Archive for May, 2011

GM to invest $88 million in Michigan plant

Tuesday, May 31st, 2011 | Finance News

DETROIT (Reuters) – General Motors Co plans to invest $88 million in equipment and tooling for an unspecified new model to be built at its Lansing Grand River assembly plant in Michigan.

The plant currently builds three models of the mid-size Cadillac CTS car -- sedan, coupe and wagon -- along with a high-powered V-series version of each model.

The high-powered wagon is the least fuel-efficient small station wagon on the U.S. market, according to the U.S. Department of Energy website www.fueleconomy.gov, which rates the vehicle at 12 miles to the gallon in city driving and 18 miles on the highway.

The Lansing Grand River plant currently employs 917 hourly and salaried employees, GM said.

The investment is part of GM's previously announced plan to invest $2 billion in 17 U.S. plants.

Among the investments GM has already announced are $331 million at a Texas SUV plant, $109 million at two Michigan plants in Flint and Bay City, and $131 million at a Kentucky plant to build a new version of the Corvette sports car.

(Reporting by Mike Miller, editing by Gerald E. McCormick)

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Greece moves on austerity deal, opposition wants more

Tuesday, May 31st, 2011 | Finance News

ATHENS (Reuters) – Greece appears to have agreed a tax cut with its international lenders, aimed at forging a broad consensus for more austerity to avoid a debt default, but the opposition said on Tuesday this would still not win its support.

International lenders are demanding that leading Greek political parties sign up to the government's latest austerity and reform drive to ensure that Greece keeps tackling its huge budget deficit for years to come, whoever is in power.

In Berlin, a German coalition source said European Union, IMF and ECB inspectors had struck a deal with the Socialist government on a value-added tax cut.

"They have agreed on it," the source said, following Athens newspaper reports that the "troika" team, which is scrutinizing Greek finances, had backed a reduction in VAT rates.

Germany is a major contributor to EU bailouts although public opinion there is hostile to providing further rescue funding for the Greek economy.

Greece's conservative opposition leader Antonis Samaras has demanded tax cuts -- including a 15 percent flat rate for corporate tax -- as the price for a deal with the government, which the EU has insisted on as a condition for more funds.

An official at his new Democracy Party said it wanted more than a VAT cut. "If correct, it is a good step but not good enough, not sufficient to restart the economy," the official said.

"The corporate tax and personal income tax cuts we suggested would have more impact, less cost and no immediate cash flow impact," the official said.

The VAT deal has not been officially confirmed and the timing of any cut remained unclear.

"As the negotiations are not yet over, it would be inappropriate to reveal everything I know," said government spokesman George Petalotis. "We shouldn't create expectations that may not be fulfilled."

Financial daily Imerisia reported that Athens had the green light from the troika to lower the upper rate of VAT to 20 percent from 23 to get the opposition to agree on further measures to cut the budget deficit.

The lower rate applied to items such as food would fall to 10 percent from 13 percent, it said in an unsourced report.

COMPLETING THE MISSION

The troika is expected to complete its mission to Athens late this week and then produce its review of the government's progress toward meeting its deficit targets.

Its report will determine whether Athens gets the next 12 billion euro tranche in June under a 110 billion euro ($158 billion) rescue package Greece took from the European Union and International Monetary Fund a year ago.

Papandreou's PASOK party holds a comfortable parliamentary majority. But work is underway on how to tackle a funding hole up to 2013, when the next parliamentary elections are due.

Politicians in Portugal, another bailout recipient, have already accepted similar consensus conditions.

Greece has fallen short of its deficit-reduction goals, raising the risk further IMF/EU funds will not be forthcoming and that it might default on its 327 billion euros of debt, equivalent to about 150 percent of its annual economic output.

One way to reduce the debt is to privatize state assets. But Fitch, which cut Greece's rating by three notches last week, cast doubt on how much could be achieved.

"The scale of the challenge before the Greek authorities, including a new commitment to privatize 50 billion euros in state assets by 2015, and their ability to deliver in the face of rising implementation and political risk is increasingly in doubt," said senior director Paul Rawkins.

Austerity is hitting Greek households hard. Retail sales by volume dived 17.5 percent year-on-year in March after a 10.6 percent drop in February, data showed on Tuesday.

