In its Feb. 17 presentation to the Treasury, GM proposed shrinking its debt 40% from $62 billion to $33.5 billion by modifying obligations to a union-retiree health fund, shedding 47,000 jobs, and persuading bondholders to accept less in an equity swap.

Now that the Treasury has rejected those proposals as too little too late, GM must find a way to come up with new cost-cutting efforts by slashing the debt even further and cutting more jobs in 2009.

The company will collect input from board meetings and the Treasury’s auto task force to create a framework for new discussions this week, sources familiar with the plans told Bloomberg News.

One measure of the company’s future performance which might be acceptable to the government would be to trim expenses so it can break even when U.S. vehicle sales are as low as 10 million to 10.5 million units, John F. Smith, GM’s group vice president for product planning told reporters last week.

The automaker had previously stated an industry-wide rate of 11.5 million to 12 million cars and light trucks as its break-even target.  By comparison, March deliveries declined for the 17th consecutive month to an annual rate of 9.86 million vehicles.

GM announced recently it would save about $1.1 billion when 7,000 union workers retire early or take buyouts this year and a new UAW agreement kicks in that cuts benefits and streamlines factory work rules.

The U.S. auto industry has cut 400,000 jobs over the past year and lost billions of dollars. After receiving $13.4 billion last year, GM has requested an additional $16 billion from the government to keep operating.  Chrysler LLC has also asked for a new round of funding.

Appearing on NBC News‘ “Meet the Press,’ Chief Executive Officer Fritz Henderson denied that bankruptcy was inevitable, but said the company was speeding up preparations for a possible court filing in case it is unable to meet the government’s requirements.

“Our preference is to do it outside of a bankruptcy process, but it would only be prudent to make sure that we’re planning for if we need to resort to that, that we can move and we can move fast,’ said Henderson

Under the terms of a court-supervised bankruptcy, GM would form a new company focused on its best assets, Bloomberg reported, citing people who asked not to be named because the details of GM’s preparations aren’t public.

That process might include a so-called 363 sale, a reference to a section of the Chapter 11 bankruptcy code that could create a new company from the assets and brands of GM, increasing the company’s survival chances.

But that’s not likely to help assuage bankruptcy fears in Michigan, where GM and the other big automakers have their headquarters and most significant operations.

There is “tremendous pain in our state” because of layoffs and financial losses in the auto industry, Senator Debbie Stabenow (D-MI) told Reuters.

“I do not support bankruptcy as the first, second or third option,” Stabenow said, adding that bankruptcy could shift pensions for GM retirees to the federal government.

GM Fights for Survival, Prepares for Bankruptcy

The president was under pressure to say who would handle the issue before tomorrow, when General Motors Corp. (GM) and Chrysler LLC must give progress reports on plans to restructure as a condition of $17.4 billion in U.S. Treasury loans. The so-called car czar – an approach that had some support in the American auto industry – was viewed as a key move in the federal government’s push to revamp the U.S. auto industry. The task force puts an end to reports Obama would recruit a well-known figure from outside to serve in that role, an approach that had some support in the industry itself.

Ron Bloom, a United Steelworkers union adviser and former Lazard Ltd. (LAZ) vice president, will join the Obama administration team, Bloomberg said of the alleged appointment, which has yet to be made publicly.

“There needs to be a trail boss here,” said Andrew Gross, chairman and chief executive officer of Automotive Consulting Services LLC in Clackamas, Oregon, told Bloomberg in a telephone interview yesterday. “Typically when you have a committee set up it provides cover. Everyone’s responsible, but no one’s accountable.”

Geithner has “got his hands full” trying to rescue the banking industry, Gross said.

After Congress failed to approve a bailout for the automakers, former President George W. Bush on Dec. 19 authorized the loans, a move that effectively made the Treasury secretary the car czar, imbued with the responsibility for making sure the companies meet deadlines and authority to revoke the loans.

Under the new plan, Geithner will remain Obama’s official “designee” to oversee the restructuring, meaning he’ll have the authority to pull back the aid if the automakers fail to submit a return-to-profitability plan by the established March 31 deadline.

