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Monday, April 26, 2010

“Pump and Dump” by Government on GM Stock?

For those not familiar with the stock market, “pump and dump” is the illegal activity of overstating the value of a stock to encourage unsuspecting buyers to buy the stock and thereby drive up the price. Those giving out the misinformation on the stock (pumping) then suddenly sell (dump) all of their stock which they had previously acquired at much lower prices and make a large albeit illegal profit.

You must not own a TV set if you haven’t seen the recent new commercial by General Motors starring Ed Whitacre, the CEO and Chairman of the Board. He is strutting through a GM plant and bragging about how GM just repaid a $5 billion government loan 5 years early. This advertisement began the very day the “repayment” was made and the press release was issued. This was no coincidence and it was very well coordinated.

All of the media, TV cable and network, and print jumped on this and spread the word that General Motors was doing a lot better than expected and the taxpayers’ $50B investment in GM would not only be repaid soon but with a big profit.

The fact is that we taxpayers got back none of the money we gave GM. The $5 Billion that Ed Whitacre said GM paid back early was already in the U.S. Treasury’s possession in an escrow account. It was simply moved from one column on the Treasury’s books to another. At best, one could say that GM used one source of TARP funds to repay another. This was reported to Congress last week in a TARP audit by its inspector general, Neil Barofsky. Strangely enough, the conventional media has ignored this. The way I found out about it was from an article in my trade journal, Automotive News. This article cited a letter written to Treasury Secretary Tim Geithner, from Senator Charles Grassley of the finance committee.

Also, remember that our government loaned GM $50B, not $5B. When GM went bankrupt and could not repay anything, the government took majority ownership (61%) and converted the loan into worthless stock. You probably know that debt holders (bond holders) are in a much safer position than equity owners (stockholders). For Ed Whitacre to brag about repaying a $5B loan 5 years early that was really a $50B loan is patently absurd. But wait, there’s even more.

Now here’s the “smoking gun” for “pump and dump”. General Motors will be coming out very shortly with a stock offering to the public, an IPO. The only way that the taxpayers can really be paid back is if our government sells their stock in GM for a lot more than they paid for it. The only way they can sell stock is if the stock buyers believe GM can recover and begin to make a profit. Now do you get it? Using “smoke and mirrors”, Ed Whitacre and our politicians whose reelection depends on the survival of GM are trying to raise public opinion about the viability of GM so that they can drive up the price of the stock offered.

I hope the government doesn’t sic the SEC on me like they did Goldman Sachs because I’m going to short GM stock if the government sells it for, or above, the IPO price. In my opinion GM has little chance of being profitable in its present form anytime soon. Almost all of their improvements have come from laying off workers, closing plants, and other radical cost cuts, not from car profits. They have shown sales increases but most of those are to large rental and leasing fleets like Hertz and Avis that buy cars dirt cheap. GM does this even though they don’t make a profit so that they don’t have to close more plants and to make their numbers look better. The fleets then dump the cars back on the used car market which drives down the resale value of GM cars and trucks. This has the net effect of raising the cost of GM cars and trucks to GM owners because their trade-ins are worth much less.

It’s bad enough that Ford, Honda, Toyota and other manufacturers have to compete with the US government, but now the government isn’t even playing fair. The bottom line is that it’s the marketplace that decides which manufacturers will succeed, not the government. The American buyer will buy those products that have the best value, the ratio of price to quality. If GM, Chrysler, and our politicians don’t like those rules, they should get out of the car business.

Monday, April 19, 2010

The Ethical Collapse of a Car Dealer?

Over three weeks ago it was reported in the media that John Pierson, had sold his ownership in John Pierson’s Toyota of Stuart to Southeast Toyota, LLC, the independent distributor for Toyota in the Southeast USA. John Pierson said that this was something that he had been contemplating for several months and his decision was motivated by personal reasons, particularly his pending divorce and child custody issues.

But, but soon after it was reported by Eve Samples, a reporter for Scripps Treasure Coast Newspapers that Southeast Toyota, LLC had, in fact, fired John Pierson and forcibly bought him out because “he (John Pierson) engaged in self-dealing and illegally diverted dealership money for his personal use.” You can read her article by clicking on www.TCPalm.com/Samples. It’s entitled “Philanthropist, Former Owner Pierson Denies Diverting Business money for Personal Use”. Subsequently Eve Samples reported that John Pierson has counter sued Southeast Toyota for defamation of character.

Now, I know have no first hand knowledge of any illegal activities by John Pierson with respect to Southeast Toyota. But I have been aware for a long time of many car buyers from the Treasure Coast who complained about being taken advantage of at John Pierson’s dealership. A lot of Toyota buyers drive all the way from Stuart and Hobe Sound down to North Palm Beach and buy their cars and have them serviced at my dealership. And they tell me why they drive so far.

If you read Eve Sample’s article in the Scripps Treasure Coast Newspaper you will read that John Pierson began his huge philanthropic efforts (over $1 million per year) “after his dealership was sued by more than a dozen elderly customers who believe they were duped into overpaying for vehicles.” The attorney representing these customers called me several times to consult about the alleged illegal and deceptive sales practices. He asked if I would testify against John Pierson but I had to respectfully decline to voluntarily testify against a fellow Toyota dealer, especially my closest competitor to the north. According to the attorney, many customers said they came in to buy a car for cash but were tricked into leasing. Some said they thought they were trading in their car but received no credit for it against their lease. Others said that they were told that if they didn’t like their lease car they could return it at anytime and not have to make any more lease payment.

