 2007 is probably even more potent as a bubble crash accelerant and therefore ignition channel for the coming No-See-Um Recession.

Outstandings have increased by 10X in the last decade and at more than $5 trillion are 3.3X the level  extant on the eve of the financial crisis. Yet in the context of a dramatic market break---whether triggered by a black, orange or red swan---they  will function as pure downside accelerants as fund managers are forced to dump their holdings in order to buy-in and liquidate the torrent of ETF shares which will be on offer.

Then, too, the violent break in September 2008 occurred long before the massive "short vol" play of the present moment had metastasized in the trading pits. Yet today an estimated $1 trillion is invested in risk parity funds, double and triple inverse VIX ETFs and a menagerie of bespoke vol shorts concocted by Wall Street for its hedge fund customers.

Indeed, the current massive short vol trade is the ultimate coiled spring that will aggravate and accelerate the next bubble collapse, and thereby function as the mother of all recession latencies. Yet we are quite certain that our bubble blowing monetary central planners have given no consideration at all to this ticking time-bomb---even as they gum endlessly over the meaning of hairline noise in the BLS" latest (and useless) JOLTS report.

In this context, we do not profess to know the catalyst for the next bubble implosion, but we can readily identify the speed with which the post-Lehman collapse occurred in the stock market, and the manner in which that triggered massive restructuring actions, inventory liquidations and sweeping job cuts by the corporate C-suites.

What we do know, however, is that the financial market internals and their coiled springs of recession latencies are far more widespread and combustible than last time around. So it is worth specifying in more granular detail the recession transmission channel that operated through the corporate C-suites during the on-set of the Great Recession. The fall-winter dislocation of 2008-2009, in fact, is a roadmap for what comes next.

The S&P chart below is indexed to 100 as of September 1, 2008 and represents the eve of the Wall Street meltdown. By October 10, the S&P index was down 30% and by November 20 it closed at 58.7% of its September 1 level.

So in roughly 50 trading days the broad market lost 41% of its capitalization.

Again, that was the heart of the bubble implosion. Thereafter the market gyrated along the flatline until it hit a one-day capitulation low on March 9 at a 47% loss. So fully 90% of the capitulation low occurred during the first 50 days, and it was the speed and violence of this bubble collapse that triggered what amounted to mayhem in the C-suites.

Needless to say, the response of the corporate C-suites was swift and violent. The Challenger survey of monthly corporate layoff announcements accordingly surged during the 4-6 months that the stock market was establishing a bottom 50% below the November 2007 bubble peak.

But as will be further documented below from the BLS payroll employment data, this spree of excess payroll liquidations occurred in a very concentrated pulse and then reverted to low order clean-up until hiring growth resumed about a year after the stock market crash.

Another measure of C-suite liquidation activity is represented by corporate restructuring charges. The latter not only capture severance expense associated with job terminations but also plant and store closures, charge-offs for bad debts and excess/obsolete inventories and numerous other categories of asset write-downs.

But it all shows up on the true bottom line---GAAP net income---which plunged to negative $15 per S&P 500 share in Q4 2008.

As shown below, that represented a negative $34 per share swing from the level of Q4 2007 and more than a 40% drop from Q4 2006. Still, the housecleaning was relatively short lived and confined to the period of maximum C-suite panic over company stock prices and option values.

The panic in the C-suites was aggravated substantially by a household sector buying strike----especially on high price tag durables and automobiles.

In fact, the drop in auto sales was spectacular: After drifting steadily lower earlier in the year, dealer sales took a further sharp plunge after August 2008. Altogether, the dollar value of sales off the dealer lots contracted by a stunning 33% before hitting bottom in March 2009.

Needless to say, the above plunge of dealer sales occurred at a time when their lots were already bulging with excess vehicle inventory. Accordingly, the production cut back at domestic assembly plants was downright brutal----with the seasonally adjusted assembly rate dropping from 9.1 million units in July 2008 to just 3.6 million units at the January 2009 bottom.

Indeed, that staggering 60% drop in six months-----which also sent GM and Chrysler into Chapter 11---represented anything but your grandfather"s economy. This was a collapsing Wall Street bubble ripping through the main street economy with malice aforethought.

The recession transmission channel through the C-suite liquidation process is starkly evident in the business inventory data and the BLS data on payroll employment change. As to the former, the chart below makes clear that business inventories had continued to build through the spring and summer of 2008, reaching a peak level of $1.54 trillion in July.

Eventually, $225 billion of that inventory (15%) was liquidated before restocking commenced in November 2009, but the key point is that more than 60% of the destocking occurred during the concentrated period of stock market collapse between September and March. The C-suite was desperately attempting to lighten the load.

Finally, the payroll data surely leaves nothing to the imagination. Nearly 5.5 million jobs were liquidated during eight months stretching from September 2008 through April 2009. That represented nearly 65% of all job losses during the entire Great Recession.

Stated differently, desperate to appease the Wall Street casino via "restructuring" actions to increase ex-items earnings,  corporate America essentially embarked on a scorched earth policy of shooting jobs first and asking questions later.

In short, there can be little doubt that Finance drives Economy in the world of monetary central planning, and that the only place to look for the next recession is in the coiled springs of Bubble Finance.

Needless to say, you can once again find them metastasizing rapidly from one end of the casino to the other; and you will also find not a single word about them in today"s swan song by our Keynesian School Marm.

Then again, Janet Yellen"s cluelessness is also why Wall Street is telling you that the macroeconomic dashboard shows nary a sign of recession, and that its safe to plunge into the casino at 110X the Russell 2000 and 280X AMZN"s miserly earnings.

Call that misdirection like never before. But also know that another No-See-Um Recession is coming right at you.

 

Vroom! Ferrari Plans To Double Production Shifts - On Track To Smash Earnings, Production Targets

On 2 November 2017, Ferrari NV, which was spun-off from Fiat Chryslerr, announced a 23% rise in adjusted EBITDA to 778 million euros (629 million euros) for the first nine months of 2017. The company increased its EBITDA target for the full year to 1 billion euros versus the previous estimate of more than 950 million. As Bloomberg notes.

The manufacturer raised its 2017 profit target last month as rollouts of limited-edition supercars, including the FXX K Evo racing model, help it achieve a long-held profit goal two years early.

If, like us, you were wondering what a Ferrari FXX K Evo looks like, here it is. It has a 6.3 litre V12 engine and an electric motors, generates 1,036 bhp with the motor providing an additional 187 bhp and is very fast (last time we checked Ferrari hadn’t released top speed or acceleration data).

In 2013, former Chairman, Luca Montezemolo, said that Ferrari would limit production to around 7,000 cars to defend the brand.

