| INDIAN AUTOMOBILE INDUSTRY | |
| INDUSTRY INTERVIEWS/FEATURES M&M upbeat on new product positioning strategy Jazz to be the costliest 'super-mini' Indian biz insulated, says GM India COMMERCIAL VEHICLES Tata Motors aims to sell 4,000 World Trucks this fiscal LCVs the unlikely hero in Tata Motors saga CONSTRUCTION & AGRI MACHINERY Tractor-trailers, tippers gain prominence 2/3 WHEELERS Foreign car firms keen to use more local parts | ALLIED INDUSTRIES FINANCE & INSURANCE Shriram Transport looking at portfolio buy LUBRICANTS & ALTERNATIVE FUELS US auto industry's future hangs in the balance Italy govt under fire for losing Opel deal Germany picks Magna as buyer for General Motors' Opel Obamas plan is under fire after General Motors shocker ECONOMY & FINANCE Balancing the short and medium term goals
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| INDUSTRY Go To Top Business Standard (Web & Print Edition) (June 01)
With this, Jha will leave Hyundai Motor India Ltd where he is president. His three-year contract with the company ends in June, which is not being renewed with mutual consent. The Hyundai spokesperson refused to comment. Soon after retiring as finance secretary, Jha had joined Hyundai for which the government gave a special waiver in the cool-off period. Jha will join the MCX board from August 1. Former UTI Chairman SA Dave will join the exchange board as an independent director, according to a statement issued by the exchange on Sunday. http://www.business-standard.com/india/storypage.php?autono=359706 | |
| INTERVIEWS/FEATURES Go To Top | |
| CARS, SUVs, MUVs Go To Top Sumit Chaturvedi The Economic Times (Web & Print Edition) (June 01) After a perky April, car market leader Maruti Suzuki is holding on to its above-industry-average sales growth in May as well, backed by strong rural demand and buoyant exports. Maruti Suzukis car sales in the domestic market have increased 8-10% in May 2009. Last May, Maruti sold 69,001 cars and this year it is looking to clock close to 76,000 cars. This would be the fifth consecutive month when Maruti clocks over 70,000 units in sales. In April, Marutis domestic sales grew 9% and overall numbers (including exports) were up 15% year on year. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/News/News-By-Industry/Auto/Automobiles/ M&M UPBEAT ON NEW PRODUCT POSITIONING STRATEGY Murali Gopalan The Hindu Business Line (Web & Print Edition) (June 01) Mumbai: Mahindra & Mahindra (M&M) is upbeat on its auto business this fiscal despite the temporary setback caused by the recent strike at its Nashik plant. The President of the Automotive Sector, Dr Pawan Goenka, told Business Line that the company was pleased that things were working well with its new product positioning strategy. The positioning we have done with the Bolero, the Scorpio and the Xylo is clean and this is something customers understand well. Earlier, we did not have the Xylo, which meant the Scorpio had to fulfil the need for an MPV (multipurpose vehicle) and SUV (sport-utility vehicle). There was no single-minded SUV focus as a result, he said. Turning point According to Dr Goenka, the turning point came in March 2007 with the launch of the new Bolero. The vehicles image changed from being just a utility-vehicle to an SUV. It may have seemed like a small change in the product but resulted in a huge change in its positioning, he said. This is what propelled the Bolero to becoming the entry-level SUV and attracting a different clientele in the process. The same was the case with the new, rejuvenated Scorpio launched a couple of months back. As Dr Goenka said, the change again may have seemed cosmetic but has done wonders for the products repositioning. It is now perceived as a full-fledged SUV, which means there is no ambiguity on it being an MPV or peoples carrier, he added. In terms of pricing too, the Scorpio is right on top, followed by the Xylo and, finally, the Bolero. Zero discounting What has been heartening from M&Ms point of view has been the positive response to these products. There is virtually zero discounting on the Xylo, Scorpio and Bolero, which, in my view, is a result of right pricing. We are not priced to discount but to deliver. In the process, there is not much tension in the buyers mind, Dr Goenka said. Interestingly, critics were convinced at the time of the Xylos launch that it would eat into the Scorpios sales. Not many were aware that the new Scorpio was being readied then to prevent such an eventuality. No dealer is worried about the Scorpio being eaten away by the Xylo simply because they are being seen as different products. No Xylo customer is keen on buying the Scorpio and vice-versa, he said. Bullish on pickup segment M&M is also bullish on its pickup segment now taken up by its three-wheeler goods carrier. On the anvil is a 0.8-tonne four-wheeler pickup scheduled to debut in end-October with a 0.5-tonne sibling tipped to follow. The companys three-wheelers recorded 35 per cent volume growth last fiscal along with a four per cent growth in market share. Dr Goenka said he was not entirely happy as he would have liked to see market share cross 20 per cent (it is nearly 15 per cent now). It is this bottom-of-the-pyramid slot that has a lot of potential in India. Both in terms of people and goods transport, this