NBR Transcripts-June 10, 2009
Wednesday, June 10, 2009Fiat Now Is In Chrysler's Driver's Seat
SUSIE GHARIB: A new Chrysler was born today. The troubled auto maker, now out of bankruptcy, sold most of its assets to Fiat. No money exchanged hands, but the Italian auto maker gets a 20 percent stake in Chrysler. Chrysler, in return, gets badly need technology. Here's what the new Chrysler looks like. First, new management, Fiat CEO Sergio Marchionne takes over as CEO of Chrysler and Robert Kidder, the former head of Duracell, is chairman and Chrysler President Jim Press becomes deputy CEO. Second, new products, Fiat will provide Chrysler with smaller cars, including a sub-compact by the year 2010. Chrysler will continue to sell its Dodge, Jeep and Chrysler brands. Fiat's Marchionne told Chrysler employees today the new company will be more nimble, saying it'll have significant strategic advantages, including a healthy balance sheet, competitive cost structure and a more efficient dealer network. Well, that dealer network now has 2,400 franchises -- down from more than 3,000. Those closures have been painful for hundreds of Chrysler dealers across the country. Last week we visited one of them -- Tamiami Chrysler Jeep -- which was fighting hard to stay open. Jeff Yastine went back today to find out what's next for this family business that was once a top seller of Chrysler cars.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The signs are still up at what, until yesterday, was Tamiami Chrysler Jeep in Miami. But they won't be up much longer. General Manager Alex Planas, whose family owns this dealership, says the most stunning part of the termination came last night.
ALEX PLANAS, GENERAL MGR., TAMIAMI CHRYSLER JEEP/MIAMI: We're here until the wee hours of the night selling cars, delivery cars. And then all of a sudden come midnight, Chrysler kind of unplugged us from their computer systems and kind of terminated us. Not even a thank you card after 20 years, not even a thank you card of doing business and selling cars for you or nothing. It's sad.
YASTINE: Another immediate change for this dealership? Today, Planas laid off 40 of his 100 workers, many of them longtime employees. But the big question is what's next? The Planas family will turn their sales lot into a used car business for now. But they're already receiving feelers from other auto makers interested in awarding them a new car franchise and if executives here have anything to do with it, Chrysler may rue the day they terminated the dealership.
PLANAS: You have a lot of foreign vehicles that are being sold here - - your Toyotas, your Hondas -- and to compete against that, you got to make sure you keep your best dealers and they didn't do that. If you're going to start a new company and you've had bad decisions in the past and you're going to start a new company, wouldn't you want to have your best dealers move forward with you?
YASTINE: Once he has a new franchise, Planas will aggressively sell that brand to the dealership's loyal customers. Among them, Beth and Keith Hollingsworth who bought a used PT Cruiser today, despite mixed feelings about the bargain they were driving.
KEITH & BETH HOLLINGSWORTH, CUSTOMERS: Everyone's going to have to take a pinch and I'm thankful because I'm now walking out with a very nice automobile. But I hope this helps them as much as it possibly can, so they can stay here in our community and service us for many more years.
YASTINE: And that's something this dealership hopes to do as it faces a future without Chrysler.
PLANAS: There's disappointment. There's the end of an era for us, for Chrysler. But it's also a good day for us. It means the beginning of something new for us and life throws you curveballs every once in awhile and you just got to (INAUDIBLE) adversity and you just got to get back on your feet and move forward and that's what we're doing.
GHARIB: All right, very interesting story Jeff and thanks for coming on the set to talk to us a little bit more about it. What I find interesting here is everybody talks about new chapters and new begins for Chrysler. They've had so many new beginnings.; There was a time in the 90s when Daimler-Benz took over as the new owner and then in 2000 whatever that Cerberus Capital Management took over and now it's Fiat. So I don't know, is three times going to be the charm here?
YASTINE: It really depends on the leadership from Sergio Marchionne and of course what happens here with Chrysler coming when it comes out of bankruptcy. They have a situation where they have a lot less in the way of debt, of course, lower labor costs, but they also have an aging fleet of vehicles that's still tilted more towards SUVs and trucks and they need to bring in that small car technology that Fiat is known for and that's probably the biggest positive for them.
GHARIB: Yeah, but here's the thing, are people going to buy those small cars? We hear anecdotally that a lot of American consumers still like those big SUVs so Chrysler's going to have to deal with that whole issue of demand and what the customers really want.