“My focus this year and in the years to come is not to grow volume but to increase the exclusivity of Ferrari,” di Montezemolo said. “This protects our margins and residual values for our customers.”

It didn"t last long. With Sergio Marchionne in control and the prospect of a listing on the NYSE, Ferrari outlined a plan to increase production to as many as 9,000 cars by 2019. Production is expected to reach 8,400 cars (including supercars) in 2017 and the target can be achieved a year early as Ferrari doubles the number of shifts at its manufacturing facilities. According to Bloomberg.

Ferrari NV, fabled for its fast cars on roads and race tracks, is packing some extra speed into its factories, too. The Italian supercar maker, spun off from Fiat Chrysler Automobiles NV in 2016, plans to boost production by doubling assembly shifts to two a day in 2018 as deliveries are on pace to reach its 9,000-vehicle target a year earlier than scheduled, according to people familiar with the matter, who asked not to be named as the matter isn’t public. A Ferrari spokesman declined to comment.

The increase is part of Chief Executive Officer Sergio Marchionne’s plan to boost profit by expanding Ferrari’s line-up while maintaining the exclusivity of its $200,000-and-up models. Marchionne, 65, will present the carmaker’s latest mid-term strategy early next year, his final one at the helm of the Italian iconic brand.

The Ferrari IPO in October 2015 priced at $52/share which was at the top end of the $48-52 range. The stock, which trades under the ticker RACE, has more than doubled to $106.9, valuing the company at $20.2 billion.

Bloomberg “helpfully” provides us with an explanation for the ramp in Ferrari production. 

Sales growth is being driven as the population of wealthy individuals surges. The number of millionaires worldwide surged 36 percent to 13.6 million people in the 10 years through 2016 and may rise another 37 percent in the following decade, according to the Wealth Report by real estate company Knight Frank. The number of billionaires increased 45 percent in the period, boosted by gains in the Asia-Pacific area.

Besides the global increase in wealth, the extension to the company’s product range will also have a positive impact on sales volumes during the next few years. For example, Marchionne commented that “We’re dead serious about this” when referring to the potential for manufacturing Ferrari’s first  ever SUV – termed a “Ferrari Utility Vehicle” or FUV. As Bloomberg explains.

The plan will include Ferrari’s first-ever sport utility vehicle as it targets annual sales exceeding a self-imposed 10,000-car limit that until now has enabled it to operate under less-stringent fuel-economy rules, people familiar with the matter said in August. Goals include doubling operating profit to about 2 billion euros ($2.35 billion) by 2022, they said.

For now, there is no threat to Ferrari’s prospects, nor its exclusivity. Waiting lists for most models exceed twelve months. Marchionne has said before that Ferrari can preserve its exclusivity as long as it always sells one car less than the market demand, echoing the words of founder, Enzo Ferrari.

If he was still alive, we question whether Enzo Ferrari would have realised that the biggest risk to his company is probably the bursting of the latest equity bubble.

Next Phase Of Carmageddon: The Banks

Authored by Wolf Richter via WolfStreet.com,

Banks have started to tighten lending standards for prime and subprime borrowers, and it shows...

Banks are further tightening their lending standards for prime and subprime auto loans. This process started in Q2 2016, when auto lending had reached the apogee of loosey-goosey underwriting that had boosted sales of new and used vehicles to record levels and had ballooned auto loan-balances outstanding to the $1-trillion mark. It also boosted risks for lenders. Inevitably, subprime auto loans started running into trouble in 2016, and it was time to not throw the last trace of prudence into the wind entirely.

The chart below - based on data from the Fed’s Senior Loan Officer Survey on bank lending practices for the third quarter - shows the net percentage of banks tightening lending standards. The negative percentages below the red line signify net easing. It shows how loan officers have gradually, in fits and starts, dialed back their easing before Q2 2016 and ratcheted up their tightening after Q2 2016:

During Q3 2017, 10% of the banks tightened underwriting conditions, compared to the prior quarter, but 0% loosened underwriting conditions. In other words, the tightening is proceeding gradually, on a bank-by-bank basis, and the easing has stopped entirely.

“Banks reportedly tightened most terms surveyed for auto loans,” the report says. Specifically, here are some of the terms the banks tightened in Q3, which adds to the banks that tightening in prior quarters:

• 7% net tightened conditions on minimum required down payments.


• 5% net tightened conditions on credit scores


• 8% net tightened granting loans to customers that did not meet credit scoring thresholds

In a set of special questions, the October survey asked why banks were changing credit standards or terms for prime and subprime borrowers “this year.” The reasons were nearly the same for both prime and subprime borrowers, but subprime is clearly the bigger concern. Here is what banks said about their reasons for tightening lending standards for subprime borrowers:

• Less favorable or more uncertain economic outlook: 50% somewhat important; 30% very important.


• Deterioration or expected deterioration in the quality of your bank’s existing loan portfolio: 30% somewhat important; 40% very important.


• Reduced tolerance for risk: 30% somewhat important; 50% very important.


• Less favorable or more uncertain expectations regarding collateral values [used vehicle values]: 40% somewhat important; 40% very important.


• Lower or more uncertain resale value for these loans in the secondary market: 33% very important; 0% somewhat important.

Some of this tightening is already showing up in the data. For example, the average maturity of new-vehicle loans peaked in Q1 2017 at 67.4 months, according to Federal Reserve data. The data for Q3 is not yet available, but by Q2 the average maturity dropped to 66.5 months, the first major drop since 2011.

Note on the left side of the chart how the average maturity plunged during the Financial Crisis as credit was freezing up and as auto sales collapsed, and it was hard to get anything financed:

But the tightening hasn’t yet shown up in total auto loan balances outstanding, which jumped by $19 billion during the third quarter, likely boosted by the first batch of replacement sales from the hurricanes.

What has shown up is a massive adjustment of the data going back to Q4 2015. Since I keep the old data, I overlaid the prior unadjusted data (red line) and the current adjusted data (blue columns) in the chart below. The adjustment retroactively wiped out $39 billion in auto loan balances in Q4 2015. By Q1 2017, the adjustment had wiped out $41 billion:

Adjustment of data happens all the time. These are estimates that can be off, and occasionally, adjustments are made to try to put them back on track. But it does show that auto loans did not suddenly plunge in Q4 2015, as the chart based on the blue columns alone would have otherwise indicated.

That banks are tightening their auto-lending standards ever so gradually is another headwind the auto industry is facing. The hurricanes, by destroying or damaging a few hundred thousand vehicles, created some temporary replacement demand for new and used vehicles, some of it financed by insurance companies.

This replacement demand is now papering over the underlying problems of the industry that are constraining demand:

• Too much auto debt


• Too much “negative equity” in vehicles after years of loosey-goosey lending, which makes trading difficult


• New vehicle prices that have moved out of reach


• And incomes that have been stagnating for a large part of the population.