segment will see a lot of innovation and intense competition, he said. Clearly, M&M is keen on graduating to four-wheelers and take on the well established Tata Ace. Similarly, Piaggio Vehicles is the lead player in the three-wheeler space. Indications are that the mid-term will see the gradual exit of three-wheelers as more four-wheelers enter the market. While the segment may evolve from three to four wheels, the basic function in terms of moving people or goods still remains the same. It is a functional requirement of moving at low cost which means low product price, low maintenance and high fuel-efficiency. If the cost equation can be retained with an extra wheel, the transition (from three-wheelers) will happen, Dr Goenka said. The only sore point for M&M has been the Logan sedan which promised plenty but has not quite managed to deliver on the expected lines. It is a good product but has somehow not connected with the market. We wish the car had done better, he said. http://www.thehindubusinessline.com/2009/06/01/stories/2009060150700200.htm
Nandini Sen Gupta & Sumit Chaturvedi The Economic Times (Web & Print Edition) (June 01) Honda Siel, which is all set to launch its premium hatchback the Jazz on June 10, is likely to price it around Rs 6.5-6.8 lakh, making it the most expensive super-mini on Indian roads, according to dealers and people with knowledge of the companys pricing plan. The Jazz, based on the same platform as Hondas City, will be cheaper than the best-selling sedan, though foreign exchange fluctuations have forced the carmaker to price it much above competing models such as Skoda Fabia and Hyundai i20. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved" INDIAN BIZ INSULATED, SAYS GM INDIA Pankaj Doval The Times of India (Web & Print Edition) (June 01) New Delhi: As General Motors is all set to file for Chapter 11 bankruptcy protection on Monday, its car owners and prospective buyers in India appear to be a worried lot. However, GM India maintained that there was little reason to panic at least for now. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://timesofindia.indiatimes.com/Business/Indian-biz-insulated-says-GM-India/articleshow/4601322.cms
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| TATA MOTORS LOOKS AT UNUSUAL ROUTES TO BOOST DEMAND Swaraj Baggonkar Business Standard (Web & Print Edition) (June 01) Mumbai: Weak domestic demand and a slump in the export market has forced the countrys largest manufacturer of commercial vehicles, Tata Motors, to look at unusual factors for demand revival such as vehicle emission norms and depreciation benefits. The company, which gets 60 per cent of its revenues from the commercial vehicle (CV) segment, witnessed a drastic erosion in profits during the past financial year following the massive slump in offtakes. In April this year, a notification issued by the Central Board of Direct Taxes (CBDT) allowed truck owners to claim 50 per cent depreciation for vehicles bought and put to use before October 1. CBDT had extended the original three-month time frame that got over on March 31. Ravi Pisharody, vice-president (sales and marketing), commercial vehicles, Tata Motors, said, Although there hasnt been much of a change in the demand for heavy commercial vehicles, we expect factors like depreciation benefit announced by the government and the new vehicle emission norms to push sales. From April 1 next year, India will upgrade to Bharat Stage IV (BS IV) emission norms, equivalent to Euro IV, from BS III at the moment. There could be a slight rise in prices of vehicles, leading to preponement of purchases by customers. We see depreciation and emission norms driving demand this year, added Pisharody. Tata Motors is banking heavily on its new product in the CV space, the World Truck, to drive demand and support margins. The company is still to decide how to price the multi-tonne load carrying product, but sources say it will be at least 10-20 per cent cheaper than its competitors. Tata Motors, which controls 60 per cent of the CV market, also said that high lending rates to CV buyers has continuously impacted demand. From the single-digit lows of 2006-07, banks had hiked interest rates to 22-25 per cent during the third quarter of the last financial year. R Ramakrishnan, head - sales and marketing, medium and heavy trucks, said, Interest rate levels are far from being in the comfortable zone at the moment. We remain optimistic at any reduction in rates from the new government. We expect a fall in rates by September-October. The heavy CV (goods) segment, which depends on sectors like infrastructure, mining and construction, among others, bore the brunt of the slowdown recently, when sales dropped to less than 5,000 units a month as compared to the usual 25,000 units. As the name suggests, the World Truck is targeted at international markets with focus pockets like South Africa, Russia, Turkey and the Saarc countries. The company will officially launch the vehicle in the second quarter of the year. It will be produced in Jamshedpur as well as the companys South Korean plant operated by its 100 per cent subsidiary company, Tata Daewoo Commercial Vehicle (TDCV). Apart from the World Truck, the company will also launch new variants of the Ace, a 1-tonne, four-wheeled cargo