Archive for the ‘Corporate’ Category
Corporate bankruptcies: Struggle to survive still prevalent
Posted by: Admin
November 7th, 2011 >> Corporate
Three years after the collapse of Lehman Brothers touched off a tidal wave of bankruptcy filings, corporate failures might be about to pick up again, with some big-name companies among those struggling for survival.
Companies in a range of businesses, including restaurants, renewable energy and the paper industry, have tumbled into Chapter 11 the past few months.
The weak economy, lackluster consumer spending, a shaky junk-bond market and increasingly tight lending practices are also threatening struggling companies in industries as diverse as shipping, tourism, media, energy and real estate.
WASHINGTON (Reuters) – In a sign of possible progress in bipartisan US deficit talks, Republicans seem more flexible on corporate taxes, a change that could help the congressional super committee chart the countrys path back to fiscal health.
Lobbyists familiar with the deficit negotiations said Republicans on the panel may consider closing some of the myriad income tax loopholes in exchange for reducing the tax rate for corporations.
That could shift Republicans away from a longstanding position that tax reform take both corporate and individual taxpayers into account. But reforming both is likely too ambitious given the super committees November 23 deadline.
It could also help the panel move toward an overall agreement to slash big budget deficits by a November deadline.
Lobbyists with access to super committee members and their staffs said Republicans on the panel expressed the positions during a meeting on revenue issues last week.
Lobbyists and analysts say the six Democrats and six Republicans who make up the super committee need to agree on taxes before they can tackle the politically sensitive issues of Medicare and Medicaid, the huge government healthcare programs for the elderly and poor.
Democrats have already left open the door to lowering the corporate tax rate, and Republican willingness to move forward on corporate taxes alone could lead to a deal that also closes loopholes and cuts some healthcare administrative costs.
Among tax loopholes President Barack Obama wants to close are breaks for corporate jets and favorable treatment for the oil and gas industry.
The super committee has been working for five weeks trying to find ways to shrink the countrys federal deficit, which hit $1.3 trillion for the fiscal year that ended on September 30.
They must reach a deal by November 23 to cut $1.2 trillion over the next decade or automatic budget cuts will be triggered starting in 2013 that would cut funding to selected agencies and programs across the board and hit defense spending hard.
The super committee was created in August after a rancorous debate over raising the US borrowing limit, which prompted Standard Poors to cut the US governments AAA credit rating by one notch. Other agencies could take similar steps if the panel fails to come through with a big enough deal.
SLOW PACE FRUSTRATING
Although super committee members have discussed the politically sensitive topic of revenues and tried to gauge the lay of the land on healthcare topics, they are starting to get concerned over the slow pace.
Congressional and industry sources said members have told their leaders in the House of Representatives and the Senate that the only progress they have made is that they are actually talking to each other instead of pontificating.
Members are frustrated, one source said, because the pace is too slow and time is ticking.
A lobbyist for a healthcare trade association said: Committee staff say: Dont expect anything. They dont have their act together. But you dont know how much is smoke screen. Leadership may be trying to manage expectations.
One idea that the committee is mulling is some kind of an enforcement mechanism to make sure that Congress overhauls the tax code after the super committee unveils its spending cuts.
That could come in the form of instructions to the tax-writing House Ways and Means Committee and Senate Finance Committee to tackle broad tax reform next year. But it is unclear how the super committee could force action by them.
The Obama administration has already proposed $3.6 trillion in savings over the next decade, the bulk of which would be achieved by raising taxes on the rich. Some $866 billion in savings would come from allowing President George W. Bushs tax cuts for individuals making more than $200,000 to expire at the end of next year.
Many lobbyists assume that the super committee could end up finding several hundred billion dollars in savings, with the rest of the $1.2 trillion in mandated savings being handled by automatic spending cuts.
Lobbyists say discussions about general concepts have tended to run aground on specifics.
Its like a sincere New Years Eve resolution that theyre going to quit smoking. You do get that level of sincerity. But that doesnt mean they can pull it off and they seem to be pushing off the hard questions, said John Jonas, a healthcare lobbyist with the legal firm Patton Boggs.
Representatives of the healthcare sector generally would like to see the committee deadlock, because automatic cuts would spare Medicaid and impose only modest reductions on Medicare.
