NBR Transcripts-December 12, 2008
Friday, December 12, 2008The White House May Have To Stretch The Wall Street "TARP" To The Auto Industry
SUSIE GHARIB: New hope tonight for Detroit's big three, as the Bush administration says it's ready to lend money to the ailing auto makers. The U.S. Treasury is considering a short-term loan to General Motors and Chrysler to keep them in business into the new year. A decision could come this weekend. We have two reports tonight looking at why the White House is driving the auto bailout plan and the implications for the U.S. economy if those efforts fail. We begin with Washington bureau chief Darren Gersh.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Bush administration says it will act to quote, prevent a precipitous collapse of the U.S. auto industry before a new Congress begins work in January. That language opened the door to everything from a bridge loan using Treasury bailout funds to some sort of government-financed bankruptcy filing. Ford has said it doesn't need government cash to survive, but Senate Banking Committee Chairman Chris Dodd said he was confident the administration would not allow GM or Chrysler to simply go out of business.
SEN. CHRIS DODD, BANKING COMMITTEE CHAIRMAN: My hope is they would provide enough resources to get us through to the end of the first quarter, adequate time to work at this.
GERSH: GM says it needs $8 billion to get through the end of January, Chrysler about the same. To conserve cash, GM will now close 20 plants next month, cutting production by a quarter million vehicles. With talks in Congress at a dead end, United Auto Workers President Ron Gettlefinger says pressure is building from parts suppliers who are demanding to be paid in cash. He compared that to a financial panic.
RON GETTELFINGER, UAW PRESIDENT: We need to satisfy the suppliers that there is going to be a tomorrow. I think the run on the banks is a much bigger issue than anybody here realizes.
GERSH: The auto parts industry is now asking the Treasury to guarantee the auto makers will be able to pay their suppliers. Ann Wilson represents suppliers and says without that guarantee, banks are cutting off credit.
ANN WILSON, SR. VP, MOTOR & EQUIPMENT MANUFACTURERS ASSN.: If they are no longer able to borrow off of their receivables, we're going to have suppliers who are not going to be able to function going forward, there's no doubt about it.
GERSH: Before talks collapsed, congressional negotiators had reached a deal calling for auto company bond holders to slash company debt by two thirds. The auto union had also agreed to accept stock instead of cash payments to the so-called veba (ph), the plan that funds retiree benefits. Senator Bob Corker of Tennessee urged the Bush administration to build on that agreement.
SEN. BOB CORKER (R) TENNESSEE: Look, if you're going to do this, please embrace these concepts that draw a line in the sand and calls on the bond holders to reduce their debt, calls the veba payments to be equitized and at least put these companies on solid footing.
GERSH: While GM said it was encouraged by the White House announcement today, the bond market was more cautious. You can now buy GM's debt for $0.15 to $0.20 on the dollar. And the UAW figures, even if their members worked for nothing, it wouldn't be enough to help GM and Chrysler survive into the new year. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Scott Gurvey in New York. There is no simple answer to the question what if? What if the American auto industry fails? No answer because failure could take many forms. Economist Cary Leahey says the worst case scenario would mean GM, Ford and Chrysler all suddenly going out of business. That would push the unemployment rate into double digits.
CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: The 250,000 workers that could potentially get laid off, the direct auto suppliers that add another half million to that giving you three quarters of a million. Then all the indirect effects of all the people working in the region who, you know, people who clean homes, people who deliver flowers, K-Mart, Wal-Mart, you name it.
GURVEY: But it is more likely there will be a controlled downsizing of one or more of the companies. And over time production will shift to foreign auto makers who even now are building new plants in the U.S. Bank of America's Mickey Levy says there will always be demand for autos.
MICKEY LEVY, CHIEF ECONOMIST, BANK OF AMERICA: Even if those autos in the future are not produced by the big three auto makers, they'll be produced by other auto makers who will need workers. And so yes, we face a transition. But the net decline in jobs in the auto sector will not be nearly as large as some of the skeptics and big three auto advocates are now expressing.
GURVEY: Still, the Center for Automotive Research says even if other car makers increase employment over time, there will be a significant net loss of jobs if the American three fail, with as many as a million jobs permanently gone three years down the road. And Cary Leahey says the economic impact of any cutbacks in the American automotive industry will only exaggerate the deep recession we are already in.
