Archive for December, 2009

GM to shut down Saab, talks with Spyker fail (Reuters)

Friday, December 18th, 2009 | Finance News

DETROIT/STOCKHOLM (Reuters) –
General Motors Co said it would begin shutting down its money-losing Saab brand after last-ditch talks to sell it to a small Dutch sports car builder collapsed on Friday.

The move by GM to abandon the 60-year-old Swedish auto brand would eliminate 3,400 jobs in Sweden and drop 1,100 Saab dealers who have watched with increasing concern as 10 months of talks to sell the brand sputtered out in recent weeks.

Swedish government officials and representatives of GM had been negotiating as late as Friday morning in Stockholm before the automaker concluded that it was not going to be able to conclude a deal to sell Saab to Spyker Cars.

Swedish Enterprise Minister Maud Olofsson blamed GM for not doing enough to save Saab during the 20 years it controlled the brand and its losses mounted.

"It is ultimately the owner who is responsible for the company," Olofsson told reporters. "It is difficult to see what we could have done differently."

GM had been in exclusive talks with Spyker this month after an earlier deal with Swedish luxury car builder Koenigsegg collapsed last month.

John Smith, the GM executive who steered Saab negotiations, said trying to complete a deal with Spyker against the month-end deadline for a deal set by the GM board had been a long shot he compared to trying "to make a shoestring catch."

GM said it would shut down Saab operations, including its production hub in Trollhattan, Sweden, starting in early January. It said Saab would satisfy debts, including supplier payments and honor warranties.

Saab has been a consistent money-loser for GM. The brand, which attracted a following of loyalists for quirky hatchbacks with turbocharged engines, lost about $340 million in 2008 and had projected a similar loss this year.

Autos analyst Erich Merkle of Autoconomy said GM was spread too thin before it decided this year to retain only the Chevrolet, Buick, GMC and Cadillac brands. It couldn't give Saab the sustenance it needed to compete, he said.

"Saab has been starved by GM which had so many mouths to feed that Saab was like the smallest puppy pushed out of the litter," Merkle said.

Efforts by GM to cut costs by building more recent Saab models on GM platforms diluted the brand's cachet and an effort to sell Saab as "Born from Jets" fizzled.

"GM is better off just clearing the decks and taking the pain now," said George Magliano, an auto analyst at IHS Global Insight. "This was inevitable."

GM bought 50 percent of the Saab car operations in 1990 for about $700 million. It paid $125 million and assumed debt for the remainder of the unit in 2000.

TWO DOWN, ONE TO GO?

GM, which took $50 billion in U.S. government aid and emerged from a bankruptcy brokered by the Obama administration in July, had been counting on the sale of its laggard brands including Saab as a key element of its restructuring.

Under new Chief Executive Ed Whitacre, who took charge earlier this month, GM had set a deadline of end-December to find a buyer for Saab.

"In order to maintain operations, Saab needed a quick resolution," Nick Reilly, GM's president for European operations said.

GM and Spyker both declined to detail the issues that had convinced both sides a deal could not be closed against the tight deadline.

Spyker last year sold 43 of its luxury cars at prices of 200,000 euros ($294,200) and above. Its primary backers include Russian banking tycoon Vladimir Antonov and his Convers Group.

The involvement of Antonov, who was reportedly shot seven times in an assassination attempt in Moscow in March, had raised questions for some people close to the GM side of negotiations about whether a deal could be closed.

A SECOND LIFE FOR THE BRAND?

Smith said GM would negotiate with Saab dealers to try to find "a fair way of proceeding" as it drops the brand.

Remaining U.S. dealers had signed termination agreements in June that gave GM the right to terminate their franchises unless a buyer for Saab could be found.

"This is important for the Swedes and a big deal for the Saab dealers, but in the scale of life of General Motors, it is not a big thing," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.

GM had been in talks to sell Saab to niche luxury carmaker Koenigsegg, with the backing of China's BAIC until November.

Earlier this week, BAIC completed a deal to buy some assets from Saab, including the tooling and the intellectual property for older versions of the 9-5 and 9-3 sedans.