“It’s going to be something that’s going to require sacrifice not just from the auto workers, but also from creditors, from shareholders and the executives who run the company,” senior White House adviser David Axelrod told NBC TV’s “Meet the Press” on Sunday.

Representatives from Cabinet departments and White House offices will serve on the task force, too.

Market Matters

So what will $790 billion buy these days?  Hopefully, a few roads and bridges, about 3.5 million new jobs – and perhaps an economic recovery for the country, too. President Obama is expected to sign the legislation today (Tuesday), The Washington Post reported.

But as the stimulus package moves closer to Obama’s signature, the jury is still out on its future success. Perhaps the sign of a successful compromise exists when neither party is completely satisfied (or not at all satisfied) and points out flaws in the final package.

In this case, budget hawks and other conservatives claim that the bill is a giant spending package that will do little to revive the economy, or create any real jobs. Many bleeding hearts and other liberals were counting on a larger stimulus and believe the tax cuts and rebates will not help and, if anything, similar actions over the past few years have contributed to the current mess.

President Obama seemed pleased with the progress and praised the plan as an “endeavor of enormous scope and scale.”  Then again, his views on effective stimulus may have cost him another cabinet nominee as his willingness to cross partisan lines to find a Commerce Secretary failed over insurmountable economic and ideological differences with Sen. Judd Gregg.

News from the bailout front grew more pessimistic during the week as Treasury Secretary Geithner’s initial attempt to win over Congress, investors, economists, and the media proved no more successful than Hank Paulson’s before him.  The stock market had run up significantly in the days leading to his speech, as folks hoped to hear some specifics about how the next round of the Troubled Assets Relief Program (TARP) (and other initialed programs like TALF) would work far better than the initial plan.  Instead, disappointed investors ran for cover when his remarks left many questions about the valuations of toxic assets and private/public partnerships unanswered.

As plenty of finger-pointing continued over the failed bailout initiative and its lack of direction, some signs of success from the U.S. Federal Reserve and Treasury Department’s moves have slowly emerged.  The once-frozen credit markets have started to thaw as corporations have borrowed almost $80 billion so far in 2009, issuing high quality bonds to take advantage of low interest rates: Cisco Systems Inc. (CSCO) alone sold $4 billion in debt securities to raise cash for potential merger-and-acquisition activities.

In other (optimistic) news, Intel Corp. (INTC) will be investing $7 billion in technology enhancements at its factories during these dire times.  McDonalds Corp. (MCD) showed that Big Macs are near necessities as same-store sales jumped by more than 7% last month.  Still, earnings season wound down with profits at Standard & Poor’s 500 Index companies projected to plunge over 30% in the fourth quarter, the worst showing in about two decades.  In fact, it was the first-ever quarter of negative earnings, MarketWatch.com reported.

Oil plummeted below the $34-a-barrel level (at one point) as inventories climbed to an 82-week high amid lower demand for energy during the downturn.  Investors unloaded stocks following the Geithner remarks (remember the old market adage: “Buy on the rumor, sell on the News”), despite some better-than-expected economic releases.

Bonds experienced a “flight to quality,” and also rose on news that a comprehensive foreclosure-assistance plan is in the works.

Economically Speaking

First the bad news. In the latest Wall Street Journal poll of top economists, the vast majority revised (downward) their outlooks for the second half of 2009, and said that the prospects for a full-fledged recovery seem much less promising.

While most predict that we’ll see some economic growth during the last six months, the rate of such expansion is lower than earlier projections. In fact, several economists expect that economic contraction will continue to be a reality through the end of the year.

But that brings us to the good news: These economic surveys are rarely on target.

Federal Reserve Chairman Ben Bernanke did his best Tony Robbins impersonation (the power of positive thinking), and highlighted the recent successes of certain policies.  Bernanke suggested that the commercial paper markets have benefited from the central bank’s decision to buy these short-term securities and more companies are meeting their liquidity needs.  He promoted the newfound stability among money-market funds as investors ceased the mass withdrawals that were occurring last year. Finally, he expressed relief that mortgage rates have declined dramatically and that borrowers have taken advantage of purchase and refinance opportunities (at least those borrowers with high-paying jobs and stellar credit).