vehicle. TATA MOTORS AIMS TO SELL 4,000 WORLD TRUCKS THIS FISCAL Manu P. Toms The Hindu Business Line (Web & Print Edition) (June 01) Mumbai: Tata Motors has targeted sales of around 4,000 units of its recently unveiled World Truck range this fiscal, according to industry sources. Scheduled for launch in July-September, the trucks will have capacities ranging from 10 to 75 tonnes. They will be priced at a premium to the existing Tata Motors truck range, which means an upper band of even Rs 50 lakh for heavy trucks. We are not chasing numbers this year but focusing on pre-sale activity. We are doing pilot studies with customers right now, Mr Ravi Pisharody, Vice-President, Commercial Vehicles, told Business Line. Mr R. Ramakrishnan, Head of Sales, said: We are not trying to generate numbers quickly. A whole lot of things like driver training, infrastructure and financing will have to fall in place. The marketing of the World Truck is not a quick fix thing but a long-term project. Operating Lease Tata Motors also plans to introduce new financing options for buyers of these trucks. We would be looking at initiatives like operating leasing, which is not there in the market right now. We are in talks with a number of operating leasing companies and details have to be worked out, he said. The company believes operating leasing will do the trick as far as attracting customers is concerned. Here, the financier leases the asset (vehicle) to a customer and recovers only a part of its value through lease rentals. The asset remains on the books of the financier. Unlike financial leasing, at the end of the lease period the customer is not obligated to buying the vehicle from the leasing company. Besides operating leasing, Tata Motors plans to initiate talks with vehicle financiers on offering loans with a longer tenure for World Truck buyers. Generally, the tenure of truck loans is three to five years, depending on the lifetime of the vehicle. However, the World Truck range is more durable and we do not see a problem with lenders offering longer tenure loans of even seven years plus. We are yet to start talks with banks though, said Mr Pisharody. The Competition It will be interesting to see how World Truck stands up to offerings from Volvo and Mercedes Benz. Swedish truck maker Scania and MAN of Germany (through an alliance with Force Motors) also have big plans for India. Tata Motors will hope that the comparative advantage in terms of acquisition cost and operating expenditure will help its products get the lead in market share. Low lifecycle cost will be our USP. Fuel accounts for about 60 per cent of the operating cost of a truck. Interest and acquisition costs are the other factors. We have an advantage on all fronts, added Mr Ramakrishnan. http://www.thehindubusinessline.com/2009/06/01/stories/2009060150650200.htm LCVS THE UNLIKELY HERO IN TATA MOTORS SAGA Neha Rishi Daily News & Analysis (Web Edition) (June 01) Mumbai: Light commercial vehicles (LCVs) have emerged as a bright spot for Tata Motors at a time when medium and heavy commercial vehicles (M&HCVs) are struggling under the impact of the economic slowdown. After a disastrous December quarter, CV sales had improved in the March quarter. While LCV sales rose 39% quarter on quarter, sales of M&HCVs rose 52%. The relative outperformance of M&HCVs though was due largely to the low-base effect of the previous quarter. Numbers for the full year ended March hold out a clearer picture --- though LCV sales for the fiscal were down 7.1%, M&HCV sales fared worse at a negative 33.16%. What gives? "In October, November and December, when liquidity was a problem, NBFCs were not funding for almost 30-45 days. So, in that period, sales came down heavily. But the moment financing picked up and NBFCs came back, the rebound has been very strong. In this segment, new purchase is not based on GDP growth, manufacturing output, etc. So, basically that customer never went away; if sales dropped, it was because of financing issues," says Ravi Pisharody, vice-president, commercial (CVBU). According to him, in the M&HCVs segment, where there are a lot of large fleets, a drop in manufacturing output or exports has a big impact. But the LCV customer is less sensitive to these. "The relationship with GDP is not strong, but they have a strong relationship with finance and interest rates." Yet, the role of private banks in the LCV segment has been coming down. "Private banks have been less active in the LCV space even before 2008-09. Their share of the total CV business has been dropping, and they prefer to focus on fleets," he says. Another bright spot for the company is the ACE, which according to Ravi Kant, managing director, is the Nano of commercial vehicles. "We have a 54-55% market share, which is a 10% jump over the previous year and that's because ACE numbers have been increasing and three-wheelers have been dropping, so obviously three-wheeler majors have been looking at introducing four-wheelers because there seems to a very clear trend there," says Pisharody. The company has been planning to introduce variants of ACE and has already launched a CNG version. "Recently, we introduced ACE EX, which is our stop-start vehicle. We are trailing it in West Bengal since April and it leads to saving fuel up to 8%," says Pisharody.
