Author Archive

Are Gas-Sipping Cars Leaving Hybrids in the Dust?

Tuesday, February 7th, 2012

When Cadillac is staking its comeback on a compact car that boasts fuel economy approaching 40 mpg, what does it mean for hybrid and electric vehicles?  Cadillac’s ATS sedan is one example of how carmakers at the Detroit Auto Show are re-emphasizing small, powerful models with more fuel-efficient engines such as sport-utility vehicles; even, please note that we are talking gas here, hybrids are taking a back seat. Additionally, General Motors’ luxury brand says that the ATS will have a turbo-charged four-cylinder 270-horsepower engine that offers impressive fuel economy. Meanwhile, Ford is dropping plans for a hybrid version of its popular Escape SUV.

Although recent auto shows have been stocked with gas-electric hybrids and SUVs, slow hybrid sales have brought a dose of reality.  Carmakers realize they can give buyers what they want and avoid the expense of electric motors and batteries by making cars smaller and getting significantly improved fuel economy from traditional gas engines.

“The advantages of hybrids are getting harder to justify,” said Scott Corwin, a vice president with consulting firm Booz & Co.  “It’s the cost differential. Consumers are rational and they understand the cost of ownership.”  Hybrid sales slowed in 2011 to just 2.2 percent of auto sales, down from 2.4 percent in 2010, according to researcher LMC Automotive.

Mike Jackson, CEO of Fort Lauderdale, FL-based auto retail chain AutoNation Inc., said that approximately 75 percent of his customers want to talk about hybrids, although they constitute only 2.5 percent of his sales.  “What happens from the 75 percent consideration to the 2.5 percent commitment?” Jackson said. “They look at the price premium for the technology, which is already subsidized and discounted, and say “the payback period is too long; not for me.  It’s a back-of-the envelope conversation on the part of the American consumer.”

After a decade of hybrids and oil hovering near $100 a barrel, consumers still aren’t ready to pay the premium for hybrid models, said Reid Bigland, president of Chrysler Group LLC’s Dodge brand.  “The delta you get in fuel-economy lift with a hybrid is continuing to shrink because of the efficiencies with the internal combustion engine” through direct engine, turbochargers and advanced transmissions, Bigland said. “The pure economics are a tough case.”

The Chevrolet Volt plug-in hybrid lures people into the showroom, said Chris Perry, Chevrolet’s vice president of U.S. marketing. With fewer than 8,000 sales last year, consumers often went to a Chevy dealer to look at the Volt and settled on something else less pricey.

Despite slower-than-anticipated sales, the Obama administration has defended tax incentives for electric vehicles.  Transportation Secretary Ray LaHood said that the program has worked, “It’s real money and people have utilized it.”

The administration is advocating aggressive fuel efficiency mandates for the U.S. fleet to decrease oil dependence, particularly through more electrical vehicles. President Barack Obama would like to see one million electric vehicles on the roads three years from now, a goal that industry insiders say is too optimistic. The industry is simultaneously investing in battery technology while making more affordable gains through improvements in conventional engine and transmission systems.  Administration officials are fighting Congressional and consumer skepticism about the wisdom of the $7,500 tax credit that mainly has benefited more well-heeled buyers, who experts say would have been able to purchase the technology without it.

Jeremy Anwyl, CEO of online consumer research group Edmunds.com, said plug-ins are most popular on the West and East coasts with “early adopters,” or educated consumers passionate about using less gasoline.  “For these folks, affordability is not the issue,” Anwyl said.

Automakers have little choice but to promote more hybrids as they prepare for fuel-efficiency requirements that will require significant increases by 2020. However, advances such as Ford’s EcoBoost technology have raised mileage for gas-powered engines —the new Fusion midsize sedan can get 37 miles to the gallon — though bigger gains are still needed.

