Archive for March, 2010

Toyota dismisses account of runaway Prius (AP)

Monday, March 15th, 2010 | Finance News

SAN DIEGO – Toyota Motor Corp. dismissed the story of a man who claimed his Prius sped out of control on the California freeway, saying Monday that its own tests found the car's gas pedal and backup safety system were working just fine.

The automaker stopped short of saying James Sikes had staged a hoax last week but said his account did not square with a series of tests it conducted on the gas-electric hybrid.

"We have no opinion on his account, what he's been saying, other than that the scenario is not consistent with the technical findings," spokesman Mike Michels told a press conference.

The episode March 8 was among the highest-profile headaches Toyota has suffered in recent months. It recalled more than 8 million cars and trucks worldwide because gas pedals can become stuck in the down position or be snagged by floor mats. Dozens of Toyota drivers have reported problems even after their cars were supposedly fixed.

In Sikes' case, Toyota said it found he rapidly pressed the gas and brakes back and forth 250 times, the maximum amount of data that the car's self-diagnostic system can collect. That account appears to contradict Sikes' statement — backed by the California Highway Patrol — that he was frantically slamming the brakes, at one point lifting his buttocks off the seat.

Toyota officials said they believed Sikes was hitting the pedals lightly, which would have prevented the brake-override system from kicking in.

The company had no explanation for discrepancies with Sikes' account but confirmed the brakes were overheated and the pads worn. Bob Waltz, vice president of product, quality and service support at Toyota Motor Sales USA., said the front brakes were "metal to metal."

Toyota said it believes a CHP officer's account that he smelled burning brakes while guiding Sikes on the freeway.

"That is the puzzling aspect of this," Michels said.

Sikes has said his car raced to 94 mph on a freeway near San Diego. He called 911, but did not respond to instructions from the dispatcher to shut off the engine or throw the car into neutral.

The CHP officer ultimately helped bring the car safely to a stop by telling him over a loudspeaker to hit the emergency brake and foot brake simultaneously. Sikes spoke to reporters shortly after the incident but has since kept a low profile.

Toyota said it had conducted two days of tests on the car last week. It found severe wear and damage on the front brakes from overheating, but the rear brakes and parking brake were in good condition.

And the rest of the car was fine, the automaker said — the gas pedal was not slowed by friction, the floor mat was not even touching the pedal, and a system that cuts the engine power when the gas and brakes are pressed at the same time was working.

Toyota said its tests showed the car's electronics were working fine.

"If there were some kind of electronic problem, you would think it might actually stay permanent," Michels said. "When your TV goes on the fritz, when electronic stuff goes on the fritz, it doesn't just do it once and never do it again."

A statement from Sikes' attorney, John H. Gomez, said the firm would not comment further on the episode until a government investigation was complete. Sikes did not respond to phone messages.

The company also said the push-button power switch worked normally and shut the car off when pressed for three seconds, and that the shift lever worked normally, so the car could be shifted into neutral.

The power management computer contained no diagnostic trouble codes, and the dashboard malfunction lights were not activated, Toyota said.

Earlier in the day, federal regulators said they were reviewing data from the gas-electric hybrid but so far had not found anything to explain the out-of-control acceleration reported by Sikes.

"We would caution people that our work continues and that we may never know exactly what happened with this car," the National Highway Traffic Safety Administration said in a statement.

On Sunday, Gomez said it was neither surprising nor significant that inspectors had been unable to recreate the conditions reported by Sikes.

"They have never been able to replicate an incident of sudden acceleration. Mr. Sikes never had a problem in the three years he owned this vehicle," he said.

But Rep. Darrell Issa, R-Calif., suggested it raised questions about Sikes' story.

"It doesn't mean it didn't happen, but let's understand, it doesn't mean it did happen," Issa said on CBS' "The Early Show."

Toyota spokesman John Hanson said the event data recorder — a car's version of the "black box" inspected after plane crashes — would be of no use to investigators because it only stores information when the airbags are deployed. The box only stores four to six seconds of information before the airbags go off, he said.

But investigators were able to download valuable information from the hybrid's control computer system, which showed the car was functioning normally, Toyota said.

Toyota will give the car back to Sikes soon, Michels said, indicating that no further testing will be done for electronic causes.

Two outside experts, however, said it would be a mistake not to test for unknown electronic gremlins, such as electromagnetic interference, static electricity or software glitches. Those problems, they said, can gum up electronics and then disappear.

It's possible the Prius' backup system could have been compromised by an electronic glitch, said Keith Armstrong, a British electronic engineer and consultant who advises companies on electromagnetic interference.

Toyota challenged Sikes' account that a dealer turned him away when he brought the car in a few weeks ago after he got a recall notice. It said Toyota of El Cajon, east of San Diego, checked his floor mats and told him he would get a notice when they would be replaced.

The 2008 Prius is subject to a recall for floor mats but not sticky accelerators.


Krisher reported from Detroit. Associated Press Writer Ken Thomas in Washington contributed to this report.


Pay czar limits exec pay at still-struggling GMAC (AP)

Monday, March 15th, 2010 | Finance News

WASHINGTON – The Obama administration's pay czar is limiting 2010 compensation for top executives at GMAC Inc. because the auto finance giant continues to lose money and can't yet repay its $16.3 billion taxpayer bailout, according to people familiar with the negotiations.

