Current Events in March 2017

McDonald’s has been attempting to go back to the basics to rework its fast food image. Earlier this month, the company announced that it would be catering to existing customers by focusing on hamburger sales, instead of selling wraps and other healthier products to draw in new customers.

Now the chain is doubling down on its burger approach. In an announcement made Thursday, the company said that it would be transitioning from using frozen patties to fresh beef in the majority of its restaurants by mid-2018. The change will augment other modernization efforts, such as using ordering kiosks and providing mobile payment options.

“Today’s announcement is part of a continuing food journey for McDonald’s,” said McDonald’s U.S. President Chris Kempczinski.

Fresh beef

This isn’t the first time that McDonald’s has talked about using fresh beef to make its burgers. About a year ago, the company started testing the idea in 14 restaurants in the Dallas area, saying that if consumers liked it then they would consider rolling it out nationally.

That program eventually expanded to hundreds of restaurants in the Dallas area, and consumers were happy to see that the change did not overly affect prices, according to the New York Times. While McDonald’s spokeswoman Becca Hary pointed out that prices will ultimately be set by franchise owners, she stated that the company did not expect consumers to feel much burden.

“We do not anticipate there will be any significant impact on price when this sandwich rolls out nationally,” she said.

Catering to customers

While they may be responsible for setting future prices, some franchise owners have expressed concerns about switching from frozen patties. They point out that freezing their product is a good way of killing pathogens like E. coli, and that using fresh beef increases the risk of possible contamination.

Despite that risk, McDonald’s seems to be running with its new identity of giving the customers what they want. Hary said that if the fresh beef change goes well, then changes to other items could be just around the corner.

“[McDonald’s will] continue to look at the rest of the menu based on what the customers are asking for,” she said. 

During the housing bubble, millions of homebuyers with iffy credit got stuck with subprime mortgages that, in many cases, turned out to be unaffordable.

In the end, it nearly brought down the financial system.

Subprime mortgages are less common now, but subprime loans have not disappeared. They're increasingly common in auto lending.

In Massachusetts, one subprime auto lender, Santander Consumer USA Holdings Inc., will pay $22 million to settle charges from an investigation into its lending in the state.

Unfair and unaffordable

“After years of combating abuses from subprime mortgage lenders, these practices are unfortunately familiar,” said Massachusetts Attorney General Maura Healy. “We found that Santander, a leading player in the business of packaging and reselling subprime auto loans, funded unfair and unaffordable auto loans for more than 2,000 Massachusetts residents.”

Healy says Massachusetts is the first state to reach a settlement relating to subprime auto loans. She said the settlement will provide relief to affected consumers and make future abuses less likely.

Much like the subprime mortgage fiasco, Healy said her investigation found that loans were being made to consumers without a reasonable basis for belief they could be repaid.

Healy alleges that Santander actually predicted that many of the loans would default, and also realized that financial information submitted by applicants was fictional, or at best inflated.

How it worked

Here's how it worked: a consumer found a car at a dealer they wanted to buy. The dealer offered financing, even though the buyer's credit was bad. Regardless, non-dealer institutions like Santander bought the loan and repackaged it, selling a bundle of these loans as securities to investors.

In 2008, when thousands of subprime mortgages went into default, it destroyed the value of those securities and nearly brought down investment banks, while drastically reducing the value of real estate.

Could subprime auto loans be as big of a systemic risk? Economists say it's unlikely, since repossessed vehicles are more easily resold than houses. But it certainly is a financial catastrophe for the consumers who lose their cars.

Healy faulted Santander for what she termed a lack of oversight. She said the bank's own internal audit raised warning flags, concluding that its oversight of the dealers making these subprime loans was inadequate.

The price of gasoline has been relatively low for nearly two and a half years. The drop, which began in late 2014, followed 11 years of near record high prices at the pump.

But while consumers are far better off than they were in 2012, Patrick DeHaan, senior petroleum analyst at GasBuddy, says right now is when consumers are in greatest danger of overpaying for fuel. He says GasBuddy conducted a study that demonstrates just how much we're overpaying.

Think of it this way. When prices are sky-high, you probably search out the cheapest gas station in your area before filling up. Now, when prices are relatively low, just about any station will do.

But DeHaan says stations tend to charge closer to the same amount for gas when prices are high. When they're low, there can be a wide variation in the same city.

Tranquility and affordability

“We're in a relative period of tranquility and affordability at the pump, and so the data suggests Americans are at particular risk right now of overspending on gasoline,” DeHaan said. “And we expect that to continue for some time.”

