Return to Transcripts main page
Your Money
Corporate Pensions Disappearing; Is Dow's Close Over 11,000 Important?; Malcolm Bricklin Wants Chinese Cars In America; Detroit Auto Show Opens
Aired January 14, 2006 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN ANCHOR: Tornado watches and warnings were finally lifted today in several southern and mid Atlantic states after a night of severe storms. This is wreckage from a suspected tornado in Manning, South Carolina where nine people were injured.
And an Alabama woman killed after a twister tore through causing the chimney of her home to collapse. Those are the headlines, I'm Fredricka Whitfield. More news as it happens. "IN THE MONEY" begins right now.
JACK CAFFERTY, CNN ANCHOR: Welcome to the program. I'm Jack Cafferty. Coming up on today's edition of IN THE MONEY, the biggest trap on the back nine of life. The corporate pension isn't an assure ticket to an easy retirement. Not anymore. Stick around while we drive a stake into the heart of a lousy idea.
Plus, why your company is hot for your body. There's a disturbing idea. More and more firms are telling employees to get healthy or else. See what a workplace right's group has to say about that.
And luxury cars from the land of the big black bicycle. Malcolm Bricklin bought America's Subaru and the Hugo. We'll ask him about his latest brainstorm.
Joining me today on the program, "Headline News" correspondent Jennifer Westhoven; and "Fortune" Magazine editor-at-large, Andy Serwer.
So the country seems to have survived the government-induced coma called the Alito confirmation hearings. And if you've got past his wife-sobbing tears that would make a crocodile blush, and Arlen Specter and Ted Kennedy hissing at each other, there wasn't a lot of meat on that bone, was there.
ANDY SERWER, EDITOR-AT-LARGE, "FORTUNE" MAGAZINE: All surprising because you know you thought the Democrats may have mustered some opposition but really they didn't. And it was theater kabuki of the worst sort, right?
JENNIFER WESTHOVEN, HEADLINE NEWS CORRESPONDENT: No. The worst?
CAFFERTY: Pretty bad.
SERWER: Well pretty bad. Thank you! WESTHOVEN: Mostly bored.
SERWER: What, I'm sorry.
WESTHOVEN: Mostly boring.
SERWER: Well, it wasn't revealing. Did we benefit from the experience?
WESTHOVEN: We learned about the Prince Princeton, which is modestly disturbing. But it is something that I think a lot of people are a little uncomfortable with.
CAFFERTY: All right. Well Joe Biden suggested, this the same Senator who was trying on a baseball hat at one point during the hearings, which we posted fun of the situation, which is the other show, I do here. But Joe Biden at the end of the week came up with a very cogent idea.
He said, do away with these confirmation hearings in front of the judiciary committee because we don't learn anything, it bores everybody for a week. Get the nominee's credentials and a little background report on him, send the whole thing right to the floor of the senate and vote on these cats and get on with it.
SERWER: Another thing that would cut in half is if they weren't televised because it's all posturing of course, right.
WESTHOVEN: I like the fact that it's televised. I like the fact that you get a chance to see this person who is just a name before that. You can read about them, it's not the same as when you see them and how they do under pressure. We can't help it that maybe Alito was boring. Maybe somebody else would have been more interesting. I actually think they have a public service. What I don't think is a great public service is senators who ask questions that lasts eight minutes. That serves only yourself.
SERWER: Far more leghorn and company right about.
CAFFERTY: With that thought in mind, we will stop talking about this now.
SERWER: Yes.
CAFFERTY: If you are wondering what happened to the great corporate pension, try checking the freezer section. IBM is putting its pension benefits on ice as of 2008 and it's just the latest big- name company to give its plan the cold shoulder. Verizon, Motorola, Lockheed Martin all doing the same thing, dumping their pensions.
Our next guest thinks it's about time, maybe even past time. Justin Fox, an editor-at-large at "Fortune" Magazine. Colleague of my friend Andy Serwer's. "Fortune" of course a property of CNN's corporate parent Time Warner. Justin nice to see you.
JUSTIN FOX, EDITOR AT LARGE, "FORTUNE" MAGAZINE: Good to see you Jack.
CAFFERTY: Pensions are economically perverse is my favorite line out of the article. What does that mean?
FOX: It means and first of all, I'm not saying it's a great thing that people who are 50 years old at IBM are suddenly finding out that they are not going to have the pension they expected. What is good, maybe that's happening is we're going to have a discussion of what's the best way to fund people's retirements. I think we're going to realize that corporate pensions don't work partly because they force us all to trust the CEOs of corporations. Take care us of 50 years in the future and they just not going to do that.
WESTHOVEN: I'm told to call you Foxy here.
FOX: Really?
SERWER: He likes that nickname. Look at him.
FOX: Yes, I love it Andy. Thanks.
