CEO Daily: Wednesday, 4th January

January 4, 2017, 11:52 AM UTC

Good morning.

My post yesterday about Trump’s industrial policy was followed within hours by an announcement from Ford that it will kill a planned $1.6 billion auto plant in Mexico and increase employment at a Michigan plant by 700 people instead. CEO Mark Fields said it was the right decision for the business, but also called it a “vote of confidence” in Trump’s economic agenda.

Expect more companies to follow suit. The combination of Trump’s big stick – his bully Twitter pulpit plus the threat of punitive tariffs – combined with his even bigger bag of carrots – potential reductions in taxes, particularly on repatriated earnings, and in regulations – is a powerful combination. It’s only a matter of time before Apple, IBM, and other companies follow suit.

Never mind the fact that Trump’s attacks on companies are neither very precise nor entirely fair. Yesterday, he went after GM – whose chief executive Mary Barra sits on his jobs council – for selling Chevrolet Cruzes assembled in Mexico to U.S. car dealers, when in fact almost all of the Cruzes sold in the U.S. last year were assembled in Lordstown, Ohio. As we now all know, factual accuracy is not the President-elect’s strong suit.

Historically, this sort of meddling in markets was decried by free-market conservatives on the right. Yet Trump’s latest moves are being criticized mainly from the left – with press outlets like Salon (Trump’s latest con job), Slate (Ford isn’t adding American jobs because of Donald Trump), and MSNBC arguing Trump is exaggerating his own role, or that the number of workers involved is relatively small.

What these critics miss is that after decades of debating the merits of first Japanese-style and then Chinese-style national industrial policies, the U.S. suddenly has one of its own. Even before assuming office, Trump has tilted the playing field in a significant way. And it is going to be fascinating to watch the results.

More news below.

Top News

Senate Moves to Repeal Obamacare

The Senate moved to dismantle the Affordable Care Act on its first day in session. According to The Wall Street Journal, Majority Leader Mitch McConnell (R. Ky.) will open debate on a budget resolution Wednesday that could allow the GOP-controlled chamber to repeal much of the ACA with a simple majority vote. Whether it will do so without having a replacement law is another question.   WSJ, Subscription required

Euro, Yuan Rebounds Halt Dollar Rally

Signs of life in Europe and China halted the dollar’s march higher. Consumer inflation in the Eurozone rose to its highest in over three years in December at 1.1% thanks largely to  energy prices. More importantly, the Eurozone’s composite purchasing managers’ index for December hit its highest level since May 2011, as the German, French and Spanish economies all powered ahead. Much more of that, and the ECB may have to start tapering its bond purchases faster than it thinks (although the  risk of Italy upsetting the applecart hasn’t gone away). IHS Markit, which compiles the PMI surveys, estimates global manufacturing grew at its fastest pace in three years in December. Separately, the Chinese yuan also bounced back strongly after some nudges and winks from Beijing to state banks about unwelcome capital outflows. Fortune

Tillerson in Line for $180 Million Payoff

ExxonMobil and its outgoing CEO Rex Tillerson agreed to sever all financial ties if the Texan is confirmed as Secretary of State. Under the agreement, Exxon will transfer the equivalent of some 2 million previously allotted but unvested shares into a trust (which will not be allowed to invest in Exxon). Tillerson will also sell over 600,000 vested shares worth around $54 million. The deal looks like a cleaner break than that engineered by George W. Bush’s vice-president Dick Cheney, who kept hundreds of thousands of stock options in Halliburton and sold them gradually during his time in office. Keeping the interests of his employer of over 30 years at an emotional arm’s length may be a little harder, one imagines. Reuters

 VW's Emissions Campaign Moves to the Home Front

Lawyers representing German owners of tainted Volkswagen diesel vehicles have filed the first lawsuit in Germany seeking compensation for damages from the emissions scandal. VW has so far tried to satisfy such complaints with recalls and technical fixes, arguing all along that the devices didn’t breach (badly-written) EU rules anyway, and that compensation was therefore not appropriate. While Germany generally avoids punitive legal settlements against companies, the sheer numbers involved create a material risk for VW: some 8 million cheating cars were sold in Europe, compared to only 600,000 in the U.S.. Owners have claimed they have suffered losses through lower resale values and higher fuel bills. German law doesn’t allow class actions. The suit in question represents a single VW buyer, and its outcome may be used as a precedent for similar cases. Reuters



Around the Water Cooler

Judge Halves J&J Hip Joint Damages

A district court judge almost halved the $1 billion damages bill handed to Johnson & Johnson last year for its faulty DePuy Pinnacle hip implants. Judge Ed Kinkeade in Dallas upheld a jury’s findings that the implants were defectively designed and that the companies failed to warn consumers about the risks, but cited “constitutional considerations” in trimming the damages. J&J had stopped selling the metal-on-metal Pinnacle devices in 2013. It has already paid over $2.5 billion to settle more than 7,000 lawsuits related to them. Reuters

Tesla Misses Deliveries Goal

Tesla missed its target of 80,000 deliveries in 2016. At 76,230, they were well below the 80,000-90,000 Elon Musk had originally hoped to ship, and even below the reduced guidance of 79,000. Delays in the transition to its new automated driving hardware caused deliveries to dip to 22,000 from the 24,500 it posted in the three months to September. The company’s shares fell 2% in after-hours trading because the market had hoped that the 70% surge in deliveries in the third quarter represented a step change in its fortunes. However, net orders for the Model S and X were still up 24% from the third quarter, and up 52% from a year earlier, suggesting that Tesla  still has momentum going into a make-or-break year when it aims to launch the Model 3, its first mass-market vehicle. Fortune

Toshiba Hit by Fresh Accounting Allegations

Toshiba shares fell more than 5% after fresh allegations of false accounting at the Japanese conglomerate. Media reported that Japan’s securities watchdog suspects it of padding its profits by 40 billion yen ($339.59 million) over three years. The revelations add to a series of accounting troubles swirling around Toshiba, which was downgraded by ratings agencies last week after it admitted it may face a multi-billion dollar writedown over its U.S. nuclear business. The new investigation could open the way to formal criminal charges against the company and its former executives, according to Reuters. Fortune

Potemkin Sends His Regards

Facebook CEO Mark Zuckerberg announced his personal challenge for 2017 would be to visit and meet people in every U.S. state by the end of the year, in an attempt to understand better why globalization and technology has “contributed to a greater sense of division than I have felt in my lifetime.” Zuckerberg’s post said the trip would take in “small towns and universities, visits to our offices across the country, meetings with teachers and scientists, and trips to fun places you recommend along the way,” which sounds like the kind of Filter Bubble that Potemkin prepared for Catherine the Great back in the day. After that, you can already hear the cynics saying, Zuckerberg will retire to his secure, luxurious and painstakingly concealed complex in California to contemplate what he has learned about division. Facebook

Summaries by Geoffrey Smith;



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