http://www.dnaindia.com/report.asp?newsid=1260668 | |
| CONSTRUCTION & AGRI MACHINERY Go To Top Lijee Philip The Economic Times Mumbai: Someeight months after merging Punjab Tractors (PTL) with itself, Indias largest maker of sport-utility vehicles and tractors Mahindra & Mahindra (M&M) has launched a major revamp at its tractor business, as it looks to sharpen its product line-up and protect market share. Tractors from PTL will constitute the lower end of the groups combined product portfolio, while those produced by M&M will command a premium position, said Anjanikumar Choudhari, president of M&Ms farm equipment business. The two will also get separate sales channels and different marketing and dealer networks, Mr Choudhari said, adding, however, that back-end operations such as sourcing, manufacturing and product development at both M&M and PTL would remain the same. Merging the front-end creates a commercial risk and a risk to volumes, he added. A single-brand strategy could result in loss of sales for the other brand and affect morale of the teams promoting the brand. The group has also transferred key personnel from M&M to manage PTL products. Among the people moved include Bishwambhar Mishra as MD, Mandeep Sachdeva as the head of sourcing and Partha Banerjee as head of manufacturing. Key roles were also allotted to existing PTL senior management to ensure continuity. M&M acquired a majority stake in Punjab Tractors in March last year for Rs 1,400 crore by first buying a 43.3% stake and a further 20% by way of an open offer. Since then, it has sought to clean up trade pipelines, reduce dealer stocks and rationalise the accounts receivables. The inventory levels have been significantly cut to around 17 days from the earlier level of 5 months. M&M has been positioning the Punjab Tractors Swaraj brand at the lower end of the market and its own Mahindra brand at the premium end to compete more efficiently with rivals such as Tafe-Eicher and Escorts in the Rs 1,200 crore-a year fiercely competitive Indian tractor market, which could be poised for recovery in volumes as the economy improves and interest rates soften further. PTLs only brand Swaraj is marketed as a more rugged, robust and reliable vehicle and M&M as a more fuel efficient and technologically superior vehicle. Copyright 2009, Bennett, Coleman & Co. Ltd. All Rights Reserved" TRACTOR-TRAILERS, TIPPERS GAIN PROMINENCE Neha Rishi Daily News & Analysis Mumbai: Tata Motors, the market leader in the commercial vehicle segment with almost 70% market share, feels that customer preference is shifting from multi-axel trucks to tractor-trailers and tippers. Ravi Pisharody, vice-president, commercial (CVBU), Tata Motors said, "Tractor-trailers are an alternative to multi-axel trucks and have rapidly become 15-20% of the total commercial vehicle business, which means the customers are making the shift, not caring about the initial acquisition price, but thinking about good carrying capacity, trip time and fuel efficiency." Tractor-trailers address the need of goods transportation on roads. R Ramakrishnan, head (sales & marketing), medium and heavy trucks, Tata Motors, said, "We do believe that in the coming years, the transportation would shift to tractor-trailers due to hub and spoke model, development of roads, and also because tractor-trailers offer the lowest operation cost as compared to other modes, saving almost 15-20% of cost as compared to multi- axel trucks." "Hence, it is logical and makes business sense for transportation to shift to tractor-trailers as it has happened in many countries in the past," he said. A decade ago, tractor-trailers were less than 5% of the total trucks sold, and recently touched 15% of the sales.It's likely that over the next decade its share would hit 35-40%.Ramakrishnan said that in case of tippers, "there is a lot of infrastructure the country needs. Interest in infrastructure is quite high and tippers are needed for infrastructure building and this business will grow big." The inventory levels for commercial vehicles are 25-28 days. "The October-December sale numbers went down very rapidly and the inventory went up to 45 days. We got back pretty rapidly because of the actions we took such as block closure in various plants, controlling raw materials," Pisharody said. http://www.dnaindia.com/report.asp?newsid=1260669 | |
| 2/3 WHEELERS Go To Top | |