(Editing by Jackie Frank)
LCH.Clearnet Weighs Corporate Bonds as Collateral to Back Swaps
Posted by: Admin
October 26th, 2011 >> Corporate
LCH.Clearnet Weighs Corporate Bonds as Collateral to Back Swaps
October 14, 2011, 11:06 AM EDT
More From Businessweek
- U.S. Corporate Credit Risk Benchmark Rises as Confidence Sinks
- Pimco Says Mortgage Bonds Cheap After Slump on Obama Plan
- Corzine Says MF Global Europe Exposure Has Little Principal Risk
- MGIC, Radian Credit Risk Jumps as Arizona Agency Seizes PMI Unit
- ‘Big Four’ Probe, EU Utilities, Regulators Named: Compliance
By Matthew Leising and Mary Childs
Oct. 14 (Bloomberg) — LCH.Clearnet Ltd., the biggest interest-rate swap clearinghouse, is considering accepting corporate bonds for the first time to meet an anticipated surge in demand for a broader array of collateral in the $601 trillion over-the-counter derivatives market.
“We want to be able to have more clients come to clearing,” Floyd Converse, head of U.S. sales and marketing for London-based LCH.Clearnet, said in an interview in Chicago this week at the Futures Industry Association annual conference.
The world’s biggest swaps clearinghouses are expanding the types of securities they accept as regulations force thousands of new users in the U.S. and Europe to use clearing. Among them, CME Group Inc., the world’s largest futures exchange, is broadening the variety of company debt it accepts as margin for its customers.
With U.S. regulators set to discuss finalizing the clearing rules next week, derivatives market participants are bracing for a wave of changes that will transform their industry. Under the Dodd-Frank Act passed last year, investors have to post collateral at clearinghouses for most swaps trades. The services, including CME Group’s, currently accept cash, government bonds and agency debt to back trades.
High Interest
“There’s a lot of interest from the end-users to get the clearinghouses to expand their collateral,” said Dave Olsen, global head of over-the-counter clearing at JPMorgan Chase & Co. in New York. With securities being considered for collateral that don’t trade as often as U.S. Treasuries, the firm wants to ensure regulators are fully comfortable with the implications, he said.
“It’s better to have that conversation earlier rather than later,” he said in an interview at the conference in Chicago.
The U.S. Commodity Futures Trading Commission is set to meet Oct. 18 to propose final rules on how derivatives buyers and sellers will have to use clearinghouses.
Users in the interest-rate swaps market, the largest OTC derivative asset class, may need at least $1.4 trillion in new margin payments under Dodd-Frank, research firm Tabb Group said in a report this week.
Investment-Grade Corporates
Only investment-grade corporate bonds are being considered for use as collateral and the risk committees at the clearinghouse are evaluating the plan now, according to Converse. There will also be limits on posting too many of the same types of bonds to avoid concentrating the risk in one sector, he said.
While CME Group’s clearinghouse already accepts corporate bonds, the list of those securities will grow, according to Kim Taylor, president of the Chicago-based company’s unit. CME Group also recently began accepting gold as collateral, Taylor said.
The expanded collateral under discussion includes corporate bonds and mortgages not backed by Freddie Mac or Fannie Mae, JPMorgan’s Olsen said. The bank has been helping its clients ensure that they have enough collateral, and of the right type, to use derivatives markets, he said.
“We are definitely working with customers to help them manage their collateral needs, but our first priority is to make sure the system is stable in a crisis and doesn’t build in additional pro-cyclical risks,” he said.
–Editors: John Parry,
To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
READER DISCUSSION
Greenberg Traurig Named "Corporate & Finance Law Firm of the Year (Florida …
Posted by: Admin
October 25th, 2011 >> Corporate
MIAMI, Oct 14, 2011 (BUSINESS WIRE) –
The Latin America Practice of international law firm Greenberg
Traurig, P.A. received the “Corporate & Finance Law Firm of the Year
(Florida-based)” Award at the third annual Chambers Latin America Awards
for Excellence held in Miami Beach on Sept. 29. The firm was also
nominated for the Corporate/M&A award in the International Counsel in
Latin America category and ranked in Band 2 in the 2012 Chambers
Latin America Guide in the Capital Markets Latin America-wide
category. Greenberg Traurig has been recognized at the Latin America
Awards for Excellence for the third consecutive year.
According to Chambers and Partners, the awards “recognize the
achievements of the region’s leading law firms, taking into account
their involvement in the year’s most high-profile matters, success with
new ventures, and market-wide acclaim from clients.” Based in the U.K., Chambers
and Partners publishes guides in which attorneys and law firms are
ranked based on thousands of interviews with practicing lawyers and
clients around the world.