WESTHOVEN: OK. My real question I read something that surprised me in your article. Where a consultant said, that pension schemes are like pointy schemes. Like pyramid schemes essentially. And it was very interesting to me. I think you think of these as something between a company and a worker. He said, no. This is really between worker now and worker future. Can you talk a little bit more about that and how it costs people in the future.
FOX: Well, what it is basically is when you've got a guaranteed pension, there's a guarantee there. And even if the company's putting aside lots of money, if they don't put aside enough, if they short- change the pension plans over the years, then somebody in the future has to come up with the guarantee.
What it always ends up being is future employees, future shareholders. If at some point they can't pay for it anymore -- so basically, they're the ones who end up bearing the burden. And then at some point if they can't anymore, it is suddenly the retirees who end up being in trouble. It's this sort of bargain between generations without one of the generations being consulted.
SERWER: But what's the alternative? What's the solution, Justin? I mean 401(k) s have their problems, too.
FOX: Right.
SERWER: Obviously you got some wing-ding who sticks all of his money in some stock that loses everything. So what do you do here?
FOX: This idea, I'm completely channeling pension consultant in Toronto named Keith Ambackshire, although if I get it wrong, don't blame him. Basically the idea is the account should belong to the individuals like with a 401(k) or an IRA or whatever, but there should be at least defaults set up that if you don't make any decisions, then money -- a part of your income gets put away and put in a low-cost, diversified selection of stock and bond funds. Preferably index funds.
And so if you don't do anything, then you end up OK. Now the question is, how much ability you give people to opt out of this. I think still a lot of debate. But this is already starting to happen at 401(k)s in a lot of big companies, that increasingly, instead of when you join the company you at asked about a million questions.
Do you want to contribute to the 401(k)? How much? What do you want to put in? They just say, OK, we will take this money out of your salary, and we are going to do this with it. Tell us if you don't like that but otherwise this is what we're going to do.
CAFFERTY: What's wrong though with putting more the onus for this retirement thing on the individual? We depend on Social Security. We depend on a company pension. We have no savings rate in this country to speak of. By far in the way the worst of any of the industrialized countries in the world. What about the idea that we're sort of all in this alone and responsible for our own well-being?
FOX: Clearly, that's partly true and that's what a lot of people are finding out to their great shock and amazement now at a lot of companies. But I think a lot of this is how you ask people the questions about saving. And if basically the question is every day, you've got whatever money's in your pocket. Do you want to spend it on a Snicker's bar or do you want to put it away for the future?
Our brains are set up to grab the Snicker's bar. But if you asked this question of, OK, you're going to work at this company over the next 20 years, do you want us to set aside enough money for you that you'll be able it live off of it when you retire? Most people will pick that. That's not the choice that's been offered to people up till now.
WESTHOVEN: I know that I'm set up for the Snicker's bar! But I'm a good saver, too. I have worked here long enough in finance, right? But one my questions is one of the lines in the articles says that if General Motors had ditched this a long time, they'd be in much better shape. But I wanted to ask well what if we did move to this personal savings account. What if had done that? How would the GM workers be doing? Would they be better off?
FOX: A couple of people -- I got a lot of e-mails. I wrote this for the CNN/Money and Fortune so we got a lot of feedback. Most of it pretty angry. And pointed out, how do you know that? And basically that was an opinion based on just my argument that GM wouldn't be in such dire straits if its executives didn't have to devote half of their brain cells and half of their money in the past 20 years to figuring out how to keep the pension plan solve and more important than that, retiree health care.
I think it's hard enough to run a company in an increasingly competitive world in a tough industry like cars without having to have happier managerial attention, or more than that, devoted to figuring out how to keep the pension fund afloat.
CAFFERTY: All right. Foxy, we have to leave it there. FOX: OK.
CAFFERTY: Justin Fox, editor- at-large at "Fortune" Magazine. Thanks for being on the program. Good to see you again.
FOX: Thanks for having me.
CAFFERTY: Coming up, when we continue here on IN THE MONEY, crunching numbers. The Dow climbed back above 11,000 this week. We will see if this matters or not as we move through 2006.
And the big boss says big brothers. Managers are telling workers to quit smoking even outside of the office. We will find out why corporations think they can run your life.
And how to make Detroit lose sleep. The guy who brought America the Hugo and the Subaru have some brand new brands to sell you. He will tell us all about it as we move through this project.
(COMMERCIAL BREAK)
CAFFERTY: We tend to be obsessed with numbers in this business, list, countdowns, anniversaries, milestones, and statistics. If you can put a number on it we're likely to get a camera and cover it. So naturally we made a big to do this week when the Dow Jones Industrial average closed above 11,000 for the first time since June of 2001. The question now is does that really mean anything? Hugh Johnson thinks it does. He's chairman of Johnson Illington Advisors. Hugh nice to see you again. Welcome to our little program here.