| COMPONENTS Go To Top Nandini Sen Gupta The Economic Times (June 01) When General Motors finally announces Chapter 11 bankruptcy in the next 48 hours, its business interests in India may have something to cheer about. At least for now. According to GM India officials as well as automobile consultants and analysts, GMs restructuring could throw up substantial opportunities for Indian component companies shopping for cheap overseas assets. Moreover, GM India along with the rest of GMs growing Asian business, will doubtless come under the Good GM, the new company that will emerge post-restructuring without the balance sheet baggage of the past. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved" http://economictimes.indiatimes.com/News/News-By-Industry/Auto/ FOREIGN CAR FIRMS KEEN TO USE MORE LOCAL PARTS Garima Singh Neogy The Telegraph (June 01) New Delhi: Foreign car companies with a presence in the country are looking at ways to source more parts locally, which will help them to control costs. Among those keen on localisation are Suzuki, Honda and Toyota. They feel this will help to control costs and fight uncertainty in currency fluctuation. Yes, we are increasing our focus on localisation of inner parts. This will reduce costs and bring down our exposure to fluctuations in currency, Shinzo Nakanishi, managing director of Maruti Suzuki India, told The Telegraph. Of the 22 per cent components that the company imports as a value of its sales, 12 per cent are by Maruti and the remaining by suppliers. Increase in localisation will certainly promote investment, technology and employment in India. In the long run, it will be profitable for both parties. But in the end it all depends on the economics of a model and how large a scale is it selling, said Vishnu Mathur, executive director, Automotive Component Manufacturers Association of India. For companies such as Honda, the imported content in its Accord sedan ranges between 65 per cent and 70 per cent, while in the Civic, it is around 30 per cent. The rupee has depreciated almost 30 per cent since last year and increased the cost of importing components. Honda Siel had to increase the price of all its cars in April due to this currency fluctuation, said Jnaneshwar Sen, vice-president (marketing), Honda Siel Cars India. For Toyota, too, the imported content varies between 40 per cent and 45 per cent. The company has asked its R&D team to find ways to reduce the cost of its cars. Our engineering and R&D teams are working on ways to boost localisation. However, we believe that this cannot be done in a short time as we require high volumes for this, said Sandeep Singh, deputy managing director of Toyota Kirloskar Motors. http://www.telegraphindia.com/1090601/jsp/business/story_11046845.jsp | |
| ALLIED INDUSTRY Go To Top PTI See this story in: The Hindu Business Line (June 01) Kannur: The Rubber Cooperative Society's (RUBCO) tyre compound mixing plant and tread rubber unit, an essential raw material used for manufacturing tyre, would be commissioned near Kuthuparamba here tomorrow. These raw materials for manufacturing tyre and other rubber products were in great demand in developed nations, RUBCO Chairman Mr E Narayanan said here on Sunday. The rubber compound mixing plant would be inaugurated by former Kerala Minister and CPI-M State Secretary Mr Pinarayi Vijayan while State Cooperation Minister Mr G Sudhakaran would open the tread rubber unit tomorrow evening. RUBCO had already entered into an agreement with an American-based firm to market the products abroad, he said. The company has targeted an annual turnover of 13,500 tons. http://www.thehindubusinessline.com/blnus/27311720.htm
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| RBI TO LET SBI GUARANTEE TATA MOTORS DEBT ISSUE The Economic Times (June 01) Mumbai: The Reserve Bank of India (RBI) will allow the State Bank of India (SBI) to guarantee the recently-concluded Rs 4,200-crore non-convertible debenture (NCD) issue by Tata Motors. A source close to the central bank said that RBI had decided to exercise what the person described as regulatory forbearance in case of the Tata NCD issue, which means it would be exempt from the ban on banks guaranteeing corporate bonds. In reaching this decision, RBI was mindful of the fact that the interest of investors would be jeopardised, if the guarantee were to be withdrawn after the event, the source, who requested anonymity, said. Copyright 2008, Bennett, Coleman & Co. Ltd. All Rights Reserved" SHRIRAM TRANSPORT LOOKING AT PORTFOLIO BUY Priyanka Vyas The Hindu Business Line (June 01) New Delhi: In a shrinking market for financing new commercial vehicles, Shriram Transport Finance Company is looking to invest up to Rs 4,000 crore for an acquisition in the segment. The strategy is to increase the total receivables through buying a sizeable portfolio of any financing institution wanting to exit its commercial vehicle business. Credit offtake