While the trade deficit declined to its lowest level in almost six years, the pessimists claim that the improvement is more reflective of the recessionary times which have restricted domestic demand for the imports of oil and other foreign-made products and services.

Meanwhile, the imbalance with China climbed to an all-time high.  In retail news, sales in January surprisingly jumped by 1%, the first increase in seven months and the best showing in more than a year. While Wal-Mart Stores Inc. (WMT) took advantage of the consumers’ hearty appetites for groceries and other (discounted) necessities of life, buyers also hit the auto lots again to check out the “too-good-to-be-true” deals.  While the initial jobless claims actually fell slightly in the most recent week, the number of unemployed continuing to search for a job moved higher, an indication that the labor markets remain tight.

The foreclosure initiative will be of particular interest to many who believe the housing sector remains the key to any recovery. Investors also get the latest look at the inflation picture as both the producer price index (PPI) and consumer price index (CPI) for January will be released.  While oil has continued to plunge, gas prices seemed to have stabilized as of late (unfortunately for consumers) and talks of deflation may have been put on the backburner, at least for now

Weekly Economic Calendar

Source: Obama Administration Kicks the “Car Czar” to the Curb; Treasury’s Geithner to Take the Wheel

A sharp drop in U.S. car production has waylaid the auto-parts industry and now skittish banks are holding credit back from companies looking for a life preserver. Alarmed by the precarious state of Detroit’s Big Three, many banks have stopped accepting receivables, or income that suppliers book in anticipation of future sales, as collateral.

A vast network of smaller suppliers, which rely heavily on receivables to get loans from smaller banks, is particularly at risk. But even larger parts makers with stronger financials are bracing for what could turn into an industry-wide meltdown.

Lear Corp., General Motors Co.’s (GM) second-largest supplier has already hired New York investment-banking firm Miller Buckfire & Co. and Goldman Sachs Group Inc. (GS) to amend credit agreements to avoid defaulting on loans, The Wall Street Journal reported.

“A couple of significant failures could bring the entire industry down,” said Daniel Ninivaggi, Lear’s executive vice president.

Visteon Corp. was one company identified by The Journal as being perilously close to liquidation. One source familiar with situation said Visteon is “about 65% to 70% of the way there.”

The company has instituted a four-day workweek for 2,000 salaried employees and plans to cut pay by as much as 10% for employees making more than $75,000 a year.

A large portion of the domestic car industry was idled in late December as companies extended holiday shutdowns, but with cash is running low, there is growing anxiety that the weakest suppliers will start to succumb to bankruptcy by February.

Industry leaders have stepped up their lobbying efforts in recent weeks, as a result, and Neil de Koker, president of the Original Equipment Suppliers Association, told the Financial Times that representatives are planning to make a formal request for access to the Troubled Asset Relief Program (TARP), just as Ford Motor Co. (F), GM, and Chrysler LLC did last month.

“Suppliers need money, otherwise all the money put into GM and Chrysler will go for naught,” said de Koker.

Mainly, industry lobbyists want government guarantees on receivables so banks will again start accepting them as collateral.

Suppliers book $13 billion to $15 billion in Big Three receivables each month, according to the Original Equipment Suppliers Association and the Motor and Equipment Manufacturers Association.

The government would have to guarantee $10 billion to $12 billion, or 80%, of those receivables for banks to loosen credit terms, according to industry estimates.

Other measures could include direct cash infusions and a three or four-month moratorium to keep banks that received help from the TARP from pulling or altering terms on credit lines to auto-parts makers.

Source: On the Brink of Bankruptcy, U.S. Auto-Parts Companies Seek Bailout

• Sources close to the matter told Bloomberg News that President-elect Barack Obama may name Steven Rattner as “car czar,” a top-level position that would oversee the conditions of which bailout money is given to U.S. auto companies, Bloomberg reported. Rattner co-founded private-equity firm Quadrangle Group LLC in 2000.

