NBR Transcripts-May 19, 2009
Tuesday, May 19, 2009President Obama Pumps Up The Fuel Economy Standards
SUSIE GHARIB: Another day of sweeping changes for the American auto industry. President Obama announced today new fuel efficiency and emissions rules for auto companies. The proposed plan creates a national fuel economy standard of 35 1/2 miles per gallon for passenger cars and light trucks. All auto makers would need to reach that standard by the year 2016, four years sooner than under the current law. The administration says the new rules will amount to removing 177 million cars from the road over the next 6 1/2 years and saving nearly two billion barrels of oil. Flanked by state and Federal law makers and top executives from American and international auto companies, the president said the new rules will help the industry move forward.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: At a time of historic crisis in our auto industry, when domestic auto manufacturers are making painful choices and restructuring their businesses to be viable in the future, this rule provides the clear certainty that will allow these companies to plan for a future in which they are building the cars of the 21st century.
DARREN GERSH: Transportation Secretary Ray LaHood was a key player in creating today's new fuel efficiency standards. I spoke with him earlier in the day and I began by asking him if the new plan differs from other efforts to save fuel.
RAY LAHOOD, TRANSPORTATION SECRETARY: I think the reason it happened today is because of the president. He basically told us at DOT and he told the folks at EPA set aside your agendas, set aside your egos. We need to do this for the American people. We need to get to a standard. I just think the leadership of the president and I think really the American people are Fed up with high gasoline prices. And they do want cars that get better mileage.
GERSH: Right, but they also like to drive cars that they can afford and there is a question that this policy over the course of its implementation is going to cost about $1300 more per car as (INAUDIBLE) that the administration has put out. That seems like a lot of money.
LAHOOD: The price of a car is going to go up any way. But I just think people think enough of the environment and they're sick and tired of foreign oil and they're sick and tired of high gasoline prices and I think the American people get it, too.
GERSH: One of the problems we seem to have in our CAFE policy, in our fuel efficiency policies has been that the auto makers are forced to make more fuel efficient cars, but consumers don't buy them. They don't buy smaller lighter cars and unless you push the consumer to do it, they don't buy it. So I'm wondering if this policy really changes very much.
LAHOOD: I think when gasoline prices got over $4 a gallon people were rushing out to buy Prius. And the reason that they were, was because it was getting 40 to 50 miles per gallon. Now, when gas prices have come down, then people kind of go back to their old ways. Gasoline prices are going to go up, there's no dispute about that. At some point in the future, they're going to be $3, $4 a gallon and people are going to be looking for cars that get much better mileage than the ones that are being manufactured today.
GERSH: One of the concerns though about smaller cars is that when you force manufacturers to make smaller cars people have the safety concern. So they don't buy the very smallest cars. Can you address the safety problems there? I'm wondering, are there ways to make smaller cars safer, that could be part of this policy that might overcome that?
LAHOOD: There are ways to do it and that's frankly what our role really has been here at DOT through our safety mode is to make sure that we don't compromise safety with a car that's lighter weight. And our people here believe that it's certainly possible to do it and more importantly, the car manufacturers believe that today, as demonstrated by the fact that every one of them was at the announcement because they believe they can get to the standard and manufacture safe cars.
GERSH: Why does the administration do what European and other nations have done and basically push consumers to buy smaller more fuel efficient cars by either raising gas prices or giving them much larger incentives?
LAHOOD: Well, raising gasoline prices in a lousy economy when so many people are out of work is a very bad idea. People are hurting in America and the last thing they want is an increase in the gasoline tax.
GERSH: You could give them incentives, more incentives.
LAHOOD: Well, I think the car manufacturers over time, as they begin to manufacture these cars, will probably build in some incentives for people, the way that they tried to do now when car sales are way down.
GERSH: All right, Mr. Secretary, thank you very much for your time. I appreciate it.
LAHOOD: Thank you.
One on One with James Lentz, President of Toyota USA
SUSIE GHARIB: More reaction now to those new fuel economy standards announced by President Obama today. A short while ago I talked with Jim Lentz, the president of Toyota USA, who attended the White House ceremony. My first question: will consumers buy light weight fuel efficient cars?
