President Barack Obama says he supports Chrysler’s decision to seek bankruptcy protection and that its looming partnership with Italian automaker Fiat will save one of America’s “most storied automakers.” Obama said he believes the bankruptcy filing will put the struggling company back on its feet and that the process for recovery will be relatively fast. During an appearance at the White House, Obama said that “the necessary steps have been taken” to give the company “a new lease on life.” Obama predicted that General Motors, as well as Chrysler, will “come back” and said he wants to see Chrysler recapture the place it had in society at a time when it was “a pillar of our industrial economy.” He blasted hedge-fund creditors whom he said held out for a richer deal. The government will be an investor in the revamped Chrysler and will help choose its new directors, but the Obama administration does not plan to help manage the company. Bankruptcy doesn’t mean the nation’s number three automaker will shut down. A Chapter 11 bankruptcy filing will allow a judge to decide how much the company’s creditors would get while the company continues to operate. Obama says the goal is for the whole process to happen quickly, perhaps within a couple of months. Officials say they expect the bankruptcy to last only 60 days, giving Chrysler time to finalize a partnership with Fiat.
Anne Lawton is a professor of law at Michigan State University in Chrysler’s home state. The public still flew on airlines in bankruptcy protection, but what about its reaction to an automaker’s bankruptcy?
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“I think airlines are different. It’s because you have a smaller investment. You have a ticket, and if you lose $400 or $500, oh well. I mean, no one wants to lose four or five hundred, but it’s not the same as a car, right? So I do think people see it somewhat differently, but you know, the federal government has said it’s going to, you know, stand behind the warranties on the cars.”
Chrysler says it will temporarily stop most of its vehicle production until its deal with Fiat is complete. The shutdown is effective Monday and could last up to two months. Auburn Hills, Michigan-based Chrysler says it expects the shutdown to last between 30 and 60 days and then resume with normal production schedules once the agreement is completed. Fiat Group will get a 20 per cent stake in Chrysler in return for giving Chrysler access to its fuel-efficient technology. Fiat has committed to building Fiat cars in Chrysler factories, to be sold as Chryslers.
Chrysler says it has sent workers home from at least two factories because parts suppliers have stopped shipping due to its bankruptcy filing. Vice Chairman and President Tom Lasorda said in a conference call that workers were sent home from stamping and assembly factories in the Detroit suburb of Warren. He says the company had no choice but to close the plants, which make parts for or assemble the Dodge Ram pickup truck. Lasorda says the supplier problems should be under control by the time production resumes. Lasorda also says he is going to retire, but the date has not been set. The former Chrysler chief executive when it was owned by Daimler says it’s time to step down after 32 years in the business.
Chrysler CEO Robert Nardelli says he will step down after the company emerges from bankruptcy protection. Nardelli says on the Cnbc cable network that the Treasury Department did not ask him to resign. But he felt it would be an appropriate time to leave after bankruptcy. Nardelli says the new company will be run by a nine-person board, with six picked by the government and three by Fiat. The board will pick a new CEO. Nardelli became Chrysler’s CEO when Cerberus Capital Management bought the majority of the automaker in 2007.
Flu concerns are apparently keeping U.S. tourists out of Mexico. A check by the Associated Press finds that some planes were nearly empty today on U.S.-to-Mexico routes. Houston-based Continental Airlines says fewer than half the available seats were booked on six flights for tonight. One Continental flight from Houston to Cancun had reservations for just five of the 157 available seats. Ninety-three of the 124 seats on a flight from Newark, New Jersey, to Mexico City were unfilled just minutes before its scheduled departure. Continental spokesman Dave Messing says flights heading back north, on the other hand, have been full. Fort Worth-based American Airlines reports some of its passengers have been changing travel plans or requesting refunds but describes it as nothing unexpected. And the airline says, for now, it’s flying its normal schedule. Empty planes flying to Mexico would not be a surprise; the U.S. has warned Americans to avoid nonessential travel to Mexico.
The vice president’s office is backing off on Joe Biden’s comments about swine flu, after an airline official accused him of “fear-mongering.” Biden discussed flu precautions this morning on NBC’s Today Show and said he told his family to keep off commercial airlines and subways. He says if one person sneezes on a plane, “it goes all the way through the aircraft.” Biden’s office has now released a statement suggesting he was talking about travel to Mexico. U.S. health officials recommend avoiding nonessential travel to Mexico. But they aren’t telling people to avoid other travel due to swine flu. An American Airlines spokesman says that suggesting that people avoid air travel is “a broad brush stroke bordering on fear-mongering.”
A top Obama adviser is predicting another economic contraction in the second quarter of the year and continued increases in unemployment for the next several months. The downbeat assessment from Christina Romer, the chairwoman of Obama’s Council of Economic Advisers, comes in the wake of Wednesday’s report that the overall economic output in the United States declined rapidly in the first three months of this year. Romer was testifying before Congress’ Joint Economic Committee. Despite the short-term pessimism, Romer said the White House expects the pace of the economic decline will moderate sharply over the next several months. She specifically pointed to increased consumer confidence and to signs that the housing sector appears to be reaching bottom.
The number of newly laid-off workers signing up for unemployment benefits posted an expected drop last week, while people continuing to draw aid topped 6.3 million, setting a record for the 13th straight week. The Labor Department says new applications for unemployment insurance fell to a seasonally adjusted 631,000 last week. That was down from the prior week’s 645,000, which was revised slightly higher from the government’s initial estimate. Economists expected a small increase in new claims. The number of people continuing to draw unemployment benefits jumped to 6.3 million, the highest on records dating back to 1967 and steeper than economists expected.