HUGH JOHNSON, CHAIRMAN, JOHNSON ILLINGTON ADVISORS: Jack, it's great to be with you.
CAFFERTY: Conventional wisdom is as January goes, so goes the year for the markets. The first couple of weeks, January's looking pretty impressive. What do you make of it?
JOHNSON: Well I think that's, of course coincidental and that is always good news to have something lets say lift spirits but I think that is really going to drive the market this year is the same old stuff, Jack. And that's is earnings and interest rates. I think the news on the earnings side is probably going to be better than the news on the interest rates side. So we should have a good market. The first couple of weeks in January. So, good year.
WESTHOVEN: Hi Hugh. A lot of people are making a good deal that Google is up in the stratosphere again. It's sky high. Do you think the stock market's getting bubblicious.
JOHNSON: No, it isn't. But it may be true for Google and there are couple of over-the-counter, sort of secondary issues that have gotten a little bit pricey but if you ask yourself, we've seen the kind of mania, the widespread speculation that we saw in late 1999, the first part of 2000. Absolutely not, Jennifer. We're really seeing, I think, rational market. It'll be a long time before we see a bubble of that magnitude. SERWER: Hugh, aren't there really too many problems out there for things to say good for a long period of time? You have got the war. You've got the deficits and aren't we glossing over those things?
JOHNSON: Well, I don't know if we're glossing over them. I think those are all kind of priced into the markets. To be honest with you, you know the old adage, Wall Street bull markets climb a wall of worry, and I guess we're doing it this time. Sure, I worry about oil prices; sure I worry about the Federal Reserve raising interest rates too high.
They could make that same old mistake. They could make it this year. I worry about housing prices. But there's lots to worry about, but if you put it all together, right now it kind of looks like we're going to be on the upside. In this, the fourth year of a very mature bull market. So stay with it for now. But watch carefully.
CAFFERTY: Talk to me a little bit about how earnings look to you. We've had some impressive earnings growth over the last two, three years. Double digits every year. But I was reading something the other day where some of analysts are maybe overshooting their estimates on the expansion of earnings in 2006. Are we going to be disappointed in the growth of earnings? Interest rates are at levels we haven't seen for two, three years. And there's some question about whether the bottom line can continue to expand the way it has been.
FOX: Well, it's not going to expand anywhere near the -- where it has been. If you look back to 2004, 19 percent growth. Then 2005, we slowed down to about 14. The current forecast or consensus is 12 percent in 2006. And I think that's a bit on the high side. So you're absolutely right in rising that concern.
It looks to me like earnings, and I mean S&P operating earnings for those that are technically minded. Probably going to slow to about an eight percent pace, which is not particularly good. It does mean, as you've suggested, some disappointments, and therefore, the stock market is obviously going to struggle with some disappointments as we work through 2006.
I still think, though that that earnings growth is going to be strong enough to offset the bad news on the interest rates' side of things. At least I hope so, because you've got it watch that Federal Reserve. They could make a mistake and get too aggressive in raising short-term interest rates.
WESTHOVEN: Hugh, I'd been reading that some of the Wall Street traders, when they think about the price of oil, one of the things they're really noticing is that, countries that are consuming a lot of oil, China, India, right now are out there hunting down any acquisitions they can get their hands on. And they think that's a sign that the price of oil long term is going up. What do you think? I have heard scary things like $100 a barrel.
FOX: Who knows. We've been talking about $100 a barrel for as long as you can -- but you know, the fundamental case where you talk about limited reserves or we're starting on the downside of reserve availability, oil availability, implies prices will head higher over time. I think you're absolutely right. And I think quite frankly the markets know that's coming.
It's probably one of the reasons Jennifer, that this market, although prospects are probably good, not great, good for say the next two, three, four, five years, it's going to be held in check, I believe you're right, held in check by rising energy prices. We're going to have to learn to live with it. And it's one those big problems the market's going to face.
SERWER: Hugh, you talk here about oil. We're talked a little bit about Google in text maybe. But what sectors and stocks do you like forward?
FOX: I'm a little defensive with utilities being over weighted in my portfolios. But at same time that I've got a little bit of sort of a windward anchor, I'm over weighted things like basic materials. That's kind of looking through the rearview mirror and saying that's been doing well. I'm over weighted in industrials. When I look to 2006 and look to what is kind of working at the beginning of 2006, technology is starting to come on.
It's been a lagger for two, three years, now it's starting to come on. I think that is probably a good place to be. So what I'm really saying is start the year with kind of a bullish bias. Get those sectors, like industrials, basic materials, technology, in your portfolio. But watch closely, 2006 could be a year of change, it's a year of high risk and it could be a year of change.