JAMES LENTZ, PRESIDENT, TOYOTA USA: I think they will. Because I understand as well with this new standard that we'll see, it's not just smaller cars we'll have to improve their fuel efficiency; it's all vehicles. So whether they're small cars, mid, large, SUV's, full size trucks, they are all going to have to increase their overall fuel efficiency. So I think consumers are demanding that today.
GHARIB: But Mr. Lentz and I'm sure you hear this a lot, people say why do I need to buy a green car when gas is so cheap?
LENTZ: We do hear that occasionally, but we really heard that when there was a huge change in the price of gas. We certainly weren't hearing that when it was $4.50 a gallon. When it dropped below $2 a gallon there was a move back towards full size trucks. But from what we have seen in the marketplace, is it's not necessarily absolute price of gasoline. It's the change in the price of gasoline that drives consumer behavior.
GHARIB: What's going to be the financial impact of these new standards on Toyota? Won't your profit margins go down because of higher production costs?
LENTZ: Well, not necessarily higher production cost. There will be increased costs in R&D. We'll have to invent more fuel efficient internal combustion engines, new transmissions, new use of light weight steel, new narrower interiors with new seat technology, so there are going to be a lot things that we have to do. It will probably be pushed onto the market, so in time the consumer will have to pay more for these vehicles, but the hope is that they will save enough in improved fuel economy to offset that increased cost.
GHARIB: Mr. Lentz, Toyota seems to be at a cross roads. It recently announced a big quarterly loss, its first in 60 years. A new president comes on board next month. What's Toyota's competitive strategy going forward?
LENTZ: I think our competitive strategy going forward is continue to listen to the customer and build what they need. Because if you look at it in the end, it's not going to be shareholders or stockholders or government programs or new regulation that decides who wins or loses. It's really going to be manufacturers that can provide the products that offer value, quality, reliability, durability that takes care of customer needs, serviced and sold through great dealers, that's who will win and lose in this marketplace.
GHARIB: I know Toyota like all the auto makers have been struggling because of a slowdown in car sales, but how's business these days? Are you seeing any improvement in sales?
LENTZ: I think we're seeing a pickup in May. May typically is a pretty good sales month. So sales so far this month are up about 15 percent from what they were last month. They're nowhere close to year ago sales. But I think we will see gradual improvement this year. I don't think we're going to see real improvement until next year.
GHARIB: Now, you announced yesterday a new generation model of the Prius. What kind of sales numbers are you expecting from that, especially since you're getting a lot of competition now from Honda's Insight?
LENTZ: I think it's great that Insight is in the marketplace because Toyota has had 75 percent of that hybrid market. So we have really been pushing hybrids for the most part by ourselves. So with Honda in the market it creates more shoppers. The first full year of sales which will be next year we're anticipating 180,000 sales. We have about 20,000 sold orders already on the new car. So we're very, very excited about launching this car in today's market.
GHARIB: As General Motors and Chrysler are struggling for their survival, are you finding that people are considering to buy a Toyota? Is there any impact of the GM and Chrysler situation on your business?
LENTZ: Not necessarily so. If you look at consumers and what they shop, we have very little cross shopping with either Chrysler or General Motors. So we really haven't seen an uptick in our business as a result of the challenges that they've had of late.
GHARIB: So what is the biggest challenge facing Toyota right now?
LENTZ: I think the biggest challenge right now is the overall size of the market. We were a marketplace that if you look at the last four recessions, the market dropped from peak to valley about 23 percent. We're seeing a peak to valley drop in this recession of 41 percent. So the biggest challenge we have is just not seeing enough customers in the showroom, in a market that is depressed down to around the 10 million unit level.
GHARIB: All right, Mr. Lentz, thank you so much for coming on the program. We really appreciate your time.
LENTZ: You're welcome. Thank you.