GM said it could sell other assets as part of the Saab wind-down, a prospect that analysts said raised the possibility that the brand could find a second life with a new buyer as Chinese automakers gird for expansion overseas.

"I have a suspicion that Saab will be reincarnated in China," said Magliano of IHS Global Insight.

Saab marks the second failed deal for GM in recent months. GM failed to close a tentative deal to sell its Saturn brand in late September when Detroit-based dealership group Penske Automotive Group pulled out.

Then last month, GM's board shifted course on a planned sale of Opel, rejecting a deal that former Chief Executive Fritz Henderson had backed and helped broker.

A tentative deal to sell GM's Hummer SUV brand to a partnership led by Chinese machinery maker Sichuan Tengzhong Heavy Industrial Machinery has not yet closed and remains subject to review by the Chinese government.

U.S. sales of Saab through November were 7,812, and only 371 were sold in November.

For the full year 2008, U.S. Saab sales were 21,368 vehicles, and from 32,711 in 2007, according to GM.

(Reporting by Bernie Woodall, Soyoung Kim, Helen Massy-Beresford; Editing by Marcel Michelson, Dave Zimmerman,Richard Chang and Carol Bishopric)

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Career Education drops as accreditor questioned (AP)

Friday, December 18th, 2009 | Finance News

NEW YORK – Shares of for-profit education company Career Education Corp. fell for a second day Friday after new government scrutiny raised concern that the accreditation of one of its schools may be in jeopardy, potentially making it ineligible for federal student loans.

The Department of Education Office of the Inspector General on Thursday recommended the government investigate whether a large accreditation agency was inappropriately certifying for-profit schools after saying Career Education's American Intercontinental University may have been incorrectly accredited.

If the accreditor, the Higher Learning Commission of the North Central Association of Colleges and Schools, is suspended, then the schools it certified, including American Continental, could lose their accreditation, leaving them potentially unable to receive federal student loans, analysts said. Most for-profit schools count on federal student loans for the bulk of their revenue.

"This report introduces a new challenge to (for-profit education companies) and suggests a whole new level of hostility on the part of OIG to what and how the for-profit schools operate, particularly online," Signal Hill education analyst Trace Urdan said in a note to clients.

The Department of Education's OIG criticized the Higher Learning Commission's accreditation of AIU because of issues related to the school's assignment of credit hours in its programs, it said in a memo. The version reviewed by The Associated Press had specific allegations blacked out. American Intercontinental received accreditation in May 2009.

Career Education spokesman Jeff Leshay said the HLC will visit American Intercontinental in early 2010 for a review. The company believes the assessment will be focused on credit equivalents — or how the school applies course credits when a student transfers from another institution — and the allocation of credit hours for its online courses for adults.

"I'm not going to speculate on what the impact on the stock will be, but what I can tell you is that AIU is prepared to address any issue that HLC may raise and clearly demonstrate that when HLC accredited AIU for five years, it was fully justified," Leshay said.

The inspector general said its concerns about American Intercontinental makes it question the commission's judgment regarding other schools, as well. But while investors sold off shares of Career Education and other for-profit educators this week, analysts aren't convinced that HLC's accreditation powers are at risk or that for-profit schools are at risk of losing access to federal student loan money.

"We find it unlikely that the DOE would actually consider the suspension or termination of accreditation for HLC. Industry contacts that we communicated with last night seemed flabbergasted that the OIG could call into question whether the HLC is 'a reliable authority regarding the quality of education or training' based on the contested accreditation process of but one institution," Wedbush analyst Ariel Sokol wrote in a note to clients. "Our interpretation is that the OIG's memorandum is an attempt to intimidate the HLC and all accrediting bodies to follow the edicts of the DOE."

The HLC accredits a range of institutions including Apollo Group Inc.'s University of Phoenix, DeVry Corp. schools, Capella Education Co., American Public Education Inc., Education Management Corp.'s Argosy schools, as well as traditional schools such as the University of Chicago and the University of Michigan, said R.W. Baird analyst Amy Junker in a note to investors.

