Top Headlines - Monday April 6

Big Companies Invest to Grab Sales in Recovery; the iPod Lesson



Frugality Forged in Today's Recession Has Potential to Outlast It

With their jobs less secure, their houses worth less and their stock-market portfolios shrunken, Americans are saving more now. But will they still be thrifty when the recession ends? No one will know for sure for years, but there's good reason to believe Americans will be saving more in the next decade than they did in the last one. "It's hard to believe we're ever going back to the easy credit and free spending of the last 10 years," said economist Richard Berner of Morgan Stanley. He predicts consumer spending will grow at an inflation-adjusted 2% to 2.5% annual rate over the next several years, compared with 3.5% in the decade ended in 2007. That means trouble for retailers, restaurants and luxury-goods makers that rely on U.S. consumers. But it could also restore some balance to a world economy that has relied -- too much, many economists say -- on Americans' debt-fueled spending and emerging markets' willingness to save and lend.http://online.wsj.com/article/SB123897160787290857.html


Euro-Zone Consumer Prices Tumble

LONDON -- Industrial producer prices in the euro zone posted their biggest drop in annual terms for almost 10 years in February, official data showed Monday.
Factory gate prices dropped 0.5% on the month, leaving them 1.8% weaker than in February last year, the European Union statistics agency Eurostat said. It was the biggest annual fall since April 1999 and the seventh consecutive monthly decline in prices. February's declines were also sharper than the market consensus estimate of a 0.4% drop from a month earlier and a 1.6% fall on a year-to-year basis from a Dow Jones Newswires survey of economists last week. January's price drops were revised from 0.8% on a month and 0.5% on the year reported in March.http://online.wsj.com/article/SB123901150123392283.html#mod=testMod

R&D Spending Holds Steady in Slump

Major U.S. companies are cutting jobs and wages. But many are still spending on innovation. Wary of emerging from the recession with obsolete products, big U.S. companies spent nearly as much on research and development in the dismal last quarter of 2008 as they did a year earlier, even as their revenue fell 7.7%, according to a Wall Street Journal analysis. The sampling looked at 28 of the largest U.S. R&D spenders, excluding deeply troubled auto makers and the drug industry, where R&D spending is dictated by government requirements.http://online.wsj.com/article/SB123819035034460761.html#mod=testMod

Internet Providers Gird for Fight With FCC

Cable and telephone companies are gearing up for a fight as regulators begin work Wednesday on a national broadband strategy that could bring major changes to how Internet services are delivered to American homes. The $787 billion government stimulus package requires the Federal Communications Commission to provide a road map for how potentially billions of future taxpayer dollars should be spent to build or upgrade Internet lines across the U.S. The plan will raise thorny issues about what sort of requirements, if any, should be imposed on Internet-service providers to share the networks they have built with government help. Phone and cable companies argue that such requirements would likely stifle investment and be counterproductive.http://online.wsj.com/article/SB123897361669991013.html


City Tries to Hang On Amid Auto Collapse

STERLING HEIGHTS, Mich. -- This factory town has held its own through decades of auto-industry retrenchment and downsizing, staving off the blight that has spread to so many nearby cities. When an auto-supply plant here closed two years ago, city leaders found a defense company to fill the property. And the city's finances remained strong enough that Sterling Heights hasn't had to cut into core services such as the police and fire departments.http://online.wsj.com/article/SB123878894916987561.html?mod=article-outset-box


IBM Talks Teeter as Sun Board Splits

Talks between International Business Machines Corp. and Sun Microsystems Inc. were on the verge of unraveling Sunday, threatening a potential $7 billion acquisition that would place one of Silicon Valley's iconic companies under the Big Blue umbrella.Sun's board is split over whether to do the deal, with a faction led by Sun's chairman and co-founder, Scott McNealy, opposing the transaction and a group led by Chief Executive Jonathan Schwartz in favor, said two people familiar with the talks. While the price of IBM's offer remained unclear -- some placed it at $9.10 a share, others at $9.40 -- some people familiar with the talks say price wasn't the biggest issue.http://online.wsj.com/article/SB123896664697090681.html#mod=testMod

Bankruptcy Funding Solicited for Car Makers

The Wall Street Journal - Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.

While acknowledging the grimness of the task, administration officials involved in the auto talks said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings. They stressed the latest efforts were "due diligence" on the part of the government advisers, and that bankruptcy financing may not be necessary.

Still, people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered.

"Everything is on the table right now," one person involved in the matter said, adding that President Barack Obama doesn't want to see more massive job losses in the auto industry. His administration also doesn't want to anger the United Auto Workers by appearing to push for bankruptcy, this person added.

The initial discussions call for private banks to provide the financing -- known as a debtor-in-possession, or DIP, loan -- with the government guaranteeing or backstopping the loan. In this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM and Chrysler late last year.

Treasury advisers are handling the effort and keeping GM and Chrysler informed of the steps through back-door channels, said the people familiar with the matter. The interplay between the government, auto makers and the markets is proving to be complicated.http://online.wsj.com/article/SB123535613910745405.html

Automakers Seek $14 Billion More in Aid

G.M.'s headquarters in downtown Detroit.
The New York Times - DETROIT — The price tag for bailing out General Motors and Chrysler jumped by another $14 billion Tuesday, to $39 billion, with the two automakers saying they would need the additional aid from the federal government to remain solvent.