The government says consumer spending fell for the first time in three months while income growth slipped for a second straight month, indicating that the economy is still struggling to emerge from the recession. The Commerce Department says that consumer spending dropped by 0.2 per cent in March, worse than the 0.1 per cent decline that economists had expected. Incomes, reflecting the continued massive way of layoffs, dropped by 0.3 per cent, worse than the 0.2 per cent dip that had been expected.
Riding a crest of populist anger, the House has cleared a bill to rein in credit card practices and eliminate sudden increases in interest rates and late fees that have entangled millions of consumers. The legislation passed by a bipartisan vote of 357-70 and follows lobbying by President Barack Obama and members of his administration. The measure would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18. If they become law, the new measures won’t take effect for a year, except for a requirement that customers get 45 days’ notice before their interest rates are increased. That would take effect in 90 days.
The Senate has defeated legislation that would have let hundreds of thousands of debt-ridden homeowners seek mortgage relief in bankruptcy court. President Barack Obama had said the bill was important to saving the economy and promised to push for its passage. But facing stiff opposition from banks, Obama did little to lean on lawmakers who worried it might spike interest rates. The bill would have allowed bankruptcy judges to rewrite a person’s mortgage terms, if a bank refused to offer better terms based on income and home value. Only 45 Senators voted in favor of the bill, with 51 Senators opposed.
Greater Houston Partnership President and CEO Jeff Moseley testified before the Senate Judiciary Subcommittee on Immigration, Border Security and Citizenship today in Washington, detailing the Partnership’s position on comprehensive immigration reform. Moseley discussed the balance of securing borders and safeguarding prosperity, citing a recent report by economist Ray Perryman.
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“And quite frankly, if you think that subprime mortgages and the freezing of credit markets and high-priced energy have a chilling effect on our economy, the Perryman study concluded that if all undocumented workers were removed from the U.S. economy, the immediate effect would be the loss of some 8.1 million jobs. Our economy would lose, Mr. Chairman and members, $1.76 trillion in annual spending and $652 billion in annual output.”
Moseley was on a panel with former Federal Reserve Chairman Alan Greenspan.
A federal auction of drilling tracts off the Texas Gulf Coast could be postponed after a federal court rejected a five-year energy plan by the Bush administration. In an April 17th ruling, the U.S. Court of Appeals for the District of Columbia said the administration failed to properly assess the environmental effects of expanding oil and natural gas development off the coast of Alaska. An Interior Department plan, which governs the auction of offshore drilling parcels from 2007 through 2012, would offer new areas in Alaska’s Beaufort, Bering and Chukchi Seas. The entire plan, which includes the August 19th sale in New Orleans for the offshore Texas tracts, has been sent back to the Interior Secretary.
A new study finds that the costs for nursing home and in-home care, as well as assisted living, have continued to surge. That’s adding yet another financial challenge for retirees already hurt by the recession. Insurer Genworth Financial says that except for home-based health care, the costs of long-term care are also poised for steady increases. The cost of labor is a key factor driving the price of care at facilities. The average annual cost for a private room in a nursing home is more than $74,000, or $208 per day. That is up 4.7 per cent over the past year. Overall, the northeast is the most expensive region of the nation for nursing homes, while the midwest is the least costly. One bright spot is the relatively flat cost of in-home care. The hourly cost for in-home care for non-Medicare certified workers rose a half-per cent from a year ago.
Rains across Texas the past week have lessened drought’s grip on the state. The U.S. drought monitor map showed that every category of drought–from the worst to the least–improved since last week. One area, the eastern portion of north central Texas, worsened this week from severe to extreme drought. Areas of extreme and exceptional drought in central and south Texas improved slightly. All of east Texas and much of the panhandle are out of drought entirely.
Earnings
KBR says earnings for the first three months of 2009 dropped 21 per cent from a year ago when the engineering and construction company posted a $51 million gain from an arbitration award. The Houston company does construction work for the military in Iraq and Afghanistan. KBR says net income was $77 million down from $98 million last year. Revenue rose 27 per cent to $3.2 billion, topping analysts’ estimates of $2.92 billion. CEO Bill Utt said it was a “solid quarter” and that KBR’s backlog remains strong with no “material project cancellations” in the quarter.
ExxonMobil says its first-quarter profit fell 58 per cent as the world’s biggest publicly traded oil company, like smaller rivals, encountered far lower year-over-year oil and gas prices. ExxonMobil, based in Irving, said that earnings for the first three months of the year came to $4.6 billion, down from $10.9 billion a year ago. Revenue fell 45 per cent to $64 billion from $116.9 billion a year ago. Analysts, on average, had forecast revenue of about $54 billion, Thomson Reuters said. Still, the company increased capital spending in the first quarter from a year ago.
Marathon Oil says its first-quarter profit fell 61 per cent from a year ago as the company, like many competitors, saw results dive along with oil and natural gas prices. Houston-based Marathon said its earnings for the January-March period amounted to $282 million. That compared with net income of $731 million in the prior-year period. Adjusted for one-time items, first-quarter earnings totaled $240 million, compared with $767 million in the first quarter of 2008. Quarterly revenue fell about 43 per cent to $10.4 billion from $18.1 billion a year ago.