I’ve also received dozens of calls, email, and letters directly from frightened and angry former customers of John Pierson’s, most of whom were elderly and many of those were recent widows, who were buying or leasing their first car. In most cases, there was nothing they could do. They signed the contracts without reading them and the alleged verbal assurances made to them by the salesmen and managers were later denied.

You may know that I spoke before the Workforce Alliance (a non profit organization) in January when I sponsored their speaker, Marianne Jennings, at the West Palm Beach Kravis Center. She’s authored about a dozen books including The Seven Signs of Ethical Collapse. Marianne Jennings was also a guest caller on my weekly radio show, Earl Stewart on Cars. She has spent a lifetime studying business ethics and is professor at Arizona State University where she teaches ethics. In fact, you really should read this the book. I gave away twelve copies, one to each of my senior managers.

Chapter 8 of this book is entitled “Sign #7; Goodness in Some Areas Atones for Evil in Others”. This chapter warns readers to beware of businesses and business executives whose “philanthropic and social goodness became the salve for a conscience grappling with cooked books, fraud, insider training—all the usual activities of ethical collapse.”

What do Ken Lay of Enron, Bernard Ebbers of World Com, Dennis Kozlowski of Tyco, John Rigas of Adelphia, Richard Scrushy of HealthSouth all have in common with John Pierson of Toyota of Stuart? There are two things that jump right out…they all gave very large sums of money to charities and were later accused of unethical and illegal activities. Let me make it perfectly clear than John Pierson has not been found guilty of anything and may be totally exonerated. In fact, he has sued Southeast Toyota for defamation of character and may win his suit. But John Pierson did admit that he began giving millions dollars to local charities to overcome the negative image he gained when accused by more than a dozen local elderly customers of being defrauded by his dealership.

John F Kennedy said “The great enemy of the truth is very often not the lie—deliberate, contrived and dishonest—but the myth—persistent, persuasive, and unrealistic”. Ken Lay, Bernie Ebbers, Dennis Kozlowski, John Rigas, Richard Scrushy, and John Pierson were held in high regard by their customers and stockholders by a myth. By his own admission, John Pierson said that he began the millions of dollars of charitable contributions to change his negative image in the community.

If you haven’t read Marianne Jennings’s book, I highly recommend that you do. Had Southeast Toyota, the local media and authorities read chapter 8, they may have seen this coming five years ago.

Monday, April 05, 2010

Has Bogus Attack on Toyota Awakened a Sleeping Giant?

Almost one month ago, I wrote an article entitled “Toyota Recall a Hoax?” for my blog and Hometown News. You can read it by clicking on http://oncars.blogspot.com/2010/03/toyota-recalls-hoax.html.

I believe my column was prophetic. The only people still throwing rocks at Toyota are the hard core of the motley crew comprised of the Detroit Big 3 establishment voiced by the Detroit Free Press. The former members of the motley crew, the media and the US Congress have deserted Detroit to focus their attention other “important” issues.

The inbred Detroit-UAW-Bloomfield Hills Country Club- “Big 3” cultures just don’t get it. Fortunately for them, our government bought control of GM and Chrysler, so the US Congress drank the Detroit cool aide too. Of course the media hopped on the bandwagon like they did Tiger Woods’ sex life or an alleged gang-rape of a prostitute by a hockey team.

This motley crew with their former members, the media and the Congress, piled on Toyota with more nonsense and false allegations than most could even imagine. After this nonsense became boring and the public didn’t care or believe it anymore, Toyota added some price incentives last month and out-retailed EVERYBODY by at least 40,000 units and 40% of those sales were to owners of other make cars. The bottom line is the American consumer didn’t drink the Detroit cool aide.

There was a headline in the Saturday, April 3 Detroit Free Press, “Toyota must decide how badly it wants to land sales”. The gist of the article is that Toyota “bought the business” last month by bribing people to buy unsafe cars. Now, would you buy a car that you feared would kill you or a family member just because you could get 0% financing for 60 months? I don’t think so! The Detroit motley crew has awakened a sleeping giant. You see, people buy Toyotas instead of Pontiacs because Toyota builds better cars. Now that the false pundits have threatened and angered Toyota, Toyota has decided that they will also give “Big 3” owners a price incentive too. Check out Toyota’s balance sheet. They have “cash coming out of their ears!” GM and Chrysler are “hanging by a thread” and a prolonged price-war with Toyota will sever that thread.

My opinion is that of a former GM dealer (Pontiac) for 30 years who was lucky enough to buy a Toyota dealership in 1975. I’ve played on both teams, General Motors and Toyota, and I’ve lived both sides of the story.

I recommend that you read “Crash Course” by Paul Ingrassia. There’s a great review of the book in Barron’s, Monday, April 5 issue. The article on page 40 is entitled “How Detroit Ended Up in a Ditch”. 40. As a Pontiac dealer for 30 years while owning a Toyota dealership for 23 of those, I can vouch for the accuracy and objectivity of this book.

You think March sales were a fluke for Toyota? Anybody want to bet that Toyota out-retails every other manufacturer again in April?