That’s why many are bullish on alternative engines.  “Internal combustion can’t get all the way there, so you need an alternative,” said Russell Hensley, a partner with the consulting firm McKinsey & Company. “The only alternative we have at the moment is electrification.”  McKinsey listed “uncertainty around future adoption of hybrid/electric powertrain technology” as one of several challenges facing automakers in coming years. According to McKinsey, hybrids could account for up 25 percent of sales by 2020, with battery-powered cars making up five percent. It confirmed that internal-combustion engines would dominate the industry through at least 2030.

Over at the Rocky Mountain Institute, Randy Essex and Ben Holland point out that when gas-electric hybrids first rolled out in 2000, the Honda Insight and Toyota Prius had sales of just 9,350. Those figures looked anemic at the time, too. But in the ensuing years, the technology caught on and more than two million hybrids have been sold in the United States. If that’s any prologue, it could bode well for future plug-ins.

“But is this comparison apt? On the one hand, the new generation of electric vehicles enjoy a few advantages that Priuses didn’t. Gasoline prices sat below $2 per gallon back in 2000, considerably lower than today. What’s more, the latest round of fuel-economy standards, under which carmakers have to get their fleet averages up to 54.5 miles per gallon by 2025, should give the big auto companies incentive to roll out more plug-in vehicles in the coming years.  But then again, today’s electric cars also face special hurdles that the old hybrids didn’t. For one, there’s ‘range anxiety,’ in which would-be buyers of electric cars sometimes fret that their batteries will run out of juice and leave them stranded.”

North Dakota’s Booming Economy Grew 7.1 percent in 2010

Wednesday, July 13th, 2011

Guess which state’s economy grew at a significantly faster pace than the nation’s measly 2.9 percent?  According to a report from the Department of Commerce, it’s North Dakota, whose economy expanded a robust 7.1 percent in 2010.The key driver behind both North Dakota’s success is drilling for oil.  Historically, North Dakota’s mining sector — which includes oil — was quite small compared to its overall economy.  That has undergone change in recent years due to new technology that makes it possible to tap billions of barrels of oil in a remote area of North Dakota known as Bakken. American oil demand was relatively flat last year — but that made no difference in North Dakota.  Mining surged 59 percent, primarily because businesses were working to build the infrastructure to support this young industry in the Bakken region.  “North Dakota has a lot of untapped shale oil, and developing that field may have attracted a lot of investment and a lot of employment into the state,” said Luke Popovich, a spokesman for the National Mining Association.

By 2015, the new fields could yield as much as two million barrels of oil a day — more than the entire Gulf of Mexico produces now.  This new drilling is expected to raise American production by a minimum of 20 percent over the next five years.  Within 10 years, it could reduce oil imports by more than half.  “That’s a significant contribution to energy security,” said Ed Morse, head of commodities research at Credit Suisse.

Among the other states, one of the prevailing themes impacting growth is the ongoing housing slump – which was most evident in Nevada and Arizona.  Several states — including Indiana, Massachusetts and Oregon — saw a manufacturing comeback for autos, high-tech equipment and machinery.

The states seeing the greatest growth in 2010 after North Dakota include New York at 5.1 percent; Indiana at 4.6 percent; Massachusetts at 4.2 percent; and West Virginia at 4.0 percent.

Wyoming was the loser with its $34 million GDP falling 0.3 percent in 2010. It’s because the majority of Wyoming’s coal is used to generate electricity — and when demand for energy declined. last year, it was a setback for Wyoming’s mining industry.  With the energy sector rebounding and coal prices soaring, Wyoming is likely to fare better in 2011. Wyoming performed very differently from North Dakota in 2010.  Mining is a well established segment of the economy, accounting for approximately one third of the entire state’s GDP.  When energy demand fell and oil prices barely picked up in 2010, Wyoming’s GDP was badly hurt.  “When the economy is just flat or just limping along, you can expect a state like Wyoming to really take it hard,” Popovich said.

After Wyoming, the slowest growing states are Nevada at -0.2 percent; Arizona at 0.7 percent; Oklahoma at 0.7 percent; and Montana at 1.1 percent.  States like Delaware, which rely heavily on manufacturing of soft goods such as plastic, struggled due to weak consumer demand and competition from producers overseas.