SERWER: All right, we'll be watching. Our old friend Hugh Johnson, chairman of Johnson Illington. Thank you very much for coming on the program Hugh.
JOHNSON: My pleasure.
SERWER: Coming up after the break, the Jeanne genie, I guess as David Bowie would say. Stock in Genentech has been running hot until lately. We'll look at whether the biotech behemoth is set for a rebound.
Plus, the boss weighs in. Companies are pushing workers to live smarter or risk paying more for health care. See what a workplace right's group thinks about that.
And how to spot a supermodel. Find out which cars are getting a second look at this week's Detroit Auto Show. Coming up!
(COMMERCIAL BREAK)
WESTHOVEN: Now, let's take a look at the week's top stories in our "Money Minute."
A new government report says health care costs are now eating up a record of 16 percent of the nation's economic output. Now, it's mostly higher spending on doctors and hospital bills. Drug costs slowed down a little.
Since 2000, 1.6 million poor Americans have had their refunds frozen and their returns labeled fraudulent even though most of them did nothing wrong. That's the word from the government's new taxpayer advocates. She also says the IRS is spending more time going after the poor than people who make money in cash and don't even file.
And the heavy metal rock band, Korn, finds a very different kind of music deal. It's selling a six percent stake in its whole career to Live Nation. That's all the money they'll ever make from CDs, concert tickets and more. Korn says that that means the company will care more about the band's big picture, not just one album or concert tour and analysts think more bands will do the same thing.
SERWER: I love that Korn footage. It's been a cold winter so far for Genentech investors. The biotech firm hit a high of $100 a share in early December but then it began to sell-off. And this week's news of weaker fourth quarter profits sent shares down, even further. Genentech shares soared by 70 percent in 2005 and some market watchers think it's time to take a little more air out of the balloon.
Genentech is our "Stock of the Week." You know that is kind of a short-term view here. I have known this stock for a long time. It's gone from single digits to over $100 bucks over the past few years. Its ticker is DNA, you have to love that. It's a real company though now right?
WESTHOVEN: Yes and they're promising a lot of growth. They're fulfilling on it that people are always hoping for a little bit more when you get those big low stories.
CAFFERTY: I meant the P/E on thing is like $80, 80 times earnings. I mean it's just nonsense and Amgen sells for like 25, 26 times earnings. If you are going to buy one of these things, why would you not buy Amgen.
SERWER: Well you know listen I checked out the drugs they have for these afflictions. Listen to this I had to write them down. Cancer, heart attack, asthma, psoriasis, stroke, growth hormone defense, cystic fibrose they have got a list of drugs as long as your arm. This company now has $6.6 billion of revenue and $1 billion of profits. It's for real. It's growing.
It's really expensive but this is a stock that's always expensive. And so you, go well, it's selling for 70 or 80 times earnings that means I can't buy it. And then the next year it's up 30 percent. So if you want to take a flyer. I agree. I mean you can't -- but I bet it's going to be a bigger company. Five years from now, right?
WESTHOVEN: I like to look at a charts. It's the same with Google. It's the same with whole foods. These stocks that explode and at some point they have these pullbacks. So it's up to you to decide if it will tumble or not right now the pullback it doesn't look that bad. CAFFERTY: Remember Krispy Kreme.
SERWER: I do. I wrote a cover story about that in "Fortune" about how it was a hot stock, or a hot brand. So I remember that well. The only thing about this, one thing to watch when these companies get big like this is its market value. It's market capitalization. Right now it's at $90 billion, which is bigger than Dell and bigger than Apple but it's not that bad.
CAFFERTY: On the plus side though and very quickly, they are hoping to get permission to apply some of their existing drugs to some other treatments than the ones that they were originally designed for. If they get green lighted to do that, and get permission to apply and sell some of the existing drugs, they've already tested them. They've already got them in production. Suddenly, they generate a whole new revenue stream for virtually no additional investments. So --
SERWER: Well you know what they say about these guys, as long as there's diseases, and sad to say there will be for a long time.
All right, coming up on IN THE MONEY, work it for your workplace. More and more companies are telling employees to get fit or pay the price. See if your boss has the right to run your body.
Plus, a really new-new car. The automotive brain-stormer who brought you the Subaru and other cars is at it again. Find out where he made his latest big discovery.
And, room to groom. Forget the car. We're going to show you Paris by motorcycle. Hang on for our "Fun Site of the Week."
(COMMERCIAL BREAK)
WHITFIELD: Hello, I'm Fredricka Whitfield.
Now in the news, the fate of Osama Bin Laden's right-hand man Ayman Al Zawahiri is still unknown at this hour. DNA test results will reveal if he was killed in a CIA air strike in Pakistan yesterday. Eighteen people were killed in the attack. Pakistan's government has condemned the attack and launched a formal protest with the U.S.
