U.S. Economic/Financial News

Half-a-Million Square Feet of Auto Capacity Demolished in Indiana Alone

The GM Anderson (Indiana) plant, built in the early 1950s, which produced generators but was closed by Delphi in December 2005, was razed to the ground over the last three months, the Detroit News reported June 20. Today this plant, which once housed 27,000 workers but was reduced to 700 with the 1999 Delphi takeover, is nothing but a pile of rubble and "6,000 tons of scrap steel," to be sold off. The Mayor of Anderson, in discussion with EIR June 20 while describing his plan to "diversify" job opportunities in the area, revealed that the 30-year deindustrialization of the city has led to a 60% collapse in its population—in 1970, the population was 70,000; today it is under 28,000.

Lockport Delphi Plant Faces Extinction

As of June 20, some 700 of the 1,200 auto workers eligible to take Delphi/Lazard's so-called "national special attrition and incentive plan" at the Lockport Delphi Thermal Systems plant, have signed on to the deal. The remaining eligible 500 have until June 23 to accept or reject it. These 1,200 are workers who have 27 to 30 years of service.

The plant has a total of 3,100 hourly workers, including these senior workers. Delphi has various supplemental buy-out plans which potentially could eliminate the whole 3,100-person workforce. Clearly, if everyone accepts the pre-retirement buy-out deals, a de facto closure of the plant could occur, contrary to assurances reportedly given to some New York Congressional offices. A UAW representative in Lockport told EIR that he thought these numbers were accurate, and that closure of the plant was "certainly is a plausible scenario, although I don't know that it is official."

He described a just-as-likely scenario, in which, the hiring of temps—with no benefits, and at half the wage—similar to "what is happening down South," could result. Buttressing this scenario, he reported that some of 30-year veteran auto workers, who have signed off on the deal, now cannot get a release date to leave, with some being told they may have to stay until Decemeber—perhaps to train the temps who will replace them. He also said 149 auto workers have already been told that when the plant closes July 1 for normal summer retooling, they will be laid off rather than be allowed to go into the UAW job bank, which is standard to allow for rehiring. He believes this is due to the phasing in of more temps.

Demoralizing Auto 'Retirement' Buy-Outs Grow

GM has bought out over 28,000 of its own workforce, and expected to reach 30,000 or more by end of last week. Delphi, with GM financing, has bought out 10,000 workers, and has targetted another 10,000, especially younger workers with less seniority, in the second stage of its buy-out program. Ford expects to have bought out 9-10,000 by August. The total could easily reach 60,000 production workers booted out of the auto industry in less than three months, from late May through early August, when Delphi's next bankruptcy hearing takes place.

GM June 21 postponed issuing its financial report because of ongoing spending on buy-outs, which may total $3-4 billion already, and hit $5.5 billion when the buy-out programs reach their deadlines.

Wall Street: 'What Hedge Fund Problems?'

Whistling past the graveyard, the Wall Street Journal June 22 reports that "problems among hedge funds remain fairly well-contained. That is, although several hedge funds went belly-up during recent market turbulence, there is little danger of a repeat of the crisis caused by the collapse of Long Term Capital Management (LTCM) in 1998. "Rather than the LTCM scenario, however, hedge funds these days drop like lonely trees."

The article names three hedge funds which recently shut down:

* KBC Alternative Investment Management "backed by the eponymous Belgian bank." It had $5.3 billion under management in hedge funds; after months of grueling losses, it manages less than $1 billion and has closed down part of its hedge-fund business.

* Ospraie Point Fund. In early June, it closed after bets went awry.

* Saranac Capital Management L.P. (founder Ross Margolies). A few weeks before Ospraie, it closed down its hedge funds after assets under management dropped over 18 months from $2.9 billion to $600 million.

The article boasts that today's hedge funds (unlike those in 1998) have specific agreements with Wall Street brokerages to maintain credit lines in times of crisis. But, they admit hedge fund managers worry about these brokerages' level of trading with their own ("house") money, quoting Michael Hitze of the London-based $5 billion hedge fund CQS: "The [investment] banks support us in our trading, they extend leverage to us, and at the same time they are many times more leveraged than we are. That is the potential danger."