Meanwhile, about 50,000 people gathered in central Athens, in a seventh consecutive day of anti-austerity protests. Banging cooking pots, protesters held a banner in front of parliament reading: "We won't go away until the government, the troika and the debt leave."

"We are under a regime of economic bondage," the dean of Athens University Theodosis Pelegrinis told the crowd. Protesters also turned also out in Greece's second city Thessaloniki.

(Additional reporting by Renee Maltezou, Ingrid Melander and Harry Papachristou in Athens and Matthias Sobolewski in Berlin, writing by David Stamp; Editing by Diane Craft)

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Higher prices, fewer cars likely hurt May auto sales

Tuesday, May 31st, 2011 | Finance News

DETROIT (Reuters) – Higher car prices and a shortage of fuel-efficient vehicles likely threw a roadblock in the U.S. auto industry's recovery path in May, when the Japan crisis had its biggest impact on U.S. sales so far.

Economists polled by Reuters projected the industrywide annualized sales rate would be around 12.6 million in May, 8.6 percent higher than May 2010.

If forecasts prove true, this will be the first time the annualized sales rate has dropped below 13 million since February. The sales figures, expected Wednesday, come as analysts are raising concerns about a slowdown in the broader economy.

One factor contributing to the slowdown in auto sales is a steep drop in incentives that automakers use to lower vehicle prices and attract buyers. This decline may have prompted some consumers to defer their car purchases, analysts said.

On average, automakers offered incentives of $2,002 per vehicle in May, down 5.1 percent from April and nearly 26 percent lower than a year earlier, according to Edmunds.com.

"If nothing changes on the incentive front ... it's going to be tough to break that 13 million front, at least in June," said TrueCar.com analyst Jesse Toprak. TrueCar.com said incentive spending May was the lowest in nearly nine years.

Toyota Motor Co (7203.T) and Honda Motor Co (7267.T), two of the automakers hardest hit by the March 11 earthquake in Japan, are expected to have lost market share in May after cutting back on incentives, analysts said.

That share is expected to be picked up by the U.S. automakers General Motors Co (GM.N), Ford Motor Co (F.N) and Chrysler Group LLC (FIA.MI), as well as Korea's Hyundai Motor Co. (005380.KS)

But the sales report, one of the first snapshots of U.S. consumer demand in May, will likely reinforce fears of a weakening macroeconomic outlook, ConvergEx analyst Nicholas Colas said.

Lost auto output due to the Japan earthquake may hurt second-quarter growth in the United States, some economists have projected.

"The fact that a modest price increase (that $350 on a +$20,000 car purchase) is enough to slow demand in May is a worrisome point," Colas wrote in a note.

DUDE, WHERE'S MY CAR?

Adding to the issues facing the U.S. auto industry in May are tight supplies of highly coveted small cars and trucks.

The earthquake that rocked northeastern Japan in March disrupted the flow of auto parts and supplies to the global auto industry, forcing many automakers to curtail production.

Pre-existing inventories of vehicles provided a cushion, but that started to dry up in May as consumers look for vehicles with better gas mileage in the face of rising fuel prices.

"There are a number of smaller cars, primarily Japanese, that are going to be in really tight supply," IHS production analyst Mike Jackson said.

Automakers on average like to have a 60-day supply of their cars and trucks in inventory. The companies have plenty of light trucks and larger SUVs on hand, but small cars and trucks are growing more scarce.

Toyota ended April with 37 days of inventory on its Corolla, while Honda had 25 days on its Civic. The Cruze had 39 days of inventory, while Ford's Focus had 34 days.

With fuel prices around $4 a gallon, trucks should normally make up a little more than 40 percent of overall auto sales, Credit Suisse analyst Chris Ceraso said in a note.

But Ceraso forecast that trucks, SUVs and minivans would make up 47 percent of overall sales because consumers are unlikely to find enough cars.

"If our estimate is right, it would support the notion that insufficient car supply is hurting SAAR," Ceraso wrote in a note, referring to the auto industry acronym for the seasonally adjusted annualized rate of auto sales.

Ceraso projected that annualized auto sales would range from 12.2 million to 12.4 million, as did several other Wall Street analysts. J.D. Power and Associates forecast a rate below 12 million units.

(Reporting by Deepa Seetharaman, editing by Matthew Lewis)

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