And these headwinds will still be there after the replacement demand from the hurricanes settles down.

Carmageddon for Tesla, Fiat Chrysler, Hyundai, and Kia. But not for all automakers. Read…  Pickup Sales Boom, Cars get crushed, Tesla Deliveries Plunge

"Fully Self-Driving Cars Are Here" - Waymo To Begin Testing Driver-Free Autonomous Taxis In Phoenix

From here on out, if you see a car without a driver meandering around suburban Phoenix, don’t be alarmed: It’s just Google"s Waymo division testing its new driverless taxis - the first of their kind to be tested on US roads without the supervision of a “safety driver."

Wayno has revealed that - effective immediately - it will begin testing the driverless taxis - referred to in technologist parlance as a “level 5” driverless vehicle - in Chandler, Arizona. Thew news represents an important milestone that establishes Waymo as the leader in automated driving technology. Waymo CEO John Krafcik made the announcement Tuesday during in a speech at a web summit in Lisbon, Portugal.

“We want the experience of traveling with Waymo to be routine, so you want to use our driver for your everyday needs,” John Krafcik, Waymo’s chief executive officer, said at the Web Summit conference in Portugal. “Fully self-driving cars are here."

According to Ars Technica, for the last year, Waymo has offered free taxi rides to ordinary people who live near the Phoenix suburb of Chandler. Until recently, the company"s modified Chrysler Pacifica minivans had a Waymo employee in the driver"s seat ready to take control if the car malfunctioned.

One reason the company is so confident in its techonology, as Bloomberg points out, is the Alphabet subsidiary has racked up more autonomous test miles on roads than others developing the tech, including Ford Motor Co., General Motors’ Cruise Automation unit and Uber. However, Google’s rivals have certain advantages that may ultimately help them beat Waymo to market. For example, Uber has a massive customer network that depends on its drivers for rides. And Ford and GM have the manufacturing capabilities to crank out new units with very little delay.

And by the looks of it, Waymo is gearing up to challenge Uber by using its service to begin offering rides. Krafcik, a former Ford executive, said that an on-demand service would be the first commercial use case for Waymo. During his appearance at the summit in Lisbon, he also discussed how the vehicles may replace personal car ownership, a nightmare scenario for OEMs like Ford and GM.

“Because you’re accessing vehicles rather than owning, in the future, you could choose from an entire fleet of vehicle options that are tailored to each trip you want to make,” Krafcik said, according to a transcript of his remarks. People could claim the cars for a day, a week “or even longer,” he said. He ticked off the ways driverless cars could be redesigned if the vehicle didn’t need space for a driver: to ferry groceries, as a “personal dining room” or for naps.

Waymo began testing its taxi service in Phoenix back in April. It’s progress shows how Google has played to its strengths by building the best technology available. However, the question of scalability still remains.

As the New York Times points out, driverless cars are regulated by a patchwork of state laws. Arizona, like many states, has no restrictions against operating an autonomous vehicle without a person in the driver’s seat. On the other hand, California, where Waymo is headquartered, requires any self-driving car to have a safety driver sitting in the front.

However, just because Waymo can legally test these cars, doesn’t necessarily mean they’ve been optimized for safety. In December, Waymo published a report for California’s Department of Motor Vehicles about how frequently its driverless cars “disengaged” because of a system failure or safety risk and forcing a human driver to take over. In the report, Waymo said this happened once every 5,000 miles the cars drove in 2016, compared with once every 1,250 miles in 2015. While that’s certainly an improvement, these types of incidents are hardly rare.

So, the question is, how will Waymo handle these situations when they inevitably start cropping up (indeed, if they haven’t already)? We imagine given all the publicity around several high profile cases of deadly car accidents involving Tesla’s autopilot software, that the company has planned for these risks - or at least, we hope they have.

And we’re not the only ones. Consumer Watchdog, a frequent critic of Alphabet, said that data demonstrated that the cars are not ready to drive without any human intervention and that Waymo was following the Silicon Valley model of “beta testing” a new technology on the public - to a potentially dangerous end.

“It’s the wrong approach when you’re dealing with self-driving cars,” said John M. Simpson, a director at Consumer Watchdog. “When things go wrong with a robot car, you kill people."

To be sure, researchers believe self-driving cars can be safer than cars operated by human drivers because they are programmed to adhere strictly to traffic laws, they don’t get distracted, and they don’t take unnecessary risks.

But that reality is a long way off.

Then again, who are we - the public - to stand in the way of progress? The tech gods of Silicon Valley have spoken, and they’ve said we will have autonomous vehicles commercially available by 2025 - which is ludicrously soon, considering where the technology is right now. Because the reality is this technology needs to function flawlessly by the time it’s put in the hands of the consumer.

Of course, regardless of the cost in lives and damage, once the technology is ready, the world will understand that it was all worth it.

In a bit about driverless cars, Stephen Colbert once joked that they’re “a high tech alternative to dropping a brick on the gas peddle and jumping in the back seat.”

Given Waymo’s safety record. That bit might prove eerily prescient.
 

Tesla Reportedly Preparing To Open Factory In Shanghai

As Tesla falls further and further behind in its quest to produce 10,000 Model 3 sedans a week by the end of next year, WSJ reported Sunday that, after months of talks with local government officials, Tesla has finally received permission to open a factory in Shanghai, one of China’s designated “free trade zones.”

If accurate, the report would signal a major shift in China’s policy toward foreign automakers. Until now, US carmakers like GM hoping to sell cars in China’s domestic market have been forced to work (and more importantly share profits and technology) with a local partner.

But more surprising than the news itself is the timing, as Tesla continues to struggle with major production delays at its Fremont Calif factory, a problem that will no doubt be exacerbated by the company’s decision to lay off hundreds of workers and replace them with cheaper contract labor in what has been characterized as a blatant attempt to suppress unionization efforts. WSJ says cars produced at the Shanghai factory would primarily supply local markets while allowing Tesla to sale cars across the region. Meanwhile, any cars shipped to the US from the Shanghai factory would face a 25% tariff.

The scoop comes from WSJ’s Tim Higgins, who has broke a handful of big Tesla stories in recent months, including a report earlier this month about workers at Tesla’s Fremont factory being forced to assemble Model 3s by hand because the factory"s production line hadn"t yet been completed.

“Electric-car maker Tesla Inc. has reached an agreement to set up its own manufacturing facility in Shanghai, according to people briefed on the plan, a move that could help it gain traction in China’s fast-growing EV market.