World Iron Ore Prices Soar 90% in Two Years

Iron Ore prices worldwide have shot up 90% in two years, with the decision June 19 by Chinese steel producers, to accept this year's increase of 19%, according to the Washington Post June 21. Iron ore prices rose 71.5% in 2005. Three cartel companies control 75% of worldwide iron ore production, and control the price directly; they are the British Crown companies BHP Billiton and Rio Tinto Ltd., both headquartered in Australia, and Brazil's CVRD.

China's steel producers had been holding out until June 19, after Japanese and European steel producers had already conceded two months ago. U.S. steel companies are too small to matter.

Army Corps Report Details Breakdown of Locks and Dams

A new "Ohio River Mainstem System Study," released this month by the Army Corps of Engineers, gives details of the aging locks and dams that need to be replaced. The study states, "At the present time, 25% of locks on the Ohio River have exceeded their design life. Within ten years, 50% of the locks will be beyond their original design." There is an urgent "need for early construction of new main lock chambers at the three upper Ohio River locks, namely Emsworth [just below Pittsburgh], Dashields, and Montgomery...." The Ohio River mainstem has six primary navigable tributaries that also need upgrading. The purpose of ORMSS is to say how to provide for reliable transportation on the Ohio River over a 60-year period, from 2010 to 2070. The Ohio River Basin is home to over 31.5 million people; there are 57 coal-fired power plants in the region, that provide 20% of the nation's coal-based electricity.

In order to defend against critics, the authors of the study have cranked through five models of various traffic-flow projections, involving mostly coal, the main barge cargo. The conclusion is, "Proactive maintenance [replacing and upgrading locks and dams], including both component replacements and major rehabilitation, would provide national economic development benefits of hundreds of millions of dollars annually over and above the benefits achieved through reactive maintenance [trying to patch up locks as they break down]."

The Corps is holding a series of meetings for public comment, including a major one in Covington, Kentucky/Cincinnati, Ohio, on June 29.

To see the report, go to www.lrl.usace.army.mil/ORMSS

Amtrak Delays Blamed on Deferred Capital Investment

Amtrak's Northeast corridor has suffered schedule delays as a result of deferred capital investment, AP reported June 21. The delays were blamed on "power fluctuations," affecting the New York-New Jersey area June 21. This is the third recent disruption of the rail service. An outage on May 25 shut the whole corridor down for hours. Although Amtrak has not explained the outages, the cause is not hard to trace.

Kenneth M. Mead, then Inspector General of the U.S. DOT testified to the Committee on Commerce, Science, and Transportation on April 21, 2005, while asking for the funding necessary to keep the railroad open. Among Mead's comments: "Amtrak has an estimated $5 billion backlog of state-of-good-repair investments, and underinvestment is becoming increasingly visible in its effects on service quality and reliability. Deferred capital investment has led to several system failures in recent years, including a failure of a key 12-kilovolt electric cable during the August 2003 northeast power black-out ... no one knows where or when a critical failure will occur, but continued deferral of needed investment increases the risk that it may not be too far away."

GM's Debt Rating Cut Deeper into 'Junk'

GM has been forced to offer collateral on a bank loan for the first time in its 98-year history, resulting in a further debt downgrade, it was revealed June 21. Moody's and Standard & Poors cut their ratings on about $30 billion of GM debt deeper into "junk," after GM outlined plans to restructure a $5.6 billion credit line due to expire in 2008 by reducing it to $4.5 billion, extending its maturity by three years, and offering assets as collateral. The changes put its unsecured debt lower in the pecking order for recovery in the event of bankruptcy. Moody's and S&P said GM's decision to use collateral to secure the loan means bondholders risk recovering a smaller share of their investment were GM to file for bankruptcy.

Moody's cut its rating on unsecured debt not included in new credit facility by one notch to seven levels below investment grade. S&P lowered its rating to sixth-highest junk rating. Fitch affirmed GM's rating, but said it was keeping it on review for a downgrade. The deal reportedly would make it easier for GM to complete the sale, to a group led by hedge fund Cerberus, of its GMAC finance arm.