The chief judge at Saddam Hussein's war crimes trial doesn't want the job anymore. A high-ranging tribunal official tells CNN that Rizgar Amin plans to ask the Iraqi hierarchy tribunal to release him from the post, but allow him to remain a tribunal judge. The reason for the request was given.
New details about the Florida teen shot by a SWAT team officer during a standoff at his school. Police say Christopher Penley terrorized classmates with a weapon believed to be a nine millimeter handgun, and then pointed it at the officer. The weapon turned out to be a modified pellet gun. Neighbors described Penley as suicidal loner. He is now hospitalized in critical condition.
Words of defiance from Iran's president, today Mahmoud Ahmadinejad vowed to continue nuclear research despite threats by the west to refer the matter to the U.N. Security Council. He insists Iran won't be intimidated and is allowed to pursue peaceful nuclear technology under international law.
I'll have all of the day's news at top the hour. Now back to more of IN THE MONEY.
WESTHOVEN: It used to be that what you did on your time was your business, not your companies. But an article in the "Christian Science Monitor" this week, says that is changing, that more firms are pushing workers to live healthier, to quit smoke, lose weight and exercise.
And those workers who don't play along are facing higher charges for their health insurance. For a look at what that means, for workers, we're joined by Jeremy Gruber, he is the legal director of the National Work Rights Institute. Hi Jeremy. Welcome to the program.
JEREMY GRUBER, LEGAL DIRECTOR, NATIONAL WORK RIGHTS INSTITUTE: Thank you.
WESTHOVEN: First step, it's very clear that you stake yourself out on looking out for the worker and looking out for their privacy. So I just want to start out by asking, what's wrong with a company nudging you to do a little bit better especially considering the company has to pay for your higher health care costs if you smoke and so do your workers? They have to pay higher premiums.
GRUBER: Well there is nothing wrong with nudging but I think what you are seeing is lot employers instituting some of these more these punitive programs without looking at actual data in their own workplace to find out what real savings will be.
Secondly I think voluntary wellness programs, which are the majority wellness programs that we have now in this country work. I think the data shows that they work. And third, I don't think employers should be in the business of dictating what you can and can't do in your private life. I don't think most American are willing to trade their privacy just for access to basic health care.
CAFFERTY: Well, in the abstract, I suppose I would agree with you, but there was a story earlier this week that 1-8 people in the city of New York is diabetic, 1 in 8. Diabetes is caused, it can be argued, by a certain kinds of dietary and living habits that lead to medical problems associated with diabetes.
Why shouldn't people who want to smoke cigarettes and eat five dozen doughnuts a week have to pay double or triple or whatever the figure is for their health insurance as opposed to somebody who has a healthy lifestyle in the actuarial tables will tell you is likely to live longer and incur fewer medical costs. It seems to me if Andy wants to eat the doughnuts and I don't, then Andy should pay more for his health insurance.
SERWER: What? GRUBER: I think -- I think there is an answer to that. I think most people want to be healthy and I think if you look at the statistics that come out from like the American Management Association, which an industry, a group made of up most of the Fortune 500 of employers.
They have looked at this and they have seen with wellness programs, you see a 75 percent participation rate, even though only 35 percent of these programs are incentive-based. Most people want to be healthy. And if employers give them the tools, they will make the efforts to be healthy.
CAFFERTY: But that wasn't my question. My question was, if I choose not to be healthy, if I choose to look like the person on the television set right now, why shouldn't that person be charged more money for health insurance than the people who want to be healthy? That was the question.
GRUBER: Because I think there's very little that we do in our lives that doesn't affect our health. What you're really saying is that employers need to keep a list of everything that you do in your private life to see what you're doing, how to may affect your health? Quantify it, if possible.
And ask you to provide all that information to them in order to make that type of decision. I don't think that's how we want to live in a free society. Whether it's your employer or the governments or any other entity, I don't think that people want to, or should have to, trade -- trade their privacy just in order to have access to basic health care of.
SERWER: Jeremy, first of all I want to point out that I was not in any of that footage that many of the viewers just saw. That wasn't me. But I want to ask you. Companies occasionally go over the line. You hear about them trying to influence the way people vote or getting involved in people's religious beliefs. Obviously that's way over the line. But, do companies have any area where you think it is OK for them to start influencing employee behavior? Like smoking? Can they tell employees not to spoke in your opinion?
GRUBER: I think they certainly can tell employees not to smoke in the office -- in the workplace. And I don't think any of these types of policies, anyone would argue, should allow employees to do that. But what you do in your own home, should be your own business. I think that employers should offer wellness programs.
I think wellness programs are highly successful, particularly voluntary wellness programs. And I don't think employers have even begun to exhaust the possible options in voluntary programs. And oftentimes you'll see employers jumping to some these punitive measures. Most of the time without exhausting the voluntary options.
