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Wednesday PM February 10th, 2010

Honda announces recall over airbags; Toyota continues sticking accelerator repairs… Retail sales rise for third month in a row, mostly due to higher fuel costs…HISD considers dropping higher pay for teachers with advanced degrees…


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A recall over air bags that started with a few thousand vehicles 15 months ago has ballooned to include nearly a million Hondas. The Japanese automaker says it has taken more than a year to expand the recall because the company “had to do many tests.” Honda will replace the driver’s side air bag inflator in the cars because they can deploy with too much pressure, causing the inflator to rupture and injure or kill the driver. The automaker says it’s aware of 12 incidents linked to the problem, including one death. The recall began in late 2008 and was expanded last July to 440,000 cars. The latest expansion of the recall includes 378,000 cars in the U.S., some 41,000 in Canada and 17,000 cars in Japan, Australia and elsewhere in Asia.

A Toyota executive says dealers have so far reinforced the sticking accelerator on more than 220,000 recalled vehicles, with repairs continuing at a rate of about 50,000 vehicles a day. Bob Carter, Toyota Group vice president, said at the Chicago Auto Show that some dealers have been open around the clock while others are carrying out the repairs at offsite facilities. Carter added that the voluntary recall of the 2010 Prius and Lexus HS 250H models to update braking software, in response to complaints about braking problems, also is proceeding. Brake repair work is starting in Japan on the recalled Toyota Prius hybrid, with mechanics using a small laptop-like device that rewrites computer programming for the brakes. The car’s faulty programming–which can cause a slight delay in braking–is replaced with correct programming in less than ten minutes and virtually without a sound. Some 400,000 Prius vehicles globally, about half of them in Japan where the gas-electric hybrid is manufactured, will get a repair for the glitch in the antilock brake system. Prius owners in Japan are the first to get the fix and a similar repair for 139,000 Prius cars sold in North America will follow as dealers notify owners next week. A fix is also in the works for 53,000 Prius cars in Europe.

A consumer survey says Toyota’s massive safety recalls are eroding consumer interest in its models and are driving down resale prices of used Toyotas. The survey by the Kelley Blue Book found that 27 percent of potential car buyers who were considering a Toyota prior to the recall are no longer looking to buy a Toyota. Toyota has recalled millions of vehicles in recent months over problems with gas pedals and brakes. The Blue Book estimates that the resale value of cars affected by the Toyota recall will fall an additional 1.5 percent on top of the one to three percent decline it forecast last week.

The government says the trade deficit surged to a larger-than-expected $40.18 billion in December, the biggest imbalance in 12 months. The wider deficit reflected a rebounding economy that is pushing up demand for imports. The Commerce Department said the December deficit was 10.4 percent higher than the November imbalance. It was much larger than the $36 billion deficit that economists had expected. For all of 2009, the deficit totaled $380.66 billion, the smallest imbalance in eight years, as a deep recession cut into imports. However, economists believe the deficit will rise in 2010 as U.S. demand for imports outpaces U.S. export sales.

It’s mostly the increase in the price of gasoline, but figures released by a key data service show retail sales rose for a third month in a row in January, compared with a year earlier. Mastercard Advisor’s SpendingPulse offers an estimate of spending in all forms, including cash. Including goods from food to clothing to gasoline–but excluding cars–U.S. retail sales rose 3.6 percent from January 2009. According to SpendingPulse, that increase followed a 4.8 percent gain in December and a 2.1 percent gain in November. A SpendingPulse official says spending is happening at a modest pace. Economists surveyed by Thomson Reuters predict the U.S. Department of Commerce’s sales index due Thursday, which excludes autos but includes gasoline, will be up just 0.5 percent in January from December.

Environmentalists and more than 80 business leaders are urging Texas officials to do more to promote more solar power in the state. The Go Solar Texas Coalition released a letter to Governor Rick Perry proposing ways to expand solar power capacity in the state. The group also released a report on how Texas businesses would benefit from a significant state solar program–noting that two solar businesses have already fled for states with better incentives. The Public Utility Commission is considering a rule to require electric companies to obtain 500 megawatts of electricity from solar energy and other emerging renewable technologies by the year 2015. That’s about the size of one coal-fired power plant.

The largest public school system in Texas is considering dropping higher pay for teachers with advanced degrees. The Houston Independent School District, with 295 schools and more than 200,000 students, is studying whether to ditch the traditional salary bump for such teachers. HISD and the top-rated Yes prep charter school chain are among those looking to save money and base higher pay on student learning. HISD Superintendent Terry Grier says he would like to look at teachers “and see whether or not those dollars could be spent in a more productive way.” The district estimates the extra payout for teachers with a master’s or a doctorate is costing $7.8 million this school year. The Houston Chronicle reported that the legislature, more than 25 years ago, stopped mandating higher pay for teachers with advanced degrees. Some districts continue the practice.

Galveston leaders are encouraging residents whose homes were battered by Hurricane Ike to seek federal rebuilding assistance. The city on February 28th has to report to the state its progress in administering the $104 million Federal Community Development block grant program. Ike slammed the Galveston area on September 13th, 2008, becoming the costliest natural disaster in Texas history by leaving behind overall damage topping $29 billion. Galveston has until September 2011 to spend the grant money, or it will be forced to return the funds to the department of housing and urban development. Deb Siefert, who heads the application process, says Galveston officials initially feared too few homeowners would participate, but now it appears the city is ahead of schedule. So far more than 1,100 homeowners have applied for grants.

