NBR Transcripts- November 18, 2008
Tuesday, November 18, 2008Detroit's Auto Giants Beg For A Bailout
SUSIE GHARIB: A dire warning today from Detroit's big three auto makers. The CEOs of General Motors, Ford and Chrysler told a Senate Banking Committee that their companies will collapse and hundreds of thousands of people will lose their jobs unless the auto makers get an emergency loan. They're asking for $25 billion. But on Capitol Hill, many lawmakers didn't buy into that hard sell. Washington bureau chief Darren Gersh joins me now with the latest. Hi Darren.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi Susie, actually those executives are still testifying and Bob Nardelli, the CEO of Chrysler started off with an urgent request. He's telling Congress he's not sure his company can make it to next year if Congress doesn't offer help this week. The news from Chrysler CEO Bob Nardelli was worse than had been expected. As a private company, Chrysler is not required to report information, so it was a surprise to learn the company is paying out $4 to $5 billion a month for salaries and other operating expenses. On top of that, Nardelli said the company owes parts suppliers $7 to $8 billion-- money it doesn't seem to have.
ROBERT NARDELLI, CEO, CHRYSLER LLC: Therefore, without an immediate bridge financing support, Chrysler's liquidity could fall below the level necessary to sustain operations.
GERSH: GM CEO Rick Wagoner warned if any of the big three fail, it will touch off a domino of bankruptcies across parts suppliers.
RICK WAGONER, CEO, GENERAL MOTORS: This is all about a lot more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse.
GERSH: But critics like Alabama Senator Richard Shelby worried assistance to the auto industry would just perpetuate a market failure.
SEN. RICHARD SHELBY, (R) ALABAMA: A lot of people think you've already failed.
GERSH: Now even industry supporters are worried about that. House Speaker Nancy Pelosi said if the auto makers do get government money, they will have to deliver a plan by March to prove they will be able to stay in business Susie.
GHARIB: Darren, you know there used to be the saying that they say what's good for General Motors is good for the country. Are there enough people who still believe that?
GERSH: Not really, Susie, not any more. I think if the country weren't in a serious economic crisis, a lot of people would say that one of these companies should just be let go. But there's no question that lawmakers are worried about the impact on working families, on the overall economy. So the auto makers are certainly making the case that what is good for them is also good for the country.
GHARIB: Whether GM or any of these auto makers are dead or alive, it's still going to cost us, whether we're talking about lost tax revenues or higher unemployment costs, isn't that right Darren?
GERSH: I wish I had good news but I don't. I mean that's obviously the case. Already we're going to see the sales tax hit from lower auto sales, unemployment, just go on down the list. So there will be a big economic hit and even if these companies get money, they're going to have to bring down their production substantially which means factory closings, things like that.
GHARIB: You're absolutely right. So what happens next?
GERSH: They're going to try tomorrow to have a test vote, but as one senator put it, this is the beginning of a very long loan application process.
GHARIB: It sure is. OK, thanks a lot, Darren, appreciate it, Washington bureau chief Darren Gersh.
The "TARP" Salesmen Get Grilled on the Hill
PAUL KANGAS: Also on Capitol Hill, Treasury Secretary Henry Paulson faced tough questions about how he doled out the first half of the $700 billion financial rescue plan. He scrapped his original plan to buy troubled assets in favor of direct capital injections, with no help for home owners. As Stephanie Dhue reports, Paulson did not find a welcome mat rolled out for him.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Law makers blasted Treasury Secretary Henry Paulson for pulling what they called a bait and switch with the troubled asset repurchase plan or TARP. California's Maxine Waters, who lobbied for the original bailout bill, gave Paulson a piece of her mind.
REP. MAXINE WATERS, (D) CALIFORNIA: I was asked over and over again, will the home owners be helped? What are we going to do about Main Street, not just Wall Street? And we spent and I spent, considerable time selling this program to those who were suspicious and did not want to do it.
HENRY PAULSON, TREASURY SECRETARY: Let me just say specifically to you, Congresswoman, that I have not said no to doing something here in the TARP aimed at foreclosure mitigation.
DHUE: So far Treasury has said no to an FDIC plan to spend $24 billion on a streamlined loan modification program. Committee Chairman Barney Frank says Congress intended the TARP to help home owners.
REP. BARNEY FRANK, CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE: $40 billion for AIG and then we can't find $24 billion on the mortgage foreclosure, is part of the reason we have the real problem with the country.
DHUE: Paulson says industry efforts to streamline loan workouts are already under way and he says the TARP is working.
PAULSON: I think we've turned the corner in terms of stabilizing the system, preventing a collapse. I think there's a lot of work that still needs to be done in terms of recovering the financial system.
DHUE: Many law makers also want to extend a helping hand to the auto industry through the TARP, but Paulson says that's not what it's for.