 

The deal with Shanghai’s government will allow the Silicon Valley auto maker to build a wholly owned factory in the city’s free-trade zone, these people said. This arrangement, the first of its kind for a foreign auto maker, could enable Tesla to slash production costs, but it would still likely incur China’s 25% import tariff.

 

Tesla is currently working with the Shanghai government about details of the deal’s announcement, such as timing, one of these people said. The effort comes as President Donald Trump, who has been critical of China’s trade policies, prepares to visit Beijing early next month.

 

A Tesla spokesman didn’t have a comment beyond reiterating the company’s previous statement in June that it planned to “clearly define” production plans in China by year’s end. The Shanghai government didn’t reply to a request for comment."

While the news isn’t exactly a surprise - Tesla has seemingly been in talks to open a factory in China for ages and has hinted that a factory might be opening soon - given the timing, one can’t help but question whether the reporting is accurate.

To this point, the Wall Street Journal has a rule - common among legacy media organizations - whereby if a company’s communications department is the source of leaked information in a story, the paper won’t report that the company refused to comment or declined to comment - because it wouldn’t be true. Tesla’s comms department was named in the story, so therefor the information either came from sources close to the Shanghai government, or some other third party (or, of course, a combination).

As WSJ points out, Tesla is still working out the details of the agreement. Presumably, breaking ground remains a long way off. Perhaps there’s still time for the deal - assuming one is in fact being negotiated - to fall through.

Of course, being allowed to operate in the country without a local partner would be an unprecedented step for China’s free-trade zones. The Chinese government wouldn’t set such a precedent without careful consideration, though it did circulate a proposal on possibly allowing foreign EV makers to circumvent the partner rule if they build their operations in the country’s free trade zones.

Until now, foreign auto makers have built cars in China through joint ventures with local manufacturers. That allows them to avoid the 25% tariff on autos, but also forces them to split profits, and potentially share technology, with the local partner—something that has tripped up Tesla’s previous efforts to expand there.

 

Under current rules, the cars Tesla builds in the free-trade zone would still count as imports and incur the tariff. Auto analysts in Shanghai doubt the Chinese government has any incentive to give Tesla special treatment.

 

“Government regulators examine every deal and try not to set a precedent,” said Bill Russo, chief executive of Automobility, a Shanghai-based consultancy, and a former Chrysler executive. “Whatever deal Tesla gets, others will want it too."

Of course, the logic of competing for a foothold in China’s domestic market - despite the myriad obstacles that remain for foreign companies, not the least of which are the PBOC’s stringent capital controls, which make it difficult for foreign corporations to repatriate profits - is unimpeachable. According to a study published by the China Association of Automobile Manufacturers this week, Chinese buyers are expected to have purchased 700,000 electric vehicles by the year’s end.

Sales have contineud to climb even as the Chinese government, which has spent billions on EV subsidies, this year pared back financial incentives for EVs by 20%. Of course, the increase is probably because the government has embraced other more coercive methods to push customers toward electric vehicles as it tries to combat a worsening air pollution problem in its cities. For example, the local government has dramatically increased the share of license plates awarded to EV owners to incentivize purchases.

Elon Musk wouldn’t be the first American to try to compete in China’s EV market. Chinese electric car company BYD, which is backed by Warren Buffett, was the best-selling electric carmaker last year and sells seven models in the country.

In August, General Motors said it would start selling the Baojun E100, a tiny electric car costing about $5,300 after national and local electric vehicle incentives, CNNMoney reported.

China’s EV market, already the world’s largest, is expected to experience rapid growth over the coming decade, as the Chinese government pushes a plan to eliminate fossil fuel-burning vehicles entirely over the coming decades. The Chinese government is targeting 7 million EV sales a year by 2025, up from 351,000 last year, and in September it ordered all auto makers already operating in China to start producing EVs by 2019. Officials have also said they are working on a plan to ban gasoline cars.

Tesla won’t report third quarter earnings until next month, but the company reported record cash burn in the second quarter (though it did have about $3 billion of cash on hand)…

...meaning it will likely need to issue more debt to finance the construction of the factory. In August, Tesla announced a $1.5 billion bond offering purportedly to ramp up production on the Model 3.

But regardless of the cost, China is an essential market for Tesla. And as Elon Musk scrambles to justify the company’s obscene valuation as its recent production difficulties have forced it to cede the mantle of most valuable domestic automaker to GM.

However, there is plenty of skepticism as to whether this is Muskian "fake news"...

How’s the Buffalo Gigafactory coming along? Or even the first Gigafactory, for that matter. Must be near the 3Q reporting date. $TSLA https://t.co/lmCe6fhkPm

— Diogenes (@WallStCynic) October 22, 2017

Vegas Shooter Investigators "Puzzled", Believe He Was Not Alone For Two Reasons

Two days ago, Clark County Sheriff Lombardo for the first time expressed his conviction that Las Vegas gunman Stephen Paddock had to have help at some point during the tragic mass shooting, either in the preparation or the execution stage, or both.

“Look at this. You look at the weapon obtaining the different amounts of tannerite available, do you think this was all accomplished on his own, face value? You got to make the assumption he had to have help at some point, and we want to insure that’s the answer. Maybe he’s a super guy... Maybe he’s super — that was working out this out on his own, but it will be hard for me to believe that.”

“Here’s the reason why, put one and one–two and two together, another residence in Reno with firearms, okay, electronics and everything else associated with larger amounts of ammo, a place in Mesquite, we know he had a girlfriend. Do you think this is all self-facing individual without talking to somebody, it was sequestered amongst himself.”

Sheriff Lombardo says Las Vegas police took 75 minutes to breach hotel door from the time the first shots were fired https://t.co/aiaPBRqDqO pic.twitter.com/398hcWcAwv

— ABC News (@ABC) October 5, 2017

Additionally, Sheriff Lombardo suggested that far from a suicide mission, authorities had seen evidence that the shooter planned to survive and escape.

To be sure, the question whether Paddock was alone or coordinated with some, still unknown collaborator, has been one of the most hotly debated topics involving last Sunday"s tragic Las Vegas shooting.

Now, providing further impetus to the speculation that Paddock was not alone, NBC News reports, citing senior law enforcement officials, that investigators are speculating that someone else may have been in the Las Vegas gunman"s hotel room when he was registered there.

According to NBC, the investigators are "puzzled" by two discoveries: First, a charger was found that does not match any of the cellphones that belonged gunman, Stephen Paddock. And second, garage records show that during a period when Paddock"s car left the hotel garage, one of his key cards was used to get into his room. While there are several possible explanations for these anomalies, investigators said they "want to get to the bottom of it."

It gets better: according to Paddock"s IRS records, the gunman was not only a legacy millionaire, he was a successful gambler, earning at least $5 million in 2015. Some of that could be from other investments, but most of it was from gambling, officials told NBC.