YASTINE: In some ways, it's a bet on fuel prices but also the trend change in SUVs has been occurring for some time. In 2005, that was the peak for SUVs as a category and just this year in May, 200,000 more cars sold in the U.S. than light trucks and that includes SUVs, minivans and pickup trucks and those types of vehicles.
GHARIB: And Jeff, there's this whole question of management of the company. You've got Sergio Marchionne. You got the UAW on the board. You got the U.S. government with its representative. Sounds like a lot of agendas, too many cooks in the kitchen.
YASTINE: Yeah and it really depends on the kind of leadership that Marchionne can bring to the table here. If he's given a free hand, he helped to turn Fiat around when he ascended to the top position in 2004 and if he can do that there, many believe he can do that here but as you said, it depends on what kind of a free hand that he as a car guy can do.
GHARIB: All right. To be continued. Jeff, thanks a lot for coming on. Jeff Yastine reporting from Miami.
The Treasury Department Punches Holes in Golden Parachutes
PAUL KANGAS: New limits on bonuses and golden parachutes are on the way for companies taking bailout money from Uncle Sam. The Treasury announced the new limits on pay today and tapped mediator Ken Feinberg to review compensation plans at companies getting what it calls exceptional assistance from the government. As Stephanie Dhue reports, the administration also supports proposals to help shareholders rein in pay packages at all public companies.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Countrywide's CEO Angelo Mozilo made $600 million while the firm's stock went down 70 percent. Bear Stearns executives were paid on performance metrics, but meeting just one was enough to receive the maximum bonus. To address those types of abuses, Treasury Secretary Geithner wants shareholders to have a say on pay and boards to be more independent, but he's reluctant to do more.
TIMOTHY GEITHNER, TREASURY SECRETARY: We are not proposing an on- going government role in setting policy and compensation. We do not believe its appropriate for the government to set caps on compensation. We are not going to prescribe detailed prescriptive rules for compensation. We think all those things would be ineffective, could be counterproductive in some ways.
DHUE: House Financial Services Committee Chairman Barney Frank supports the administration's approach, but wants to go further. He wants firms that reward risk to also penalize failure.
BARNEY FRANK, CHMN., HOUSE FINANCIAL SERVICES COMMITTEE: If you have a bonus system, if you have an incentive system, it has to be a two way street. You cannot have, as we have in many companies today, rules that say, if you take a risk and the risk pays off for the company, you make money. But if you take a risk and the company loses disastrously, you break even. That's heads I win and tails nothing happens, that incentivizes too much risk.
DHUE: Critics say the proposals will do little to change executive pay. Instead shareholder activist Nell Minow says the markets need to focus on the issue.
NELL MINOW, EDITOR & CO-FOUNDER, THE CORPORATE LIBRARY: There's only so much the government can do. Really, it is time for the market to respond. One thing that has always flabbergasted me is that the ratings agencies don't look at executive compensation as an element of risk. The securities analysts don't look at compensation as an element of risk and I think that will have to change.
DHUE: The spotlight promises to stay on executive pay. With financial firms on the government dole, the Treasury hopes rewriting the rules on executive pay will pay off with better run American companies. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
Banking Under a TARP
SUSIE GHARIB: With 10 of the nation's biggest banks repaying their TARP bailout funds, do consumers really care if a bank is still under the TARP? A new study shows they do. Apparently, many Americans are developing a good bank versus bad bank mentality when shopping for financial services. Scott Gurvey explains.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Would you rather put your money in a bank still in the Troubled Asset Relief Program, one that's now deTARPed or one that never was TARPed in the first place? A survey by the brand management firm Interbrand found some consumers are choosing banks on their perception of the firm's health. Interbrand Director Carola Jain says consumers are voting with their pocketbooks.
CAROLA JAIN, SR. DIR., STRATEGY,INTERBRAND: Overall, we found that $618 billion is the money in motion as we call it, so, consumers that are considering or have already shifted their money away from their primary financial services provider, mostly towards smaller regional banks.
GURVEY: To counter that flow, many big name institutions are running advertising campaigns to restore trust. Bank of America is running a TV campaign. Experts say B of A will be challenged to hold onto market share. It is one of the largest receiver of TARP funds. Sun National Bank, a regional bank doing business mostly in New Jersey, has paid back its modest TARP borrowing and is aggressively soliciting new deposits. Sun CEO Tom Geisel says the current campaign is already paying dividends.
VOICE OF THOMAS GEISEL, PRESIDENT & CEO, SUN BANCORP: We have seen already just in the week that we have been doing it, several dozen people have converted -- gone online and converted to Sun National Bank just because they now understand the strength that the organization has.
