Studies of interest - I

Price Waterhouse Cooper issued 'Will You Handle the Curve? Global Automotive Perspectives 2008' In September, as the latest financial meltdown sent U.S. automotive sales plunging, and the Big 3 asking for a piece of the TARP!

The report says "... 2008 is shaping up to be a year marked by profound industrial shifts and strong headwinds for the automotive industry, as global players respond to a fast growing array of financial and regulatory pressures. Such constraints include increasing fuel economy and/or drastic CO2 emissions mandates, rising commodity prices, a weakened US dollar, changing consumer preferences, and liquidity concerns. Nonetheless, tremendous opportunities exist for automakers and suppliers who are prepared to deliver swift and viable solutions to the industry's current transformation ... The ability of Western automakers to strategically position themselves between mature and emerging markets represents a clear challenge in today’s global automotive environment. Achieving a balanced global footprint is particularly critical for the Detroit 3, which must undertake massive domestic market realignment efforts as consumers abandon traditional truck-based vehicles and begin favoring more fuel-efficient car-based autos. In addition to satisfying changing domestic demand, the Detroit automakers’ rationalisation measures must be completed in a period of reduced credit availability and fragile financial outlooks." True in spades!

From the first graph we see that vehicle sales in 'mature' markets (i.e. the "core" EU countries, Japan, and the United States) has been flat for quite some time. Virtually all (volume) growth for the automotive sector has been in the emerging markets, and the need to be competitive in these markets is critical to continued growth of the automakers (the report estimates that four countries - Brazil, Russia, India, and China - will account for 58% of the volume growth through 2015...).

The Congress has already approved USD 25 billion in funds for the Big 3, to help in the development of more 'environmentally-friendly' cars, and the Big 3 are pushing for additional TARP funds to help them through the current crisis. The Democrats appear to mostly be in favor of the idea, and it is very likely that some sort of large assistance package will be forthcoming. Rather than just shoveling a mound of cash into the pockets of the Big 3, perhaps the Congress can/will take a long, hard look at the industry and decide what (if any) the long-term role of the government should be in this area. Otherwise, once through this crisis it is highly likely that the Big 3 will be back at the Congressional pump to be re-primed in a few years! However, this blogger isn't holding his breath in anticipation of them taking a long-term view!

Updated:

Three November 16th opeds in the NYT address this issue. The first, 'How High Gas Prices Can Save the Car Industry,' argues that the Big 3 need help to avoid irreparable harm to the economy, but suggests that this happen by setting a floor to gas prices via tax, the proceeds of which would be used to bail out the automotive giants... The second, 'Have You Driven a Bus or a Train Recently,' argues that strings be attached to the help provided... The third, 'What's Good for G.M. Is Good for the Army' by retired General Wesley Clark, argues that helping the automotive giants is a national security imperative....

Misc. financial crisis

1. Spiegel asked five Nobel prize winners in economics for advice for the leaders of the G20 summit...

Paul A. Samuelson: The Dynamic Moving Center
Joseph E. Stiglitz: Global Crisis -- Made in America
Edmund S. Phelps: What Has Gone Wrong up until Now
Richard Selten: Regulation of the Financial Market Is Important
Robert E. Lucas: The Recession Is the More Immediate Problem

2. ProPublica puts together a timeline showing AIG's demise...

3. Former Clinton Official Says Democrats, Obama Advisers Share Blame for Market Meltdown - Former SEC Chair Arthur Levitt (1993 - 2001) allows that responsibility for the conditions that led up to the current financial crisis began to be set many years ago, as far back as the Clinton administrations and earlier... "... As the world financial system implodes, Democrats have blamed the Bush administration's lack of regulation for creating the conditions for collapse. But a top Clinton regulator acknowledges that he and his colleagues a decade ago "beat back" regulatory efforts that could have prevented credit markets from becoming so precariously balanced they were “milliseconds” from disaster..."

4. The number of parties seeking to access TARP funds continues to grow... This includes cities (e.g. 'San Jose mayor seeks slice of bailout pie' 'TARP Cities' - Philadelphia, Phoenix and Atlanta ), insurance companies (e.g. '4 insurers seek to buy thrifts for part of bailout'), states and local governments (e.g. 'TARP, CPFF Expansion Called For - States, localities Seek Participation'), the automakers, etc....

5. 'TARP: Banks Give Congress the Right to ^*&*^! Them' warns the banks that by accepting TARP funds they have left themselves open to Congress unilaterally changing the rules governing the loans, since "... the deal is subject to any modification that Congress wants to make. Section 5.3 says that Treasury may unilaterally change the terms of the deal to conform with laws passed by Congress. This is a huge danger ..."

Match 'em up...