Only one of the top 25 earners at GMAC will earn more than $500,000 in cash, and CEO Michael Carpenter will receive only stock compensation and no cash, said the people, who spoke on condition of anonymity because they were not authorized to discuss the talks.

The agreements follow months of wrangling with Kenneth Feinberg, the Treasury Department's special master for executive compensation. They reflect his concern that GMAC has no plan to return to profitability or repay its bailout.

Feinberg is expected next week to announce 2010 pay packages for the top 25 earners at companies that continue to rely on "extraordinary assistance" from the government, including GMAC, American International Group Inc., General Motors and Chrysler.

Last year, Feinberg allowed two GMAC executives to exceed the $500,000 cash cap, and granted Carpenter an annual pay package worth $9.5 million. After becoming CEO in November, Carpenter earned about $1.2 million, including about $120,000 cash, for six weeks' work.

Officials in the Bush and Obama administrations said GMAC had to be rescued along with automakers General Motors and Chrysler because GMAC provides crucial financing for auto dealers.

But the company's biggest financial problems come from subprime mortgages and other risky loans it financed in the years leading up to the financial crisis.

A watchdog report last week blasted the bailouts, saying officials might have saved taxpayers billions by putting GMAC's non-auto businesses into bankruptcy and saving only the crucial auto finance arm.

The report also questioned Feinberg's approval of Carpenter's generous 2009 pay package.

GMAC spokeswoman Gina Proia said the company has a plan to repay fully its taxpayer bailouts. She said Carpenter discussed the plan in testimony before an oversight panel last month.

Carpenter told the group that GMAC will focus on its core business, cut costs, improve its access to private capital and eventually become profitable enough to obtain the needed funds from private investors.

Proia said the company was more specific in a presentation to its owners, but would not disclose the details because GMAC is not a publicly traded company.

The U.S. Treasury owns 56.3 percent of GMAC.

Separately, AIG has decided to return a promised $45 million in retention payments in part by reducing payments to former employees, according to people familiar with the negotiations.

Feinberg had threatened broader pay cuts if AIG could not come up with the money, which employees promised they would return after the payments sparked a public outcry.

AIG employees agreed to forgo most of the money, but holdouts among former employees refused, insisting they were legally entitled to the full payments.

The company now believes it has the legal authority to withhold a portion of the payments, according to another person familiar with the matter. The person spoke on condition of anonymity because he was not authorized to discuss the company's thinking.

Feinberg and an AIG spokesman would not comment.


Eurozone readies possible bailout for Greece (AP)

Monday, March 15th, 2010 | Finance News

BRUSSELS – Eurozone finance ministers agreed Monday to offer financial help for Greece — likely in the form of bilateral loans — but refused to give details until European Union leaders make a final decision on the potential bailout.

Jean-Claude Juncker, the head of the eurozone group, said Greece had not asked other members of Europe's currency union for financial help, but said they could swiftly grant "bilateral aid" if Athens asks.

Greece needs to borrow euro54 billion ($74 billion) this year — euro20 billion of that in April and May — to plug a yawning gap between revenue and expenses, and has been forced to offer high interest rates to get investors to lend it money.

A Greek default would be a disaster for the euro, and economists and financial markets assume the EU would find some way to step in and stop it.

Juncker refused to give details on the potential bailout, saying the 16 nations that use the euro still need to work out the technicalities before a March 25-26 meeting of EU leaders, who would make the final decision on the size and the type of financial rescue.

French Finance Minister Christine Lagarde said ministers had not talked about an amount, and insisted — as do most European officials — that a bailout might not be needed.

"It's not a mechanism that we need today," she told reporters. "There is no need to anticipate putting it into place."

In a statement, eurozone nations said financial help would not come cheap.

"The objective would not be to provide financing at average euro area interest rates, but to safeguard financial stability in the euro area as a whole," they said. "The proposals ... would provide strong incentives to return to markets as soon as possible."

Markets are still not convinced that Greece's debt is a good investment without a bailout. The spread, or difference, between 10-year German and Greek bonds remained around 3 percentage points on Monday.

Greece has warned that its budget problems will worsen unless interest rates come down — and the eurozone pledge of help is one way of trying to convince markets that they should charge less for Greek debt.

Juncker said the potential financial rescue would not violate an EU treaty that prevents one country taking on the debt of another member or any other national laws. He said they were not considering bilateral loan guarantees — which would leave loans from individual eurozone nations to Greece as the most likely option.

Eurozone governments have been reluctant to step in to help Greece, insisting that Athens make big budget cuts first.

Greece duly announced more budget reductions to save another euro4.8 billion this year including public sector wage cuts that angered unions and sparked two nationwide strikes last week. The government concede that the cutbacks will deepen the economic recession this year.

Greek Prime Minister George Papandreou has warned he will turn to the International Monetary Fund if eurozone nations don't follow through a vague pledge to help the country.

He has so far won support in fighting financial market speculation on the country's borrowings — French, German and Spanish leaders have called for an EU crackdown on credit default swaps on bonds, which insure traders against the risk of a country's default.


AP Business Writer Emma Vandore contributed to this report.