“It’s only been fleshed out over the last 12 months just how consequential this can be,” said Mark Papa, chief executive of EOG Resources, the first company to use horizontal drilling to tap shale oil.  “And there will be several additional plays that will come about in the next 12 to 18 months. We’re not done yet.”

L.A. Dodgers Slugfest Is Not in the Ball Park

Tuesday, May 24th, 2011

The biggest battle in baseball these days isn’t being played out in the ball park but in the board room.  Baseball Commissioner Bud Selig’s recent takeover of the financially strapped Los Angeles Dodgers is perceived as a heroic act that likely will save the fabled franchise from the acrimonious divorce of owners Frank and Jamie McCourt.

Selig told McCourt that he intends to appoint a MLB representative to oversee all aspects of the club’s business and day-to-day operations.  McCourt appeared to signal his intent to challenge Selig’s decision.  “Major League Baseball sets strict financial guidelines which all 30 teams must follow.  The Dodgers are in compliance with these guidelines,” McCourt said.  “On this basis, it is hard to understand the Commissioner’s action.”  The Dodgers have been in trouble since Jamie McCourt filed for divorce after 30 years of marriage and a week after her husband fired her as the team’s chief executive.  “I have taken this action because of my deep concerns regarding the finances and operations of the Dodgers and to protect the best interests of the club,” Selig said.

Late last year, Los Angeles Superior Court Judge Scott Gordon overturned a March 2004, postnuptial agreement that gave Frank McCourt sole ownership of the team, allowing Jamie to seek one half of the franchise.  “As the 50 percent owner of the Los Angeles Dodgers, I welcome and support the commissioner’s actions to provide the necessary transparency, guidance and direction for the franchise and for Dodgers fans everywhere,” Jamie McCourt said.

Frank McCourt is expected to fight Selig’s decision.  He said that it is “hard to understand the commissioner’s decision” based on the fact that the Dodgers were in compliance with baseball’s financial guidelines.  Selig acted because McCourt, already embroiled in an acrimonious divorce case, took out a $30 million loan from Fox Broadcasting Company to meet payroll.  The loan was secured with funds that McCourt does not have and might never have.  The Los Angeles Times reported that the loan was given to McCourt personally rather than being backed through the team, so he didn’t have to get Selig’s approval.

Andrew Zimbalist, an economics professor at Smith College and author of In the Best Interests of Baseball? The Revolutionary Reign of Bud Selig, said “The courts have generally agreed that leagues have a special characteristic that separates them from other businesses in that they have to cooperate with each other.  Because they are a unique business, they grant extraordinary powers to the commissioner to enforce certain governing rules.  I’d argue that the Dodgers case is a fairly typical case.  This is a marquee franchise that has been mismanaged by encumbering Dodgers assets one after the other.”  “No accountant would even let you put that on your balance sheet,” said Raman Sain, principal at Holthouse, Van Carlin & Trigt, an accounting firm that reviewed the Dodgers’ financial records.  According to Sain, the nature of the loan — as opposed to McCourt getting a traditional bank loan or line of credit – shows that the Dodgers’ financial situation was “pretty dire.”

Steve Soboroff, a former advisor to Los Angeles Mayor Richard Riordan and currently the Dodgers’ vice chairman, differs with Selig and says that “Frank McCourt is financially fine.” He described the Fox loan as “This is like having money in the bank and having somebody hold your ATM card.  The money is in the bank.  The Fox deal is done.  These actions are not allowing him to access money.  That’s a lot different than saying he’s got financial problems.”

According to reports Selig took issue with that statement, but Soboroff stood his ground.  He cited the Fox deal, potential real estate development in the Dodger Stadium parking lot and unidentified “other potential new revenue sources” as potential sources of revenue.  “That would put the Dodgers in as strong a financial position as almost any team in baseball,” Soboroff said.

