U.S. Economic/Financial News
Washington Post Yells 'Fire' Over Pending Dollar Crash
The Washington Post joined the growing chorus of alarm among Establishment circles over the threat of a pending dollar/financial collapse. "If a hollow rumor can rattle the currency," wrote the Post editors March 3, referring to the previous week's South Korean statement threatening to diversify reserves, "what would a real policy change do?... It seems a dangerous bet that Asian central banks will think it worth the risk of holding ever-expanding dollar portfolios that can falter on a rumor.... The risk of a currency crash grows everyday." The Post typically proposes spending cuts and new taxes to "solve" the problem.
Swiss Gnomes Forecast Stormy Weather Over Detroit
"Thunderstorm over Detroit," read the headline of the lead economics editorial in the Neue Zuercher Zeitung Feb. 26, setting the theme also for articles in other leading dailies of Europe, with headlines like "Dark Clouds Over Automobile Industry." The Swiss financial daily forecast for the coming weeks and months is that there will be "dramatic turbulence" in "what used to be the industrial heartland of AmericaDetroit with General Motors and Ford." Not much industry is left, nowadays, the editorial adds, and reports what has become a truism: that GM and Ford today are "financial firms, also producing cars, as their hobby."
The big money that is still made at GM and Ford is in the GMAC credit facility and Ford Credit, while industrial activity has been in a continuous decline over the past 20 years, and sales have steadily declined, in spite of the most generous and even ludicrous rebate offers of $5,000 and more per unit. The 750,000 car sales in 2004, on the basis of such rebates, cannot be repeated in 2005 or 2006, with rising oil and gasoline prices, and exploding steel prices adding to the automobile industry's problems. Moreover, the excessive rebate strategies were made possible only by the Federal Reserve's low interest-rate policy, which cannot be continued in the coming years. Germany's Frankfurter Allgemeine Zeitung Feb. 28 added that the "ruinous rebate battles" have also exhausted the financial reserves of the German and European carmakers, on U.S. markets, and any decrease of sales there will hit back, as sales in Europe are decreasing, so that the big money is made in exports.
The "thunderstorm" faced by automakers is the debt that comes due in 2006: GM will have to pay $44.7 billion that year alone, on its $301 billion debt; Ford will have to pay $37.1 billion on its $174 billion debt. Net cash profit at GM will, at best, be $2 billion only, so that the firm would need 150 years to repay its debt. Tensions are on the rise on corporate bond markets, as new debt is used to pay old debt. In 2006, the financial crisis in Detroit will explode, the Swiss daily wrote.
GM, Ford Cut Production as February Sales Plunge
U.S. automakers General Motors and Ford cut production after sales of new cars skidded in February. Both were hit by double-digit declines for many of their big trucks and sport utility vehicles. GM, the world's biggest automaker, said U.S. sales in February fell 12.7% compared to the same month a year ago; truck sales dropped 9%, while car sales tumbled 17%. This prompted GM to cut planned North American production, already down about 9%, by another 3% in the remainder of the first quarter; and in the second quarter, by 10% compared to a year ago.
Ford, the second-largest U.S. automaker, said sales slid 3%the ninth straight month of lower year-over-year saleswith an 11% drop in sales of its F-Series pickup trucks and a 19% plunge in sales of its Explorer SUV. Ford is cutting first-quarter North American production by another 10,000 vehicles, or 1%; and second-quarter output by 1.2%. The production cutbacks will hurt 0GM's and Ford's bottom line since they book profits when autos are shipped from factories.
GM To Shut Historic Lansing Plant in May
General Motors is closing its historic Lansing, Mich. assembly plant in May, due to falling car and truck sales, the Detroit News reported March 2. The 85-year-old plant's 3,200 hourly workers will be "temporarily" laid off, and then most will supposedly transfer to a new GM plant under construction in nearby Delta Township. Also scheduled to close later this year, are two plants built in the 1930s, in Baltimore, and in Linden, N.J.
January Home Sales, Prices Drop Precipitously
A report released Feb. 28 by the Census Bureau and the Department of Housing and Urban Development shows a 9% drop in U.S. home sales and, according to figures reported in the Washington Times March 1, a 13% drop in the median price of a home for January 2005. The median sales price of a house in January was $199,400, while the average sales price was $281,900, indicating that sales of super-high-end "McMansions" are still buoying the market. The biggest drop in volume was in sales of homes between $200,000 and $300,000, those right in the middle of the market range.
Much of the coverage tries to mute the effect of these figures; the Wall Street Journal, for example, buried them in a report on falling personal income, and most reports blame the bad weather.
Corporate Layoffs Surge in February; Mergers Blamed
Layoffs by U.S. corporations were up by 17% in February over the previous month, primarily due to the merger binge. The 108,387 layoffsalmost half from mergers in telecommade February the fourth month in five with over 100,000 layoffs, according to Challenger Gray & Christmas. Challenger Gray & Christmas covers only a small portion of layoffs, leaving out all small businesses.