LEAHEY: With the economy already falling probably 5 percent in the fourth quarter which is a staggering decline by itself, you'd be talking about another decline in GDP. In the short run of another 4, 5, even 6 percentage points, so the economy would be in a true free fall as you try to get from a period where you lose a couple major auto makers to filling up the gaps with increased production by overseas suppliers and perhaps whoever remains.
GURVEY: There was a time when the U.S. auto industry amounted to 5 percent of GDP. It is now somewhere between 2.5 and 3 percent. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The Auto Industry Isn't Just Car Business
SUSIE GHARIB: Washington could be the Grinch that steals Christmas if the auto industry doesn't get some kind of bailout. But when we say the auto industry, we don't just mean factories. The industry is really workers and their families, shaken by the possibility of lost jobs, health care and pensions. Diane Eastabrook visited a small town in Wisconsin and met a family to whom those losses are very real.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At their kitchen table in Milton, Wisconsin, GM retirees Marvin and Lynn Wopat reminisce about last Christmas and the gifts they gave their grandkids.
MARVIN WOPAT, GM RETIREE: Each family got a big electric car. We bought them electric cars that they can drive up and down the streets in.
EASTABROOK: But this year GM's financial woes are spoiling the Wopats holiday spirit.
LYNN WOPAT, GM RETIREE: As a matter of fact I haven't even started any Christmas shopping. I just feel, I feel pretty sad about it. This is the first year I've really felt this way about it.
EASTABROOK: The Wopats worry a GM bankruptcy could rob them of their pensions. But their concerns also extend beyond themselves. The couple both retired from GM's Janesville, Wisconsin plant. That plant is ending production two days before Christmas with roughly 1,200 workers losing their jobs. The Wopats son and daughter were recently let go from that plant and a son-in-law is losing his position at GM supplier Lear. Marvin Wopat, who helped his kids get jobs at GM, is taking the plant closure personally.
M. WOPAT: You don't want to see your kids hurt and you don't want to see them struggle and that's the hard part, sitting back and watching them struggle where that struggle wasn't there before.
EASTABROOK: But Janice Dillander, the Wopats daughter, considers her recent job loss a new chapter in her life. The 39-year-old mother of two is hitting the books, studying to be a nurse at Blackhawk Technical College. Dillander admits she is facing financial challenges she never dreamed of a year ago. But she thinks in the long run, her future will be more secure.
JANICE DILLANDER, FORMER GM WORKER: I like caring for people and I think I'll be good at it. And it's interesting and I think that that field is going to be around for awhile. It's not something that they can take away from me like the auto industry.
EASTABROOK: Marvin and Lynn Wopat remain hopeful GM will receive a government bailout, if not now, when President-Elect Barack Obama takes office next month.
M. WOPAT: He cares about people who I call it are in the trenches, down in the trenches and I believe he's going to do everything he can for families.
L. WOPAT: It's just going to take longer.
EASTABROOK: Diane Eastabrook, NIGHTLY BUSINESS REPORT, Milton, Wisconsin.
"Market Monitor"-Ashwani Kaul, Director of Research for Thomson Reuters
PAUL KANGAS: My guest "Market Monitor" this week is Ashwani Kaul, the director of research for Thomson Reuters. Ashwani, welcome back to NIGHTLY BUSINESS REPORT.
ASHWANI KAUL, DIRECTOR OF RESEARCH, THOMSON REUTERS: Nice to be here again, Paul.
KANGAS: Were you impressed by the stock market's resilience today in the face of the Senate's rejection of the auto rescue bill and the story of Bernie Madoff's alleged massive fraud?
KAUL: I mean absolutely. I think we are finally seeing some resiliency in this market. We've tested the lows. We've gone below 8,000, which seemed to be kind of the bottom point where everybody is kind of focusing on that. We've tested those. We've crossed through that. So I think we've kind of built some resistance and I think today is just another indication that there is some resiliency in this market and I think in the next nine to 12 months, we should be in for some good upside in the equity markets.
KANGAS: So you see these things as signs that the market may have put in a major bottom just around the 8,000 level?