Chicago’s Celebrated Schlitz Taverns to Receive Landmark Status

Tuesday, November 2nd, 2010

Eight Chicago Schlitz-built taverns will be given landmark status.  Eight Chicago taverns – all built more than a century ago by the Joseph Schlitz Brewing Company and which bear the brewer’s signature globe logo – may be given landmark status by the City Council.  The former brewery-tied houses were built in the Queen Anne or Baroque styles and “convey important aspects of the ethnic, social and commercial life of the city’s neighborhoods,” according to the Chicago Department of Zoning & Land Use Planning.  The distinctive buildings are reminders of the bygone era when brewers like Schlitz owned and operated their own taverns.  The city’s Commission on Chicago Landmarks says the process of granting the eight buildings landmark status could take as long as a year.

Although some building owners are resisting landmark status, Thomas Magee, who owns Mac’s American Pub at 1801 West Division Street, is eager to receive the landmark designation.  “Obviously, there’s concern because any time I’d want to make a change, I’d have to get (city) approval,” he said.  But, “it’s a beautiful old building and I want to keep it that way.  I’m not opposed to it.”  Magee’s pub was built in 1884 and was one of 57 taverns that the Milwaukee-based brewer operated in Chicago.  After Prohibition was repealed, the state banned brewer-owned bars and Schlitz was forced to sell its buildings.  Today, only 10 of the Schlitz buildings remain, according to the Chicago Bar Project.

In addition to the Division Street building, the proposed landmarks include Schuba’s at 3159 North Southport; 11400 South Front Avenue; 3456 South Western Avenue; 958 West 69th Street; 2159 West Belmont Avenue; 1944 North Oakley Avenue; and 5120 North Broadway.  According to James Peters, president of Landmarks Illinois, “Usually taverns are just simple commercial structures, and these have a lot of attention to craftsmanship and structure.  This shows that there’s some really great architecture in the neighborhoods.”

Chile, Haiti Earthquakes Point to Need for Quake-Proof Buildings

Monday, March 22nd, 2010

Civil engineers can design buildings that don’t collapse when the earth’s tectonic plates shift.  Two massive earthquakes in a single month – an 8.8 trembler in Chile and a 7.0 quake in Haiti – have raised the question of whether engineers can design buildings that don’t crumble when the earth’s tectonic plates crash against one another. Although the simple answer is that the technology exists to make buildings almost earthquake-proof, the cost of rebuilding sprawling cities that are hundreds of years old would be prohibitively expensive.

“Most disasters are created by human beings.  It’s how we build and where we build that creates the hazard, the disaster,” said Michael Armstrong, senior vice president of the International Code Council, a non-profit organization that develops building codes.  “Earthquakes, hurricanes, fires, floods are going to occur, but there are ways in terms of where we build and how we build that can reduce the impact.”

Essentially, the technology that prevents buildings from collapsing during earthquakes works by making buildings stronger or more flexible so they sway and slide rather than crumble.  For nearly three decades, engineers have constructed skyscrapers that float on systems of ball bearings, springs and padded cylinders.  Because these buildings don’t sit directly on the earth, they are protected from some earthquakes.  During a major earthquake they may sway a few feet in synch with the tremor.

Mehmet Celebi, a senior research civil engineer with the U.S. Geological Survey, pointed to a striking example where buildings constructed with base isolation performed exceptionally in earthquakes while others did not.  Base isolation is a collection of structural elements which should substantially decouple a superstructure from its substructure resting on a shaking ground, thus protecting a building‘s structural integrity.  He cited a University of Southern California hospital in Los Angeles that came through the 1994 Northridge earthquake with no damage.  A nearby hospital that did not incorporate the same technology suffered significant damage.

Will Yankees World Series Victory Unleash the Bulls on Wall Street?

