Big Three failure may be catastrophe ?? or Worse ??

Big Three failure may be catastrophe
Blow to economy could be costlier than bailout, automaker CEOs say
By S. CARTY and B HAGENBAUGH USA Today

When the heads of General Motors, Chrysler and Ford went to Capitol Hill last week, they tried to persuade lawmakers that if they go under, an already fragile U.S. economy will be dealt a blow far costlier than the $25 billion in aid the companies are seeking.


As lawmakers wrestled, then decided to head home and not quickly approve a bailout, foremost in their thinking was a question the Big Three CEOs apparently failed to answer: If we let these guys fail, how bad will it really be for the economy?

Critics say Detroit created its own problems with poor planning and inferior products, and cite a healthier foreign auto industry operating mostly in southern states that isn't seeking a taxpayer bailout. But even Toyota said over the weekend it fears the impact on the parts suppliers it uses if the U.S. auto industry collapses.

Moody's Economy.com chief economist Mark Zandi estimates that 2.6 million jobs -- about 1.9 percent of the U.S. work force -- would be lost if GM, Chrysler and Ford were to go under.

That includes more than 255,000 people directly tied to the three companies and another 2.3 million whose jobs are indirectly dependent -- everything from people who work in the steel, glass, fabric, tire and electronic industries to the barista who makes $4 cappuccinos for the ad executive who'll be out of work when his auto industry business ceases to exist.

Zandi argues the economy is too weak to absorb that fallout.

"This could be the thing to push us over," he says. "The ripple effect is like throwing a big boulder into the economic pond."

The auto industry is woven into the grass roots of the U.S. economy, through its dealer networks, the advertising it buys in newspapers and local TV and radio stations, the health care it buys for its workers and their families and the retirees it supports.

The domestic auto industry supports nearly 800,000 retirees and spouses with pensions and, until recently, health care for everyone. Now that's being cut back for white-collar retirees, but if the automakers file for bankruptcy, they could shed their pension costs and force the government to pick up the tab.

Advocates of a bailout argue that if one of the Big Three fails, it could take down the entire supply chain that cuts a wide swath from Wisconsin to Ontario, Canada, and south from Florida to Texas. As Toyota officials pointed out, the effect would be on all companies making vehicles in the USA.

The impact of the industry woes already is being felt beyond Detroit. Saturday, a Chrysler-Dodge dealer in North Brattleboro, Vt., closed after 20 years, citing slumping sales. It became one of the projected 700 dealers nationwide expected to have closed by the end of this year.

Advertising agencies and media from New York to local TV stations in New Mexico are seeing revenue dry up because the automakers and their dealers are spending less money hawking cars. Suppliers in North Carolina, host to roughly one-quarter of the parts-manufacturing base for the auto industry, are declaring bankruptcy at an alarming rate.

'Very difficult judgments'
The ripple effect of an industry collapse could further trim consumer confidence and unemployment, said Lyle Gramley, a former Federal Reserve Board governor who is senior economic adviser at the Stanford Group.

"As a general principle, I don't think that bailing out individual companies is a good idea," said Gramley. However, "You have to contemplate the possibility of 1 million employees losing their jobs and the entire industry at risk" if an automaker were to fail.

Comerica Bank chief economist Dana Johnson said there are some "very difficult judgments" for lawmakers to make about the potential impact an auto industry failure would have on the economy. If one or more of the companies were to go under, the U.S. government would be on the hook for unemployment benefits, retraining and pension obligations while receiving less in taxes, he said.

"There are roughly two parts producers for every employee at the car companies, and there are a lot of vendors -- steel producers, paint producers, glass producers, business services, accounting, advertising," he said. "There's no question that it is an important industry, that there are linkages to employment elsewhere."

Zandi and other economists argue there is a better way to aid the auto sector than to provide bailout loans.

There is growing support for allowing the companies go into bankruptcy, using government funds to guarantee financing from banks. That would allow the automakers to restructure, including tearing up old labor contracts and reducing their sizes. Government support could give consumers confidence that the car companies would exist after bankruptcy, soothing worries about car warranties and availability of replacement parts.

"Like the airlines, I think they should go into Chapter 11 bankruptcy and start with a clean slate," said Michael Cusumano, a professor at MIT's Sloan School of Management who has written two books on the auto industry. He said reorganization should include replacing management.

But then, there are two auto industries in the U.S. The first, based in and around Detroit, is GM, Ford and Chrysler. The second is sprinkled around the Southeast and includes foreign automakers Toyota, Honda, Subaru, Nissan, BMW and Mercedes-Benz.

Parts suppliers are spread out between them "like pearls on a necklace" along the highways connecting the South and the Midwest, said Thomas Klier, senior economist with the Federal Reserve Bank of Chicago.

