The Economy

Good Week/Bad Week: It’s Not the Heat, It’s Thucydides

Investors, fund managers fret about global warming; directors at Coppertone not so concerned. Also: Red Devils and one-armed bandits. Plus: GM blow...
John GoffMay 13, 2005

Disclaimer: This column, such as it is, does not, in any way shape or form, purport to adhere to traditional journalistic concepts.

It has not been approved by the Group of Eight, the Gang of 4, the College of Cardinals, the St. Louis Cardinals, UNESCO, Ionesco, or any group associated with the Women’s International Bowling Congress. In addition, it does not meet the high artistic standards set by Henry Miller, Arthur Miller, Mitch Miller, or Miller Huggins, nor the middling standards set by Hillbilly Jim, Billy Joel, Joel Grey, Grey Delisle, Lyle Waggoner, or Porter Waggoner.

While the items in this column are based on real events, most everything else is made up. Some quotes are real, some are phony as a Confederate bearer bond. Please, no lawsuits.

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1. Activist Shareholders

In a summit this week, state treasurers from a dozen states, as well as hundreds of financiers, investors, and pale people, discussed ways to pressure companies into dealing with the risks stemming from global warming. “Climate change poses a long-term financial and business risk for many of the companies in which we invest,” said Connecticut Treasurer Denise L. Nappier. “For us today it’s all about our money.”

Princeton University scientist Roy Hinkley told the august assembly that rising global temperatures caused by emissions of carbon dioxide and other “greenhouse gases” would intensify heat waves, storms, and floods. Hinkley says the dramatic change in weather patterns, which he compared to a Greek tragedy, would eventually lead to “massive suffering, disease, and a level of starvation never before seen on this planet.” The group then broke for lunch.

Last year, activist shareholder groups persuaded two Ohio-based power companies — Cinergy and American Electric Power — to issue reports examining the possible business impacts of environmental regulation, as well as steps they’ve taking to reduce emissions.

Cincinnati-based Cinergy is in the process of merging with North Carolina’s Duke Energy. A Duke board member said in a recent interview that his company would lobby for a tax on carbon dioxide emissions because “the time has come to act” on climate. The board member then drove off his Ferrari 550 Maranello to attend a golf tournament sponsored by Young Americans for Old Fuels.

During the climate summit, several speakers roundly criticized the Bush Administration for its apparent lack of interest in environmental issues. They pointed out that, unlike the rest of the industrialized nations on the planet, the United States has yet to ratify the Kyoto Protocol.

It’s unclear whether the current Administration will ever consent to ratify that agreement. When asked to discuss the Kyoto Protocol during a press conference in April, President Bush responded: “I believe the protocol is you wear them at night, just before you go to bed, the same way we ‘mericans wear a bathrobe. And in bathhouses. I think the Japanese wear them to cover up in bathhouses, as a sign of respect for the other folks there.” Bush went on to add: “You have to remember, this is very respectful nation. Japan, I mean, not the U.S. We’re respectful too, just in a less courteous way.”

Attendees of the conference also spoke about the opportunities represented by the climate threat. One group of property developers, citing computer models of coastal flooding, noted that, by 2051, Fort Wayne, Indiana, will be a lovely seaside resort.

Others at the gathering pointed to the announcement this week that General Electric will more than double its research investment in environmental technology over the next five years. In a statement trumpeting the investment, GE management said the company will put an emphasis on products that reduce the biggest threats to the environment, and in particular, products that reduce greenhouse gases.

Spurred by the GE announcement, the President this week proposed putting a tax on greenhouses and providing subsidies to farmers who grow stuff out in the open.

2. Manchester United Plc.

On Tuesday, management at hotel and gaming specialists Las Vegas Sands Corp. announced plans to build a new facility in the United Kingdom. The new Sands resort will be constructed in Manchester, the industrial hub of northeast England.

According to executives at the Sands, the complex, which will include a casino, five-star hotel, and restaurants, is being built in partnership with soccer giants Manchester United Plc. The famous football club, known as Man U by fans and Man Ray by confused surrealists, dominated European football in the ’90s. The Red Devils have been on something of a downward slope of late, however. That trend was underscored in 2001, when the team mistakenly made a $15 million pound offer for aging comedian Mickey Rooney rather than Everton striker Wayne Rooney.

Officials at Manchester United, still the world’s richest soccer team (and thus the world’s most-hated soccer team) said the casino will be built next to the club’s stadium at Old Trafford. That, of course, assumes Sands and Man U will be allowed to put in a casino: The partnership is awaiting a ruling on its request for a license for a regional-scale casino.

Under the U.K.’s Gambling Act, a government-appointed advisory panel will look at applications under which the first regional casino and any subsequent projects are awarded. The gambling law, passed earlier this year, garnered immense popular support. In one poll, 73 percent of citizens said bringing casino gambling to the U.K. was “brilliant.” Another 22 percent thought the idea was “cheeky.” And 5 percent said they were “morally opposed” to gambling unless the odds were prohibitively in their favor.