GURVEY: Analysts say the financial sector is clearly being divided into two or even three tiers based on TARP status, but Stuart Plesser of Standard & Poor's says the big question is will banks that pay back TARP be rewarded on the bottom line?
STUART PLESSER, BANK ANALYST, STANDARD & POOR'S: The likelihood is that they will, but I guess my argument is that they have already were and this hasn't just stamped them ahead of the other banks just because they paid back TARP.
GURVEY: The Interbrand study also shows consumers overall are losing confidence in the financial system. Experts say that means pitting so- called good banks against bad is a risky advertising strategy. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Street Critique"-Robert Lynch, Currency Strategist at HSBC
PAUL KANGAS: Tonight's "Street Critique" guest says the U.S. economy green shoots have taken a toll on the U.S. dollar. He's Robert Lynch, currency strategist at HSBC and Bob, welcome to the program.
ROBERT LYNCH, CURRENCY STRATEGIST, HSBC: Thanks, very much.
KANGAS: The greenback has not been benefiting from these economic green shoots. Why not?
LYNCH: I think it's important, number one, to look at where the dollar has come from. When the economic and financial market stresses intensified in the second half of 2008, the dollar had appreciated by 25 to 30 percent in some cases even more as it was one of the only things that global investors were willing to hold. What we've seen as risk appetite has returned to the market as the green shoots have developed and equity markets have rebounded from the lows reached earlier this year. We've seen some unwinding of those long dollar positions and that's resulting in a pretty sizable drop in the dollar.
KANGAS: Would that make the dollar weakness short-term then?
LYNCH: Not necessarily. As we look at what the U.S. government is doing in terms of vastly expanding its debt issuance, running up deficit and debt to GDP ratios both this year and plans to do so in the coming years as well the recent expansion of the Fed's balance sheet, we're looking at a lot of extra dollars in the market that weren't there six to 12 months ago and we're really concerned about the propensity of global investors to absorb all those dollars and we think it's going to be a problem for the currency over the immediate term.
KANGAS: Is that why stock investors should watch the dollar closely?
LYNCH: It's certainly one of the problems or one of the issues that they need to watch. One of the things that we worry about with the weakness is the dollar is the inflationary implications of a weaker dollar and we don't think that's necessarily much of a issue. But one of the things that's creeping into financial markets more generally alongside the recent rise of interest rates that have occurred are concerns that once again this vast expansion of the fiscal deficit in the United States could be inflationary down the road. So it's certainly something that's important for all financial markets.
KANGAS: What is your biggest concern about the greenback?
LYNCH: Certainly the idea that of this potential debasement of the dollar. Now we don't think that there's going to be any threat to the U.S. triple-A credit rating but you can't expand the Federal debt in the manner than has been done recently and not at least raise some concerns about that issue in the market and even those perceptions in the market I think are enough to drive the dollar down over the medium term.
KANGAS: We only have about 30 seconds left Bob, but I'd like to know if you've put any credence in these recent reports that OPEC may dump the dollar as the currency for trading oil.
LYNCH: We don't necessarily put much credence in those reports, but certainly, that gets back to the idea of the dollar being used as the world's primary reserve currency. We think that it will remain the world's primary reserve currency but that its status will be eroded gradually over time as it has over the past 10 years or so. So while that will remain an issue, a topical feature in the market and maybe even be problematic for the dollar at times, while the market is concerned about the reserve currency status, we still see the dollar as remaining the world's primary reserve currency.
KANGAS: Interesting indeed, Bob, I want to thank you for sharing your insights with us.
LYNCH: Thanks very much.
KANGAS: My guest, Robert Lynch of HSBC.
"Commentary"-Regulation To Rescue The Economy
SUSIE GHARIB: Tonight's commentator says beefing up regulation is the only way to revive the markets. He's Glenn Hubbard, dean of Columbia's graduate school of business and former head of the Council of Economic Advisers.
GLENN HUBBARD, GRADUATE SCHOOL OF BUSINESS, COLUMBIA UNIVERSITY: Regulatory lapses played a big role in our current financial market woes. But a recent report from the nonpartisan Committee on Capital Markets regulation tells us that three key changes can both increase the effectiveness of regulation and jump start financial markets. First, regulation should better address systemic risk threatens the economy. Large, too big to fail institutions should hold more capital. And current capital rules contributed to the downturn, as banks are forced to raise capital as losses mount and capital is depleted. We should instead require higher capital in a boom or allow banks to hold contingent capital as losses mount. Second, we need greater transparency to protect investors. Doing so requires increased disclosure of originators' interests in securitized offerings. And high-risk practices, such as no doc loans, should be banned outright. Third, we need a more effective regulatory structure. Our current patchwork quilt of agencies comes with a very high cost. Replacing this system with a consolidated focus will help restore financial health -- the Fed for systemic risk, a new U.S. financial services agency for financial regulation and possibly a new investor protection agency. The time for reform is now. But now is also the time for serious thought, not knee-jerk responses. Let's hope Washington listens. I'm Glenn Hubbard.