PAULSON: The purpose is stabilizing and strengthening our financial system. And I've said to you very clearly that I believe that the auto companies fall outside of that purpose.
DHUE: The Obama administration will soon put its stamp on the TARP, likely determining how to allocate the next $350 billion. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Earvin "Magic" Johnson
SUSIE GHARIB: Legendary basketball star Earvin "Magic" Johnson is captain of a new team, a $700 million business empire. For more than 20 years, he has partnered with major corporations to open upscale franchises in urban and diverse communities. The former LA Lakers star owns more than a hundred Starbucks coffee shops, AMC movie theatres, TGI Fridays and 24-hour fitness centers. Now he's telling the secret of his success in a new book called "32 Ways to Be a Champion in Business." Earlier today I met with Johnson at a Best Buy store, where he has a marketing relationship and asked him what's the key to being a champ in business.
EARVIN "MAGIC" JOHNSON, CHAIRMAN & CEO, MAGIC JOHNSON ENTERPRISES: Your customer service. That's the one thing. Because you can have the best business in the world, but if you don't have great customer service, it's going to fail.
GHARIB: Magic, when you decided to start your businesses, you were already a celebrity, but in your book you say that it was still very hard to partner up with companies and to get financing. What advice would you give to people starting a business that has less star power than you?
JOHNSON: I would say, understand what you're going after, understand the marketplace so that you can now gauge how you're going to be successful, not just a first year, but in three to five years.
GHARIB: You're very open about the mistakes that you've made in business. What's the most important lesson you've learned?
JOHNSON: One of my first ventures were a sports paraphernalia store. Not only was I the owner, I was going to be the buyer, too, so I flew to Atlanta to the super show and I bought a hundred jackets, a thousand hats, jerseys, different things. I got back, put it in the store and nobody bought anything. Because I bought everything I liked and nothing that the customers liked. So from that lesson, from that day on I said, I'm going to always make my business about the customers and what they like and not necessarily what I like.
GHARIB: You say in your book that you used to dream about being the CEO of General Motors, a company where your father worked for his whole career. If you were the CEO of GM today, what would you do to turn around that company?
JOHNSON: America is about now being smaller now. We used to be bigger cars, bigger trucks, the bigger the better. It's not like that any more. And so we must focus in on smaller, more efficient cars that's going to help people save money and put more money back in their pockets. So if I was GM, that's what I would focus in on, making sure we've got beautiful small cars.
GHARIB: Magic, here we are at Best Buy, which depends a lot on consumer spending. How is the recession and the financial crisis impacting all of your businesses?
JOHNSON: The consumer is spending less. We got less foot traffic going in to our Starbucks and some of our retail outlets. And the consumer now is really focused in on need versus want, do they need it or do they want it. And if they don't need it, they're not spending their disposable income, so it has affected by business somewhat.
GHARIB: With Barack Obama going to the White House, do you think that this is going to make it easier for minorities to start their own businesses?
JOHNSON: I would hope so. But, you know, it's going to be tough still at the same time, but I think that at least some doors were opened. Now from the African American side of the business owner, once we get that access, we have to make sure that we have a successful business, because also it can hurt us, too, if one or two fail, then everybody else gets blamed for that. But if one or two make it, then we all benefit from it.
GHARIB: What do you think is the biggest mistake first time business people make?
JOHNSON: The biggest mistake is always probably overstaffing, too many employees, so too much money going out, not enough coming in.
GHARIB: So what's next for you? What's your next business venture?
JOHNSON: I just really want to grow the businesses that I have. My focus in '09 is (INAUDIBLE) Magic, which is my food company, I want to grow that. Magic Workforce, I want to grow that and put people back to work, my staffing company and put minorities to work. So my whole growth strategy in '09 is to just grow the businesses that we have, not focus in on trying to get new business, but grow the existing business that we have already.
GHARIB: Thank you so much. So much fun talking to you today.
JOHNSON: Thank you for having me, too, it was great.
"The Mississippi"-Old Man River Goes Green
SUSIE GHARIB: For centuries, the Mississippi River has ignited America's imagination. The 2,500-mile-long stretch has been a muse to Mark Twain, a mode of transportation for American business and, during floods, a menace to those nearby. It's the nation's second largest river. It runs through 10 states and affects hundreds of thousands of companies, big and small. Despite competition from rail and trucks, the Mississippi remains a key transportation artery. This year alone, 300 million tons of grain, chemicals and other commodities will move up and down the river. So for the next three nights, we travel the Mississippi with Diane Eastabrook, examining its impact on American business, past, present and future. Diane begins with a look at how some people are turning the mighty river into a green powerhouse.