Suppliers in the past tended to focus on one customer, but now almost all have overlapping customer bases. That's why Toyota is worried about the Big Three. About 75 percent of Toyota's suppliers here are North American companies who also make parts for the Detroit companies.

"We are concerned with the industry in general, but we're mostly concerned about our suppliers," Toyota spokesman Mike Goss said. "If the worst happens in Detroit and these companies suffer, we're worried about their longevity as well."

Russian Credit Collapse getting worse ??

Putin Promises Russians to Prevent Another Financial Collapse

By H Meyer L Pronina

(Bloomberg) -- Russian Prime Minister Vladimir Putin vowed tax cuts, defense of the ruble and ``everything'' needed to prevent the kind of financial crises that shook the country after the collapse of the Soviet Union.

Among the measures unveiled by Putin today to counter the effects of the global economic crunch are corporate tax cuts, higher welfare payments and increased government spending.

``We'll do everything we can to prevent a repeat in our country of the problems of past years, the collapse of past years,'' Putin told the annual congress in Moscow of the ruling United Russia party which he heads, broadcast live on state television. ``We have amassed sizable financial reserves which will give us the freedom to maneuver, allow us to maintain macroeconomic stability.''

Putin, 56, is bolstering his public role in response to a global slowdown that has punctured Russia's 10-year oil-fueled boom, sparking growing speculation that he may seek to return to the Kremlin as president next year.

Putin remains at the center of power after handing the presidency in May to his chosen successor, 43-year-old Dmitry Medvedev. He may persuade Medvedev to step down, triggering snap elections that would enable Putin to reclaim the No. 1 post for up to 12 years under a new six-year presidential term, analysts say.

``Medvedev can announce that he isn't coping and it's better if an experienced political leader takes the reins again,'' said Leonid Sedov, a political analyst at the Levada Center research group in Moscow.

Oil, Gas Exports

As the U.S., Europe and Japan slip into recession, the price of oil has fallen to almost $50 a barrel in New York from a July high of almost $150, hurting Russia, the world's largest energy exporter which relies on oil and gas for two-thirds of its export earnings.

Russia's economic growth will slow to 3 percent next year after average expansion of 7 percent a year since 1999, the year after the 1998 financial default, the World Bank estimates. The economy grew 8.1 percent in 2007.

Russia in August 1998 defaulted on $40 billion of debt and devalued the ruble, wiping out the life savings of millions of people overnight and pushing the government to the edge of bankruptcy.

Russia ``won't allow a spike in inflation or sharp changes in the ruble's exchange rate,'' Putin said. Bank deposits are safe in Russia since 98.5 percent of all retail deposits are fully covered by a state guarantee, he said.

Tax Cuts

Putin announced that the government will cut the corporate profit tax rate by 4 percentage points in January, reduce taxes for small businesses and speed refunds of value-added tax. Unemployment benefits will rise next year to 4,900 rubles ($177.79) a month as ``structural'' labor market changes loom, he said.

Plans to inject funds into the health and education sectors and social spending under a long-term strategy until 2020 will not be abandoned, Putin promised.

With Urals crude already $20 below the $70 average required to balance Russia's budget next year, the government is depleting its reserves, the world's third-largest.

Already Russia has spent 24 percent or $144.6 billion of its central bank stockpile since early August, mostly on a failed attempt to defend the ruble, which has lost more than 17 percent of its value against the dollar during that period.

The tax cuts announced today amount to 550 billion rubles, including 400 billion rubles in profit tax relief, Finance Minister Alexei Kudrin said. Putin also pledged 50 billion rubles for the defense industry and 83 billion rubles for new housing.

Boosting Liquidity

The government has already pledged more than $200 billion in loans, tax cuts, delayed tax payments and other measures to boost liquidity in the financial system during the credit crunch.

Putin accused certain politicians of complacency inherited from the years of high prices, which he criticized as ``absolutely unacceptable'' in today's crisis. He didn't name any of the politicians he attacked.

``This will inevitably lead to mistakes that will cost us the trust of the Russian people,'' he said in his speech. ``In difficult circumstances, the real capabilities of public institutions become clear.''

Putin next month will once again take center stage by holding a live call-in show on national television.

Putin Call-in Show

Putin has held a nationwide call-in show every year since 2001, broadcast live and lasting several hours, with questions on a wide range of issues submitted by TV link-up, phone and Internet. The event dominated TV news coverage on the days it aired.

Russia's lower house of parliament on Nov. 14 and Nov. 19 approved in two of the three required readings a constitutional amendment that would extend the president's term to six years from four.