“It is a distinct honor to receive this award,” said Patricia
Menendez-Cambo, chair of the firm’s 200-plus member Global
Practice Group. “We strive to provide outstanding legal counsel and
thank our clients and local law firms in Latin America for this
recognition.”
The other finalists for the Corporate & Finance – Florida-based award
were Avila Rodriguez Hernandez Mena & Ferri LLP; Hogan Lovells; Hughes
Hubbard & Reed LLP; and White & Case LLP. The finalists for the
Corporate/M&A award in the International Counsel in Latin America
category in which Greenberg Traurig was a nominee were Cleary Gottlieb
Steen & Hamilton LLP; Davis Polk & Wardwell LLP; Simpson Thacher &
Bartlett LLP; Skadden, Arps, Slate, Meagher & Flom LLP; Sullivan &
Cromwell LLP; and White & Case LLP.
Greenberg Traurig’s Latin
America team, located in Chicago, Los Angeles, Mexico City, Miami,
New York and other offices across the firm, includes attorneys who have
spent years living and practicing law in Latin America, many of whom
previously served in top posts as chief legal officers and regional
counsel for multinational companies in the telecommunications, banking,
energy and hotel industries. The group’s practice includes assisting
multilatinas and multinationals, with an emphasis on IBEX-listed Spanish
companies with energy, telecommunications, media and infrastructure
projects in the U.S. and throughout Latin America.
Greenberg Traurig’s multidisciplinary team has wide-ranging
experience representing U.S. and international clients who do business
in Latin America, as well as advising Latin American clients on their
business ventures in the U.S. The firm recently opened an office in
Mexico City, which will focus on providing legal services to
international clients seeking to enter the Mexican and Latin American
markets, as well as those with established businesses in the region.
Greenberg Traurig received this same award in 2010. In 2009, the firm
received the “Focus on Latin America – Law Firm of the Year
(Florida-based)” award. The firm was Chambers and Partners’ USA
Law Firm of the Year in 2007 and has since won four Chambers Awards for
Excellence and a Lifetime Achievement Award. The firm also recently
received two awards in the Major Transaction category for
Corporate/Strategic Acquisition of the Year (over USD 1 billion) and for
Financing Deal of the Year at the 3rd Annual International
M&A Awards from The M&A Advisor, for its role in the
business combination of Liberty Acquisition Holdings Corp. and Promotora
de Informaciones, a transaction that involved more than 100 firm
attorneys. In 2009, Greenberg Traurig was awarded Deal of the Year, Best
Corporate Issuer and Best Follow-on Equity Issuer by Latin Finance.
About Greenberg Traurig, LLP
Greenberg Traurig, LLP is an international, full-service law firm with
approximately 1800 attorneys serving clients from more than 30 offices
in the United States, Latin America, Europe and Asia. In the U.S., the
firm has more offices than any other among the Top 10 on The National
Law Journal’s 2011 NLJ 250. In Mexico, the firm operates as
Greenberg Traurig, S.C., and in the U.K., as Greenberg Traurig Maher
LLP. Greenberg Traurig has a strategic alliance with the independent law
firm, Studio Santa Maria with offices in Milan and Rome. The firm was
Chambers and Partners’ USA Law Firm of the Year in 2007 and among the
Top 3 in the International Law Firm of the Year at the 2009 The Lawyer
Awards. For additional information, please visit
www.gtlaw.com .
SOURCE: Greenberg Traurig, LLP
Greenberg Traurig, LLP
Lourdes Brezo-Martinez, 305-579-0776
martinezl@gtlaw.com
Copyright Business Wire 2011
A temporary tax holiday for firms that return those profits to the United States is the latest evidence that bipartisanship is rarely what it’s cracked up to be. The latest version was proposed by senators Kay Hagan (D-NC) and John McCain (R-AZ).
And in one of those only-in-Washington moments, Senator Chuck Schumer (D-NY) and others want to use this massive tax cut to pay for a new infrastructure bank aimed at boosting domestic investment. How does a huge corporate tax cut (an earlier version would give away $79 billion over ten years) generate revenue? Easy. Firms would pay about $25 billion in new taxes during the temporary holiday, but save more than $100 billion down the road as they return fewer dollars to the US
Hagan and McCain claim such a tax holiday would encourage multinationals to bring an estimated $1 trillion in overseas earnings back to the US, where they’d use the cash to create jobs and buy American-made equipment.
The reality, sadly, is quite different. There is no evidence that a similar break created any new jobs when Congress tried it in 2004. Instead, most of the repatriated dollars went to shareholders in the form of dividends or stock buybacks (which raise equity prices).