Separately, and this goes to Paddock"s potential ISIS links which the Islamic State has tripled down on over the past week, CNN reports that in addition to his frequent forays into casinos and gun shops, Las Paddock took 20 cruises, many of them in Europe and the Middle East. In addition to stops at ports in Spain, Italy, Greece, the cruises also stopped in Jordan and the United Arab Emirates, according to information provided by a law enforcement source. Paddock"s girlfriend, Marilou Danley, accompanied him on nine of the cruises.

Picking up on the narrative that Paddock may have hoped to use his car as a bomb, Paddock"s car, a 2017 Chrysler Pacifica Touring, was found in the hotel parking garage and contained 90 pounds of Tannerite and two suitcases filled with hundreds of rounds of ammunition. Authorities suspect the Tannerite was intended for use in target practice or to make the car explode if fired upon, according to information provided by the source. The information from the source was derived from intelligence obtained earlier this week. Authorities have since said that the vehicle contained 50 pounds of Tannerite.

That said, so far, investigators have found no evidence supporting a claim by ISIS that Paddock had converted to Islam and carried out the attack on the terror group"s behalf, according to the information provided by the source. Paddock"s girlfriend, Danley, has been unable to provide a motive for the mass killing, according to the information.

Finally, in the latest previously undisclosed discovery, the NYT reported that what some had assumed was a suicide note, was instead a notepad whose exact contents the authorities have yet to reveal. Sheriff Lombardo said that it contained numbers that were being analyzed for their relevance, and were "significant to the gunman"; the police are attempting to determine their meaning.

Paddock"s motive for the worst mass shooting in US history still remains a mystery.

Hurricane Harvey Surge-Nado: Auto SAAR Soars To 30-Year High On Hurricane Replacements

Last month, when we reported auto sales data, we noted that this month would be all about replacement demand from Hurricane Harvey and thus largely irrelavant.  Fast forward 30 days and that appears to be exactly what has happened as annualized auto sales for the month of September suddenly surged to a 30-year high of 18.5mm units, up 15.2% sequentially from a 16.0mm run-rate last month.

That is, of course, unless you believe CNBC"s Phil LeBeau who took to the airwaves earlier today to argue that a substantial portion of the sudden surge in auto sales was not necessarily attributable to the fact that a couple hundred thousand cars were destroyed in last month"s hurricanes but rather just a reflection of an abrupt rebound in consumer demand after months of weak data...

...once you"re done with the laughing fit we can continue to review this month"s auto data...

Not surprisingly, almost every OEM, with the exception of Fiat Chrysler, managed to post a significant YoY increase in sales courtesy of Hurricane Harvey.  The only surprising takeaway was just how wrong wall street was in their estimates for the quarter.

Meanwhile, per the charts below from Stone McCarthy, the transition from cars to trucks continued during September with car sales dropping 2.8% YoY versus and 8.1% increase in truck sales. 

All of which likely contributed to Ford"s announcement after the close today suggesting, among other things, a shift in future capital allocation to increased production of SUVs and trucks away from cars...which should be complete right about the same time that oil prices spike back to $100 per barrel rendering those SUVs/Trucks completely unaffordable again.  Here are the highlights from Ford"s press release:

Accelerating the introduction of connected, smart vehicles and services customers want and value. By 2019, 100 percent of Ford’s new U.S. vehicles will be built with connectivity. The company has similarly aggressive plans for China and other markets, as 90 percent of Ford’s new global vehicles will feature connectivity by 2020.

Rapidly improving fitness to lower costs, release capital and finance growth. Ford is attacking costs, reducing automotive cost growth by 50 percent through 2022. As part of this, the company is targeting $10 billion in incremental material cost reductions. The team also is reducing engineering costs by $4 billion from planned levels over the next five years by increasing use of common parts across its full line of vehicles, reducing order complexity and building fewer prototypes.

Allocating capital where Ford can win the future. This starts with the company reallocating $7 billion of capital from cars to SUVs and trucks, including the Ranger and EcoSport in North America and the all-new Bronco globally. Ford also has plans to build the next-generation Focus for North America in China, saving capital investment and ongoing costs. Further, Ford is reducing internal combustion engine capital expenditures by one-third and redeploying that capital into electrification – on top of the previously announced $4.5 billion investment.

Of course, with this non-recurring, one-time surge in demand helping to offset the industry"s pesky inventory crisis (per table below GM was able to reduce inventory MoM by over 70,000 units), the question now becomes whether OEMs will maintain some discipline and restrict production to reflect a normalized SAAR environment or if they"ll just flood dealer lots all over again...we have a guess.

Of course, while today"s results were largely just noise, shareholders still loved the headlines...

One Analyst Throws Up On Today's Retail Sales Data: Here's Why

Two weeks ago we reported that July auto sales were a disaster: recall sales for bloated with inventory GM were down 15% YoY, Ford off 7% and Chrysler down 11% - despite record incentive spending - as overall auto sales declined and disappointed for yet another month. And yet, according to this morning"s retail sales report from the Census Bureau, sales for "motor vehicle & parts stores" rose much more robustly than anyone had anticipated, rising 1.2%, the fastest pace since December.

This number was so bizarre, and so out of context with recent sales data, that SouthBay Research threw up all over it in its morning note today. Here"s why:

• Retail Sales m/m: 0.6%


• Retail Sales ex Autos m/m: 0.45%


• Retail Sales ex Autos & Amazon m/m: 0.3%

Consumer Retail Spending was Actually Mild, As Expected

• Auto Sales growth unbelievable


• Amazon Prime Day juiced the results

Don"t believe the auto sales data.  Per the BEA, unit sales were flat m/m (+90K).  Meanwhile, per JD Power, July average retail prices were $950 lower than June"s as auto dealers struggled to make sales and incentives averaged $3.9K, the highest on record and $100 higher than June.

• Hmmm, no rise in auto sales per the real world and the BEA.  Coupled with a fall in net prices. But in fantasy land, the Census Bureau announces a $1.2B m/m jump in sales and a 7%+ y/y rise.

Amazon Prime Day Was Huge...and will Cut August Sales

• Nonstore Retail Sales jumped $700M m/m.  That"s the Amazon Prime Day effect. I modeled it lower and that"s the source of my miss this month

Reasons for Caution: Government Data is Overstating Reality

• The Retail strength does reinforce my view that macro data favors the US in 2H and that the dollar is oversold. But the Retail headline figure is wrong and analysts were correct: consumer spending as captured by Retail is sluggish.  The fact that reality is badly captured by the Retail figures is concerning insofar as it affects the Fed"s decision making. 

The opportunity is to recognize that consumer spending in the real world will pull back and it will also be missed by the official data.  With Consensus unprepared for the pull back, it will deliver a greater shock.