slowdown We would like to grow primarily through the organic route. But the demand for financing new vehicles is declining. There is a slowdown in credit offtake. So we are looking to buy a portfolio. There are some institutions whose portfolios are available, said Mr R. Sridhar, Managing Director of the company. Acquisition range He said the companys appetite for acquisition is in the range of Rs 3,000-4,000 crore. However, there does not seem to be any timeframe by when it expects to seal a deal. The Mumbai-based non-banking finance company is mainly into financing used trucks. In the current fiscal, it aims to increase its assets under management to Rs 30,000 crore. For the fiscal ended 2008-09, its assets under management stood at Rs 24,000 crore. On the industrys prospects, he said market conditions have improved over the last two quarters: Sales of light cargo vehicles are looking up. Even medium and heavy commercial vehicles sales, which were down by about 62 per cent in November on a year-on-year basis, reported a de-growth of 47 per cent last month. Given all these, he was positive about a 15-20 per cent growth this fiscal.The increased confidence also stems from the availability of liquidity in the market through banks, explained Mr Sridhar. The company recently tied up with GE to finance equipment through a separate entity. http://www.thehindubusinessline.com/2009/06/01/stories/2009060150710200.htm | |
| LUBRICANTS & ALTERNATIVE FUELS Go To Top | |
| INTERNATIONAL NEWS Go To Top Bloomberg See this story in: The Economic Times, The Hindu Business Line, The Tribune, The Pioneer, The Telegraph, The Times of India, Asian Age, Deccan Chronicle (June 01) New York: General Motors, poised to file for bankruptcy on Monday, and the US treasury got a majority of the automakers bondholders to agree to the largest US automakers reorganisation plan, according to a person familiar with the results. GM, contemplating a sale of its assets to a new company, proposes to give 10% of its equity to the old GM to pay bondholders and other creditors and issue warrants for as much as 15% more. http://www.thehindubusinessline.com/blnus/10311720.htm http://www.tribuneindia.com/2009/20090601/biz.htm#1 http://www.dailypioneer.com/179869/GM-bondholders-clear-bankruptcy-plan-Report.html http://www.telegraphindia.com/1090601/jsp/business/story_11046854.jsp http://www.deccanchronicle.com/business/gm-bosses-discuss-bankruptcy-plan-300 US AUTO INDUSTRY'S FUTURE HANGS IN THE BALANCE Agencies (June 01) Washington: The US auto industry faces a day of reckoning Monday, with the looming bankruptcy of auto giant General Motors and an expected court ruling on the sale of automaker Chrysler to a group led by Italy's Fiat. http://www.livemint.com/2009/05/31093953/Can-GM-succeed-as-8216Gover.html?h=E ITALY GOVT UNDER FIRE FOR LOSING OPEL DEAL Reuters See this story in: The Economic Times (June 01) Milan: Italys government is under fire from unions and opposition politicians for failing to back car maker Fiat and persuade Germany it would be the best partner for Opel, the European arm of General Motors. Germany on Saturday sealed a deal with Canadian auto parts group Magna, GM and the US government to save Opel from the imminent bankruptcy of its US parent. http://economictimes.indiatimes.com/International-Business/Italy-govt-under-fire-
Bloomberg See this story in: Business Standard (June 01) Berlin: German Chancellor Angela Merkels government chose Magna International Inc as the buyer for General Motors Corps Opel and confirmed a financing plan aimed at helping the money-losing unit avert insolvency. Magna, the Canadian car-parts maker thats competing with Fiat SpA in its bid for Opel, will invest in the Russelsheim, Germany-based carmaker, Finance Minister Peer Steinbrueck told reporters at 2.13 am in Berlin after a meeting with leaders including Merkel. Germany will provide a 1.5 billion ($2.1 billion) bridge loan to keep Opel afloat, he said. Opel will be placed under a trust later on Saturday, shielding it from a probable GM bankruptcy next week. You can be sure that we didnt take the decision lightly. All the federal and state representatives are aware that there are some risks, Steinbrueck said. We have a high interest in maintaining employment at all four Opel sites. GM is selling a majority stake in Opel, including the Vauxhall brand in the UK, as part of a global reorganisation before a US government-imposed June 1 deadline to restructure. Germany, which led the search for an investor, has a say because of the Detroit carmakers request for loan guarantees. Merkel, facing national elections on September 27, is under pressure from lawmakers and