US Corporate Credit Risk Falls as Europe Outlines Rescue Plan
Posted by: Admin
October 18th, 2011 >> Corporate
U.S. Corporate Credit Risk Falls on Economy, Europe Confidence
October 14, 2011, 4:27 PM EDT
More From Businessweek
- Bond Risk Drops Most Since ’09 Beating Europe: Australia Credit
- U.S. Bank Credit Risk Increases as Wells Fargo Revenues Decline
- BlackRock Seeks Junk as Spreads Drop Most of ’11: Credit Markets
- Europe Corporate Debt Risk Erases Drop on German Crisis Warning
- Hacker Threats, Solvency II, Philippine Bonds: Compliance
By Zeke Faux
Oct. 14 (Bloomberg) — A benchmark gauge of U.S. corporate credit risk fell for a second week as investors wager that Europe’s leaders will contain the region’s fiscal crisis, reducing risks that the world’s largest economy may slip into recession.
The Markit CDX North America Investment Grade Index, which typically drops as investor confidence improves and rises as it deteriorates, declined 2.3 basis points to a mid-price of 130.2 basis points as of 3:52 p.m. in New York, according to index administrator Markit Group Ltd.
Investors pushed the index lower as European leaders signaled that they’ll take the necessary steps to resolve the region’s debt crisis, reducing the odds it will spill over into the U.S. Confidence was also bolstered by Commerce Department data released today showing U.S. retail sales increased 1.1 percent in September, the most in seven months.
“Europe finally seems ready to take the financially painful steps necessary to contain the debt crisis,” Edward Marrinan, head of macro credit strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said today in an e- mail. Confidence also grew as data showed that the U.S. “is at less risk of slipping back into recession,” he said.
The gauge has decreased from 150.1 on Oct. 3 as policy makers developed a plan to prevent a Greek default from threatening the region’s banking system.
European officials are considering writedowns of as much as 50 percent on Greek bonds, a backstop for banks and continued central bank bond purchases in a revamped strategy to combat the debt crisis, people familiar with the discussions said. German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged on Oct. 9 to deliver a comprehensive plan and said recapitalizing banks was a priority.
Investors use credit-default swaps to protect bonds against losses or to speculate on defaults. The swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
–Editors: John Parry, Pierre Paulden
To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.
READER DISCUSSION
Wall Street Dealers Cut Corporate Inventories to 8-Year Low
Posted by: Admin
October 17th, 2011 >> Corporate
Wall Street Dealers Cut Corporate Inventories to 8-Year Low
October 14, 2011, 2:47 PM EDT
More From Businessweek
- Citigroup Appoints Michael O’Neill Chairman of Citibank NA
- U.S. Corporate Credit Risk Falls on Economy, Europe Confidence
- Company Bond Sales Fall Below ’11 Average as Europe Roils Market
- Banks May Shun $231 Billion Rollover of U.S. Emergency Loans
- LCH.Clearnet Weighs Corporate Bonds as Collateral to Back Swaps
By Shannon D. Harrington
(Updates with money-manager comment starting in eighth paragraph.)
Oct. 14 (Bloomberg) — Wall Street bond dealers cut their holdings of corporate securities to a more than eight-year low as banks reduced risk amid the European sovereign debt crisis and concerns that the economic recovery is faltering.
The 22 primary dealers of U.S. government securities that trade directly with the Federal Reserve reduced inventories of corporate debt due in more than a year by 9.6 percent to $54.6 billion in the week ended Oct. 5, according to Fed data. Stockpiles have dropped 42 percent since May to the lowest since July 2003.
The decrease underscores the fragility of debt markets even as prices rally from the biggest losses since 2008. Evaporating liquidity crippled trading in corporate bonds and contributed to declines of 7.6 percent in August and September for junk-rated securities. It also caused a surge in a measure of the cost to buy and sell credit to a more than two-year high.
“On both sides of the ocean, banks are holding more cash and continue to de-risk,” said Alberto Gallo, senior credit strategist at Royal Bank of Scotland Group Plc in London. “The impact that all of this has on secondary trading is a prolonged dry-up in liquidity. Transaction costs have increased. Investors are trying to stick to liquid instruments, and they demand a premium to buy illiquid assets. Unfortunately we don’t see that changing between now and year-end.”