• Barclays plc is planning to cut more than 2,100 jobs from its investment banking and investment management units, sources told Reuters. About 1,300 jobs would be lost from Barclays Capital. About 500 from Barclays Wealth. And about 370 from Barclays Global Investors.

• Great Britain energy titan, BG Group plc, plans to invest between $4 billion and $5 billion to develop oil fields in Brazil through 2012. “We’re confident that these developments can be made economic at lower oil prices, but we’ll need to ensure the efficiency of the investment. Oil prices we see today are much more realistic,” Chief Executive Officer Frank Chapman told Bloomberg.

• Pharmaceutical giant Pfizer Inc. (PFE) said it plans to slash 800 research jobs, a reduction of 5% to 8% of its research workforce. Most of the cuts will come from labs in California, Connecticut and England, and are in addition to the near 10,000 jobs cut companywide since early 2007, Reuters reported.

• Crude futures halted a weeklong price slide yesterday (Tuesday), as light, sweet crude for February delivery rose 19 cents to settle at $37.78 a barrel on the New York Mercantile Exchange. Futures briefly touched $36.10 a barrel, a new low for the year, earlier in the day.

• Commercial banks borrowed more while investment banks borrowed less from the U.S. Federal Reserve’s emergency lending program over the most recent week. The Fed report said commercial banks averaged daily borrowing of $87.9 billion during the week that ended last Wednesday. That was an increase from the $86.6 billion in average daily borrowing for the week that ended Dec. 31. Investment firms borrowed nearly $36 billion over the past week, USA Today reported. That was down from the average of $38.5 billion for the week that ended Dec. 31, the newspaper reported.

• U.S. companies may have to contribute $109 billion to their corporate pension plans this year to fill funding gaps caused by turmoil in the financial markets, consulting firm Watson Wyatt Worldwide Inc. (WW) said yesterday (Tuesday). Watson Wyatt expects companies also will have to contribute more than $102 billion in 2010. Both of these figures are up significantly from the $38 billion that companies were required to contribute to the plans last year.

Source: Global Investment News Roundup Wednesday, January 14th, 2009

But the news may have bigger implications for Japan’s entire economy, as the country’s exports continue to take a beating from sagging worldwide demand for its products.

Japanese exports plunged 26.7% in November from a year ago. Shipments to the U.S. slid an unprecedented 34%, Japan’s Finance Ministry said. A strong yen, which makes Japanese goods more expensive, combined with deflated consumer spending, is hammering Japanese exporters.

Toyota will post a $1.7 billion (150 billion yen) loss in the year through March, it said in a statement, scrapping a previous forecast of a $6.6 billion. The last time Toyota posted an operating loss was in the year ended March 1938, spokesman Hideaki Homma told Bloomberg News.

“The environment we’re in is extremely tough,” President Katsuaki Watanabe told reporters in Nagoya. “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom.”

U.S. auto sales are down 16% this year, led by declines of 28% for Chrysler LLC, 22% for General Motors Corp. (GM) and 19% for Ford Motor Co. (F), Bloomberg News reported. The three U.S. automakers will close about 59 factories over the next month as they struggle to avoid bankruptcy.

“It is difficult to envision any swift recovery from the present damage in the U.S., Toyota’s core market, and we anticipate increasing cuts in overseas local production,” wrote Barclays Capital (BCS) analyst Tsuyoshi Mochimaru in a research note on Dec. 19, according to MarketWatch.

Compounding the demand problem is a surging yen, which erodes overseas profits for Japanese exporters. The yen has gained 25% against the dollar this year.

But Toyota’s problems may just be the tip of the iceberg for Japan’s economy. The November export plunge was the biggest drop on record, as global demand for cars and electronics collapsed.

Earlier this month, Sony Corp. (ADR: SNE) announced it was cutting 8,000 jobs, or about 4% of its worldwide workforce. Sony recently blamed a 72% profit plunge in the third quarter partially on a resurgent yen. Electronics company Sanyo Electric Co. (OTC: SANYY), facing tough market conditions around the globe, agreed Friday to sell itself to rival Panasonic Corp. (PC).

“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad, he told Bloomberg News.