EASTABROOK: At its headwaters in northern Minnesota, the mighty Mississippi River isn't very mighty. The river is only about six feet wide and three feet deep as it meanders through tall prairie grass. But as the Mississippi rolls down the nation's spine, it becomes the river the Algonquin Indians called "big water." When he wrote "Life on the Mississippi," Mark Twain said the river was good for steam boating and drinking, but worthless for all other purposes except baptizing. But others would disagree. At a factory near Minneapolis, workers are assembling what is likely to be the first hydrokinetic power system in the river. Wayne Krouse, CEO of Houston-based Hydro Green Energy, developed the system. Inside a steel structure, there is a turbine that generates power as water passes through it.
WAYNE KROUSE, CEO, HYDRO GREEN ENERGY: We're going to put that unit in the water directly behind these two concrete walls.
EASTABROOK: Krouse plans to suspend the unit from a barge next to an existing hydroelectric plant in Hastings, Minnesota. The idea is to use the water flowing out of the plant to produce more power.
KROUSE: We're actually generating power, new power from water energy that is being wasted. We are going to tie into the existing infrastructure here and by doing that, it helps us to significantly lower the project cost and make this product, if you will, much more appealing to the hydropower industry.
EASTABROOK: Minnesota is a pioneer in hydropower. All 12 hydroelectric plants on the Mississippi River are in that state. General Electric built the first one in 1894 in Minneapolis to power downtown street lights. A decade later, Northern States Power-- now Excel Energy -- built the Hennepin Island power plant just downstream. And in 1924, Ford built the twin cities power plant to provide electricity for its nearby factory. But by the middle of the 20th century, hydropower lost steam because of increased use of fossil fuels and environmental concerns. Environmentalists feared hydroelectric plants disturbed fish habitat. But in recent years, researchers have worked aggressively to solve that. Fotis Sotiropoulos studies hydropower on the Mississippi at the University of Minnesota's St. Anthony Falls laboratory. He thinks new technologies are improving hydropower's image.
FOTIS SOTIROPOULOS, DIRECTOR, ST. ANTHONY FALLS LABORATORY: There is a lot of research that has been done by both the hydropower industry and the U.S. government through the Department of Energy to actually improve existing traditional hydro turbine design and make them fish friendlier.
EASTABROOK: Now many power companies are looking at the Mississippi as a possible source for hydropower. Seventy preliminary permits are in the works with the Federal government to build hydropower systems throughout the river. Brookfield Renewable Power has some of them. It recently purchased Ford's twin cities plant and is making that power available to the public. It is also looking at other sites for new plants. But Chief Operating Officer Kim Osmars says a lot has to be done first.
KIM OSMARS, COO, BROOKFIELD RENEWABLE POWER: We look at construction costs of doing it. We look at the opportunities to move that electricity to marketplace. We look at the requirements of the Corps of Engineers in terms of their structures and that and we try to fit all of those variables together to make a solution that is environmentally acceptable, it's economic and it's engineering sound.
EASTABROOK: Selling the Mississippi as a power source to communities can also be a challenge. The city of Hastings owns its hydroelectric power plant-- the one Krouse wants to put his hydrokinetic system unit near. Mayor Paul Hicks admits many residents were skeptical that the system could work. But now he says the community is behind the plan.
PAUL HICKS, MAYOR, HASTINGS, MN: To be able to point to something like this and say we're going to try to be a leader in this, is important.
EASTABROOK: Experts think the Mississippi offer tremendous potential for power. That could make both Hastings and Minneapolis shining examples for other communities hoping to plug into the mighty river. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Minneapolis.
KANGAS: Tomorrow, as our series "The Mississippi" continues, a look at the business of barges, a vital part of American commerce.
"Kevin McCormally's Tax Tips"-Mutual Fund Payout Pitfalls
SUSIE GHARIB: The calendar may say November, but we're thinking April, as in the mid-April deadline to file your Federal income taxes. Now is the time to look over your finances and find ways to keep more of your own cash and we're here to help all week with our year-end tax tips. Tonight, our tax expert, Kevin McCormally, editorial director of "Kiplinger's Personal Finance," warns don't get burned by mutual fund payouts.
KEVIN MCCORMALLY, EDITORIAL DIRECTOR, KIPLINGER'S PERSONAL FINANCE: Investors who own mutual funds in taxable accounts need to do a little investigating and some soul searching over the next couple of weeks. Go online or call your fund to get an estimate of the timing and the size of the fund's expected year-end distribution. Each year, funds must distribute to you your share of the capital gains, dividends and interest earned during the year. Before you double over laughing about the prospects of profits in this miserable year, note this little irony: even funds that have lost a bundle can make big taxable payouts. I found one Fidelity fund that is down 45 percent for the year and plans to pay out $2.85 a share. An American fund that lost 43 percent so far in 2008 will be paying out between 7 percent and 9 percent of its shrunken net asset value. How can funds that have been badly beaten up by this market have profits to pay out? Well, for one thing, as shareholders have fled, managers have been forced to sell stocks, sometimes realizing big profits to pay them off. So tens of billions of dollars in year-end distributions will show up on 1099 forms next January and will drive up tax bills by billions of dollars in April -- unless that is you do something about it now and that's where the soul searching comes in. By adding insult to injury, the prospect of a big taxable distribution adds to your incentive to bail out of a losing fund. Doing so before the distribution -- which is likely to come in December -- will let you avoid the tax bill on the payout. I'm not suggesting that you flee the market. If you like the prospects for the fund, you could reinvest in a similar fund or an ETF after it makes its distribution. I'm Kevin McCormally.
