But America’s Big Three automakers, which are teetering at a financial abyss, shouldn’t expect much sympathy here.
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With the Big Three US automakers teetering on the edge of insolvency, it appears Washington may finally be ready to come to Detroit’s rescue.
Only hours after both General Motors and Ford Motor Co. announced large third-quarter losses — and stressed that they are both rapidly running out of cash — President-elect Barack Obama focused on the industry’s plight during his first news conference since Tuesday’s election.
Above: 1910 Ford Model T
“I have made it a high priority for the transition team to work on additional policy options to help the auto industry adjust,” Obama told reporters gathered in Chicago.
Just how bad a situation the automakers are facing was hammered home on Friday, when GM reported a 2.5 billion dollar net loss for the third quarter, bringing to nearly 57 billion dollars its losses since the beginning of 2005.
Ford’s 129 million dollar quarterly loss, meanwhile, brought to nearly 24.5 billion dollars the deficit it has run up since plunging into the red in 2006.
Yet the losses only partially state the true depth of the problem for the automakers.
Going into the third quarter, GM had 21 billion dollars on its books. By the end of September, that had plunged to 16.2 billion dollars, coming perilously close to the 11 billion to 14 billion dollars it says it needs on hand to keep the company operating.
Though it doesn’t report its full financial data, the privately-held Chrysler LLC is also thought to be fast running out of cash: one reason, analysts believe, why its parent, Cerberus Capital Management, was so eager to sell Chrysler to GM.
That deal, however, was scuttled by GM, and observers believe Cerberus may now rush to find another buyer as the economy continues to worsen.
“I doubt there’s anyone who challenges the fact that we’re operating in difficult times, perhaps as difficult as we’ve ever faced in the auto industry,” GM Chairman and CEO Rick Wagoner said during a Friday conference call with reporters and industry analysts.
Detroit’s situation has certainly worsened in the face of the current economic crisis that combines what many describe as a “perfect storm” of factors, such as high fuel costs, tight credit, job losses and rising commodity prices.
But the seeds of the current crisis date back to the last big oil shock, of 1979, which helped the Japanese gain a foothold for small, fuel-efficient products.
As gas lines faded from memory, the Asian automakers continued to gain ground by focusing on quality, something GM, Ford and Chrysler have only recently come to grips with — and with varying degrees of success.
Further compounding the situation, Detroit has been consciously slow to embrace changes in the American automotive marketplace, especially the shift from big trucks to small, fuel-efficient passenger cars.
And even where it has, lamented Consumer Reports’ auto analyst David Champion, it has needed “more models that were exciting for people to buy.”
Again, Detroit has begun to address that complaint, and a flood of more fuel-efficient — and exciting — models are on tap to debut over the next several years. The challenge now will be to keep that flow going.
GM President Fritz Henderson said Friday the automaker will have to cut back on some product programs in order to ensure liquidity.
The nation’s jobless ranks zoomed past 10 million last month, the most in a quarter-century, as piles of pink slips shut factory gates and office doors to 240,000 more Americans with the holidays nearing. Politicians and economists agreed on a painful bottom line: It’s only going to get worse.
Thesoared to a 14-year high of 6.5 percent, the government said Friday, up from 6.1 percent just a month earlier. And there was more grim news from U.S. automakers: Ford Motor Co. and General Motors Corp., American giants struggling to survive, each reported big losses and figured to be announcing even more job cuts before long.
Regulators, meanwhile, shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.
By JEANNINE AVERSA, AP Economics Writer
The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.
Barack Obama, in his first news conference as president-elect, said the nation was facing the economic challenge of a lifetime but expressed confidence he could deal with it.
“Immediately after I become president, I’m going to confront this economic crisis head on by taking all necessary steps to ease the credit crisis, help hardworking families, and restore growth and prosperity,” he said after meeting with economic advisers in Chicago. “I’m confident a new president can have an enormous impact.”
Wall Street revived somewhat after two days of big losses. The Dow Jones industrials rose 248 points.
Still, the Labor Department’s unemployment report provided stark evidence that the economy’s health was deteriorating at an alarmingly rapid pace. Thewas 4.8 percent just one year ago.
General Motors Corp. said Friday it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009 if the U.S. economic slump continues and it doesn’t get government aid.
By TOM KRISHER and JEFF KAROUB, AP Business Writers
From The Associated Press
GM also said it has suspended talks to acquire Chrysler. While it didn’t specifically name the automaker, GM said it was setting aside considerations for a “strategic acquisition.”
“While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside,” the company’s said in a statement.
The automaker said its cash burn for the quarter accelerated to $6.9 billion, and government aid will be “essential” because of the slow economy and credit crisis.