Madison Avenue Takes A Hard Hit From The Recession
DARREN GHARIB: Saks reported a big loss today, which is a sign that luxury retailers have not been immune to the recession. The economic fallout is even trickling down to Madison Avenue, one of the world's top luxury shopping destinations. Erika Miller reports on what may lie ahead for this chic street.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Take a walk down Madison Avenue and you'll see signs for the most glamorous fashion houses in the world. But nowadays you'll also find plenty of unstylish signs: advertising space available. About 13 percent of the stores on Madison are available for rent or sublet, up from 8 percent a year ago. Rents are already down 32 percent from last year. Joanne Podell of retail brokerage firm Cushman and Wakefield expects rents to drop a bit more, then stabilize.
JOANNE PODELL, EXEC. VP, RETAIL SERVICES, CUSHMAN & WAKEFIELD: Rents are coming down. Will they come down to being the same price as being on Third Avenue? No. And the reason is we still have a very strong international tourist business, a regional visitor. We have a wealthy consumer that lives here. And we have the office tenants.
MILLER: Other fashionable streets in America have also taken a hit, like Worth Avenue in Palm Beach and Rodeo Drive in Beverly Hills. But Madison is far greater in scale, stretching more than 20 blocks. So, is the fact that our shopping street or shopping district is larger a benefit or a drawback?
PODELL: I think it's a benefit. It's an opportunity for the consumer to see more goods and have more reason to come here.
MILLER: Some new luxury stores are also finding a reason to come to Madison and to a small stretch of Fifth Avenue, which charges even higher rents. Watch maker Omega opened a flagship store on Fifth a month ago. Chief Executive Officer Stephen Urquhart says the location was too good to pass up.
STEPHEN URQUHART, CEO, OMEGA: We obviously can't time an open like this around economic environment. We're looking now for maybe five years in New York, in Fifth Avenue in particular, for the proper location. When we found this location, we didn't even think twice.
MILLER: And though other retailers may be struggling, Omega says sales are strong.
URQUHART: I don't see any reduction in average price. Omega's market is between, I would say, $3,000 and $10,000, our main market. And that consumer we feel is pretty faithful at the moment, you know. He's there.
MILLER: But retail expert Howard Davidowitz says most high end merchants are in serious trouble.
HOWARD DAVIDOWITZ, RETAIL CONSULTANT, DAVIDOWITZ & ASSOCIATES: Luxury is completely under water. Madison Avenue is the epicenter of luxury. It's a train wreck.
MILLER: He says it's impossible for Madison Avenue to do well when Wall Street is hurting. Davidowitz predicts rents for prime retail spaces will drop another 25 percent from current levels. He says it's a reflection of the fact that consumers can no longer afford to splurge.
DAVIDOWITZ: This is the new reality. This is not a temporary situation. We have leveraged ourselves to the hilt. We had a free lunch and now we have to buy dinner. The change is permanent.
MILLER: Despite the current troubles on Madison Avenue, no one expects the street to lose its cache. For many luxury retailers, a Madison Avenue presence is essential to promoting the brand even if sales are not strong enough to justify the rent. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Reviving the Economy" -A Congressional Difference of Opinion-Rep. Dennis Cardoza, D-CA
SUSIE GHARIB: We continue now our focus on the government's role in "Reviving the Economy" with a series of commentaries that we call a congressional difference of opinion. Tonight Representative, Democrat of California gives us his take on fixing the economy.
REP. DENNIS CARDOZA, (D) CALIFORNIA: We must continue to address the ongoing foreclosure crisis that is dragging down our economy. Just last fall, one in 10 Americans was either behind in their housing payment or in the midst of a foreclosure. In the third quarter of 2008, housing prices had fallen in 41 states. States such as California, Nevada, Arizona and Florida have been especially hard hit. The net effect from the downward spiral has been a significant cause of our recession. The banks which have been left holding the defaulted mortgages have had to write down much of their net worth. This in turn has led to a freezing of credit lines for everything from student loans to small business and car loans. The solution is to provide affordable mortgages to as many homeowners as possible, ensuring families remain in their homes and that banks receive their payments. Since January, I have been working on legislation to accomplish just this. The Home Act would provide all homeowners with much needed below market, fixed rate mortgages. Those who have faithfully paid their mortgage each month would have more cash in their pocket at the end of the month. Make no mistake. The United States will see its economy improve over time. However, we must strike at the root of the problem. And that means we must put an end to the foreclosure crisis. I'm Congressman Dennis Cardoza.
