Greece’s debt rating may be cut within a month as it struggles to pare the European Union’s largest budget deficit, driving up borrowing costs and renewing pressure on the euro.
Standard & Poor’s said late yesterday it may lower its BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. The warnings further complicate the government’s effort to persuade investors that it can slash its fiscal shortfall from last year’s 12.7 percent of gross domestic product.
The euro slumped to a one-year low against the yen, most stocks dropped and the premium on Greek 10-year bonds over German debt widened to the most since Feb. 8 on concern that the country may need EU assistance to avoid missing debt payments. Unions yesterday staged a strike to protest Prime Minister George Papandreou’s drive to slash spending.
“It’s getting more difficult than anticipated for the Greek government to implement the spending cuts it promised,” said Susumu Kato, chief economist in Tokyo at Credit Agricole Securities Asia. Further downgrades “may spread sovereign concerns through other European nations,” he said.
The country’s willingness to keep funding itself in the commercial bond market is key to S&P’s assessment, the company said. The rating could be pressured by lower profitability at the country’s banks or a decline in public support for the budget plan, it said. EU assistance could help if it was likely to lead to a “sustained reduction” in borrowing costs.
Two Grades
“We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement.
Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo today it may act “in a few months” if policy makers appear to be deviating from their deficit-reduction plan. At the same time, Moody’s may stabilize its rating if Greece follows through with its austerity measures, he said.
“We have to let the government implement its plans,” Cailleteau said. “You can’t expect a government to be able to turn around public finances in a few days.”
S&P cut Greece’s rating in December from A- and signaled at the time it may reduce it again from BBB+. Moody’s lowered its rating by one step the same month.
ECB Rules
If Moody’s cuts its credit rating to the same level as the other major ratings companies, it could exacerbate Greece’s financial distress at the end of this year when the European Central Bank is due to revert to old collateral rules that were loosened during the global recession. Greek government bonds would then no longer be eligible as collateral at the ECB, making it even more difficult for the nation to borrow.
The euro dropped to 120.51 yen as of 11:20 a.m. in London from 122 cash advance america.03 yen in New York yesterday. It earlier touched 120.24 yen, the lowest since Feb. 24, 2009. The single currency has fallen about 6 percent against the dollar this year on concern Greece’s fiscal woes may extend to Spain, Portugal and other European nations seeking to pare budget gaps.
Credit-default swaps protecting the debt of Greece rose 10 basis points to 392, according to CMA DataVision. The spread between 10-year Greek bonds and similar-maturity German debt widened by 13 basis points, or 0.13 percentage point, to 352 basis points.
Tear Gas
Papandreou’s government is running into opposition at home to its strategy. Air-traffic controllers, customs and tax officials, train drivers, doctors at state-run hospitals and school teachers walked off the job yesterday to protest spending cuts. Police fired tear-gas and clashed with demonstrators in central Athens after a march organized by labor unions.
Greek bonds have slumped, driving up borrowing costs, as investors fear the government will fail to meet its pledge to cut its budget gap to 8.7 percent of GDP this year. It aims to cut the deficit below the EU’s 3 percent limit in 2012.
The premium investors demand to hold Greece’s 10-year securities instead of Germany’s rose to the most in more than two weeks.
The government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of 20 percent of GDP. The yield on the country’s two-year note yesterday rose to the most since Feb. 9.
EU governments are looking for guarantees that Papandreou will slash spending before they spell out what help they may offer. EU and ECB officials visited Athens this week to verify that budget cuts are being implemented.
Additional Measures
Under proposals adopted this month by euro-area finance ministers, the Greek government will have to take additional measures to cut its budget gap if it fails to satisfy the European Commission next month that its current strategy is on track. These may include higher value-added tax, a levy on luxury goods, higher energy taxes and spending cuts, they said.
“There will be some conditions attached” to European assistance for Greece, Cailleteau said. “I don’t see the evidence that would justify these kinds of assertions that Europe will not help Greece.”
German, French and Greek voters are “in denial” about Greece’s ability to get its deficit under control without external aid, Barry Eichengreen, an economics professor at the University of California at Berkeley and author of a 2006 history of the European economy, said in a Bloomberg Television interview yesterday.
Finance Minister George Papaconstantinou said Feb. 23 that the government will do “everything it needs to meet” its targets and that any decisions on possible new measures will be announced after talks with European governments.
Dell shares fell more than 5% in after-hours trading, after the computer maker reported a 5% drop in fourth-quarter earnings Thursday.
The Texas-based company beat Wall Street’s expectations, however, on solid sales across all its segments as businesses started spending on IT again.
Net income dropped to $334 million, or 17 cents per share, compared with $351 million, or 18 cents per share a year ago.
