NBR Transcripts-December 4, 2008
Thursday, December 04, 2008Car Markers Take A Conciliatory Tone On Capitol Hill
SUSIE GHARIB: Detroit's big three auto makers told Congress today they're open to more concessions in order to get badly needed government loans. The chief executives of General Motors, Ford and Chrysler said they're willing to accept a Federal oversight board to monitor their operations if they get the money. The three CEO's, along with the head of the United Auto Workers union, were back on Capitol Hill today, trying to convince lawmakers to lend them $34 billion. But as Stephanie Dhue reports, their tone was different from their last visit to Washington.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lesson learned: that's the message from the Detroit auto makers' CEOs. From driving to the hearing to slashing their pay, the executives like GM's Rick Wagoner returned to Capitol Hill humbled.
RICHARD WAGONER, CEO, GENERAL MOTORS: We're here today because we made mistakes, which we're learning from, because some forces beyond our control have pushed us to the brink and most importantly, because saving General Motors and all this company represents is a job worth doing.
DHUE: Law makers are skeptical. They don't want to throw good money after bad and they do want accountability so taxpayers get repaid. New York's Charles Schumer says bondholders, dealerships and lenders need to be part of any restructuring. He suggests an auto czar to lead the effort.
SEN. CHARLES SCHUMER, (D) NEW YORK: You let this president or the next one -- may have to be this one -- pick somebody, he calls all the major players into the room, probably Treasury secretary and says you all have to make concessions.
DHUE: Moody's economist Mark Zandi told law makers auto makers will ultimately need $75 to $125 billion over the next two years to stay out of bankruptcy. Banking Committee Chairman Chris Dodd says the Federal Reserve and Treasury already have a green light to get cash to auto makers if Congress doesn't.
SEN. CHRIS DODD, BANKING COMMITTEE CHAIRMAN: I want to be clear that Congress has already given the Bush administration the authority to stabilize this industry.
DHUE: But Commerce Secretary Carlos Gutierrez says it's important for Congress to make the decisions.
CARLOS GUTIERREZ, U.S. COMMERCE SECRETARY: This isn't a yes or no answer and it's not going to happen in three weeks. It's going to over a period of time. And there needs to be a plan laid out for that monitoring. There's been a lot of discussion about oversight, but this is going to filter into the next administration.
DHUE: Today's Senate hearing was a brainstorming session of sorts, with law makers considering ideas to keep the industry afloat without writing a blank check. More ideas are likely to come tomorrow, when the CEO's go before the House Financial Services Committee. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
One on One with Chrysler CEO Robert Nardelli
SUSIE GHARIB: Shortly after those auto hearings, I talked with Chrysler CEO Robert Nardelli. My first question: did you convince law makers to give you the money?
ROBERT NARDELLI, CEO, CHRYSLER LLC: Well, I felt very good about the discussion today. We spent six hours in the committee meeting. They asked great questions, probing questions, clarifying questions. I hope that we were able to provide the appropriate response. And now they will go away and hopefully make an informed decision. We submitted 120 page document of detail so there is plenty there to review and look over and provide both accountability and viability which is what they were looking for.
GHARIB: Mr. Nardelli, you also got some very tough questions on whether Chrysler even deserves to get any kind of government funds. The feeling was that your owner, Cerberus Capital, has plenty of cash and the worry is is that they're going to take government funds to prop up Chrysler and then you are going to go around and sell the company. What is your reaction to that?
NARDELLI: Susie, I think that that is a misconception. I think there is a generalization about private equity companies. Cerberus has been a great partner and a great supporter. They initially put the cash in place in August of last year. They provided additional cash in the middle of this year. We drew down $2 billion more. They continued to support our captive finance company, Chrysler Financial. And so it is not just a group of guys hanging around with a lot of money. They have a number of investors that they put together in this fund, pension funds, financial institutions. And they have fiduciary responsibility like anyone.
GHARIB: OK. You said today that you would be open to talking merger with General Motors. Why wait?
NARDELLI: Well, I think the issue that was put forth today, if that was a criteria, in other words, if that was a mandate, that had to be met to get funding, obviously my goal today was to convince both the Senate today and the House tomorrow to give us that opportunity. And if that was a guideline, than I certainly was willing to have that discussion with General Motors.
GHARIB: So tell us what Chrysler is going to look like, in let's say two years from now. Is it going to be a freestanding company, merged or bankrupt?
NARDELLI: We are -- we submitted a plan, Susie, in response that said freestanding company. We are absolutely committed to complete the restructuring that we've already started in August, downsizing our company, reshaping our company. That we would have a product renaissance coming out on the other side of this economic downturn, 79 percent of our products will have improved fuel efficiency next year. We will have over 24 product launches through '09, '10, '11 and '12. These will be products that the consumers want to buy and will tell others to buy. We'll have over 500,000 electric vehicles on the street by 2012. So we think that this is a company that will become leaner, more agile and certainly responding to customers' expectations on reliability and durability of our product, while gaining energy independence and environmental sustainability.