Like the U.S. Federal Reserve, The Bank of Japan has been hacking away at interest rates in an attempt to stanch the economic bleeding. Japan’s central bank lowered rates to 0.1% on Friday.  But the rate cuts haven’t been enough to kickstart the Japanese economy, as the yen has remained stubbornly strong.

Source: Toyota’s First Operating Loss Since 1938 Spells Trouble for Japanese Economy

The dollar rose against the yen on Monday after the Bank of Japan followed last week’s interest rate cut with a warning that the health of Japan’s economy has deteriorated and is likely to get worse.

But investors’ equally dim view of the U.S. economy hurt the greenback against the euro, which rose broadly in holiday-thinned trade. Doubts about whether a U.S. automaker bailout would steer the economy out of recession also hit the dollar.

Traders said volumes were razor-thin in the lead-Up to the Christmas holidays, aggravating even the slightest moves in the currency markets. Still, many said demand for dollars remained low.

“The dollar view is so opaque at the moment, and the risk reward at this time of year is not worth it unless you really have to trade,” said Maurice Pomery, head of foreign exchange at IDEAglobal in London.

The dollar managed to rise above 90 yen for the first time in nearly a week after BoJ Governor Masaaki Shirakawa said yen strength and a global slowdown may force Japanese exports still lower even after a record plunge in November.

“All Asian exporters are at risk in this global economic slowdown, but Japan is at the top of the list,” said Dustin Reid, senior currency strategist at RBS Global Global Banking & Markets in Chicago. “The stronger yen has been playing havoc for Japanese exporters, and the auto companies in particular are likely to be significantly affected.”

So far this year, Japan’s currency is up nearly 20 percent against the dollar and more than 22 percent against the euro.

Early in New York, the dollar was changing hands at 89.85 yen , up 0.8 percent, after earlier rising to 90.23. The BoJ cut Japanese interest rates last week to near zero.

The euro also rose 1.3 percent to 125.79 yen after earlier hitting a session peak of $1.4123. Sterling fell 0.8 percent to $1.4814 , while the euro rose 1.1 percent to 94.35 pence , near a record high of 95.56 pence touched last week.

A move by China’s central bank to cut lending and deposit rates by 27 basis points — its fifth cut since September — shed more light on the scope of the global slump.

GRIM U.S. OUTLOOK

After coming under steady pressure in December, the dollar rallied on Friday after the Washington announced emergency loans for crippled General Motors and Chrysler.

But while the move averted a crisis for now, traders said uncertainty over the companies’ restructuring plans left many doubting the long-term effect it would have on the economy.

Last week, the Federal Reserve cut benchmark interest rates to near zero, underlining the severity of the economic crisis and undermining support for the dollar.

Investors are also looking for the European Central Bank to cut interest rates, currently at 2.5 percent, in January, though ECB executive board member Lorenzo Bini Smaghi warned about the risks of monetary policy being too lax, according to the Rome newspaper Il Messaggero.

Steven C. Johnson, Reuters 12/22/08

Oil fell towards $45 a barrel on Friday, after the collapse of a $14 billion rescue for U.S. automakers caused heavy losses across global financial markets and Goldman Sachs predicted oil could fall to $30 a barrel.

U.S. crude oil for January delivery was down $2.95 at $45.03 a barrel by 1119 GMT.

Prices rallied more than $4 on Thursday to a session high of $49.12 a barrel before dropping back in late trading.

Oil sank to $40.50 last Friday, its lowest in 4 years.

London Brent crude was down $2.98 at $44.41.

The plight of the big U.S. auto firms, including General Motors Corp and Chrysler, illustrates the severity of the global economic downturn that has hit demand for oil.

“The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified, now threatens to push oil prices below $40 a barrel in the near term,” Goldman Sachs said in a research note.

“The impact of the global economic recession has swung the oil market from pricing demand destruction in 2008 to pricing supply destruction in 2009.”

The U.S. investment bank, which earlier this year had predicted $200 per barrel oil, virtually halved its 2009 price forecast for U.S. crude to $45 and said the price could fall to $30 in the short term.