Bid Ask Spreads
The gap between where dealers buy and sell protection using credit-default swaps reached the widest since July 2009 this month. The so-called bid-ask spread for the 15 most-traded credit-default swaps on U.S. investment-grade companies expanded to 18.7 basis points on Oct. 4, compared with 4.9 basis points at the end of July, according to market prices compiled by London-based CMA. That’s equivalent to $18,700 on a $10 million contract. The spread narrowed to 13.2 basis points yesterday.
Junk bonds, graded below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s, have gained 1.3 percent this month.
The Fed data also includes holdings of mortgage securities not backed by government-supported Fannie Mae and Freddie Mac or federal agency Ginnie Mae.
The $600 billion market for U.S. commercial-mortgage-backed securities may be the most damaged by the unwillingness of dealers to take risk, said Paul Norris, a senior money manager at Dwight Asset Management Co. in Burlington, Vermont, which manages and advises on about $54 billion of assets.
“It’s frightening how this is like 2008 again to me as far as liquidity goes,” he said in a telephone interview referring to CMBS. Dealers have pulled backed after “a lot got burned really badly” carrying inventories of the bonds or property loans that they intended to package into securities, he said.
Volcker Rule
Banks have been pulling back even before the implementation of a regulatory overhaul that seeks to increase capital requirements and ban them from trading for their own accounts.
Fixed-income trading desks could suffer a 25 percent decline in revenue under a proposal being considered by U.S. regulators that may forbid market-makers who trade debt securities for customers from amassing positions “in expectation of future price appreciation, Brad Hintz, a brokerage analyst at Sanford C. Bernstein & Co., wrote in an Oct. 10 note to investors.
The proposed so-called Volcker rule has yet to impact dealer inventories, which are declining because of cautious risk managers and the weak economy, Hintz said in an e-mail.
–With assistance from Jody Shenn and Christine Harper in New York. Editors: Pierre Paulden, Mitchell Martin
To contact the reporter on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
READER DISCUSSION
Dublin Dr Pepper To Corporate Dr Pepper: “Oh No You Didn’t”
Posted by: Admin
August 30th, 2011 >> Corporate
Earlier this summer, Corporate Dr Pepper (also known as Dr Pepper/Seven Up, Inc.) sued Dublin Dr Pepper, saying the smaller, real-sugar-using bottler distributes far beyond the agreed upon boundaries. Now Dublin Dr Pepper has fired back, with a 64 page legal counterclaim thats really more of a history lesson or a love story gone awry. Included is the story of how Dr Pepper was discovered in Waco, a recounting of the long mostly adoring relationship between Corporate and Dublin, photos of Dublin bottles, and a clipping from a March 2010 Texas Monthly (The Bucket List) in which Deputy Managing Editor Brian D. Sweany writes: The ice-cold eight-ounce bottle proudly proclaims the signature ingredient, Imperial Pure Cane Sure. No need for the high-fructose corn syrup that has become part of the standard formula for Dr Peppers elsewhere. That simple tweak makes a Dublin–named for the city whose bottling plant has been producing the Texas-born refreshment since 1891–a throwback indeed.
George Will’s economic recovery plan: Drop corporate, estate taxes to zero
Posted by: Admin
August 25th, 2011 >> Corporate
Another day of trading at the exchange and another calamitous drop in the Dow Jones Industrial Average has many searching for a way to stem the tide of the ailing economy and get it moving in the right direction.
Washington Post columnist George Will offered some ideas on Tuesday night’s “The Charlie Rose Show.” He would not just lower taxes, but eliminate some altogether.
First, Will explained that he would mimic former President Ronald Reagan’s actions after he inherited a dreadful economy from Jimmy Carter.
“So the first thing you want to do is in my judgment is what Reagan did,” Will said. “Reagan came in President Obama acts as though he’s the first president who ever inherited a country from his predecessor that wasn’t perfect.
Think of what Reagan remember the misery index under Carter? [It] added the inflation and the unemployment and and you were over 20 percent. Reagan came in and said, Well, we’re going to lighten the load of government on the private sector. We’re going to cut taxes. We’re going to cut regulations. This president has not done that, and I think it’s time to try that.”
And Will named specific taxes he would target immediately.
“Even stagnant Japan has lowered its corporate tax rate, Will said. Ours should be radically lower [I] would lower it to zero because I don’t believe corporations pay taxes: They collect taxes. They have to pass taxation on as a cost of doing business.
I would eliminate the death tax. I don’t know why death is a taxable event in this country. No more estate taxes. Eliminate go back to the classic no taxation without respiration, that’s right. Go back to the classic Bill Bradley/Ronald Reagan tax reform of 1986. Lower the rates by eliminating loopholes and exceptions.”