I think employees want to be healthy. I think if they're given the tools, most of those employees will be healthy. I don't think you need to look into their private lives and dictate what they can and can't do when they're at home, when they are off the job, when they are not involved in behavior that affects their job's performance in order to have health care.
SERWER: Aren't health care costs out of control? Just quick last question. Health care costs are out of control. Americans are eating bad stuff and smoking and they're responsible for it. So, shouldn't we do something about it? And don't employers have a right to do this? Come on.
GRUBER: Well there is no question we need to do something about it. We have huge health crises in this country. At the same time, we have a huge health care crises in this country and there is no question that employers have a heavy burden of dealing with these costs, but employers aren't going to solve the health crisis in this country with these policies.
We have a 30 percent rate of obesity in this country. If you as an employer decide not to hire that person, what you're really are doing is just sifting the burden to an employer who will and if no one is willing to employ that person, well, what does that do to our economy when we add 30 percent of the eligible work force perfectly able to do a job, and is unemployable. What do we do when we hit that point?
WESTHOVEN: OK, thank you, Jeremy. We're running out of time. By the way if you're watching, too, you should know that some states are putting in worker protection. They are putting in laws that you can't fire someone for doing something off the job that's not illegal. Thank you so much for joining us today.
There is a lot more to come here on IN THE MONEY. Up next, why China just might be the new Korea, at least whether it comes to cars. We'll speak with a guy who puts the Subaru and Hugo on America's roads.
And naked ambition. Allen Wastler of Money.com will tell us about some Wall Streeters who got spanked over a trip to the strip clubs.
(COMMERCIAL BREAK)
SERWER: The North America International Auto show kicked off this week in Detroit and a car company called Geely is creating a lot of the buzz. It's the first Chinese care company to have an exhibit at the show, and although the first Geely isn't expected to be available to American drivers until late 2008.
Another Chinese automaker will likely beat Geely to the U.S. market. There you go. The first five models are expected to debut late next year. Malcolm Bricklin, founder and CEO of Visionary Vehicles is working to make that happen. Malcolm, welcome to the program.
MALCOLM BRICKLIN, VISIONARY VEHICLES: Thank you, Andy.
SERWER: So, is this for real? Are Chinese cars really going to be zipping up and down U.S. highways and by-ways?
BRICKLIN: Absolutely. They'll be zipping up and down U.S. highways in great numbers very shortly.
WESTHOVEN: OK, I have a question. We know they're cheap; some of them are pretty good from the pictures. What's the tradeoff? If you're out there buying a car, you know you what to get it cheap, but what do you have to give up? Luxury seating? Safety?
BRICKLIN: Well in some of the cars that are going to come from China that's exactly what you will have to give up. Our model is going to be redefining the price of luxury. So what we're going doing is going after BMW and Mercedes and Lexus and Jaguar and Audi and instead of selling them for $35 and $40,000, they'll be sold for under $20.
SERWER: I will take that.
CAFFERTY: What's going to make an American that has more than one or two options available to buy a car, to go and decide to buy a Chinese car. They're untested, they are unproven, they are unknown and they have funny names.
BRICKLIN: You are right with all those things except the funny names aren't going to be with ours because General Motors told us that we can't use Geely because it sound like Chevy but we will come up with a good name.
But actually why? There is no reason for anybody to come in with another car unless it's coming in from a market that hasn't been served. And we believe the high price of luxury cars is too darn high. And we're going to be selling luxury cars for 30 and 40 percent less than you can buy luxury cars now and if we fulfill our promise, we think a lot of people who will want to buy our cars.
CAFFERTY: But how is it luxury car if it is 40 percent less than say Lexus or BMW? Doesn't that make it a mid-priced, mid-sized car?
BRICKLIN: It will be a mid priced car, but it will be luxury, meaning the interior will be as good or better. Engines will be as good or better and the warranties, of course, will be better. So you are going to end up with a car that drives as much fun. And it is just better every way around and it just costs less.
SERWER: All right, Malcolm, you have been involved with importing, shall I say, interesting cars over the past several decades. I want to revisit history a little bit. You did the Yugo, what went wrong there? And what's to say, this wouldn't be another Yugo?
BRICKLIN: Well see what went right there. I was given 50,000 cars a year. That's how many I sold in the first three years. It was the fastest growing car ever brought in from Europe. Dealers were charging $3,000 over list and I sold it out to an investment banker, three years before the country became impossible sell to because the U.N. So it was a successful adventure from my part and from the dealer's part.
But the difference is, this company and this country has a factory that is state of the art. And they had a factory that was the reverse of state of the art. When you have a good partner that knows what they're doing on the factory side, you end up with a car that will last.