Meanwhile, here"s a quick look at SouthBay"s proprietary "Vice Index."

For those who are unfamiliar, the vice index tracks US consumer spending on alcohol, marijuana, prostitution and gambling, Vices are a special form of discretionary spending that is highly sensitive to near-term
economic conditions: i) Cash based: depends on free cash flow; ii) Luxury spending: wants not needs; iii) Significant dollar amount: not pricey but not cheap. Vice spending is broadly representative of the US consumer: i) Broad-based: Every socioeconomic and demographic group participates; ii) High-volume transactions: Over 100M discrete events per year.

The reason why this index is of particular interest, is because vices predict retail spending with a 4-month lead. Luxury spending is the 1st thing to be affected by changes in household finances.

This is what the index shows:

Auto Defaults Soar On The Back Of "Hasty Loans And, At Times, Outright Fraud"

In the years after its 2009 bankruptcy, Chrysler looked for a dedicated lender to help customers "finance their cars quickly"...which was code for a lender who could help the struggling OEM expand their market share by making extremely risky loans to subprime borrowers all while laying off the credit risk to unsuspecting pension funds.  As such, Chrysler ultimately picked Santander due to its expertise in “automated decisioning”...which was code for the ability to advance credit without actually performing income verification tests on borrowers.

For a time, Chrysler and Santander enjoyed a perfect symbiotic relationship as it offered Santander an opportunity to aggressively expand in the U.S. subprime loan market, and Chrysler, the perennial third wheel among the “Big Three,” was able to target customers that were previously deemed untouchable by lenders.  Of course, as Bloomberg points out today, the problems surfaced almost from the start.

Many of them, detailed in the settlement between Santander and authorities in Delaware and Massachusetts, recall some of the excesses of the subprime housing era.

Attorneys general in both states alleged Santander enabled a group of “fraud dealers” to put buyers into cars they couldn’t afford, with loans it knew they couldn’t repay. It offloaded most of the debt, which often had rates over 15 percent, reselling them to yield-hungry ABS investors.

State authorities also said an internal Santander review in 2013 found that 10 out of 11 loan applications from a Massachusetts dealer contained inflated or unverifiable incomes. (It’s not clear whether this particular case involved a Chrysler dealer.)

Santander kept originating the dealer’s loans anyway, even as they continued to default “at a high rate,” the authorities said.

Some dealerships even asked Santander to double-check customers’ incomes because they didn’t trust their own employees, the authorities said. They also said the lender didn’t always oblige because that would put it at a “competitive disadvantage.” At the time of the settlement, Santander said it was “totally committed to treating its customers fairly.”

All of which at least partially explains why auto defaults are soaring to post-crisis highs even as equity markets continue to shrug off bad data.

Of course, it wasn"t just a few dealers in Delaware and Massachusetts that caused auto defaults to soar.  As we pointed out back in May, the problems at Santander were pervasive with the lender apparently only verifying income on roughly 8% of the loans they subsequently dumped into ABS facilities and sold off pension and insurance companies. 

Santander Consumer USA Holdings Inc., one of the biggest subprime auto finance companies, verified income on just 8 percent of borrowers whose loans it recently bundled into bonds, according to Moody’s Investors Service.

The low level of due diligence on applicants compares with 64 percent for loans in a recent securitization sold by General Motors Financial Co.’s AmeriCredit unit. The lack of checks may be one factor in explaining higher loan losses experienced by Santander Consumer in bond deals that it has sold in recent years, Moody’s analysts Jody Shenn and Nick Monzillo wrote in a May 17 report, which reviewed data required of asset-backed bond issuers that’s recently been made available.

Limited verification of loan applicants’ stated incomes and employment “creates more uncertainty around whether borrowers will be able to afford their monthly payments, which becomes particularly important if they have poor credit records and risky loan terms,” the analysts wrote.

Of course, Wall Street’s voracious appetite for high-yield investments has kept the loans - and the subprime ABS bonds - coming.  You can"t possibly expect those overpaid, ivy league-educated financial analysts to be discerning when it comes to credit risk.

In recent years, lending practices in the subprime auto industry have come under increased scrutiny. Regulators and consumer advocates say it takes advantage of people with nowhere else to turn.

For investors, the allure of subprime car loans is clear: securities composed of such debt can offer yields as high as 5 percent. It might not seem like much, but in a world of ultra-low rates, that’s still more than triple the comparable yield for Treasuries. Of course, the market is still much smaller than the subprime-mortgage market which triggered the credit crisis, making a repeat unlikely. But the question now is whether that premium, which has dwindled as demand soared, is worth it.

“Investors seem to be ignoring the underlying risks,” said Peter Kaplan, a fund manager at Merganser Capital Management.

But, just like with the subprime mortgage bubble, we suspect the extra 50 bps of yield garnered from moving down the credit quality curve will ultimately prove to be slightly less than sufficient compensation.  Luckily, much of the losses will reside with America"s already bankrupt pension funds which means that taxpayer will get the opportunity to step in and fix everything.

Carmageddon: Record Incentives And Financing Terms Fail To Stem The Auto Bleeding In June

Yesterday we noted that auto investors celebrated the fact that, while auto sales were down massively year-over-year (to the tune of nearly 6% for the Detroit 3), June figures were "less bad" than expected, so "good".  All of which sparked even more "irrational exuberance" among OEM equity owners and sent Ford/GM shares soaring. 

But, rather than focus on the headline numbers, perhaps those equity owners should spend a little more time analyzing the record incentives and deteriorating underwriting standards that have been required to generate those "less bad" results.

Take, for example, incentive spending for the month of June.  As Automotive News points out, overall industry incentive spending soared nearly 10% YoY with brands like Hyundai and Honda slashing 42% and 20%, respectively, to move their bloated dealer inventories.

ALG reports automakers spent an average of $3,550 per new vehicle sold in June, up 9.7 percent from a year ago. The average discount is expected to account for 10.8 percent of the average transaction price of vehicles sold last month -- marking the 11th time in the past year that incentive spending has accounted for 10 percent or more of the sale price, according to industry forecasters.

Autodata Corp. says average incentive spending heading into June was up 15 percent to $3,516 per vehicle sold. Despite weakening demand for cars, incentive spending for light-duty truck increased 16 percent compared to 13 percent for light-duty passenger cars during the first five months of the year.

American automakers, which continue to offer the most cash on the hood, matched the industry average for incentive spending, up 14 percent through May, while average discounts at Asian brands increased 19 percent and deals at European automakers rose only 3.9 percent.