Friday, Career Education's stock dropped 58 cents, or 2.5 percent, to $22.30 after losing 19 percent Thursday. Shares of online education companies also fell. Bridgepoint Education Inc. shed 42 cents, or 2.8 percent, to $14.83, while American Public fell 74 cents, or 2.2 percent, to $32.79.

Shares of Apollo rose 1.8 percent and DeVry dipped 19 cents after dropping 5 percent and 4 percent, respectively, on Thursday.

The HLC said that it objected to the memo, and that the government inspector's allegations had "mischaracterized" its actions.

American International is undergoing a review of one area of "marked concern" that was identified in an independent assessment of the school's practices. The HLC granted the school an initial accreditation and is requiring it to remedy the concern, the HLC said in a press release.

"The HLC strenuously objects to both the second-guessing of its decision with respect to AIU and to the proposed administrative action against HLC." HLC said.

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Wall St gains in choppy trade; tech lifts Nasdaq (Reuters)

Friday, December 18th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks rose on Friday in choppy trade as quarterly results from Oracle and Research In Motion lifted the Nasdaq more than 1 percent, but the U.S. dollar's climb curbed gains in both the Dow and the S&P 500.

The Nasdaq was led higher by Oracle Corp (ORCL.O) shares, which jumped 6.4 percent to $24.34, and the U.S.-listed stock of Research In Motion Inc (RIMM.O)(RIM.TO), which surged 10.3 percent to $69.99.

Despite the lift from these earnings-related stories, the robust dollar sapped much of the broader market's strength.

The U.S. dollar index (.DXY) climbed as much as 0.6 percent, but pared gains late in the session, easing some of the selling pressure on stocks. For the day, the U.S. dollar index ended just marginally higher -- up 0.03 percent.

Shares of multinational companies suffered from the greenback's rise. Heavy equipment maker Caterpillar Inc (CAT.N) fell 0.6 percent to $57.19, while plane maker Boeing Co (BA.N) was the biggest drag on the Dow, off 1.9 percent at $53.44.

Geopolitical concerns supported the flight to the U.S. dollar following reports that Iranian troops had entered Iraqi territory and raised the Iranian flag at an oilfield whose ownership is disputed by Iran.

"If there is tension developing in the Middle East, that would positive for the dollar because that would bring flight to safety ... that, in turn, could be negative for the equities markets," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

A strong U.S. dollar forces investors who have bet on a decline in the greenback to cover their short dollar positions by selling equities or other assets.

The Dow Jones industrial average (.DJI) added 20.63 points, or 0.20 percent, to 10,328.89. The Standard & Poor's 500 Index (.SPX) gained 6.39 points, or 0.58 percent, to 1,102.47. The Nasdaq Composite Index (.IXIC) climbed 31.64 points, or 1.45 percent, to 2,211.69.

DOW AND S&P 500 END WEEK LOWER

For the week, the Dow fell 1.3 percent, the S&P 500 shed 0.3 percent and the Nasdaq rose 1 percent.

The declines snapped a two-week winning streak for the Dow and a three-week series of gains for the S&P 500.

Trading was choppy as Friday marked the expiration of December options and futures, a convergence known as quadruple witching that often means increased volatility as big investors adjust or exercise derivatives positions.

Motorola Inc (MOT.N) shares jumped 5.2 percent to $8.53 after sources familiar with the matter said the mobile phone maker's set-top box unit has generated a lot of private equity interest, with a number of major buyout firms putting in initial bids this week.

In addition, the market was set to see an adjustment to the S&P 500. Visa Inc (V.N), up 2.2 percent at $88.97, is among companies that will be the newest additions to the benchmark index after the close.

Volume was extremely heavy on the New York Stock Exchange, with 3.16 billion shares changing hands -- more than double last year's estimated daily average of 1.49 billion. On the Nasdaq, about 2.91 billion shares traded, well above last year's daily average of 2.28 billion.

The regular session's volume for the New York Stock Exchange topped the previous record of 3 billion shares set on Sept 19, 2008.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 3 to 2, while on the Nasdaq, 16 stocks rose for every 11 that fell.

(Editing by Jan Paschal)

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