GHARIB: It's hard to picture that because looking at your November sales, they were down something like 47 percent. And so the question is, how long can you survive with sales so low?
NARDELLI: Well, that's what we've been working on, Susie. We so far this year unfortunately have had to furlough about 32,000 employees. We have taken 1.2 million units of capacity out. We reduced our fixed cost $2.4 billion. And so we have been aggressively trying to resize ourselves to keep up with this unprecedented industry falloff. It's gone from 17 million to 10.5, that is 6.5 million units. If you take a 10 percent share for Chrysler, 650,000 units or about $16 billion of revenue impacts. So we have been chasing that downward spiral to position ourselves to make it through this economic crisis.
GHARIB: And so what do you then say to American taxpayers who say let the American auto makers fail. We know what the consequences are of that. But let them fail.
NARDELLI: Well, I think that would be a terrible mistake. Chrysler was in this position once before. It did receive government support. It paid it back early. It paid it $300 million of additional interest. And thank goodness they did because Chrysler now had been an ongoing entity for 30 some years. It had great employment, great products. We've got over 30 million cars and trucks on the road today that consumers are enjoying and getting the benefit of having gotten the support from the government to make sure Chrysler continued as an entity, as a viable entity. And we're committed to doing that again, Susie.
GHARIB: All right, well, good luck to you, Mr. Nardelli. And thank you so much for your time today.
NARDELLI: Thank you and thanks for the opportunity.
Are Retail Holiday Discounts Getting Too Deep?
SUSIE GHARIB: November was an ugly month for the nation's retailers, suggesting this holiday season may be downright awful. Target, Macy's, JC Penney and Gap all posted double-digit sales declines last month, despite deep discounts on merchandise. Only Wal-Mart bucked that trend with a stronger than expected sales increase. But as Suzanne Pratt reports, markdowns may hurt the bottom line for many retailers.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: No matter how you ring it up, November was the worst month on record for the nation's retailers. Even though black Friday promotions helped bring in shoppers, that wasn't enough to make up for dismal sales during the rest of the month. UBS retail analyst Roxanne Meyer says consumers are jittery about their jobs and the diminished value of their homes.
ROXANNE MEYER, SPECIALTY RETAIL ANALYST, UBS: The consumer is pulling back in full force. They are not spending on discretionary items unless they absolutely have to have it or it fits within their budget.
PRATT: Wal-Mart is one of the few stores that seems to fit most budgets. It posted a more than 3 percent jump in sales last month, saying lower gas prices helped. Thomson Reuters analyst Jharonne Martis says Wal- Mart's solid November sales bode well for the retail giant's fourth quarter profits.
JHARONNE MARTIS, SR. RESEARCH ANALYST, THOMSON REUTERS: Wal-Mart is the only retailer that when you look at their same store sales and you compare that to their fourth quarter revenue estimates, it's the only retailer that's on track to actually match fourth quarter revenue estimates.
PRATT: Analysts say other stores will be lucky to generate any profits in the fourth quarter. According to Thomson Reuters, retail companies in the S&P 500 are likely to post on average a 17 percent drop in fourth quarter earnings. That compares to a 7 percent decline a year ago. Analysts explain so many retailers have had to deeply discount their merchandise in order to get shoppers to spend. And the prices are in some cases so low that it's extremely difficult to maintain profit margins.
MEYER: Retailers need to clear through this inventory so that they can start off spring cleanly. So they need to clear it at any cost and that will have quite a dramatic impact on margins this quarter.
PRATT: Analysts don't expect the story for most retailers to improve before the second half of next year at the earliest. That's because they say consumers are likely to remain cash-strapped and there don't appear to be any new fashion trends on the horizon. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Two Ways to Play"-The Recession
SUSIE GHARIB: It's said there are two sides to every story, two ways to play every trade and it's a good idea to look at both sides of an issue. So tonight, we're doing just that with a look at the American economy. In our "Two Ways to Play" segment, here's Minyanville's Kevin Depew and Kevin Depew of Minyanville.