In return, the two companies also promised to make further drastic cuts to all parts of their operations, in the hope that they can eventually strike a balance between their bloated cost structures and a dismal market for new car sales.

G.M., for example, said it would cut 47,000 more of its 244,000 workers worldwide; close five more plants in North America, leaving it with 33; and cut its lineup of brands in half, to just four: Chevrolet, Cadillac, GMC and Buick.

The Pontiac brand will have a much smaller role, if any, in G.M.’s future, and the company also said it would phase out its Saturn brand, which it once hoped would build small cars to counter the best of the Japanese brands.

G.M. also said it had made progress in discussions with the United Automobile Workers union and its bondholders to reduce its costs further.

The cash crisis will require fast action by the administration’s new cabinet-level Presidential Task Force on Autos, which is overseeing the reorganization of G.M. and Chrysler.

The deteriorating finances of the two companies present the Obama administration with two options, neither of them appealing.

It can provide the money in the hopes that the companies will stabilize, and no longer have to keep pushing workers into a growing pool of people without jobs. But there are no guarantees, as the Treasury Department learned on Tuesday when the automakers filed updates on their restructuring plans, that they might not be forced to come back again with requests for more money.

But if the federal government balks at the automakers’ requests, that would mean the two companies probably would have no choice but to file for bankruptcy protection, because they are losing hundreds of millions of dollars each month.

And the car companies said on Tuesday that the cost of a bankruptcy reorganization, with the government providing financing to help it through that process, would be far greater than their latest loan requests. Without such help, the companies would have to liquidate, creating staggering new job losses.

In a statement, the administration said Tuesday night that its task force would be reviewing the carmakers’ reports in coming days, adding that “more will be required from everyone involved — creditors, suppliers, dealers, labor and auto executives themselves — to ensure the viability of these companies going forward.”

The third Detroit auto company, Ford Motor, has not received federal assistance and has no requests pending.http://www.nytimes.com/2009/02/18/business/18auto.html

Auto Maker Bankruptcy Looms

The Wall Street Journal - Troubled U.S. auto makers and union representatives dug in late Monday for all-night cost-cutting negotiations as the government advanced its point person on auto restructuring, a former investment banker with a record for demanding harsh concessions from manufacturers, unions and investors alike.

General Motors Corp. and Chrysler LLC are required to submit recovery plans to the government on Tuesday as part of their agreement to receive billions of dollars in federal loans. As the government's auto-industry task force began to take shape ahead of the deadline, President Barack Obama's administration appeared to be turning up the pressure on GM and Chrysler to carry out tough restructuring measures, possibly through the use of the bankruptcy court.http://online.wsj.com/article/SB123483084725295657.html?mod=testMod

GM Offers U.S. Two Choices: More Aid or Bankruptcy

The Wall Street Journal - General Motors Corp., nearing a federally imposed deadline to present a restructuring plan, will offer the government two costly alternatives: commit billions more in bailout money to fund the company's operations, or provide financial backing as part of a bankruptcy filing, said people familiar with GM's thinking.

The competing choices, which highlight GM's rapidly deteriorating operations, present a dilemma for Congress and the Obama administration. If they refuse to provide additional aid to GM on top of the $13.4 billion already committed they risk seeing an industrial icon fall into bankruptcy.

Some experts and members of Congress say bankruptcy reorganization is the surest way for GM to cut costs and become viable. But it could be a politically unpalatable development during a recession that already has thrown millions of workers out of jobs.
http://online.wsj.com/article/SB123458663412987489.html?mod=testMod

Outlook Grim for Automakers

Stocks Hit New Low on Collapse of Automaker Deal

No deal for the carmakers and other bad news sent the markets tumbling Thursday. The S&P 500 hit an 11 1/2 year low. Stacey Delo reports.http://online.wsj.com/video/team-obama/E0D26316-9891-4D90-931B-8255B0853239.html

What A GM Bankruptcy Would Mean

What bankruptcy would mean to GM


GM Bankruptcy?

GM, Teetering on Bankruptcy, Pleads for Federal Bailout

Rick Wagoner, G.M.’s chief, said his company needed help immediately.

Editor's Note: Hard to believe that things are this bad. But if GM does file for bankruptcy, this will send a shock wave through the economy nationally.

The New York Times - DETROIT — Just two months after celebrating its 100th birthday, General Motors is facing the grim prognosis that it may not survive to see another year unless it is rescued by a bailout from the federal government.

Shares in G.M. sank to their lowest point in 65 years, to $2.92, on Tuesday, the day after the company revealed in a federal filing that its “ability to continue as a going concern” is in substantial doubt because it may run out of money by the end of the year.

Its cash cushion has been shrinking by more than $2 billion a month this fall. If that continues, G.M.’s reserves will fall below the minimum of $10 billion in cash it needs to run its global operations by January, the company said in its third-quarter S.E.C. filing.

In that event, G.M. said it might be unable to pay its suppliers, meet its loan covenants or cover health care obligations in its labor contracts. The extent of G.M.’s financial crisis, revealed in greater detail in its filing than it acknowledged before, is proving to be far worse than investors and analysts expected just last week.http://www.nytimes.com/2008/11/12/business/12auto.html?partner=permalink&exprod=permalink