labour unions to save the 25,000 German Opel jobs out of GM Europes 55,000 positions. If an agreement isnt reached, Opel has no choice but to file for insolvency, Juergen Reinholz, economy minister of Thuringia, said in an interview before the meeting. His is one of the four states where Opel has assembly plants. Reinholz took part in negotiations that stalled earlier this week after Germany balked at GMs demand for immediate cash assistance. Of the 1.5 billion in short-term loans, GM wants an upfront payment of 450 million from Germany to keep Opel operating, GM CEO Fritz Henderson said in a May 28 interview. Thats 350 million more than the German government had anticipated, he said. Saturdays decision wasnt unanimous. Economy Minister Karl- Theodor zu Guttenberg, who led the talks and has considered a planned insolvency for Opel, said he would have chosen a different solution because of the financial risks to taxpayers associated with Magna. Aurora, Ontario-based Magna will advance 300 million in cash to Opel on June 2, Co-Chief Executive Office Siegfried Wolf said an interview after the announcement. He said that he expects a final contract with GM within four to five weeks. Opel is rescued for now, GM Europe President Carl-Peter Forster said. German state leaders and labour representatives have said repeatedly since bids were submitted on May 20 that they favor Magnas offer, which includes as much as 700 million in investments in partnership with OAO Sberbank, Russias biggest lender. The plan also foresees a linkup with Russian carmaker OAO GAZ and calls for 4.5 billion in loan guarantees across Europe. Fiat made a non-cash bid that would contribute factories and assets from its own carmaking operations. IG Metall, Germanys largest union, plans to begin talks with Magna as soon as possible to limit job cuts and keep plants open, Oliver Burkhard, an official of the group, said in a statement. Magna, founded by Chairman Frank Stronach, has 326 manufacturing plants, engineering centers and sales offices across North America, South America, Asia and Europe that employ about 82,000 people, according to the companys website. About 14 per cent of its $23.7 billion in sales last year came from assembling complete cars and trucks. Moscow-based Sberbank is interested in the deal because it will bring access to new technologies at a fairly low price, Chief Executive Officer German Gref said on Saturday. Such an asset will make it possible to restructure the automobile industry in Russia, Gref said in an interview broadcast on Vesti-24 state television. Fiat CEO Sergio Marchionne decided not to attend the overnight meeting, saying he was perplexed by Opels cash needs. The Italian automaker will focus on completing the purchase of a stake in Chrysler LLC, he said. Financing Opel on an interim basis would lead to unnecessary risks, Marchionne said in a statement on Friday. He described the negotiations as complicated and uneven. This process is taking on the air of a Brazilian soap opera, Marchionne said during a conference in Montreal. He left Berlin for North America after the stalled Opel talks. Turin-based Fiats bid, which also includes GM operations in Latin America, is part of Marchionnes plan to create a global automaker in combination with Chrysler. Fiat still wants to buy Opel and is very much interested in its Latin American operations, Marchionne said. A purchase of the US companys Saab Automobile unit in Sweden, while possible, is less likely if Fiat cant buy Opel because the two GM brands share many parts, the CEO said. Saab, which received protection from creditors in February, yesterday won a three-month extension to reorganise, giving it more time to complete a sale and reach a debt-reduction agreement with creditors. Outside Germany, Opel also operates assembly factories in countries including the UK, Spain, Poland and Belgium. Germanys federal government agreed to provide half of the 1.5 billion German backing that GM has sought for Opel, with the remainder split among the four states. Opel, founded in 1862 by Adam Opel, started out making sewing machines and bicycles before going on to produce cars, including its Laubfrosch, or tree frog, model. GM purchased 80 per cent of Opel in 1929 during the last economic crisis, after asset prices plunged worldwide. Two years later, GM bought the rest of Opel, establishing itself as the biggest carmaker in Europe through the 1930s. GM, the worlds largest automaker until its 77-year reign ended last year, will file for bankruptcy on June 1 and sell most of its assets to a new company, people familiar with its plan said May 28. That makes German workers keen to see a