Goldman analyst Arjun Murti, who predicted a super-spike in oil to $100 in 2005, said prices would hit a trough in the first quarter.

The bank said a cut of an extra 2 million barrels per day was needed from OPEC, which meets next on Dec. 17 in Algeria.

French bank BNP Paribas cut its 2009 price forecast to $53 a barrel from $75 previously.

Crude has shed two-thirds of its value over the last five months, down about $100 from a record of $147.27 in July.

It rebounded more 10 percent on Thursday in anticipation of a big supply cut from the Organization of the Petroleum Exporting Countries.

OPEC’s President Chakib Khelil has called for more “severe” supply cuts at next week’s meeting.

Russia’s President Dmitry Medvedev has also weighed in, saying the country was ready to work with OPEC on possible oil output cuts.

Japan’s Nippon Oil said it expected OPEC to agree to cut 1.5-2.0 million bpd next week.

“Chances for a 2.5 mln bpd cut are possible, but that would put increased criticism on OPEC amidst the economic slowdown, so I think the likely cuts are up to 2 mln bpd,” Kazuyoshi Takayama, Nippon Oil’s general manager, told reporters on Friday.

Jane Merriman, Jennifer Tan, Osamu Tsukimori
LONDON, Dec 12 (Reuters)

“It is not my job to hire and fire, but what I’m trying to suggest is that you need to have new teams in place,” Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, said today on “Good Morning America”.  “If you are going to restructure a company you can’t be asking the people frankly, many who were involved in creating the problems we’re in, to be involved in restructuring.”

That’s just one of several possible strings attached to a bailout to the Big Three – General Motors Corp. (GM), Ford Motor Co. (F), and Chrysler Corp. The first is that the $34 billion requested could be turn out to be about $15 billion. Another could be forcing GM to cancel its long-established dividend. (Ford suspended its dividend last year.)

Another could be additional concessions from the United Auto Workers union, Reuters reported.

Another possible change that will no doubt garner some attention is the creation of a government-appointed “car czar” to oversee the bailout. The New York Times reported Sunday that Democrats were drafting legislation that would call for the strict government control of a czar-controlled oversight board comprised of five cabinet secretaries and the head of the Environmental Protection Agency.

Whatever concessions are on the table, some form of bailout is likely to pass, the Associated Press reported.

“It sounds like we have agreement on those basic principles that would be required for a bill that the president could sign,” White House press secretary Dana Perino told reporters today.

So far, the carmakers have proposed a wide range of changes to help persuade lawmakers to approve the bailout money, the carmakers proposed a wide range of changes. Among the highlights:

• Executive salary cuts: Ford announced that the salary of Ford CEO Alan Mulally would be cut to $1 a year if the firm actually borrowed money from the government. General Motors said that Wagoner, the CEO, also will accept a $1 salary. Chrysler’s Robert “Bob” Nardelli is already being paid only $1 a year, according to the Chrysler plan. Mulally had a base salary of $2 million and total compensation of $21.7 million last year, according to the company’s filings. Wagoner received base pay of $1.6 million and total compensation of $14.4 million. Closely held Chrysler does not disclose executive pay.

• Financial restructuring: GM intends to renegotiate its outstanding debt with lenders and bondholders. As of the third-quarter’s close, the firm had more than $30 billion in unsecured debt. GM said it anticipates making all of the roughly $28 billion in payments it owes its suppliers.

• Product streamlining: As part of its cost-cutting efforts, GM suggested that two of its brands – Pontiac and Saturn – could be dropped from its product mix. Pontiac – known in the past for such cars as the Firebird, Trans-Am and GTO – could become a niche brand sold by other dealerships. GM would look for alternatives for dealers of the Saturn, which revolutionized the industry with its no-haggle pricing policies. The company has already said it was considering the sale of its Hummer vehicle line.

• Union concessions: GM intends to seek additional changes in the labor contract it has with the United Auto Workers union – enabling it to modify retiree health care plans and job guarantees the company says it can no longer afford. Money Morning previously reported that national union leaders with all three of the U.S. automakers are planning to hold an emergency meeting in Detroit today (Wednesday).