To prove the point, DeHaan says GasBuddy looked at the last seven years of gas price data. In 2012, the national average was $3.61 a gallon. However, the price spread between the 5% of stations with the highest price and the 5% with the lowest price was only 95 cents a gallon.

But last year, when the national average was a much more affordable $2.13 a gallon, the spread increased to $1.13 a gallon.

Price complacency

Prices are not only still low, but they are also lower than expected for this time of year, due to the unexpected drop in oil prices. DeHaan says it could mean motorists have gotten a little complacent about the price they pay.

In Washington, DC, he notes, the spread between highest and lowest stations is $1.21 a gallon. In Los Angeles and San Francisco, the spread is around $1.

In some large metros, DeHaan says consumers can pocket $60 a month just by being selective about where they fill up.

Both personal incomes and spending rose in February -- the former more than the latter.

The Commerce Department reports incomes climbed $57.7 billion, or 0.4%, last month following a $63 billion gain in January. Disposable personal income (DPI) -- what's left after taxes are extracted -- was up 0.3%, or $44.6 billion.

The incomes increase was due largely to advances in wages and salaries and rental income of persons.

Personal consumption expenditures (PCE) -- consumer spending -- inched up 0.1%, or $7.4 billion. When adjusted for inflation, it was actually down 0.1%.

The PCE price index rose just 0.1% and was up 0.2% when the volatile food and energy categories were stripped out; the PCE price index increased 0.2%.

The decrease in inflation-adjusted spending reflected cutbacks in spending that were partially offset by an increase in spending for nondurable goods.

Personal saving in February totaled $808.0 billion – up $4.3 billion from January, for a rate -- personal saving as a percentage of disposable personal income -- of 5.6%.

The complete report is available on the Commerce Department website.

Mercedes-Benz USA (MBUSA) is recalling 65 model year 2017 E300s and E300 4Matics.

The front passenger airbag may not deploy properly if a passenger is sitting on the edge of the seat or is lying in the seat with the seat reclined.

As such, these vehicles fail to comply with the requirements of Federal Motor Vehicle Safety Standard (FMVSS) number 208, "Occupant Crash Protection."

Failure of the airbag to deploy as intended could increase the risk of occupant injury.

What to do

MBUSA will notify owners, and dealers will update the air bag control module software, free of charge. The recall is expected to begin in April 2017.

Owners can contact MBUSA customer service at 1-800-367-6372.

As environmentalists are learning, the Trump administration takes a very different approach to environmental matters than its predecessor.

At midweek, the Environmental Protection Agency (EPA) denied a petition to ban the use of chlorpyrifos, a widely used pesticide in agriculture. Under the Obama administration, the EPA had planned to impose a rule that would have effectively banned its use, citing research linking it to damage to the central nervous system.

Because of a court order, the current administration said it had until the end of this week to decide whether or not to ban the chemical, as environmental groups had filed suit to force it to do. EPA Administrator Scott Pruitt announced the agency would not ban the pesticide as he issued an EPA Order.

“In this Order, EPA denies a petition requesting that EPA revoke all tolerances for the pesticide chlorpyrifos under section 408(d) of the Federal Food, Drug, and Cosmetic Act and cancel all chlorpyrifos registrations under the Federal Insecticide, Fungicide and Rodenticide Act,” Pruitt wrote. “The petition was filed in September 2007 by the Pesticide Action Network North America (P ANNA) and the Natural Resources Defense Council (NRDC).”

The petition was never formally acted upon during Obama's two terms, but in 2015 the administration announced its intentions to impose rules that would not allow for any trace residues of the chemical on food. In announcing his decision to deny the petition, Pruitt said it was based on science rather than “pre-determined results.”

Environmental groups react

“EPA turned a blind-eye to extensive scientific evidence and peer reviews documenting serious harm to children and their developing brains, including increased risk of learning disabilities, reductions in IQ, developmental delay, autism and ADHD,” said Miriam Rotkin-Ellman, Senior Scientist at NRDC.

Kristin Schafer, policy director at PANNA, accused the EPA of caving to corporate pressure and of failing “to follow overpowering scientific evidence of harm to children’s brains.”

According to a pesticide information network, established by Cornell and several other universities, Chlorpyrifos is known as a broad spectrum insecticide. It was introduced in 1965 and used primarily to kill mosquitoes, but it's no longer approved for that use.

It is effective at controlling a variety of insects and is currently used on both food and non-food agricultural products.

The network also notes the chemical is “moderately toxic to humans.” It says studies have show that poisoning from chlorpyrifos may affect the central nervous system, as well as the cardiovascular system, and the respiratory system.