Thursday, November 19th, 2009

Odd correlation between Yankees World Series victories and Wall Street.  There’s a rather odd correlation between the New York Yankees winning the World Series and Wall Street.   A Yankee win historically has coincided with a bull market.  An analysis by Standard & Poor’s Capital IQ reveals an average of double-digit yearly returns from stocks when the Yankees win the World Series.  By contrast, the stock market tends to fall in years when the Yankees lose the championship.

An analysis of the 22 years since 1936 in which the Yankees won the World Series found that the Standard & Poor’s 500-stock index rose a minimum of 10 percent over the previous year.  By contrast, when the Yankees lose the World Series, stocks fell 13 percent on average.  Additionally, when the series ends after six games (as happened this year), the average return rises to 15 percent.  The average fell to just eight percent if the series goes for seven games.

Despite the Yankees’ record, Wall Street tends to prefer National League victories versus the American League.  An analysis of the 30 World Series wins by National League teams since 1936 show that the stock market rose an average of 15 percent the following year.

There are exceptions to the rule.  When the Yankees won the 1936 World Series, the stock market declined 34.7 percent over the next year.  The worst record belongs to the Boston Red Sox, who saw the stock market decline by 37 percent after their 2008 World Series victory.  Coincidence or not, it will be interesting to see if this yardstick proves true this time around.

At Long Last, Cubs Sale a Done Deal

Monday, October 12th, 2009

6a00d83451fe4669e2010536f57783970c-800wiAs a follow-up on a previous blog, the Chicago Cubs have been sold to the Ricketts family in an $800 million deal that encompasses the team, Wrigley Field and a 25 percent stake in Comcast SportsNet.  The Tribune will keep a five percent stake in the assets; this means the transaction is worth approximately $845 million, according to the Tribune.

The Rickettses, who own T.D. Ameritrade, and the Tribune reached a tentative agreement in January, but the deal stalled recently when Tribune re-opened talks with the runner-up bidding group.  The Tribune first put the franchise up for sale in the spring of 2007.  Major League Baseball gave the sale their unanimous approval.

A Win for the Cubs

Thursday, July 16th, 2009

At a time when real estate assets are moving slowly, other areas are being eyed for opportunity plays.  Bond salesman Thomas Ricketts had just about closed his bidding group’s purchase of the Chicago Cubs from the Chicago Tribune.  Documents relating to the fully financed transaction were sent to Major League Baseball over the 4th of July weekend in a deal said to be worth between $850 million and $900 million.wrigley_feature

The Tribune, which is under Chapter 11 bankruptcy protection, jump started the Ricketts family by renewing negotiations with rival bidders after the deal stalled over a disagreement about the value of the Cubs’ broadcast contracts.  Major League Baseball, the Cubs’ creditors and the Delaware judge overseeing the Tribune’s bankruptcy case still must sign off on the sale.

Then, New York investor and former Chicagoan Mark Utay threw a monkey wrench into the Ricketts deal. Utay, who is a managing partner with Clarion Capital Partners, LLC, is said to be offering a higher – though undisclosed – amount of money for the Cubs, though with less upfront cash than the Ricketts deal.

The Ricketts bid features an estimated $450 million financed with debt, with the remainder paid in cash by the Ricketts family, who are the founders of TD Ameritrade, Inc.  The Tribune wants the sale to be partially financed with debt to limit its exposure to capital gains taxes.  Once the final details are worked out, the Tribune will retain a five percent stake in the Cubs.  Wrigley Field and a 25 percent stake in Comcast SportsNet are included in the package.

“I don’t think it’s completely over yet,” said a source close to the negotiations, who asked not to be identified because the sale process is continuing.  “By the same token, Ricketts has a real edge here.”  A Major League Baseball source and a second individual familiar with the sales process said the draft agreement with Ricketts has been submitted for league review.  Nothing has been sent in for Utay, according to the league source.  Both sources said the Tribune is telling the Ricketts family that only its bid will be submitted to the court and Major League Baseball.

Just this week, the Tribune threw a curveball by suggesting that it might take the Cubs through a fast, pre-packaged bankruptcy that would protect its future owner from its creditors.