Paul Kangas' Stocks in the News
DARREN GERSH: Stocks opened down a bit on that news but spent the day trading in a fairly narrow range with the blue chips ending the day to the downside. Tech stocks held their ground. The Dow closed off 29 points at 8474. The NASDAQ rose 2 points to end the day at 1734 and the S&P 500 falling 1 point to 908. Over in the bond market, the 10-year note falling 4/32 to 98 31/32, putting the yield at 3.25 percent.
Once again bank stocks dominated trading as investors were trying to figure out what it might mean if some banks paid back their government bailout money a little early. Bank of America (BAC) topping the actives, the stock up $0.48 today. Late today the company priced a secondary offering of 825 million shares at $10 a share.
Another bank, Citigroup (C) rising $0.13.
Ford Motor (F) up $0.13, not much of a reaction to that fuel efficiency news.
General Electric (GE) adding $0.23. Chairman Jeff Immelt says it may take as much as two years to clean up the company's finance arm.
Another bank, State Street Corp (STT) shares up $1.42. The bank is raising $ 1/2 billion to pay back their bailout money.
And there you see Wells Fargo (WFC) falling $1.53.
JPMorgan Chase (JPM) down $1.45, the banker declaring a quarterly dividend of $0.05 a share.
American Intl Group (AIG) down $0.02. The SEC's excuse me, the SEC says it's mailing checks totaling more than $800 million to thousands of investors harmed after the company allegedly falsified financial statements.
Pfizer (PFE) down $0.09.
And Tenet Healthcare (THC) rounding out the actives, gaining $0.52 or 22 percent. Goldman Sachs upgrades Tenet to "buy" and says the share value of the hospital operator could double.
Let's take a look at Hewlett-Packard (HPQ) rising $0.85, but after the bell, HP posted second quarter earnings, hitting their earnings target of $0.86 a share, in line with estimates, but HP predicted third quarter sales could fall as much as 2 percent from last quarter. That stock is down almost 5 percent in after hours trading.
Let's take a closer look at Home Depot (HD) falling $1.39. The company had some interesting things to say on their earnings call this morning. First quarter earnings of $0.35, sales are down about 10 percent. Foreclosures are still rising in California and Home Depot thinks that has to change to get a sustainable improvement for the company.
And now some fashion news, Saks (SKS) sales fell 27 percent in the first quarter and Citi's retail analyst tells me to expect significant pressure on profit margins, but the company's $0.04 a share loss was much better than Wall Street expected. Saks shares ended up $0.73.
And now for the other side of fashion, TJX (TJX), which includes TJ Max and Marshall's in with a different retail picture. Profits up 8 percent in the first quarter and same store sales up 2 percent over last year and that stock gaining $1.09.
Moving on to NASDAQ, Apple (AAPL) added $0.80.
Google (GOOG) up $2.04.
Look at this, Research in Motion (RIMM) down $0.16.
Microsoft (MSFT) also down $0.16.
And Cisco Systems (CSCO) up $0.16.
Intel (INTC) breaking the trend. It climbed $0.13.
First Solar (FSLR) rose $4.80.
Amazon.com (AMZN) up $1.92.
Qualcomm (QCOM) edged $0.35 higher.
And Dryships (DRYS) up $0.12.
And now I want to take a look at the coffee wars. Starbucks (SBUX) and McDonalds (MCD) are competing head to sleepy head in an advertising war for the caffeine crowd. Starbucks stock up $0.03 today. McDonald's ad offensive includes a website unsnobbycoffee.com. So who's winning? Analysts say both are. Soda sales are slowing, so McDonald's is adapting. There you see that stock down $0.32 today. Really the direct competition between the two companies is limited to families where the parents only have time to make one stop but need their coffee. That's people like me.
And those are the stocks in the news tonight.