Results included a one-time charge of 11 cents per share for special items, mainly related to the company’s $3.9 billion acquisition of Perot Systems in November. Without the charge, Dell (DELL, Fortune 500) said it earned 28 cents per share. Analysts polled by Thomson Financial, who typically exclude one-time items from their estimates, were looking for 27 cents.
Sales rose 11% to $14.9 billion from $13.4 billion last year, beating analysts’ forecast of $13.85 billion.
In a conference call with analysts following the results, chief financial officer Brian Gladden and Dell chairman and CEO Michael Dell said they expect to see an uptick in commercial sales in the next year and continuing into fiscal 2011 as businesses upgrade to Windows 7.
Gladden said the company is focused on cutting overhead and manufacturing costs and in simplifying its supply chain. Last year, Dell announced plans to trim expenses by $4 billion annually by the end of fiscal 2011. Gladden noted that in the last two years, Dell had consolidated its manufacturing facilities to six from 11.
"Ongoing competitor pressure and economic realities never stop, and we can’t either," he said in the call. "We’re moving into the next phase of our transformation."
While Dell’s financials beat analyst expectations, the news comes with a mixed bag of concerns such as high consumer sales with lower margins, and tight commodity prices, said Shannon Cross, an analyst with Cross Research. On the upside, the company is investing in key growth areas, she said.
"The biggest concern is a lack of leverage in the model," she said. "People had hoped to see more of that revenue upside fall through to the bottom line."
Segment by segment
Analysts say trends point to a hardware-driven uptick in IT spending during the recent holiday months. Notebook and desktop computer sales together account for more than half of Dell’s revenue.
Dell reported a 16% year-over-year jump in laptop sales and a 3% drop in revenue from desktops.
Overall, consumer sales were up 11%. That’s better than expected, Gladden said in the conference call. That said, operating margins in the consumer segment were below a target 1% to 2%, due to holiday discounts, he noted.
Software sales from Dell’s third largest division were flat. Meanwhile server sales rose 26%, while sales in Dell’s tech services division were up 51%, year-over-year.
The company’s acquisition of Perot Systems in November marked a strategic shift toward ramping up its technology services market share and taking on Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500).
Revenue from Dell’s public business unit jumped 16% to $3.8 billion, with sales from services more than doubling, due in large part from the Perot addition.
Dell’s number one rival HP reported results Wednesday that blew past Wall Street’s expectations. The company said earnings jumped 25% on 8% rise in sales.
"HP had a lot more room to cut costs that Dell did, and HP has seen far more of the revenue upside fall through to their bottom line. HP is more focused on the consumer, so they’ve benefited from consumer strength more than Dell has," Cross pointed out.
For the full year, Dell reported a 42% drop in earnings and a 13% drop in sales over the year before.
Toyota is planning to suspend production at two U.S. plants as sales lag following the automaker’s massive recall of its vehicles.
Mike Goss, a Toyota spokesman, said the company will retain all of its workers during the suspensions, which will take place at plants in Kentucky and Texas in the weeks ahead.
The temporary shutdowns are aimed at adjusting production levels following a series of recalls that forced Toyota to halt sales of some of its most popular models.
"We don’t want inventory to build up for our dealers," Goss said. "We can’t keep sending vehicles to dealers until they can start moving those vehicles."
He said the company has used other methods to slow production in the past, such as limiting overtime, but that "elimination days are kind of the final step in that process."
The Kentucky plant, where Toyota’s top-selling Camry is made, will not produce cars on Feb. 26. Goss said the plant could go dark on a few more days the following week, though no official plans have been made.
The Texas plant will halt production the week of March 15 and again in mid April. The plant, where Toyota makes Tundra pickup trucks, will be modified to begin producing Tacoma trucks during the suspension, Goss said.
Toyota has recalled more than 8.1 million vehicles worldwide for problems related to sudden acceleration and unresponsive break pedals, among other things. The company has apologized for the safety lapses and pledged to repair the recalled vehicles quickly.
Meanwhile, the number of customer complaints filed with federal safety regulators has spiked in recent weeks. According to the National Highway Traffic Safety Administration, there have been a total of 34 Toyota complaints alleging fatalities since 2000.
The widely publicized safety issues have taken a toll on sales. Earlier this month, Toyota said January sales fell 16% from a year earlier, worse than a forecast of a 12% year-over-year decline from sales tracker Edmunds.com.
To help revive sales, the automaker is considering a variety of incentive options aimed at drawing customers back into its showrooms.
At the same time, Toyota has launched a public relations campaign aimed at salvaging the company’s once-sterling reputation.
Toyota’s president, Akio Toyoda, and other company executives will take questions about the recall efforts Wednesday at a press conference in Tokyo.
The company has been ramping up lobbying, consulting and attorney teams ahead of appearances on Capitol Hill. Toyota is scheduled to go before two House committees next week and a Senate committee next month.