The measure is expected to secure final legislative approval by mid-December. It would allow Putin, who stepped down as president in May after serving two consecutive terms, the constitutional limit, to serve at least another 12 years should he again become president.

World Leaders Gather for the world Summit ( Will They Save The World ? )

By S. STOLBERG

WASHINGTON — When President Bush welcomed leaders from around the world to the White House on Friday night, for what may well be one of the last formal dinners of his administration, the topic was the fragile world economy and the lush menu, belying the financial crisis, featured thyme-roasted rack of lamb. But the real story was in the seating chart.


Economix: Primer on the Economic SummitThere, in the State Dining Room beneath a massive portrait of Abraham Lincoln, to Mr. Bush’s right was President Luiz Inácio Lula da Silva of Brazil, who has complained loudly that developing nations like his were being “infected with problems” not of their making. To Mr. Bush’s left sat a leader with a fat checkbook and the power that comes with it, President Hu Jintao of China.

It was a startling illustration of the way the financial crisis, which originated on Wall Street and has spread around the globe, has remade the international economic world order. By insisting that developing nations be included in the summit meeting, President Bush gave fresh clout to their leaders, each of whom arrived in Washington with his or her own agenda.

But it will be up to a new United States president, Barack Obama, to figure out how to juggle those competing interests — and quickly. The declaration adopted by the leaders on Saturday calls for a second summit just 101 days after Mr. Obama is sworn in. All around Washington this weekend, as black motorcades sped about town and fancy hotels were marked off with the tell-tale police barricades, a sure sign a world leader was in residence, was evidence of Mr. Obama’s challenge.

At the elegant Willard InterContinental Hotel, one of the city’s finest, President Nicolas Sarkozy of France held court after the conference was over. Hours earlier, Mr. Sarkozy was looking chummy with Mr. Bush, giving the president an Obama-style fist bump as the leaders lined up for their official summit “family photo.”

It was Mr. Sarkozy who had pressed a reluctant President Bush into having the summit in the first place, and at the Willard, he was not shy about claiming credit for it — or proclaiming that the era of American hegemony in world finance was over.

“America is the No. 1 power in the world,” he declared. “Is it the only power? No, it isn’t. We are in a new world.”

Over at the Washington Club, an exclusive private club on Dupont Circle, the president of Russia, Dmitri A. Medvedev, addressed an overflow crowd at the Council on Foreign Relations. Mr. Medvedev has been especially combative toward the United States over the economy.

But on Saturday, his talk had little to do with the economy; he spoke at length about the fragile state of United States-Russian relations, and expressed hope that the current chill would thaw under Mr. Obama.

Earlier, at the summit meeting at the National Building Museum, there was lively luncheon talk among the leaders about free trade and the international trade negotiations known as the Doha Round, which have been all but given up for dead. President da Silva of Brazil, who had arrived determined to push for a revival of the trade talks, gave an impassioned speech about what the developing world wants the developed world to do, according to one person who attended.

“We are not asking for assistance; we are not asking for you to give us funds,” Mr. da Silva said, according to this person, who spoke anonymously so he could give a free account of the remarks. “What we want you to do is to fix your own economies. The best thing you can do for us is to return to growth.”

Twenty nations were invited to participate in the meeting, and only two were led by women, neither of whom brought a very strong hand. One of them, Chancellor Angela Merkel of Germany, has become a close ally of Mr. Bush’s, but the German economy has just slipped into recession, and its banks are suffering from having purchased a raft of toxic mortgage-related assets from the United States.

The other, President Cristina Fernández de Kirchner of Argentina, is in the economic doghouse with foreign investors, who are pulling their money out of her country after Argentina decided to nationalize $26 billion of private pension funds, raising fears the government was short on cash.

Mrs. Kirchner did little to enhance her reputation for competence when she showed up late for the official photograph on Saturday. She missed the first picture, but the leaders regrouped and took another after she arrived. Mr. Bush, who prides himself on punctuality, just shrugged.

Photographs were the least of his worries; he arrived with an agenda of his own, determined to use the session to lay down a few markers on his way out of office. His first message, aimed at Democrats who are blocking a free trade agreement with Colombia, was that world leaders favor liberal trade rules. Second, he wanted to push back against the notion that free-market capitalism was the root cause of the global meltdown.

On both counts, Mr. Bush seems to have succeeded; the communiqué issued at the meeting’s conclusion said the leaders “underscore the critical importance of rejecting protectionism,” and it was laden with language about the importance of free markets. When the session was over, Mr. Bush emerged to greet reporters and offer a handoff to his successor

Buy tis Car ??