KAUL: I think so. I mean if you really look at the news today that came out, I mean it's pretty damaging news and the market's pretty much held up all day. They were positive and then they turned negative and then they turned positive at the end, so it's a good indication. This is some pretty bad news -- especially the Madoff scandal.
KANGAS: Right. Now, you do a lot of research on corporate earnings. Give us some of the sectors for which your projections look good.
KAUL: There are two only sectors really that we expect in positive territory for the fourth quarter at Thomson Reuters First Call. We're looking for health care and consumer staples to lead the way in terms of earnings. All other sectors are projected to be in the negative territory. So health care and consumer staples are the two sectors.
KANGAS: What are the most dangerous sectors to avoid?
KAUL: The consumer discretionary -- anything related to consumers. Financials is going to be a hot spot for the fourth quarter, but it's not going to be as bad as the fourth quarter of last year which was really, really a rough quarter for financials -- the worst on record at Thomson Reuters First Call. So we really expect consumer discretionary financials to really come under pressure again for this fourth quarter.
KANGAS: Now the last time you were with us in July, you liked the high-tech sector and it had good days and then bad days and now it looks like it's perking up again. What do you think?
KAUL: I think technology, from an earnings standpoint has held up pretty well. It's one of the few sectors that really has not seen a precipitous drop. We're looking for negative earnings for the fourth quarter. We had a strong fourth quarter of last year. So we're not dealing with favorable comps here and if you look at the global macro-economic environment, I mean for technology to really hold its own for the next - for the last four or five quarters is actually pretty remarkable, so we're expecting negative earnings for the fourth quarter. The good news is next year technology is looking for flat growth, so that tells me that the tech story is not as bad as everybody is putting it out to be.
KANGAS: How important is the fate of the auto industry in your earnings research?
KAUL: It's pretty right on. If you look at consumer discretionary, the autos make up a big chunk of earnings in consumer discretionary and then the secondary market, which -- which the auto makers help, the automotive parts dealers -- the businesses around the autos. I mean, a complete shutdown in the American auto industry will have an impact on the equity markets and earnings as a whole, to be frank with you. Whether it's the right move or not the right move, that's for Washington to decide, but definitely from an earnings standpoint, a bad Detroit is bad for the bottom line for corporate earnings as well.
KANGAS: I know you don't recommend individual issues on air with us - - or anyone else, for that matter -- but do you have any foreign markets that look promising -- better than the U.S. market?
KAUL: There are a few markets like Australia that's looking for a strong '09. Even the Indian equity markets from an earnings standpoint are poised to do well. Some selective Asian markets are going to do well. European markets are kind of like the U.S., kind of trending down, but there have been some bright spots around the world where frankly, the equity markets hasn't seen that precipitous a drop ,although we've seen it a lot in Latin, Europe and Asia, there are some selective markets that we haven't seen that.
KANGAS: Well, I'm afraid we've run out of time Ashwani, but I want to thank you for being with us once again.
KAUL: Absolutely, any time Paul. Thank you.
KANGAS: My guest, Ashwani Kaul, director of research for Thomson Reuters.
"Last Word"-Paperless Boarding Passes
SUSIE GHARIB: And finally tonight, it's a new trend for high-tech travelers: paperless boarding passes. Here's how they work. Airline passengers with a Blackberry or other mobile device can download their boarding passes from their airline's website. Then, they hand those devices for scanning to security screeners and airline gate agents before boarding their flights. Delta and Northwest Airlines launched their program today in St. Paul, Minnesota. The technology currently exists at about a dozen U.S. airports. So Paul, now you can add to the list of things that you can do with your cell phone along with taking pictures, listening to music and getting directions (INAUDIBLE) pass.
KANGAS: For me, getting directions on how to operate those things.
GHARIB: I know. Here is another thing you have to worry about. Make sure your phone is charged before you do something like that. Otherwise, you're not going to get on the airplane.
KANGAS: Good idea.