WESTHOVEN: Can we go with safety? Will these cars go through all of the, you know, government-mandated tests? How do you expect them to rank? Do you expect them to do well, better, on the low end but still relatively safe?
BRICKLIN: Here's our mandate. Our mandate is to put in every air bag, meet five-star crashes, make sure everything we put in this car for safety and for looks and for performance so we take advantage of the price and that's why we're pricing in midsize instead of coming under $10,000. You can't afford to do it in a car under $10,000. We're expecting to have no compromises when we bring in our cars.
CAFFERTY: What about mileage and hybrids and some sort of sensitivity toward the oil and gasoline situation? Tell us about your cars.
BRICKLIN: Well, first of all China is a country that needs desperately to clean up their act environmentally. And one day they are going to sell 50 million cars into the market that year. So they are desperately trying to come up to clean and to that event, they are spending a fortune buying technology for hybrid and fuel cells and this year, '06, they'll be introducing their first hybrid from Cherry into the Chinese market. And by '08 or '09, we're hoping to segue almost 100 percent into hybrids.
SERWER: Malcolm, are people going to be resentful, though, of a Chinese vehicle in the sense that you know, jobs are disappearing over there? Do you think there is going to be any stigma attached to these cars?
BRICKLIN: Absolutely. Just like when I brought Subaru in 1968 for the first couple of years, as we know the Japanese were doing so well, they were buying up Rockefeller Center and you name it. And there was a big backlash and it was a voluntary quota to put in.
I'm expecting the same thing here, too. But I believe if everybody really gets the facts, for every job that is lost in the factory, we add three or four jobs in distribution. And although it doesn't do any good for the guy who lost its job, it does do good for the people who end up getting the new job.
WESTHOVEN: Malcolm Bricklin thank you so much for joining us.
And there is more ahead here on IN THE MONEY. Coming up all revved up and nowhere to go. We'll tell you about some hot new entries in the Detroit auto show this week.
And if you've got something on your mind, four wheels or not drop us a line at INTHEMONEY@CNN.com.
(COMMERCIAL BREAK) WESTHOVEN: In this week's "Brain Storm" segment, the latest and greatest in cars. As we mentioned earlier in the show, the Detroit Auto Show opened its doors to the public this weekend. And Money.com's Peter Valdes-Dapena got a sneak peek last week. He joins me now. And Peter this is a good chance for those of us who couldn't go to get a sense of some of the cars that were creating some excitement there. Welcome.
PETER VALDES-DAPENA, MONEY.COM: Hi. How are you?
WESTHOVEN: Now, one the cars you singled out was the new Camaro. First, how did it feel? How did it look like, you liked it.
VALDES-DAPENA: Well actually I kind of liked it. It's a very different, very unusual interpretation of really a 1969 Camaro. Now General Motors hasn't said officially that they're going to produce this car. But they're sure talking like they're going to produce this car. And they'd been say, they're executives have been saying for a long time with the success of this Ford Mustang, they really want to have something like this out there to compete against it. So it's kind of 1969 all over again.
WESTHOVEN: So, is this an original idea from GM management, or they're just taking a look over at -- Ford did something well?
VALDES-DAPENA: They're taking a look over. The Mustang never stops production. But this year, rather last year, they redesigned it to something that resembled a late 60's muscle car Mustang. At this year's show, they unveiled the Shelby GT-500 version, which is a re- make of, again, a famous 60's classic muscle car, this time with the 475-horsepower engine. So it's not an original idea.
For a long time, they stopped the making the Camaro back in 2003, I think. They thought, hey, people don't want cars like this anymore. Two doors. People like four-door cars. Well, Mustang proved them wrong and now they wanted to double back and come back with something like this. And Chrysler also unveiled the Dodge Challenger. Another re-make of a 70's muscle car.
WESTHOVEN: Who's buying these cars?
VALDES-DAPENA: Well, you know, right now, nobody's buying them yet. But if you look at who's going for the Mustang, and collectible muscle cars, the original examples that are still around, can fetch hundreds and thousands of dollar. They are being bought by kids who are -- maybe their older sister's boyfriend drove one when they were a kid and they've wanted one all their lives.
Now they've got some money and they can buy one. And there's a lot of folks out there that can't afford a collectible muscle car that would just love a car like the Camaro. GM saying the Camaro will be priced whether they bring it out for a v-6 version in the low 20s probably. Maybe up to 30 for a big v-8 version. A lot of people are going to find that very exciting and very compelling.
WESTHOVEN: All right, they might be great for headlines, but can they really help the bottom line? Because they sound like they're pretty niche market.
VALDES-DAPENA: Yes, they are. Even the Mustang's is not a very volume vehicle, and if they do it right, it could be pretty profitable but moreover, it can also add some excitement to the whole Chevrolet lineup and it can make the name Chevrolet kind of exciting again, which is important for them.