Host Charlie Rose protested, saying that was in fact what Obama had recommended. But Will countered that it took Obama too long to suggest action.
“He’s had a conversion of convenience on a lot of issues as the election approaches and the sky has darkened,” Will insisted.
Will also had high praise for tea party.
“I think the tea party unquestionably changed the landscape,” he said. “None of this would have happened, the Simpson-Bowles none of this would have happened without the change in the conversation in this Capitol by 87 freshmen elected in 2010. But the president likes to say elections have consequences. And that one did. Absent that, absent those 87 members who had livened the House of Representatives, they would not have dug in and made the debt ceiling increase an action-forcing mechanism.”
Rose questioned some conservatives willingness to “hold the country hostage” over the national debt, but Will said their motivations were legitimate.
“I would say they’re prepared to be highly principled and intelligently obdurate in using such leverage as they have. And this is limited. We have three branches of government. The Republicans control one-half of the one branch of the government, and got rather a lot, I think, in trying to turn this super tanker of the state a little bit.”
If anyone doubts that higher Corporate Average Fuel Economy targets lead to engineering advances, and better cars, perhaps it only takes a look in the garage or out at the curb.
When the federal government set CAFE requirements in the late 1970s, the cars were 20 feet long, weighed more than two tons and generally werent achieving much above single-digit mileage.
After a few bleak years in the 1980s when hapazard downsizing was the only way to meet the fleet fuel economy requirements, engineering advances took effect. Now, its possible to have a full-sized pickup truck that gets more than 20 miles per gallon with a V-8, or a muscle-car with a 300-plus horsepower six-cylinder engine getting mileage figures that were unheard of during the 1960s-1970s muscle-car era.
But those better cars of today compared with 30 years ago come at a cost. Somebody ends up paying for all that engineering, aerodynamic research and high-technology equipment in the car. The increased mileage requirement of 54.5 mpg by 2025 recently announced by President Barack Obama will lead to more innovation, given the 15-year deadline, but surely greater cost, too. Witness the price of the widely hailed Chevrolet Volt at more than $40,000 before government giveaways to incentivize buyers. Its a lot for what is an average family sedan beyond its innovative hybrid drivetrain.
The standard rose from 18 mpg in 1978 to 27.5 mpg in 1990 (after a reprieve was granted between 1985 and 1990). There it stayed until rising again this year. Actual fleet performance for passenger cars, according to National Highway Traffic Safety Administration figures, stayed in the high-24 mpg range through the 1990s, rising above 25 mpg to stay in 2005 after peaking above 25 mpg in 2003, and hitting 29.3 mpg in 2011.
While some pundits say the standards will wipe out auto sales, its tough to make that argument when looking at the sales figures.
Indeed, as the fleet went above 25 mpg for the first time in 2003, Americans snapped up more than 15 million automobiles. Absent the increased requirements, the fleet mileage still rose but sales fell through the floor in recession year 2009 to finish below 10 million vehicles for the first time since 1982. The fleet averaged more than 24 mpg in 2002 when the record of 16.1 million vehicles were sold. Those cars were doing far better at the pump than the fleet of 1978, and they cost more.
So, while the mandate is worrisome from the standpoint of increased vehicle costs to pay for engineering, someone, somewhere, continues to scrape up the money for millions of new vehicles annually. Maybe theyll be hybrids or electric vehicles, but theyll be sold and on the streets in a decade and a half.
And the United States isnt alone in higher mileage standards (Japan has a fleet requirement of 47 mpg by 2015, for example).
Indeed, CAFE isnt the only federal requirement mucking up the engineering of the modern automobile. Weight (and thus poorer fuel mileage) and complexity also are added through safety mandates (side impact intrusion beams, multiple airbags, antilock brakes, to name a few), as well as consumer demands (all cars didnt have power everything, navigation systems, DVD players or even standard air conditioners in 1978). That situation will only get worse as optional safety features such as blind-spot warning systems and active cruise controls eventually become mandated.
In 1978, it was hard to imagine a Cadillac that was much under 18 feet long and under 5,000 pounds, but the CTS sedan and coupe and wagon exist today, 33 model years later, filled with features that were science-fiction stuff back then. Somehow, between the mix of consumer demands for features, federal requirements for safety and mileage and a generally up-and-down economy, millions of new cars are sold in the US annually. CAFE changes the kinds of powerplants in our cars, but it doesnt substantially alter the sales equation.
The economy itself, not the fuel economy standard, does that.