A $25 million federal grant will be sought as part of an electric streetcar project planned for San Antonio. Bexar County commissioners endorsed the Via Metropolitan Transit proposal. County Judge Nelson Wolff says he is optimistic about securing the grant, with the application process. The first stage would be a 2.2-mile stretch from the site of the former Pearl Brewery to the St. Mary’s-Alamo intersection south of tourist-popular downtown San Antonio. That section would cost nearly $90 million and take two years to design and engineer, then two more years of construction. The San Antonio Express-News reports the city would be asked to pay $17 million, as would the county. Via has committed $20 million. An additional $10 million would be sought from private sources.

A federal prosecutor told jury in Miami that two senior employees at disgraced financier R. Allen Stanford’s worldwide security office knew it was wrong to shred thousands of documents. But Senior Justice Department litigator Jack Patrick said they did it anyway to thwart an investigation into what became a $7 billion ponzi scheme. The comments came in closing arguments of a weeklong trial of former Stanford Financial Group security chief Thomas Raffanello and technology officer Bruce Perraud. Patrick says both knew in February 2009 that the Securities and Exchange Commission had obtained a court order requiring preservation of all Stanford documents. In his words, “it’s a case of knowing what you should do and not doing it.” The document shredding took place at Stanford’s office in Fort Lauderdale just as the company’s banking empire was collapsing last year. Stanford awaits trial in Houston for allegedly using certificates of deposit billed as paying double market rates to bilk thousands of investors out of $7 billion.

Federal Reserve Chairman Ben Bernanke is outlining the central bank’s plan for reeling in stimulus money once the economic recovery is more firmly rooted. In prepared remarks to a House committee, Bernanke says the Fed will likely start tightening credit by boosting the interest rate it pays banks on money they leave at the central bank. Consumers and companies would then have to pay more to borrow. Bernanke indicates the Fed is still months away from raising rates or draining most of the stimulus money it injected to aid the financial system. He says the recovery still needs support from record-low interest rates. That would lead to an increase in borrowing rates for consumers and businesses. The Fed chief cautions that the central bank is not yet ready to boost rates. Low rates have been the biggest driver of the market since last year.

Government-controlled mortgage finance company Freddie Mac says it will buy back troubled loans contained in securities it has already sold to investors. The McLean, Virginia-based company said it would repurchase mortgage loans in which borrowers have missed at least four months of payments. It did not disclose how much it would spend. Freddie Mac guarantees the mortgage securities it sells. The company said buying the delinquent loans back would cost less than making those guarantee payments. Freddie Mac and sibling company Fannie Mae have been run under tight government oversight since they almost collapsed in September 2008. They have required $111 billion in federal aid to stay afloat.

Next time you think about flying standby on American Airlines, be prepared to give the gate agent your name and $50. The nation’s second-largest airline said that starting with tickets bought on February 22nd, only elite frequent fliers, travelers in first or business class, military personnel and people who bought pricey coach tickets will be allowed to fly standby. Everyone else switching flights on their day of travel will have to pay $50 to get a confirmed seat. In announcing the change, American played down the $50 and said it was improving the boarding process by eliminating the gaggle of would-be standby fliers who flock to the desk before flights.

The Associated Press reports the Federal Aviation Administration is close to wrapping up a two-year investigation of safety violations at American Airlines. AP cited government and industry officials. An FAA spokesman says the investigation is not complete and declined comment. American spokesman Tim Wagner says the airline isn’t aware of any pending fine. Fort Worth-based American has said the safety of its aircraft was never jeopardized. The Transportation Department is soon due to release an audit that criticizes the FAA for lax oversight of maintenance at American. The FAA investigation involves improperly secured wiring in 290 MD-80s in American’s fleet that led to the April 2008 temporary grounding of hundreds of planes. AP reports the fine will probably be in the same ballpark as the $10.2 million the agency proposed against Dallas-based Southwest Airlines in March 2008.

Google plans to build experimental, ultra-fast Internet networks in a handful of communities around the country. The search company said that its fiber-optic broadband networks will deliver speeds of 1 gigabit per second to as many as 500,000 Americans. Google says those systems will be more than 100 times faster than current high-speed networks. In a blog post, the company said the networks will let consumers download a high-definition, full-length feature film in less than five minutes and allow rural health clinics to send 3D medical images over the Web. Google says it will seek input from communities that might be interested in getting one of the test-bed networks.

A severe snowstorm has forced the federal government to do something it seldom does–postpone release of several monthly economic reports. The Treasury Department announced that the release of the monthly budget report for January, which had been scheduled for Wednesday, will not occur until next week. The Commerce Department announced at least a one-day delay for release of its report on January retail sales and the monthly look at business inventories. Both reports, which had been scheduled to be released Thursday, were tentatively scheduled to be released a day late on Friday. Officials said the delays were caused by the government shutdown in Washington which has meant that about 230,000 federal workers have been off since Friday afternoon.

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