Above: The GM logo hangs over an unsold 2009 Acadia sports-utility vehicle on the lot at a GMC Truck dealership in the south Denver suburb of Littleton, Colo., on Sunday, Oct. 12, 2008. General Motors Corp. on Friday, Nov. 7, 2008 said it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009. GM also said it has suspended talks to acquire Chrysler, and said its cash burn for the quarter accelerated to $6.9 billion due to a severe U.S. auto sales slump.(AP Photo/David Zalubowski)
Each new forecast of China’s economic fortunes predicts slower growth than the forecast that preceded it.
By David Barboza
The New York Times
Just as China attained supercharged growth that astounded much of the world, it appears to be slowing more sharply and more quickly than anyone anticipated.
“It’s tough to be optimistic,” said Stephen Green, an economist at Standard Chartered Bank in Shanghai. “The three engines of growth — exports, investment and consumption — have all slowed down.”
The signs are so troubling that last week Prime Minister Wen Jiabao warned that this year would be “the worst in recent years for our economic development.”
A series of government reports released over the last few weeks indicated that China’s export juggernaut was moderating. Real estate construction projects are being suspended. Consumer confidence is in decline. And many factories in southern China are closing, putting tens of thousands of migrant laborers out of work.
Some Chinese companies have even reported that Christmas orders — which were supposed to be placed in late summer or early fall — were down 20 percent this year, as big retailers and toy marketers grew gloomy about the holiday season.
Until recently, many economists had insisted that China was insulated from the global financial crisis rippling through the United States and Europe, and that the Chinese Communist Party had the tools to keep the economy chugging along. But newly released data suggests that nearly every sector of the economy is slowing and credit is tightening in a nation that has grown accustomed to sizzling hot growth.
While few economists expect China to fall into recession, analysts are forecasting the worst growth in more than a decade, with the economy expected to expand by as little as 5.8 percent in the fourth quarter this year, down from about 11 percent in 2007.
Euphoria of Obama’s Election Victory Fades Fast: Markets Down 10%; Toyota Says Auto Crisis “Unprecedented”November 6, 2008
Toyota Motor slashed its profit forecast Thursday, warning the global auto industry faces an “unprecedented” crisis as Asian stocks tumbled on fears the US is sinking deeper towards recession.
The Japanese giant became the latest automaker to reveal plunging profits due to the financial crisis, following on the heels of BMW, Nissan and Honda.
Toyota , vying with General Motors for the title of the world’s top automaker, cut its annual profit forecast by more than half after a terrible year so far.
It now expects a 68 percent plunge in net profit to 550 billion yen (5.6 billion dollars) — the first drop in nine years.
“The financial crisis is negatively impacting the real economy worldwide, and the automotive markets, especially in developed countries, are contracting rapidly,” Toyota executive vice president Mitsuo Kinoshita said.
“This is an unprecedented situation.”
Elsewhere in the transport sector, European aircraft manufacturer Airbus warned it expects a sharp reduction in new orders in 2009 as the global economy slows.
Amid the gloomy news, Asian stock markets fell heavily. Japan’s Nikkei stock index plunged 6.53 percent even before the Toyota warning, which came after the close of trade.
The drop wiped out gains seen a day earlier on hopes that US president-elect Barack Obama will get to work on fixing the world’s largest economy in the face of the worst financial crisis in decades.
“Now that the event is over, investors are sobering up and looking at the economic gloom,” said Mizuho Investors Securities broker Masatoshi Sato.
Seoul ended with a loss of 7.6 percent while Sydney shed 4.3 percent. Hong Kong shares were down 6.4 percent at midday.
The sharp falls came after the Dow Jones index slid 5.05 percent on Wall Street on Wednesday as investors braced for a gloomy economic ride after the euphoria of Obama’s election victory faded.
China‘s unprecedented display of military hardware at the country’s primary airshow was a warning to industry rivals of its global ambitions as a defence manufacturer, analysts said.
By Guy Newey, AFP
A visitor passes advertising for a Chinese-made attack aircraft at the China Airshow 2008 in the southern Chinese city of Zhuhai on November 5. The country’s unprecedented display of military hardware at its key airshow has served as a warning to industry rivals of its global ambitions as a defence manufacturer, analysts have said.(AFP/File/Mike Clarke)
As a pair of its fourth-generation J-10 fighter planes made a first public appearance, buzzing past eager crowds at Airshow China 2008, the trade stands hummed with talk of the new missile systems and other equipment on display.
Some analysts believe China’s ability to copy overseas technology, witnessed in countless industries over the past 20 years, could soon be powering its defence complex.
“Ten years ago they did not have any modern aircraft industry at all, now they have started to produce copies of our plane,” said one Russian defence official, who would only speak on condition of anonymity.
“They will do exactly the same they have done with textiles and toys — learn how to make it, make it cheaper and then undercut the market.”