Google Inc. has again tinkered with its new Buzz social networking service in the face of continued privacy concerns.
The company (NASDAQ:GOOG) said on a blog Saturday that it will stop automaticly subscribing users to follow the postings of their close Gmail contacts. Now it will only suggest users follow people from their Gmail contacts and leave it up them to do so.
Privacy advocates criticized Google for this automatic following feature, saying it spread the names and contact information of people around without their permission.
This is the second time in Buzz's first week that Google has had to adjust the service in the face of negative postings on Twitter, blogs and on the Buzz service itself business card. On Thursday, the company made it easier for users to keep photos and other information from public view.
"We quickly realized that we didn't get everything quite right," product manager Todd Jackson wrote on Saturday's blog posting. "We're very sorry for the concern we've caused and have been working hard ever since to improve things based on your feedback. We'll continue to do so."
Bob Williams, publisher of the Suburban Journals of Greater St. Louis, is leaving his position to become publisher of The Southern Illinoisan in Carbondale.
Both companies are subsidiaries of Davenport, Iowa-based Lee Enterprises Inc., which also owns the St. Louis Post-Dispatch.
Williams has been publisher of the Suburban Journals since 2007. Before that, he was Lee’s corporate director of sales and development and advertising manager for the Missoulian in Missoula, Mont. He spent a decade with Gannett Co. Inc. before joining Lee in 1998. Williams, who is married with four grown children, graduated from Brigham Young University with a degree in advertising paydayloans.
Greg Veon, Lee’s vice president for publishing, said Williams was selected after a nationwide search for a new publisher.
Williams will be replaced by Tom Wiley, a Lee executive now in charge of the Suburban Journals and Daily Journal in Park Hills.
The current publisher of the Illinoisan, Dennis DeRossett, is leaving the paper to become executive director of the Illinois Press Association.
Mexico’s economy may expand more than expected in 2010 as the nation recovers from last year’s global slump, central bank Deputy Governor Manuel Sanchez Gonzalez said in an interview yesterday.
“Everything points towards the direction of a recovery,” Sanchez said in Sydney. While the central bank forecasts growth of 3.2 percent to 4.2 percent this year, “I’m ready to be surprised as to the results of the economic recovery,” he said.
Mexico’s $1.09 trillion economy was the worst performer in Latin America last year, shrinking 10.1 percent in the second quarter and 6.2 percent in the third quarter from a year earlier. Gross domestic product may expand “slightly” more than the government’s current 3 percent estimate this year, Deputy Finance Minister Alejandro Werner said Feb. 5.
Sanchez is among policy makers visiting Sydney this week to attend a symposium organized by the Reserve Bank of Australia to celebrate its 50th anniversary. The Basel, Switzerland-based Bank for International Settlements is also hosting a meeting of central bank officials in Sydney.
Global policy makers have to be “very careful” about how quickly they withdraw stimulus measures after cutting interest rates and boosting public spending to counter the deepest global recession since World War II, Sanchez said yesterday.
“There is a tradeoff between sustaining the stimulus measures and having some risks as to maintaining those,” he said. “You have a risk of withdrawing too quickly, of leaving those measures too rapidly, so that this recovery may be interrupted. You want to be very careful to maintain those stimulus measures for the right time.”
Inflation Outlook
Central banks also have to remain watchful of inflation and maintain price stability, he said.
“Every country has different situations as to the inflation prospects, but I’m confident also that the inflation pressures will continue to be relatively subdued in the near future,” Sanchez said.
Mexico’s inflation in December was 3.57 percent, the slowest since 2006.
The central bank kept the benchmark interest rate unchanged at 4.5 percent in January for a fifth straight meeting and warned that higher costs for state-controlled goods such as gasoline may fuel broader price increases. The latest monetary policy position is consistent with the central bank’s growth forecasts, Sanchez said.
The region’s second-largest economy probably shrank about 7 percent in 2009, the most since 1932, the central bank estimates.
“I’m very optimistic about the prospects of the Mexican economy in the short term and long term,” Sanchez said. “We had a very harsh recession last year. We’re going to have a very important improvement relative to the base we had last year.”
The fourth quarter probably showed “very good dynamism of economic activity” and the unemployment rate has declined, Sanchez said.
DETROIT — As Toyota dealers across the country work to repair the defective gas pedals in millions of vehicles, they also are trying to repair the automaker’s reputation by extending hours, making house calls and offering other services.
Toyota Motor Corp. recalled eight vehicles Jan. 21 and stopped selling those vehicles five days later because their accelerator pedals could stick in a depressed position. Toyota is sending dealers a piece of steel about the size of a postage stamp that can be inserted into the accelerator mechanism and eliminate the friction that causes the problem.