Paul Kangas' Stocks in the News
PAUL KANGAS: A boost in earnings guidance from Home Depot helped boost Wall Street's blue chips at the opening today. But the market turned lower over the next few hours as a surge in oil prices fueled inflation fears. July crude hit a new high for the year, up $1.32 to $71.33 a barrel. At mid-day, the Dow posted a 26 point loss and the NASDAQ was off 15 points. Then a poorly received 10-year Treasury note auction sent the Dow to a 113 point loss in mid-afternoon but a late rebound managed to cut that deficit. Dow Industrial Average closed down only 24.04 points at 8739.02. The NASDAQ down 7.05 at 1853.08. Standard & Poor's 500 lost 3.28 ending at 939.15. In the bond market, the 10-year note closed down 22/32 at 93 10/32, putting the yield up to 3.95 percent. Big board volume leader on 57.6 million shares, Citigroup (C) edging up $0.07. The company began a long-delayed $58 billion stock swap that could lead to government owning 34 percent of the bank.
Bank of America (BAC) an $0.08 loss there.
$0.17 drop in General Electric (GE).
Pfizer (PFE) $0.08 loss.
$0.75 drop in Wells Fargo (WFC).
And a $0.07 loss in Ford Motor Co (F).
JPMorgan Chase (JPM) $0.42 loss there.
Sprint Nextel (S) down $0.11.
American Intl Group (AIG) $0.05 drop.
And then Altria Group (MO) down $0.28, nothing but fractional losses on that board.
Alcoa (AA) managed to gain $0.34, traded a little bit higher, but Desjardins securities boosted its price target from $12 to $15 a share on Alcoa.
Home Depot (HD) edged up only $0.04, but it traded as high as $25.12 this morning after the company revised its fiscal 2009 earnings guidance to $1.37 a share at best. That's above the $1.33 Street estimate for Home Depot.
US Steel (X) up $2.31. Keybanc upgraded it from "hold" to "buy" just as Morgan Stanley did yesterday as we reported.
Oxford Industries (OXM), the apparel maker, had first quarter earnings of $0.42, well down from $0.59 last year, but $0.17 better than expected on the Street. Sales were down 21 percent.
99 Cents Stores (NDN) up $1.88. Fourth quarter earnings of $0.10 versus a loss of $0.06 last year. Standard & Poor's upgraded it from "hold" to "buy."
And then the Barnes Group (B) down $1.04. The aircraft parts maker has withdrawn its 2009 earnings guidance because of uncertainty in the transportation sector and that accounts for one third of its business.
Home builder NCI Building (NCS) down $1.12, $0.37 second quarter loss out today versus earnings of $0.85 a year ago and a loss a penny worse than expected. Sales tumbled 46 percent.
CB Richard Ellis (CBG) up $1.11. The company sees a break even second quarter, maybe even earnings of up to $0.07 a share. It'll offer $400 million in subordinated notes in a private placement.
And the world's largest RV maker, Thor Industries (THO) up $1.66. Third quarter earnings came in at $0.21, a lot better than the $0.10 Street estimate. The stock up nicely.
And then we see Lasalle Hotels (LHO) losing $1.48. It plans a public offering of 10 million shares priced at $14.75 each. Standard & Poor's repeated a "sell" on the stock.
Apple (AAPL) topped the active list, down $2.47.
Then Google (GOOG) off $3.02. The Department of Justice requests that Google turn over documents regarding its settlement with book publishers who allowed their work to be digitized on the Internet.
Microsoft (MSFT) $0.47 gain.
Research in Motion (RIMM) up $1.43. Goldman Sachs repeated a "buy" on that one.
And then Cisco Systems (CSCO) $0.13 loss there.
Baidu (BIDU) $10.86 drop.
Intel (INTC) $0.04 gain.
Oracle (ORCL) $0.25 loss.
First Solar (FSLR) up $3.87.
And finally, Qualcomm (QCOM) rounded out the NASDAQ most actives list, rising $0.04.