• New alliances: Chrysler, which a year ago was sold by German automaker Daimler AG (DAI) to the U.S. private equity group Cerberus Capital Management LP, said it remains focused on “developing partnerships, strategic alliances or consolidations” as part of its long-term plans. Chrysler leaders say the firm could save between $3.5 billion and $9 billion a year if it merged with another automaker. GM last month said that it had halted discussions about a possible combination with Chrysler to focus on its own turnaround efforts.

• More hybrids, no corporate jets: Each of the Big Three pledged an accelerated introduction of hybrid vehicles. Ford yesterday promised to put “a family of hybrids, plug-in electric vehicles, and battery-electric vehicles” on sale by 2012, BusinessWeek.com reported. The specific plan calls for a battery-powered electric commercial van in 2010 and a battery-powered retail sedan in 2011. The company is also believed to be developing plug-in versions of its Focus and Fusion cars by 2012-2013. By 2010, Ford said 80% of its investments will be in cars and so-called “crossover” vehicles-as opposed to trucks and SUVs. That’s up from 60% in 2007. Ford and GM also announced plans to get rid of corporate jets. Mulally, Wagoner and Nardelli were all criticized at a House hearing last month – and ridiculed in the media afterwards – when they admitted they had each flown their corporate jets to Washington to ask for rescue money. According to CNNMoney, Ford promised to sell its five corporate jets, while GM vowed to sell four of its seven – and to transfer the leases on the remaining three to another operator. Chrysler spokesman Ed Garsten says Chrysler does not own any private aircraft but instead leases them on an “as-needed” basis. The CEOs apparently learned their lessons well, albeit a bit late: When they return to Washington to beg for the loan money later this week, Mulally and Wagoner will be wheeling hybrid vehicles made by their companies; Nardelli will also drive a hybrid in his return to Capitol Hill, published reports state.

Not on that list: Replacing current CEOs. And GM said putting Wagoner on the chopping block isn’t a constructive solution, despite Dodd’s suggestion.

“GM employees, dealers, suppliers and the GM board of directors feel strongly that Rick is the right guy to lead GM through this incredibly difficult and challenging time,” GM spokesman Steve Harris told the AP.

Source: Auto Bailout Could Have Strings Attached: Ousting CEOs, Appointing Car Czar

A tentative rebound in global stocks spluttered on Wednesday while euro zone government bond yields hit a three-year low as gloomy economic news highlighted the case for more aggressive interest rate cuts in Europe this week.

The euro stayed on the backfoot and oil held near a 3-1/2 year low a day before the European Central Bank, Bank of England and Sweden’s Riksbank are all widely expected to cut borrowing costs.

Supporting those expectations, economic reports on Wednesday showed the euro zone’s services economy fell deeper into recession in November than initially thought and inflationary pressures eased.

“This is a horrible survey across the board, showing that the euro zone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets,” said Howard Archer, economist at IHS Global Insight.

Australia’s economy grew at its slowest pace in eight years in the third quarter as gathering recession abroad and evaporating equity wealth at home curbed spending by consumers and businesses.

Central banks worldwide are cutting rates to fight recession. They are also considering more measures to stabilise financial markets and restore battered consumer and investor confidence, including help for struggling U.S. auto makers.

The FTSEurofirst 300 index of top European shares fell 1.5 percent in early trade with Britain’s FTSE 100 index down 0.9 percent and Germany’s DAX  shedding 1.7 percent.

MSCI world equity index eased 0.4 percent.

“The markets are still looking very tender,” said Justin Urquhart Stewart, investment director at Seven Investment Management.

“Markets are not focusing on any of the good news and the good news is rates are being cut, commodity pries are coming down, stimulus packages are being put together and banks are being supported. But the market’s feeling very depressed.”

Japan’s Nikkei managed to eke out a 1.8 percent gain following a rebound on Wall Street on Tuesday, but MSCI’s measure of other Asian stock markets put on just 0.2 percent.

EURO PRESSURED AS ECB CUT EYED

Also under pressure, the euro fell 0.7 percent against the dollar on the day to $1.2626 and was also weaker against the yen , while the dollar climbed 0.6 percent against a basket of major currencies.