Kent Newbold, president of Newbold Toyota in O’Fallon, Ill., said Wednesday that he was even offering customers free tickets to a movie at the nearby O’Fallon 15 Cine while repairs are made to their recalled vehicles.
Nobody had taken him up on that offer, but he said it would remain until all of the recalled vehicles were fixed. "They’re our customers and we’re going to take care of them. … I was even tempted to sneak out and see ‘Alvin and the Chipmunks 2′ myself," Newbold said.
Jim White Toyota, a dealership in Toledo, Ohio, received about 350 steel pieces, or shims, and began repairs Wednesday morning. By mid-afternoon, about 25 cars were fixed, said Terry Treter, service manager.
Repairs were going smoothly and a little faster than the half-hour Toyota estimated, he said. Technicians do a test drive as part of the repair.
Dealers said they would extend service hours as needed to make repairs at the convenience of their customers. "The main thing the dealers want to do is to get the cars repaired and back on the road," said John S. Poppell, president of Twin City Toyota in Herculaneum.
Tom Seeger, owner of Seeger Toyota in Creve Coeur, added, "We’re going to get this done as seamlessly and comfortably for our customers as possible."
Dealers said customers had been calm despite a warning early Wednesday from U.S. Transportation Secretary Ray LaHood, who said owners of recalled Toyotas should stop driving them. LaHood later said he misspoke and told owners to get their cars repaired.
"There was an (increase in) concerned calls five minutes after Ray LaHood made his first comment, but people calmed down after he later explained himself," Seeger said.
Toyota is giving U.S. dealers payments of up to $75,000 to help them offer extra measures such as house calls. The automaker also suggested other steps, such as additional hires to help with recall repairs, dedicated recall service lanes and complimentary oil changes.
Toyota is sending checks this week based on the number of cars each dealer sold in 2009. Dealers who sold fewer than 500 cars will get $7,500. Dealers who sold more than 4,000 will get $75,000.
Robert Kelly of the Post-Dispatch contributed to this report.
As Toyota’s mass recall threatens the leading automaker’s reputation, several rivals are rolling out incentives to reel in Toyota customers looking to get rid of their cars.
General Motors is offering incentives of $1,000 and low financing rates specifically for Toyota customers worried about their recalled vehicles.
"We decided to make this offer after receiving many e-mails and calls from our dealers, who have been approached by Toyota customers asking for help," GM said in a statement. The offers will run through the end of February.
Starting Wednesday, GM started offering $1,000 rebates or up to $1,000 to help pay off current leases on Toyota products. The automaker is also offering 0% financing on most models for Toyota customers. The offers apply to 2009 and 2010 model year cars.
Hyundai said it is offering a $1,000 rebate for anyone who trades in a Toyota from Thursday to February 1. Customers who trade in their Toyotas with the trade incentive can purchase one of three models only: a Hyundai Sonata, Elantra or Elantra Touring.
Ford is offering $1,000 to customers trading in Toyota Motor Co. products. The offer began Wednesday but a Ford spokeswoman said the offers are not targeted at Toyota’s recall problems. Customers are also being offered the same $1,000 on Honda products.
Chrysler is offering an additional $1,000 to customers who trade in their Toyota Tundra, Tacoma or Sienna and purchase or lease a new Chrysler, Jeep, Dodge car or Ram truck. It is also offering $1,000 in bonus cash to drivers who want to turn in a leased Toyota to buy or lease a Chrysler product.
Such "conquest incentives" — incentives targeted at owners of other manufacturers’ vehicles — are common in the industry, GM spokesman Tom Henderson said.
However, some of the incentives are designed to take advantage of Toyota owners’ worries at a time when they’re concerned about the safety and quality of their cars.
Toyota announced last week that it was recalling 2.3 million cars, SUVs and trucks for a problem with a potentially sticky gas pedal. This was after the company recalled 4.2 million vehicles — many of them the same as last week’s recall — for a problem in which the gas pedal could become stuck on the floormat.
Toyota recently announced that will temporarily stop selling models affected by the most recent recall, including some of their most popular products like the Camry sedan and the Rav4 small SUV.
For its part, Honda said the recall "has no impact whatsoever on Honda or Acura customers" and that it "will not undertake any sales activities that expressly target Toyota customers."
The problem plays to GM’s current strengths, said James Bell, an analyst with Kelley Blue Book’s KBB.com. Some of GM’s strongest products, like the Chevrolet Malibu sedan and Chevrolet Equinox SUV, are strong competitors to products Toyota is now not selling.
"The Equinox is the obvious buy over a Rav4," he said.
If the Chevrolet dealers were still selling last year’s Equinox, before the new, completely redesigned model was introduced, GM’s position wouldn’t have been as strong, he said.
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