He said China was possibly 10 years away from developing its own military aircraft engine — it currently uses engines made by Russian defence giant Sukhoi — but once it had, it would stop purchasing overseas technology.
“They will stop buying anything from abroad and push cheap Chinese fighters to the third world countries,” the official added.
While the European Union and the United States continue to have sanctions on the export of military equipment to many of the world’s countries — including China — Chinese manufacturers face few such restrictions.
State-owned China Aviation Industry Corp. is preparing to acquire a foreign general aircraft manufacturer, with the deal expected by the end of the year, reports said Tuesday.
AVIC also is planning to list shares in the “near future,” the state-run newspaper China Daily and other reports cited the company’s president, Tan Weidong, as saying.
Tan, who spoke on the sidelines of China‘s International Aviation & Aeospace Forum in the southern city of Zhuhai, did not identify the target of AVIC’s acquisition plan, but the company has been mulling an overseas acquisition for years.
Five Kiran MK 2 from Indian Air Force Suryakiran Aerobatic Team (SKAT) aircrafts fly over two J-10 aircrafts from the Chinese People’s Liberation Army air force a day before the opening of the 7th China International Aviation and Aerospace Exhibition in Zhuhai, southern China’s Guangdong province, Monday, Nov. 3, 2008.(AP Photo/EyePress)
Last year, the company reportedly approached Dutch industrial engineering company Stork NV, whose aerospace unit was acquired in 1996 from longtime aircraft manufacturer Fokker, about buying its aerospace division.
In the end, U.K.-based private equity group Candover Investments PLC acquired Stork.
Staff at AVIC’s headquarters in Beijing said officials authorized to speak to media about the report were not immediately available for comment.
AVIC plans to develop 10-, 20- and 30-seat business jets and hydroplanes, as well as large passenger jets, Tan told reporters in Zhuhai. Zhuhai, site of the country’s annual international air show, would become AVIC’s base for research and development, final assembly and test flights, according to the report.
China recently merged its two major aircraft makers, AVIC I and AVIC II, to help consolidate aviation manufacturing. China Aviation Industry Corp. is parent to six new companies set up to manage the various businesses run by AVIC I and AVIC II, which include airplane engines, helicopters, transporters, general aviation, airborne systems and aviation trade, the report said.
AVIC I and AVIC II, both originally units of China’s military aviation manufacturer, had been split into separate companies in 1999.
Meanwhile, reports cited Miao Wei, vice minister of industry and information technology, as saying that China’s first domestically produced large jet will hit the market between 2015 and 2020.
“We will finish the concept design and research on key technologies before 2010 and have the first plane roll off the production line before 2014,” state-run media quoted Miao as saying.
Miao said the aircraft would have at least 150 seats.
US manufacturing activity fell in October to its lowest level for 26 years, according to a new report from the Institute for Supply Management.
The report cited “significant demand destruction”, for the third consecutive month in which the sector contracted.
The figures were far worse than the market had expected and pushed the Dow Jones index briefly into negative territory in early morning trading.
However, US construction spending in September fell far less than expected.
The institute’s index of national factory activity fell to 38.9 from 43.5 in September. Any score of less than 50 represents a contraction in manufacturing.
October’s score is the lowest-recorded since September 1982.
Every sector surveyed, apart from clothing and electronic products, reported a contraction for the month.
New orders, production, employment and supplier deliveries all fell, with only inventories of unsold goods increasing on September’s score.
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India’s exports grew at the slowest pace in 18 months in September as a weakening global economy damped demand for the nation’s products.
By Kartik Goyal
Overseas shipments, which account for about 15 percent of the economy, rose 10.4 percent to $13.7 billion from a year earlier, after gaining 27 percent in August, the government said in New Delhi today. Imports increased 43.3 percent to $24.4 billion, widening the trade deficit to $10.6 billion.
“The global financial and economic headwinds adversely affected foreign demand for Indian manufactured goods,” said Gaurav Kapur, an economist at ABN Amro Bank in Mumbai. “The growth of total incoming new work to the Indian manufacturing economy lost considerable momentum.”
Flagging exports and waning domestic demand are forcing companies in India to cut production, weakening growth in an economy expected by the central bank to expand at the slowest pace in four years. Sales overseas are slowing as the global credit crunch crimps spending by customers in Europe and the U.S., Asia’s biggest overseas markets.
“The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged,” Prime Minister Manmohan Singh told a meeting of businessmen in New Delhi today. “A crisis of this magnitude was bound to affect our economy and it has.”
To spur local demand and shield India’s $1.2 trillion economy from the global slowdown, the central bank on Nov. 1 unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve.
The Reserve Bank of India lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.
“We recognize that the situation is abnormal and we need to be constantly on the alert,” Singh said. “The situation is being watched on a day-to-day basis and more steps will be taken if required.”