But demand for less risky assets continued to mount, helping to push government bond yields lower.

The 10-year euro zone government bond yield plumbed a low of 3.004 percent — a level last seen in Sept. 2005, while the benchmark 10-year yield for U.S. Treasuries was at 2.727 percent, not far off a five-decade low of around 2.651 percent set on Monday.

“Economic indicators are plunging like there is no tomorrow and central banks are gearing up for significant easing,” said Elwin de Groot, a strategist at Rabobank, noting 100 basis point rate cuts from Australia and Thailand this week.

The ECB meets on Thursday and most economists expect an interest rate cut of 50 basis points, while the Bank of England is forecast to cut rates by an aggressive 100 basis points.

Sweden’s central bank is likely to slash rates by a record 100 basis points, or possibly more, on Thursday when it announces the result of its meeting, which it brought forward by almost two weeks.

Meanwhile, U.S. crude edged up 41 cents to $47.37 but was within striking distance of Tuesday’s trough of $46.82 — a low last seen in May 2005.

Gold slipped to $774.80 an ounce, down $6.70 from New York’s notional close on the back of a broadly firmer dollar.

By Ian Chua
LONDON, Dec 3 (Reuters)

Gold climbed 1 percent on Tuesday, reversing earlier losses, as the dollar weakened against the euro on firming U.S. equity markets and oil prices recovered from 3-1/2 year lows.

Spot gold was quoted at $781.70/783.70 an ounce at 1522 GMT, up from $770.60 an ounce late in New York on Monday.

“Oil recovered and the euro-dollar is higher,” said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals group Heraeus. “Those are the main reasons for the move.”

“The outlook from here really depends on the leading indicators, as well as oil and the dollar,” he added.

Gold slipped in earlier trade, extending the previous session’s losses, as the dollar firmed against the euro and oil prices sank, denting interest in the precious metal as an inflation hedge.

In addition, rising risk aversion prompted a sell-off of equities and commodities, while “safer” assets such as the yen and government bonds are soaring.

Tumbling oil prices also pressured the precious metal, which is often bought as a hedge against oil-led inflation. However, prices have steadied in afternoon trade as firm U.S. and European stock markets helped crude to recover.

The dollar, the other main external driver of gold, also turned supportive for the precious metal, tumbling against the euro and a basket of currencies as a rebound in the equity markets cheered investors in other assets.

Investors are awaiting a spate of key data due out later this week, culminating in U.S. non-farm payrolls numbers on Friday, and interest rate decisions from central banks including the ECB, for signs as to the next direction of trade.

“Investors should adopt a cautious strategy today and monitor credit market developments,” said Standard Bank analyst Manqoba Madinane.

“Increased credit market tension could compromise precious metal investment flows, which could mean yet further price declines,” he said.

Elsewhere, imports of gold into India — the world’s largest bullion market — slipped in November to around 35-40 tonnes from 54 tonnes a year ago, the Bombay Bullion Association said.

Among other precious metals, silver rose to $9.62/9.70 an ounce from $9.26.

Platinum recovered after falling sharply on Monday in the wake of weak Japanese car sales data, having ended that session down 9 percent.

Traders are looking ahead to U.S. November car sales data due out later in the session and further news of a possible U.S. government plan to aid ailing carmakers.

“Sentiment remains nervous with concerns surrounding negotiations on a bailout for U.S. automakers this week,” said Barclays Capital in a note.

Ford said on Tuesday it has submitted its business plan to Congress, and that it expects its automotive business’ pretax profits to break even or be profitable in 2011.

Carmakers are submitting restructuring plans to Congress this week before lawmakers reopen debate on a $25 billion bailout plan for the automotive industry.

Platinum and palladium are sensitive to a downturn in car demand, as they are chiefly used as components in catalytic converters.

Spot platinum rose to $803.50/823.50 an ounce from $790.50 an ounce late in New York on Friday, while its sister metal palladium eased to $169.50/177.50 an ounce from $171.50.

By Jan Harvey
LONDON, Dec 2 (Reuters)