Paul Kangas' Stocks in the News
PAUL KANGAS: An early sell-off greeted Wall Street after the Senate rejected the auto rescue bill and investors learned of a massive alleged fraud by broker Bernard Madoff. We'll have more about that fraud in a moment. The Dow tumbled at the opening, but the selling really wasn't as bad as feared. An hour into trading, the Dow was down 130, but the NASDAQ off just 5 points. That relative firmness in technology stocks helped the blue chips come back around midday as did word from the White House it was considering news loans to the auto makers, so by the close the market was solidly in the black. The Dow Industrial Average ended up 64.59 points at 8629.68. This week, it fell twice, rose three times, but had a net loss of 5.74 points. The NASDAQ Composite gained 32.84 points to 1540.72 today. It also retreated twice and advanced three times this week and rose 31.41 points overall. Standard & Poor's 500 Index closed up 6.14 to 879.73 today and for the week, it gained 3.66 points. In the bond market, the 10-year note rose 10/32 to 110 and 8/32 and that put the yield down to 2.57 percent.
Most active New York exchange issue on 28 1/2 million shares, Ford Motor Co (F) moving up $0.14. You've heard the news.
Citigroup (C) a $0.13 gain.
Bank of America (BAC) was a $0.02 advance.
And then General Motors (GM) losing $0.18. It traded as low as $2.61 this morning.
General Electric (GE) in there with a $0.06 gain.
And then JPMorgan Chase (JPM) rose exactly $1.
ExxonMobil (XOM) $0.43 advance.
Pfizer (PFE) a $0.36 gain there.
AT&T (T) was up $0.24. The company's boosting its quarterly dividend by $0.01 to $0.41 a share.
And then Wells Fargo & Co (WFC) with a gain of $0.82.
American Express (AXP) closed up $0.21, but traded as low as $18.33 this morning after Deutsche Bank began coverage of the stock with a "sell." This past Wednesday as you might recall, both Citigroup and Bank America issued "sell" recommendations.
Then Bristol Myers Squibb (BMY) moving up $1.06. It's in a joint venture with biotech company Exelixis. They developed two cancer drugs requiring Bristol Myers to pay $240 million up front.
Let's have a look at what happened to Exelixis (EXEL) stock, up $1.22 or 32 3/4 percent. Incidentally, Exelisis means evolution in the Greek language.
Auto parts maker BorgWarner (BWA) down $1.24. The company cut its 2008 earnings guidance from a high of $2.35 to $1.95 at best because of the poor condition of the auto industry.
And then some major construction firms, Chicago Bridge and Iron (CBI) down $1.03. Goldman Sachs downgraded it from "neutral" to "sell," did the same thing with big construction firm Fluor (FLR), which fell $2.50.
And then Jacobs Engineering (JEC) losing $0.92. It traded as low as $42.91 this morning after Goldman Sachs downgraded it from "buy" to "sell."
The oil sector was weak today, also because of Goldman Sachs comment saying 2009 oil prices will average about $45 a barrel. Devon Energy (DVN) and Murphy Oil (MUR) significant losses.
Pioneer Natural Resources (PXD) off only $0.61, but it traded as low as $17.28 in the morning.
Waters (WAT) which makes laboratory instruments down $4.67. The company cut its fourth quarter earnings guidance from a high of $1.12 to $0.99 at best and the Baird brokerage downgraded the stock from "out perform" to "neutral."
Then Perkinelmer (PKI) losing exactly $3 after Deutsche Bank downgraded it from "hold" to "sell."
And then Transocean (RIG) losing $1.36. That stock will be removed from the Standard & Poor's 500 Index after the close on December 18th because the company's re-domesticating in Switzerland making it ineligible for the index.
NASDAQ's most active, Apple (AAPL) moving up $3.27.
And Google (GOOG) in the strong high-tech group, up $15.54.
Microsoft (MSFT) didn't participate with a $0.09 loss.
But Intel (INTC) was up $0.74.
And Cisco Systems (CSCO) $0.08 gain there.
Qualcomm (QCOM) up $1.33.
Research in Motion (RIMM) up $1.36. RIMM's quarterly earnings are due out next Thursday incidentally.
Oracle (ORCL) and its earnings due out next Thursday as well, up $0.38.
Baidu.com (BIDU) up $2.70.
And Comcast "A" (CMCSA) lost $0.32 a share.
Varian (VARI) down $4.47. The Barclays brokerage downgraded it from "equal weight" to "under weight."
And those are the stocks in the news tonight.