ALG reported Subaru, Hyundai and Kia experienced the largest increases in incentive spending in June compared with a year ago. Average discounts at Subaru -- the lowest spender in the industry -- increased 63 percent to $1,032; followed by Hyundai, rising 42 percent to $3,259; and Kia, with an increase of 25 percent to $3,384.

Meanwhile, Edmunds notes that auto loan terms continue to get stretched out to record new highs each month all in an effort to continually lower monthly payments so that entitled Americans can buy cars they really can"t afford.

Edmunds analysts found that the average loan term for new vehicles soared to a record high of 69.3 months in June, an increase of 1 percent from June 2016 and up 6.8 percent from five years ago. In addition, the average amount financed by new-car buyers jumped to $30,945, which is a 2.6 percent increase from this time last year and 17.2 percent more than five years ago. And the average monthly car payment is now $517: That"s 2.1 percent more than in June 2016 and an 11.3 percent increase over five years.

"Stretching out loan terms to secure a monthly payment they"re comfortable with is becoming buyers" go-to way to get the cars they want, equipped the way they want them," said Jessica Caldwell, executive director of industry analysis for Edmunds. "It"s financially risky, leaving borrowers exposed to being upside down on their vehicles for a large chunk of their loans, but it"s also a sign that consumers are still confident enough in the economy to spend more on their vehicles and commit to paying for them longer."

And it"s not just new car loans as used car terms are getting stretched out as well...a fact that we"re sure will serve consumers well if Morgan Stanley"s downside case for used car prices ever actually plays out (see "Morgan Stanley: Used Car Prices May Crash 50%").

Consumers in the market for a used vehicle are also willing to stretch their payments. An Edmunds analysis found that the average loan length for a used car is now 66.9 months, up 0.1 percent from June 2016 and up 6 percent than five years ago. The average amount financed has risen to $21,142, a 0.4 percent jump from last year and an increase of 9.9 percent over five years. And the average used-car payment in June was $383, which is 0.8 percent more than a year ago and up 3.5 percent from five years ago.

And don"t even get us started on the record level of "channel stuffing" going on the industry...

...with GM being the biggest culprit with inventory days up a modest 46% YoY to an all new record high of 105 days.

???? GM"s inventory has officially hit a 10-year high. 980,454 units in stock (a 105-day supply) as of June 30, the most since June 2007.

— Nick Bunkley (@nickbunkley) July 3, 2017

Finally, as Stone McCarthy Research points out, Americans, flush with their $0 down, 0% interest for 84 month auto loans, continued to shun cars for much more expensive, and profitable, trucks and SUV"s.  Another "positive" for the industry...if you manage to ignore those record incentives we mentioned above which are eroding away all that extra profit.

General Motors domestic car sales came in much lower than we expected, and declined nearly 34% from June 2016. Their domestic light truck sales were much stronger than we expected, and were up over 7% from last year.

Domestic car sales were weaker than expected for Ford as well, and fell 23% from last year. Ford domestic light truck sales also came in below our expectations, though were not weak as ford domestic car sales, and were only up about 6% from June 2016.

Chrysler domestic light car sales came in right where we expected, down 19% from last year. Domestic light truck sales for Chrysler were below our expectations though, and fell around 3% from last year.

Car sales:

Truck sales:

Of course, things like math and critical thought are way more complicated than quickly reacting to "less bad" headlines.  That said, in the long run, math and logic tend to prevail.

 

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.

Of Queen & Country, God And Guns

Authored by "Revanchist" via The Burning Platform blog,

Though our stars tend to rise and fall in opposition through the years, your reputation for adventure, fearlessness and a legendary hunger for more lingers, and for the most part we find that admirable—no, more than that—we find it astonishing.

We may denigrate your American whisky (as well as your tendency to spell it with the Irish ‘e’) as you joke about our pasty faces and reliance upon dentures, but we are cousins—if not always kissing—and share a rich common language, culture, customs and cuisine. We are more alike than different in nearly every respect but these: One, we are a constitutional monarchy and Two, despite what you may have heard we really, really envy you your guns.

America has always seemed the dangerous, glamourous older brother. You were the cowboy, the gangster, the astronaut and the comic book hero of our collective imaginations. You were the captain of the debate team, dating the homecoming queen and cruising through life in your ’55 Chrysler, one hand on the wheel, elbow on the door, working on that car tan.

The 40’s, 50’s and 60s were perhaps your finest hours. During World War II you were overpaid, oversexed and over here, breaker of hearts and hymens. The winds of heaven tousled with a loving hand your perfect hair, the sunlight glinted off your straight, white teeth. After the war you invented rock and roll and corn dogs and forty-seven million things to do with sugar including LSD, and we were dazzled.

While we were washing under our arms from basins of cold water in cold rooms in a bitterly cold country, you were inventing the hot tub. At the cinema, we would bask in shimmering visions of your highways and high fashions, your Endless Summer California culture, your glittering skyscrapers and flawless pavements, then trudge home and tune in the wireless for a Parliamentary debate on whether or not we could afford to clean centuries of coal smoke from our cracked and blackened buildings.

While you were bringing Caesar Salad, Martinis, Bananas Foster, Baked Alaska and the almighty, sacred Hamburger into the world, we anticipated the prospect of instant mashed potatoes finally becoming available down the local shops. We were unimaginably insular; it is within living memory that people in Britain believed spaghetti grew on trees.

Despite pretensions to polite behaviour we relished your films and television programmes like The Godfather, The Maltese Falcon, The Third Man and White Heat; more recently The Sopranos, Breaking Bad and Deadwood—the more violent the better. We admired Clint Eastwood’s entire oeuvre. We devoured books like Lonesome Dove and the works of Steinbeck, Hemingway, Mark Twain and Raymond Chandler. Some of us even like bluegrass but those people are mainly in the looney bin. We treasure pretty much everything about you, but we’re British so you don’t hear us mention it very often.

Some Britons flinch when one suggests ever needing a gun in Old Blighty but don’t believe the lukewarm protestations. As the past few years have unfolded any remaining hesitation is apt to change, and soon. What we are beginning to remember is that for thousands of years everyone on this island was armed at all times with daggers—with swords if you could afford them, with throwing axes and longbows for truly special occasions. Personal defence was not just a choice, it meant accepting full responsibility for individual safety beyond city or castle walls. Defending ourselves with grace and strength and skill was something we once took great pride in.

Our downfall can be charted in three separate events:

Two hundred years ago, give or take a couple of decades, Sir Robert Peel established a full-time, professional and centrally-organised police force with the passing of The Metropolitan Police Act of 1829. It was not well received at the time; the public felt they did very well already with night watchmen and personal vigilance and besides, who was expected to pay for it? And why hadn’t the people been consulted? As things usually go between governments and their subjects, government had its way. We turned our weapons over to legally-sanctioned protectors and began to soften as a people.