WESTHOVEN: Thank you very much, Peter, for joining us. Muscle cars, one of the hot things at the Detroit Auto Show and crossover SUVs.
Coming up next on IN THE MONEY how do you say burn rubber in French? Well forget about saying it. You can live it on our "Fun Site of the Week."
Plus, it's time to hear from you, as we read some your recent e- mails. And you can write to us now at INTHEMONEY@CNN.com.
(COMMERCIAL BREAK)
CAFFERTY: Morgan Stanley recently decided to fire some of its employees for taking a client to the strip club, and that decision as you might expect, sending shock waves through the steel ordinate brokerage world. Is this political correctness gone too far? Or a long overdue wrap on sexism? That's the focus of Allen Wastler's "Inside Out" here this week.
ALLEN WASTLER, MONEY.COM: I will admit, I have been to a few strip clubs.
CAFFERTY: I find that hard to believe.
WASTLER: And actually it was back in my reporter years, a lot of businessmen went to these during conventions and if you wanted to get the stories and find out who was talking, that's where you went.
WESTHOVEN: Why you are looking at me for?
WASTLER: I have a feeling the wind up is coming from here.
But, anyway, so, you know, a lot of people had fun, yes. Business gets done, everything. But also the three-martini launch. There was also smoking in the office. There was also brass spittoons at one point.
CAFFERTY: Sure.
WASTLER: All of these things go by the wayside. So probably for this to go by the wayside too. However, being one to get into trouble all of the time. I wrote about this recently, and the readers of CNNMONEY.com decided to weigh in and I got it from -- I couldn't win with anybody.
Lets start off first with the first e-mail. It was from Jared who said, "Believe it or not, millions of these people still live by a moral code, right or wrong? Going to strip clubs is immoral. He also adds foot notes about me going to the seventh circle of you know.
But then, you know, you also got some women coming in saying as a female business person I guess I should consider myself a spoiled sport or nag, for being disgusted about a company's money being spent on degrading my gender is part of a business event. Fair point too. Either way I was sort of arguing for an end to the practice.
But then we hear from the Neanderthal crowd. God bless them. And here we go. Get real. And we had to edit this folks. Never hurt anyone, including clients. If women don't want to par take, then let them stay back at the office typing up our reports. Bring this to you people do let you than you think that you found like a nice, OK, can we all agree on one thing? And it just all falls apart and apparently, it's falling apart here.
SERWER: But Jeff runs a strip club. Jeff, you can run after me now.
CAFFERTY: What's the "Fun Site of the Week?"
WASTLER: We were talking about cars, right? A video classic for you from the Web. Now, folks, don't try this is at home but if you will tour Paris, this guy did it really, really fast. Let's check it out. The motorist he will blow through a few traffic lights, folks. He's not endorsing this behavior.
CAFFERTY: But the idea of driving like this in Paris is you may get lucky and run over a Frenchman.
WASTLER: Look at this kid.
SERWER: You can't stop and get some food, that's the whole point of being there, right?
WASTLER: Actually it's a fun video and at the end of it, he meets his date of Sacracurds (ph). Very romantic.
CAFFERTY: Time now to read your answers to our question of the week. About whether you are in more credit card debt now than you were a year ago?
Billy wrote this, " I don't have any credit card debt and I never will again. I filed for Chapter 7 bankruptcy this summer after being snowed under by credit card bills for more than a decade. The credit card companies know I tried. And god himself knows I tried and paid the original debt amount many times over."
Diane wrote, "When I hear of 16 percent interest rates on credit cards. I just drool. My card from a major bank charged me 32 percent. I thought that high a rate was illegal. Silly me. So I paid off my entire debt as soon as I could.
And another viewer wrote, "I have huge credit card debts because my husband got very sick this year and we don't have insurance. I think the fees the card companies charge are outrageous and Congress is wrong not to try to restrict them in some way." You couldn't be more right but don't hold your breath waiting for Congress to do anything that goes against those banks that issue the credit cards and contribute all that money to the Congressional campaigns.
Time now for next week's e-mail question of the week, which is this "Do you feel more comfortable investing in stocks now that the Dow in hovering near 11,000? Send your answers to INTHEMONEY@CNN.com. Or you also visit our show page at Money.com/inthemoney which is where you will find the address of our "Fun Site of the Week" going through Paris lickety-split on a motorcycle.
Thank you for joining us on this edition of this program. My thanks to "Headline News" correspondent Jennifer Westhoven, "Fortune" Magazine editor-at-large Andy Serwer, and Money.com managing editor Allen Wastler.
Hope to see you back here again next Saturday and Sunday. Saturday at 1:00, Sunday at 3:00. Until then enjoy the rest of your weekend.
(COMMERCIAL BREAK)
TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com