KEVIN DEPEW, EXECUTIVE EDITOR, MINYANVILLE.COM: It's official: the recession is finally here. Earlier this week, the National Bureau of Economic Research formally declared the economy in recession, setting the start date for this particular downturn in December of last year. That's the bad news. The good news is that typically, a formal announcement of a recession tends to coincide with its conclusion. After all, economic data virtually by definition, is backward-looking. So here we are 12 months into this current downturn, how much longer? Since World War II, the average duration of a recession is about 10 months. Even if we mirror the deep recessions of the early '80s or mid '70s, which were about 16 months long, we could expect this one to last maybe another four months. So perhaps there is light at the end of this tunnel after all. Kevin, Kevin, Kevin, you tragic optimist. You know that light at the end of the tunnel my friend? That's a train. I understand the desire to compare this recession to previous ones, but here's the problem. There's absolutely nothing about this downturn that is typical or usual. The Federal Reserve and Treasury Department are employing economic policies that haven't been used in this country since the great depression. That isn't a recession; it's an economic crisis. Now unfortunately, I think that when we look back at December 2008, we'll say, you know, just when we thought it was over, it was really only beginning.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street was on the defensive this morning as big job cuts at AT&T and Dupont overshadowed interest rates cuts abroad. Selling was also prompted by generally very weak November retail sales. By midday, the Dow posted a 92 point loss with the NASDAQ off 15 points. A mid-afternoon rally attempt was quashed by fears that tomorrow's employment report would be a bad one. Late hedge fund and tax loss also helped send the market sharply lower. The Dow Industrial Average closed down 215.45 points at 8376.24. The NASDAQ Composite lost 46.82 to 1445.56. Standard & Poor's 500 Index off 25.52 at 845.22. Over in the bond market, the 10-year note gained 28/32 to 110 13/32, putting the yield all the way down to 2.56 percent.
Once again the most active big board issue today on 25 million shares,, Citigroup (C) losing $0.42.
Bank of America (BAC) down $0.71, a little profit taking after recent gains.
General Electric (GE) fell $0.58.
But JPMorgan Chase (JPM) bucking the trend, up $0.83.
Ford Motor Co (F) down $0.19.
ExxonMobil (XOM) fell $2.66 as oil in New York fell below $44 a barrel.
Republic Services (RSG) was down $0.41, although the Department of Justice approved its acquisition of Allied Waste Industries if certain assets are sold. Allied Waste stock was up $0.14 to $9.97.
Pfizer (PFE) in there with a $0.35 loss.
Time Warner (TWX) bucking the trend, up $0.37.
And then Wells Fargo & Co (WFC) a $0.55 loss.
General Motors (GM) losing 16 percent of its value today, down $0.79. Standard & Poor's repeated a "sell" recommendation in the belief any kind of a bailout will cause dilution of the stock.
AT&T (T) down $0.91. They're going to cut about 12,000 jobs and 4 percent of its workforce, but Standard & Poor's repeated a "strong buy" on AT&T.
Merck & Co (MRK) down $1.46. The company did reaffirm its 2008 earnings guidance at $3.28 to as high as $3.32, but it says 2009 earnings will drop a bit to $3.15 to $3.30 a share at best.
Wal-Mart Stores (WMT) edging up $0.73, traded as high as $56.20 today after reporting November same store sales were up a better than expected 3.4 percent.
JCPenney Co (JCP) up $1.38, although its November same store sales were down 11.9 percent, but that was in line with the company's guidance so no unpleasant surprise.
Buckle (BKE), this is an apparel retailer, doing very well, up $2.89. The company had a 15 percent rise in November same store sales and Standard & Poor's repeated a "buy" recommendation.
Collective Brands (PSS) up $1.94. This company used to be called Payless Shoe Source. Today third quarter earnings, $0.75, way up from $0.39 last year.
Mattel (MAT) did well, edging up $0.66. A Federal judge has permanently barred its rival MGA Entertainment from making and selling brats dolls.
Movado Group (MOV), this is the watch company, down $2.15. It slashed its full year earnings guidance after reporting third quarter earnings of $0.53. The Street was expecting $0.78. Sadatti (ph) and Company brokerage downgraded the stock from "buy" to just "neutral."
Home builder Toll Brothers (TOL) up $1.32. It narrowed its fourth quarter loss to $0.49 in the red from $0.52 last year and of course, falling mortgage rates are a positive for the home builders.
Very weak group, the oil and gas exploration companies like Plains Exploration & Production (PXP) down $3.97. January New York crude down $3.12 to $43.67 a barrel.
Apple (AAPL) topped the NASDAQ's active list, down $4.49. Piper Jaffray cut 2009 and '10 earnings estimates on Apple.
Microsoft (MSFT) $0.76 loss there.
Google (GOOG) down $5.09.
But Amazon.com (AMZN) up $2.11. Barclay's upgraded it from "equal weight" to "over weight."
Cisco Systems (CSCO) down $0.68, fifth in NASDAQ volume.
Intel (INTC) an $0.89 loss.
Research in Motion (RIMM) down $1.76.
Oracle (ORCL) fell $0.69.
First Solar (FSLR) down $11.72.
And Qualcomm (QCOM) with a $0.22 loss.
Adobe Systems (ADBE) fell $2.10. The company issued a cautious outlook and said it's going to cut 600 of its jobs. That's 8 percent of the workforce.
And those are the stocks in the news tonight.