In a move that would secure its place in the $800 billion food and packaged goods market, Amazon is trying to convince some of the world’s biggest brands to start shipping their products directly to online shoppers and bypass notable chain stores like Wal-Mart, Target, and Costco.

The company has sent invitations to the executives of prominent packaged goods makers, asking them to come to its headquarters in Seattle in May to hear its proposal, according to a Bloomberg report.

“Times are changing. . . Amazon strongly believes that supply chains designed to serve the direct-to-consumer business have the power to bring improved customer experiences and global efficiency. To achieve this requires a major shift in thinking,” the invitations read.

Delivering straight to doorsteps

If successful, Amazon would topple the current structure that packaged goods makers have with brick-and-mortar retailers and completely change the way that many products are designed, made, packaged, and shipped.

Manufacturers would no longer have to worry about making sure the product stands out on a grocery aisle shelf, since consumers would no longer have to stroll those aisles. The Bloomberg report points out that many items could be packaged according to new shipping needs; laundry detergent could come in sturdier, leak-proof containers and food items could come in durable and simpler packaging. Supply could also be controlled by plants that produce items based on individual needs instead of just filling trucks with inventory.  

Experts have pointed out that online grocery sales have mostly floundered in recent years, but such a drastic move could represent a big change in the way that manufacturers sell their products and consumers shop for their essentials.

“Most of these people haven’t been interested in e-commerce because e-commerce has been such a small piece of their overall sales,” says Melissa Burdick, vice president of e-commerce at The Mars Agency marketing firm. “But we’ve reached a tipping point. We’re at a time when companies are ready to start figuring this stuff out.”

Fear of missing out

So, how likely is it that packaged goods companies will be onboard with the idea? While it might be understandable to think that companies might want to retain the status quo, many might be loath to dismiss Amazon and then miss out on any future success.

"There was a big perceived penalty for missing the boat, fear of missing out on growth," says Jim Hertel, senior vice president at the marketing firm Inmar Inc. "Fear, more than anything else, may compel these companies to pay attention," adds analyst Ken Cassar.

Of course, brick-and-mortar retailers aren’t likely to go down without a fight. Many chains have already elected to provide online shopping options to blunt the impact of online shopping sites like Amazon, and it’s easy to point out that the proposal hasn’t yet addressed who will ship all of items (though Amazon does have the means of fulfilling those services.)

Regardless of how the plan shakes out, it’s at least worth noting that the idea of innovation in the industry isn’t dormant. What that means for shoppers remains to be seen. 

Volkswagen will pay $157 million to 10 states that sued the company for its secret use of unlawful "defeat device" software to enable their diesel-powered cars to pass emissions inspections.

It's the first time the states have won environmental penalties against an automaker on their own. Previously, such cases were handled soley by the federal government.

“Volkswagen, Audi and Porsche tried to pull off an extraordinarily cynical corporate fraud – deceiving hundreds of thousands of consumers, pumping thousands of tons of harmful pollution into our air, and flouting New York and federal environmental laws designed to protect public health,” said New York Attorney General Eric T. Schneiderman. “This went on for nearly a decade, for no other reason than their bottom line, so the companies could avoid the expense of engineering cars that would actually meet our environmental standards."

"Adding insult to injury, they marketed these dirty vehicles as environmentally-friendly and technologically-advanced – not only deceiving consumers and harming our environment, but also undercutting the sales of their law-abiding competitors,” Schneiderman said.

States follow California

The lawsuits that led to the settlement were filed last summer by New York and Massachusetts. All of the states joining in the action have adopted California's stringent vehicle emission standards. The other states are Connecticut, Delaware, Maine, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington.

Schneiderman said that setting the precedent of states enforcing emission laws is important because of President Trump's vow to defund federal environmental enforcement, leaving states like New York and California as the first line of defense in environmental matters.

"New York will continue to enforce the tough auto emission and greenhouse gas standards established by California, and intends to oppose any effort by the federal government to roll back EPA emission standards currently in place," a statement from Schneiderman's office said.

Electric cars

As part of today’s settlement, Volkswagen has agreed to substantially increase its commitment to New York’s emerging electric car market. The agreement requires Volkswagen to – by 2020 – at least triple the number of electric car models its Volkswagen, Porsche, and Audi brands offer to New Yorkers from one model to three, including two electric SUVs.   

“Volkswagen was caught – and today’s settlement means we’ve now held them to full account,” Schneiderman continued. “No company – however large or powerful – is above the law in New York.  As we’ve made clear, if the federal government fails to do its job, I will continue to enforce our state’s environmental laws and hold accountable anyone who violates them – to ensure New Yorkers’ public health and environment are protected.”