Match the world leaders of the G20 - the heads of nineteen of the largest world industrialized countries plus the European Union. Also in attendance, the leaders of The World Bank, IMF, Spain, and the Netherlands...

a - Argentina - President Cristina Kirchner
b - Australia - Prime Minister Kevin Rudd
c - Brazil - President Luiz Ignacio Lula da Silva
d - Canada - Prime Minister Stephen Harper
e - China - President Hu Jintao
f - France - President Nicolas Sarkozy
g - Germany - Chancellor Angela Merkel
h - India - Prime Minister Manmohan Singh
i - Indonesia - President Susilo Bambang Yudhoyono
j - Italy - President Silvio Berlusconi
k - Japan - Prime Minister Taro Aso
l - Mexico - President Felipe Calderon
m - Russia - President Dmitri Medvedev
n Saudi Arabia - King Abdallah
o - South Africa - President Kgalema Motlanthe
p - South Korea - President Lee Myung-Bak
q - Turkey - Prime Minister Recep Tayyip Erdogan
r - United Kingdom - Prime Minister Gordon Brown
s - United States - President George W Bush
t - European Union - José Manuel Barroso (President of the European Commission)

Also present:
u - International Monetary Fund - President Robert Zoellick.
v - World Bank - Dominique Strauss-Kahn (Director General)
v - Spain - Prime Minister José Luis Rodriguez Zapatero
w - Netherlands - Prime Minister Jan Peter Balkenende
x - ???

Hint, here's a start: 2-e; 9-g; 12-c; 15-h; 19-n; 21-f; 23-p; 25-o...

Happy 60th Charles

Charles Philip Arthur George (Mountbatten-Windsor), Prince of Wales, turned 60 today... Sixty years (and counting, considering that the Queen at 82 is hale and hearty...) waiting for the throne... Ouch.

Prince Charles, une si longue attente...
A 60 ans, le prince Charles attend de succéder à sa mère

Financial crisis & hospitals (updated)

Hospital Construction Trends 1983-2007

Hospital Margins 1991-2006

Hospital Investment Income 1981-2006

Hospital Revenue Sources 1980-2006

Hospital Payment-to-Cost Ratios for different revenue sources

Over the past few years hospitals have been a bright spot in the economy. Although part of the overall national healthcare "crisis," and although some hospitals have been in the red, many other hospitals have been profitable (average margins have been improving since 2001, see graph); have been a source of job growth; and have also been responsible for a mini construction boom... However, with the current financial crisis, pressures are increasing and the omens are not good for hospitals to maintain their financial positions. These pressures are on several fronts:

• The financial crisis has constricted access to capital and also has increased the cost of capital, hurting hospitals that need copious capital to continue to fund their investments in buildings, plant, and increasingly sophisticated capital equipment.
• The turmoil and poor performance of the stock markets have hurt on several fronts. First, hospitals' investment income has fallen or become negative. Second, hospital endowments have taken a hit and have seriously shrunk. Third, as the economy weakens many wealthy benefactors are probably dialing back their philanthropic contributions. Fourth, many hospitals still have defined benefit retirement plans... market losses may have adversely effected the funding of these plans, requiring hospitals to use operating cash to shore up the funding of their pension plans.
  
• The worsening economy is hurting hospital operating revenues and increasing operating costs on a number of fronts, including:
  
• Layoffs swell the ranks of the uninsured, and degrade the abilities of self-pay patients. Employers respond by decreasing their employees' coverage and increasing co-pays. All of these result in increases in hospital unreimbursed expenses and bad debt.
• Case volumes flatten as elective surgeries and procedures are postponed and put off, thereby reducing hospital revenues (note: often these items have higher margins)
• People often put off seeking medical care - as a result they often are sicker when they go to the hospital, and often they end up using the hospitals' emergency departments, thus increasing ED usage and increasing hospital costs.
• Insurance companies increase their scrutiny of hospital billings. This increases the length of time it takes to pay bills, thus hurting hospitals' cash flow. Rejections also increase, also hurting revenues.
• A large portion (approximately 50% or more, see graph) of hospitals' revenue comes from federal and state governments. As these entities feel the pinch they reduce hospital payments / reimbursements (which already are often below costs, see graph above). This further pinches hospital revenues. Additionally, reimbursements for hospital acquired infections and other "never events" are being eliminated, Medicare is increasing its use of recovery audit contractors, etc., all also leading to decreased reimbursement.
  

All in all, the current financial crisis is putting additional pressures on the nation's hospitals. Some of the approximately 25% of hospitals that already have negative margins will risk going under, the ones with positive margins will see their margins degraded. Consolidations and mergers will increase as hospitals seek to respond to financial pressures. It is to be devoutly hoped that in their response to the financial pressures they are experiencing themselves, that federal and state governments do not cut so deep that they endanger the viability of the nation's hospitals...

Hospitals with negative margins

Trendwatch 2008
Hospital construction trends, Nov 8 2007

Ed. note: All graphs and charts here from the given links...

Updated November 19th:

Hospitals’ Response to the Current Financial Market from IMA Consulting's Insights makes the same points, albeit much more elegantly. In addition they point out that a worsening balance between revenues and expenses could violate existing bond covenants (from current debt), leading to increased expenses or the need for remediation that negatively impacts the hospitals... The article also suggests what the hospitals can do to reduce expenses.

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Mental Health Break