A new carmaker has a plan for cheap, environmentally friendly cars to be built all over the country

An air-powered car? It may be available sooner than you think at a price tag that will hardly be a budget buster. The vehicle may not run like a speed racer on back road highways, but developer Zero Pollution Motors is betting consumers will be willing to fork over $20,000 for a vehicle that can motor around all day on nothing but air and a splash of salad oil, alcohol or possibly a pint of gasoline.


The expertise needed to build a compressed air car, or CAV, is not rocket science, either. Years-old, off-the-shelf technology uses compressed air to drive old-fashioned car engine pistons instead of combusting gas or diesel fuel to create a burst of air to do the same thing. Indian carmaker Tata has no qualms about the technology. It has already bought the rights to make the car for the huge Indian market.

The air car can tool along at a top speed of 35 mph for some 60 miles or so on a tank of compressed air, a sufficient distance for 80% of consumers to commute to work and back and complete daily chores.


Courtesy of MDI

On highways, the CAV can cruise at interstate speeds for nearly 800 miles with a small motor that compresses outside air to keep the tank filled. The motor isn't finicky about fuel. It will burn gasoline or diesel as well as biodiesel, ethanol or vegetable oil.

This car leaves the highest-mpg vehicles you can buy right now in the dust. Even if it used only regular gasoline, the air car would average 106 mpg, more than double today's fuel sipping champ, the Toyota Prius. The air tank also can be refilled when it's not in use by being plugged into a wall socket and recharged with electricity as the motor compresses air.

Automakers aren't quite ready yet to gear up huge assembly line operations churning out air cars or set up glitzy dealer showrooms where you can ooh and aah over the color or style. But the vehicles will be built in factories that will make up to 8,000 vehicles a year, likely starting in 2011, and be sold directly to consumers.

There will be plants in nearly every state, based on the number of drivers in the state. California will have as many as 17 air car manufacturing plants, and there'll be around 12 in Florida, eight in New York, four in Georgia, while two in Connecticut will serve that state and Rhode Island.

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The technology goes back decades, but is coming together courtesy of two converging forces. First, new laws are likely to be enacted in a few years that will limit carbon dioxide emissions and force automakers to develop ultra-high mileage cars and those that emit minuscule amounts of or no gases linked with global warming. Plug-in electric hybrids will slash these emissions, but they'll be pricey at around $40,000 each and require some changes in infrastructure -- such as widespread recharge stations -- to be practical. Fuel cells that burn hydrogen to produce only water vapor still face daunting technical challenges.

Second, the relatively high cost of gas has expedited the air car's development. Yes, pump prices have plunged since July from record levels, but remain way higher than just a few years ago and continue to take a bite out of disposable income. Refiners will face carbon emission restraints, too, and steeply higher costs will be passed along at the pump.

Tata doesn't plan to produce the cars in the U.S. Instead, it plans to charge $15 million for the rights to the technology, a fully built turnkey auto assembly plant, tools, machinery, training and rights to use trademarks.

The CAV has a big hurdle: proving it can pass federal crash tests. Shiva Vencat, president and CEO of Zero Pollution Motors, says he's not worried. "The requirements can be modeled [on a computer] before anything is built and adjusted to ensure that the cars will pass" the crash tests. Vencat also is a vice president of MDI Inc., a French company that developed the air car.

Ford & GM Car Sales Plunge over 30 % , worst since 1982 ??

Ford Motor Co on Monday posted an unadjusted 30.2 percent plunge in U.S. auto sales in October under pressure across all vehicle segments amid the slowing domestic economy and weak consumer confidence.

Ford, which posted an $8.7 billion second-quarter net loss, on Friday is expected to report a third-quarter net loss and to update its plans for maintaining liquidity to cope with the U.S. sales slowdown now seen continuing through next year.

The sales declines landed hardest on the SUV and crossover segments for the Ford, Lincoln and Mercury brands combined.

For October, sales fell to 132,838 vehicles from 190,195 vehicles a year earlier, including all of Ford's brands, the automaker said.

Ford, Lincoln and Mercury brand sales fell 29 percent from a year earlier. In those brands, car sales fell 26.8 percent, crossover sales 38.8 percent, SUV sales 53.9 percent and truck and van sales 19.2 percent.

The automaker has launched a redesigned version of its top-selling F-150 pickup truck, including a new national ad campaign that started on Sunday. It also has accelerated plans to shift some truck production in North America to cars.

The automaker said it had its highest retail market share in two years, supported by its top-selling F-Series pickups, where sales fell 16.3 percent to 43,324 from a year earlier.

Among other key vehicles, Ford reported that sales of its Focus compact car fell 18.2 percent, while sales of the Fusion midsize sedan fell 3.3 percent.

The results were not adjusted for an additional selling day in October 2008 versus a year earlier.