Less-moneyed teams in England also have plans for gambling operations, albeit on a smaller scale than the Man U casino-hotel proposal. Management at league-one team Colchester United, for example, has indicated it wants to put three bingo machines in a Waffle King in Billericay. And Liverpool Football Club is looking to build a scaled-down horse racing track on the grounds of its proposed new stadium in Stanley Park. The mini-track, which could open as early as 2011, would feature pari-mutuel betting on Shetland ponies and other small farm animals. According to reports, the club has already come up with financing and a shortlist of names for the track. That shortlist is said to include Epsom Downs (taken), Hugh Downs (deceased), and Ferrier Cross the Mersey.

Analysts are quick to point out that the Sands-Manchester United casino deal could collapse if Tampa Bay sports tycoon Malcolm Glazer wrests control of the famed soccer club from its current owners. Glazer, who has yet to formalize his latest bid for the team, is thought to be offering $1 billion for the club.

But Man U fans, many of whom are shareholders, have expressed outrage over the offer. Says Nigel Whitlock, a season-ticket holder and investor: “The deal’s all fur coat and no knickers. The valuatin’s based on a discounted cash flow model, rather than future earnings, which tot’ly bollocks up the internal rate of return.”

One local investor group, fearful Glazer might move the team to southern Florida, has sued to stop the proposed sale. While details of the lawsuit are sketchy, parts of the suit did show up in one local tabloid. According to a published account in that paper, the shareholder suit asserts that “failure of the court to block the proposed acquisition will likely result in widespread and pernicious economic harm to northeast England, as well as a painful kneecapping of the entire Tampa-St. Pete metropolitan area.”


General Motors Corp.

It’s been a tough few weeks for General Motors. Last week, management at GM reported that the automaker lost more than $1 billion in the first quarter of the year. No sooner had that news hit when Kirk Kerkorian, billionaire investor — and they’re the best kind — announced that he wanted to buy another 5 percent of the outstanding shares of the ailing carmaker. Prior to the announcement, Kerkorian had already quietly acquired 4 percent of GM’s shares.

The move by Kerkorian, who took a big stake in Chrysler shortly before that company merged with Daimler-Benz, set off rumors that GM would soon a) sell Pontiac; b) sell Buick and Pontiac; c) sell divisions it doesn’t own; or d) put a cup holder in a Saab that actually makes sense.

On Monday, however, GM issued more bad news. Reportedly, GM Daewoo, General Motors’s Korean-based unit, has filed suit against China’s Chery Automobile Co. for patent infringement and theft of intellectual property. The suit revolves around the Matiz, a car GM Daewoo launched with some success in the South Korean market in 1998. The unexpected response to the Matiz in Korea prompted GM Daewoo to authorize a Shanghainese automaker to produce and sell a version of the car (called the Spark) in China in 2003.

But according to attorneys for GM Daewoo, soon after the Spark was introduced in Shanghai, rival Chery began selling a nearly identical car called the QQ in Beijing. The suit claims the Chinese knockoff “is in all aspects, respects, and appearances the same as the Spark, except the QQ gets awesome gas mileage and handles way better.”

GM Daewoo alleges Chery used a disguised Matiz to pass tests and obtain authorization from the government to produce and sell the QQ. It’s unclear just how Chery managed to fool local officials in Beijing, although sales of hood-mounted fake noses and moustaches have skyrocketed in China in recent months. GM asserts that once Chery received government authorization to produce the QQ, the company began flooding the market with knock-off Sparks.

Indeed, reports in China say government officials started to get suspicious when cars started showing up in local showrooms with “Spark” crossed out on deck lids and “QQ” stenciled in over it. In a confidential Ministry of Transportation memo obtained by GW/BW’s Beijing bureau, one government official wrote: “Further examination reveals that the QQ is most certainly the Spark, except the QQ gets awesome gas mileage and handles way better.”

In a related story: despite the ongoing lawsuit in Beijing, GM is reportedly negotiating with Chery for the rights to distribute the QQ in North America. The company, which intends to sell the rebadged auto as the DD, says the car will be based on the same platform as the QQ but will have much bigger headlights.

In other GM news this week: On Tuesday, the company announced yet another recall, this time of 300,000 trucks and SUVs with faulty turn signals. According to GM, the malfunctioning signals may cause a vehicle’s front and rear turn signals to flash simultaneously, thus giving the appearance that a driver has turned on his hazards. In addition, GM says the vanity lights in some Izusu Acenders may inadvertently direct a blinding beam of light into the eyes of passengers, causing a temporary spatial disorientation. The automaker also warned that, under certain rainy conditions, the glove compartment in the Pontiac Aztek emits a dense purple smoke into the cabin. Ironically, the company further noted that, at altitudes over 3,000 feet, the steering wheel on the Buick Rainier falls off. A spokesman for the embattled car manufacturer described the problems as “minor.”

In the press release announcing the latest recall, GM noted that replacement parts for the faulty turn signals will become available only by mid-August. Until then, the automaker plans to provide customers with hand puppets and semaphore flags to help them “better convey their true directional intentions to other motorists.”