Paul Kangas' Stocks in the News
PAUL KANGAS: Hewlett-Packard surprised Wall Street this morning, reporting fourth quarter results six days early and beating analyst estimates. That upbeat news and a sharp drop in October wholesale prices helped set the tone of trading, with the Dow stair-stepping its way to a 165-point gain by noon when the NASDAQ was up 11 points. A bearish report on home builder confidence turned stocks sharply lower as the Dow posted a 130-point loss at 3:00 p.m. this afternoon. But then a late computer buy program lifted the market to a strong close. So the Dow Industrial Average gained 151.17 ending at 8424.75. The NASDAQ rose just a little over a point and then the Standard & Poor's 500 closed up 8.37 at 859.12. Over in the bond market, the 10-year note rose 30/32 to 101 26/32, putting the yield at 3.53 percent.
New York exchange volume leader on 30 1/4 million shares, Citigroup (C) down $0.53.
Followed by General Electric (GE) with a $0.05 loss, although GE says it plans to save up to $2 billion next year through the restructuring of its GE capital unit.
Bank of America (BAC) was up $0.16. Its CEO Kenneth Lewis says he sees no recovery from recession until the housing market stabilizes and didn't think that'll happen until the summer of 2009.
JPMorgan Chase (JPM) $0.63 loss there.
ExxonMobil (XOM) had a good day, up nearly $3 a share.
Wells Fargo (WFC) $0.63 loss.
Wachovia (WB) dropped a penny.
And then Pfizer (PFE) $0.37 gain.
And finally, Hewlett-Packard (HPQ), the star of the Dow, up $4.25. The company sees a fourth quarter profit of $1.03 a share, $0.03 above the Wall Street consensus. Standard & Poor's repeated a "strong buy" on the stock today.
Then came AT&T (T), tenth in volume, with a $0.20 loss.
Metlife (MET) losing $1.51. The life insurance sector very weak today as many companies there hope to get a slice of the government bailout fund by purchasing smaller banks. A number of them are doing just that.
Corning (GLW) down $0.62, traded as low as $7.37, a five-year low. Corning lowered its fourth quarter earnings guidance to the low end of its previous $0.20 to $0.28 per share forecast. Merrill Lynch downgraded the stock from "buy" to "neutral" today.
Home Depot (HD) a $0.71 gain despite lower third quarter earnings of $0.45, down from last year's $0.60, but $0.07 above the Wall Street estimate.
Medtronic (MDT) lost $4.82. It had higher second quarter earnings of $0.67, up from $0.58 last year, but that was $0.04 below the Street estimate and the company cut its 2009 earnings guidance from a high of $3.02 a share down to $2.98 at best.
Chiquita Brands (CQB) had a great day, up $1.83 after BB&T Capital brokerage upgraded it from "hold" to "buy."
But Saks (SKS) losing $0.56 and traded as low as $2.72 after reporting a third quarter loss of $0.31 versus an earnings of $0.14 last year. Same store sales down 11 1/2 percent.
Alpha Natural Resources (ANR) tumbling $5.10. The company and Cliffs Natural Resources formally known as Cleveland Cliffs have terminated their proposed merger. Cliffs stock was down $1.01.
And Flowers Foods (FLO) a $2.12 gain. That stock to be added to the Standard & Poor's 500 midcap 400 I should say.
And Bio-Rad Labs (BIO) also going to be added to the Standard & Poor's madcap 400 this coming Friday after the market closes.
Apple (AAPL) topped the NASDAQ actives, up $1.77.
Followed by Google (GOOG) down $2.70.
Then Microsoft (MSFT) $0.43 gain.
Research in Motion (RIMM) moved up $5.01.
Intel (INTC) an $0.11 advance.
Moving along in the actives, Baidu.com (BIDU) down $5.33 after a big drop yesterday.
$0.24 drop or gain in Cisco Systems (CSCO).
And then Oracle (ORCL) up $0.61.
Qualcomm (QCOM) $0.16 advance.
And then Amgen (AMGN) with a $0.25 closing gain.
Yahoo! (YHOO) was up $0.92. Co-founder Jerry Yang is stepping down as the CEO, but he will stay on the board of directors. The company meanwhile has begun a search for a new CEO.
Those are the stocks in the news tonight.