 

In the midst of austerity after The Second World War, universal healthcare for all was rolled out to tremendous fanfare, followed by a steadily increasing system of welfare for mothers and children, later for pensioners, then veterans and civil servants. There was in the early days some shame associated with taking a government handout but practice makes perfect and before long anyone with a doctor’s note affirming a sprained wrist or dodgy knee could sign on and be supported for life. No one asked this time who would pay—no one wanted to hear the answer anyway. And we grew softer still.

 

Simultaneously, the government threw open its doors to the former colonies. Indians, Pakistanis and Caribbean Islanders answered the call to serve as a labour force and in short order became a demographic who never actually seemed to leave. Politicians had discovered the lucrative stand of virgin timber that was the immigrant class and promised them anything, even citizenship, in exchange for their vote. And vote they did, until their children grew up, stood for election themselves and were voted in by their own people on the colour of their skin. When native Britons asked why they were never consulted on allowing this flood of immigrants they were called racialists. Since Britain had just finished dealing Jerry a bally good hiding, any accusation of holding Nazi sentiments was social poison. Hence we softened our principles and muffled the warning of our hearts.

This is how we joined the invertebrates.

Now we are facing Islam, though not many know that what is happening today is just another battle in a very old war.

From the 16th to the 18th centuries upwards of two million Europeans were captured and sold as slaves in Tunis, Algiers and Tripoli. These weren’t people who were taken at sea but from their beds, in the dark of night in coastal towns and villages in Cornwall, Devon, Dorset, up into Wales and along the west coast of Ireland, as well as throughout the Mediterranean. Why who would do such a thing, you may ask—the Barbary Pirates, of course—Muslims.

This carried on for two hundred years with only sporadic and half-hearted interruption. England talked a good game and now and then ransomed a lord or two out of slavery, but what’s a few missing Cornish fisherman, their wives and children here and there? It wasn’t until American ships began to be attacked and raided for goods and slaves that investors studied the situation and concluded, “You know, this could be bad for business,” and went to war.

First though, in the interest of fair play, Thomas Jefferson and John Adams made the perilous journey across the Atlantic to London for a sit-down with Sidi Haji Abdrahaman, the envoy from Tripoli. When asked what right the Barbary pirates had to force Americans into slavery, Jefferson recorded the ambassador’s answer in two letters and his personal diary:

“He replied that the right was founded on the Laws of the Prophet, that it was written in their Koran that all nations who should not have answered their authority were sinners, that it was their right and duty to make war upon them wherever they could be found, and to make slaves of all they could take as prisoners, and that every Mussulman who should be slain in battle was sure to go to Paradise”.

So, not a lot’s changed then.

In an Anglo-Dutch-American alliance three campaigns of The Barbary Wars were fought and the Muslims were at last subdued and colonised. Client kings and strong men were installed and until the present day Muslims have remained a benign tumour on civilised society.

It was a stunning victory and Francis Scott Key composed a song to mark the occasion. The original verses included:

And pale beamed the Crescent, its splendor obscur’d
By the light of the star-bangled flag of our nation.
Where each flaming star gleamed a meteor of war,
And the turban’d head bowed to the terrible glare.

It wasn’t a huge hit at the time though after the War of 1812 he dusted it off, rewrote some of the more laboured lines and it eventually became the American National Anthem.

Were you taught all this in school? No? Nor I. Why is it that where our history intersects with Islam it always seems to either vanish like morning mist or become corrupted into making the Christian world into the bad guys and aggressors?

This brings us to the current mayor of London, Sadiq Khan, the platitude-puss Pakistani with links to Hamas, Al-Nusra, Al-Qaeda and the Muslim Brotherhood. When he’s not scurrying along the baseboards he’s raring up on his two hind legs and sporting the most punchable, weapons-grade constipation face this side of the Atlantic. It doesn’t take an adept in Texas Hold’em to ascertain that Khan’s tell is one of a man who is eternally biting back what he really wants to say.

Within an hour of the latest cultural enrichment, Khan is on hand with fair-minded and reassuring statements like, Terrorism is part-and-parcel of living in a big city or London is one of the safest cities in the world. Meanwhile, the poisonous flood of piety and bloodlust threatens to drown us all.

What people in Britain are gradually coming to grips with is that Islam teaches that this life on earth is merely a stepping-stone to Paradise and that Muslims must stop at nothing to attain it. To paraphrase Kyle Reese, they can’t be bargained with, they can’t be reasoned with, they don’t feel pity, or remorse, or fear and they absolutely will not stop, ever, until all non-Muslims are dead or enslaved.

For politicians, though, hope springs eternal; just fire the old PR firm and hire a new one. Hence, the RUN•HIDE•TELL campaign is off to a rocketing start. Of course, scruffy young tearaways were quick to deface the posters by substituting the last word to read RUN•HIDE•SUBMIT but the kings of PR, the Americans, have gone us one better with DRAW•AIM•SHOOT as the only viable response. We respect this, of course, because we love your guns.

In other news, on 28 May 2017, police sent a helicopter and combat-ready police to confiscate a karaoke machine from a backyard BBQ because the hosts played a song mocking Osama bin Laden. Bear in mind this was four days after bomb and bloodshed at a concert attended by teenaged girls in Manchester Arena. Several days after the karaoke caper, the horrific massacre on London Bridge took place. Clearly, prioritising threats could do with some work.

Our current PM, Barren Cat Lady, famously stated upon her election, “Brexit means Brexit.” We’re still waiting. After the London Bridge Massacre she said, “Enough is Enough.” At this rate she’ll probably say,”Potatoes are Potatoes,” next and the media will still stand up and applaud it.

But now I am just lobbing outrage darts at the page so I’ll wind this up.

Governments which no longer guarantee the security of their citizens are worthless, and those that disallow the right to defend oneself are worse than negligent, they are clearly dangerous to support in any way. People here are beginning to get this, but I still feel it’s too late to prevent the rivers of blood alluded to by the brilliant Enoch Powell, king of ‘racialists,’ true patriot and martyr.

As I write this it’s less than twenty-four hours till we march once more unto the polls to vote in an election that probably won’t make a bit of difference except to take our Brexit away for good. And yet it could also upset the entire apple cart as well. Such are the times we live in.

My American friends, you are surely aware that you don’t have to own a gun to fight like hell to retain your right to bear arms, as well as the freedom to play anything you damn well please on your karaoke machines. Preserve those rights, defend them, they are more precious than you know. Never sell them. Never soften.

They say a falling knife has no handle and yet our British politicians keep snatching it in mid-air, then expressing astonishment and dismay at the cuts on their hands.

Based upon past experience they’ll just carry on trying to catch it while the rest of us bleed to death.