U.S. Economic/Financial News
Treasury Announces Return of 30-Year Bond
The Treasury Department announced the return of the 30-year Treasury bond Aug. 4. The bonds, which were suspended four years ago, will reappear in February. According to the Treasury, $20-30 billion will be issued in the first year to finance future budget deficits, and could be used to fund the nation's underfunded pension systems.
GMAC To Sell 60% Stake in Commercial Mortgage Unit
General Motors Acceptance Corp. (GMAC) has agreed the sell a 60% stake in its commercial mortgage subsidiary to a private equity investor group, the New York Times reported Aug. 4. The investor group includes Goldman Sachs Capital, Five Mile Capital Partners, and Kohlberg Kravis Roberts & Company.
GM also announced that it would sell up to $55 billion worth of consumer car loans to Bank of America over the next five years.
Delphi Accelerates on Road to Bankruptcy
Delphi, the biggest U.S. auto supplier, confirmed Aug. 5 it is in talks with the UAW and GM about restructuring its U.S. operations to avoid bankruptcy. Threatened actions include slashing wages by 50%, by forcing early retirement for workers earning $27.50 an hour, and replacing them with a new workforce at $12 an hour. At the same time, Delphi has started a drawdown of $1.5 billion of its $1.8-billion credit line, to finance its operations, and likely to pressure GM into giving financial aid.
In response, Delphi's credit ratings were cut deeper into junk by S&P and Fitch, who cited growing bankruptcy risk. S&P cut Delphi's senior unsecured credit rating three steps to CCC-, or nine levels below investment grade, a move reflecting "increased concerns about a potential bankruptcy filing." Fitch Ratings cut Delphi's rating by three levels to CCC, a level indicating substantial default risk, from B, the fifth-highest junk rating.
Meanwhile, GM sharply increased outsourcing to India, AP reported Aug. 5. GM said it plans to buy $1 billion worth of auto parts from India each year by 2008, as part of its shortsighted cost-cutting efforts. GM currently buys about $120 million in parts from about 110 suppliers in India. Auto parts in India cost 25-30% less than in North America, a GM executive said.
U.S. Layoffs To Exceed 1 Million for Fifth Year
U.S. employers have announced 641,245 job cuts through July, up 18% from last year, CBS Marketwatch reported Aug. 3. U.S. companies announced 102,971 layoffs in July, down 7% from June, but up a whopping 48% from July 2004, as many cut jobs just to show a profit, according to outplacement firm Challenger Gray & Christmas. At the current rate, job cuts will exceed 1 million for a fifth year in a row. Over the past three months, announcements of job cuts have totalled 296,250, "unusually high for warm weather months," Challenger said, calling this the spring-summer "job-cut Hell." For the year, the threatened auto industry heads the layoffs list.
U.S. Savings Rate Falls to 0%, as Spending Rises
The savings rate for Americans fell to 0% in June, as auto sales jumped to the highest rate in four years. This was the first time since October 2001, and only the second since the Great Depression, that the savings rate has fallen to 0%. Spending was up by 0.8% (mostly from the "Crazy Eddie" giveaway of cars), while personal income rose only 0.5%, in June.
Meanwhile, U.S. auto sales jumped to an adjusted annualized rate of 20.8 million units for July, up 16% from July 2004, and the highest since a record 21.8 million rate in October 2001. The Big Three U.S. automakers have announced an extension of employee-discount pricing through Sept. 6, with GM reversing a decision to end the promotion Aug. 1. CSM Worldwide, an auto forecasting company, warned that sales will drop significantly this autumn, estimating some 200,000 sales had been merely pulled forward in June and July from customers who would have bought 2005 models in August-October.
'Category 8' Vets To Be Turned Away at VA Clinics
With the collapse of the health-care system and consequent rush of potentially qualified veterans to VA facilities around the country, the consequences of the actions of the Bush Administration to rule out a whole category of veterans are becoming clear, the Marietta Times online edition reported Aug. 2. By edict, the Bush Administration has excluded from eligibility what it terms Category 8 veteransthose who have no war-related health problems or disabilities, and earn an income above $25,000. Ohio Rep. Ted Strickland (D), commenting on the just-passed $1.5 billion emergency appropriation for veterans health, stated that even with the additional funding, there remain hundreds of thousands of vets who are told they can not receive services.