Point of View

Snow, Chicago, GM and Abu Dhabi

January, 2010

By John Van Horn

Every year, cities across the snow belt let their citizens know that effective on a certain date (usually Dec. 1), overnight parking is banned on most streets. The reason? Snow. They ban on-street overnight parking so the plows can get through and move the snow around. Fair enough. But here is my annual question for all you living where the white stuff piles up. Where do you put your cars?
See, during the warmer months, folks park on the streets and complain that there isnít enough parking. Now when it snows, the cars just up and disappear. Where do they go? And if they can go there in the winter, why not in the summer?
I usually get stories about folks who own two cars, one a beater that can take the snow and ice and salt, and the other a good one to drive when the sun is warm. They exchange locations depending on the season. But that doesnít answer my question. There is still a car floating around that has to be put somewhere.
My point is that if there is room enough for all the cars to park off-street in the winter, why is there such a parking problem in the summer?
Iím waiting for the answer.
The New York Times reported in mid-November that the Chicago Parking Meters operation is pulling in $1.1 million a week and is operating on a 70% net profit margin. Thatís a profit of $700,000 a week or $36.4 million a year. Sounds like a lot, doesnít it?
I know nothing about high finance, but consider this. They paid $1.15 billion for this deal. They are getting a return of 3.17%. Iím sure that if I had a billion dollars to lend, I could get at least, what, 10% on the open market. (Morgan Stanley, the money partner in this deal, has a tax equivalent municipal bond fund that generates 11.5%. That means, I think, that the fund generates a net amount the equivalent of a normal fund that makes 11.5% and is taxed.)
So Morgan Stanley could have invested the $1.15 billion in its own fund and made nearly four times what itís making by investing in the parking business in Chicago. You might say that the income will increase over time as the rates increase, but then the income from the bond investment would compound over the years (double every seven or so years), wouldnít it?
Can someone check my numbers and tell me where Iím off here. I realize that running a trillion dollar investment bank is different from running a tiny magazine, but something doesnít seem to be right..
I checked with my financial guru on investing and, yep, I was right. He said that Morgan Stanley most likely projected a 10 percent or so return to its investors a year ago when the deal was cut, but then Ö there are no guarantees. The bank makes its money on the fees it charges to put together these deals and also a percentage when it is sold. They use OPM (Other Peopleís Money), so their corporate downside is minimal if any. His comment: ďAll in all, I guess that they have some pretty unhappy investors.Ē
General Motors reported (in mid-November) that it lost ďonlyĒ $1.2 billion in the third quarter, showing that as a sign of progress. This after the U.S. government swept in, fired its CEO, forced it into bankruptcy, cheated its bondholders, and shored up the company to the tune of $52 billion.
The Chief Financial Officer said that the uptick in revenues and downtick in losses can be used as only a harbinger of a ďtrendĒ because the accounting procedures used donít meet the test of normal accounting practices.
The company also said it would begin repaying $6.7 billion in U.S. government loans with a $1.2 billion payment in December. It could pay off the full amount by 2011, four years ahead of schedule, but the money will come from funds lent by the government, the Associated Press reported.
Is there anyone out there who thinks this company can possibly survive? Particularly since the United Auto Workers now own a large part of it?
Sort of reminds me of when Arthur Scargill, leader of the coal miners in the UK, demanded that a mine be kept open. The problem was there was no coal left in the mine. He didnít care.
Just think. If GM had gone under a year and a half ago, the other car companies would be picking up the slack, most of its workers would be working for them, and its assets would have been sold to companies that could actually make cars at a profit.
But no. Itís just too large to fail. It would seem to me that one of the requirements of ďcoming outĒ of bankruptcy be that the company must operate at a profit.
But then, thatís impossible. With its legacy retirement program problems and untenable union demands, it has nowhere to go. Its competitors have either cut better deals with the unions (Ford) or are non-union (virtually everyone else except Chrysler). Their costs are much less than GMís. I guess GM plans to lose money on every car it sells, but make it up in the volume.
Abu Dhabi, UAE, is a most civilized place, at least as far as traffic is concerned. As I sat on my hotel balcony there in November sipping an adult beverage, I noted that there were no horns honking and no sirens blaring. It was 8 p.m. Friday and the streets were full. Traffic was moving apace but it was quiet. I put this down to a civilized population that is a tad patient and which believes in not intruding on the next person.
I did see some strange driving habits (passing at 90 mph on the freeway apron, for instance) and most likely some aggressive tendencies, but heard no horn honking. I loved it.
I thought it might be illegal to use a horn, but I looked it up and, no, horn honking is as legal as men in white robes.