government trust. Employees have a say in Opels sale because GMs business plan calls for $1.2 billion in concessions from European workers. OBAMAS PLAN IS UNDER FIRE AFTER GENERAL MOTORS SHOCKER Deccan Herald (June 01) Detroit: Although the White House provided aid to the firm, GM is expected to emerge from bankruptcy in a radically slimmed-down form. Dean Baker, Director of US think-tank the Centre for Economic Policy Research, said this would mean up to 25,000 job losses at the firm itself, and many more as the shockwaves travelled through its supply and distribution network. You could be looking at 90,000 to 100,000 jobs, he said. In the United Kingdom there are particular fears about the future of Vauxhalls van plant at Luton, where 1,500 are employed by GMs European arm. During his triumphant election campaign last autumn, President Obama addressed audiences of frustrated manufacturing workers, in rustbelt states such as Michigan and Ohio, who felt globalisation was threatening their livelihoods. But Rob Scott, an economist at Washington-based thinktank the Economic Policy Institute, said by insisting on a radical downsizing of GM, and imposing strict new emissions targets without giving consumers incentives to buy the cleaner cars, the White House was safeguarding the shell of the company, but abandoning many of its workers. Tax breaks saving it between $10m and $25m could be enough to persuade GM to stay in the Renaissance Centre, a 70-floor building by the Detroit river. The Detroit-based carmakers Chief Executive, Fritz Henderson, has been studying the possibility of shifting the 4,500 head office staff to its technology centre in Warren, north of the down-at-heel motor city. Meanwhile, Professor Dennis Snower, head of the Kiel Institute for the World Economy, said the government should not waste money propping up the geriatric carmakers. If the government has spare tax euros it should invest them in a good way for the future and to help adapt to globalisation. They would better spend it helping Opel workers reskill for other jobs, he told the Observer. The government should not be in the business of picking winners. http://www.deccanherald.com/content/5599/obamas-plan-fire-general-motors.html | |
| INDIA INC SEES BETTER ECONOMIC FUTURE; WORST SEEMS TO BE OVER PTI See this story in: The Hindu Business Line (June 01) New Delhi: India Inc has regained the much-needed business confidence with majority of 300 companies stating, in an industry survey, that they see better economic outlook in the next six months. As many as 57 per cent of the companies measured on the quarterly Business Confidence Index (BCI) of FICCI, indicated that they expect the overall economic condition to be 'moderately to substantially' better in the next six months. The FICCI survey of the fourth quarter of fiscal 2008-09 is in sharp contrast with findings of the BCI of the previous quarter when only nine per cent firms had seen a bright outlook. The economy has bottomed out as was also indicated in the last survey and is clearly in the recovery mode, FICCI said. The Gross Domestic Production (GDP) recorded in the last fiscal was 6.7 per cent, which was better-than-expected. Improvement in business confidence comes amidst the new UPA Government working on a 100-day programme for putting the economy back on the fa st track. The BCI for the fourth quarter of fiscal 2008-09 was up to 64.1 from 44 in the last quarter. http://www.thehindubusinessline.com/blnus/03311620.htm BALANCING THE SHORT AND MEDIUM TERM GOALS C. R. L. Narasimhan The Hindu Finance Minister Pranab Mukherjee, in one of his first interactions with the media after formation of the UPA government, has said that his government is unambiguously committed to restoring growth and employment and that would not be possible without increased spending funded by incremental borrowing. However, the government is equally committed to the process of fiscal consolidation over a period of 2 to 3 years. The Finance Minister has touched upon a major dilemma that his government faces in the area of public finance. It may be necessary for the government to spend more to boost the economy. In all probability this will increase the fiscal deficit. However, if, as it is hoped, the governments action spurs growth, its revenues will improve and the fiscal deficits will become manageable. Large borrowing On the other hand, the government will have to borrow more and that will stand in the way of lower interest rates. The cost of government as well as private sector borrowings will go up. As the RBI Governor put it: Large borrowings by the government run against the low interest rate environment that the RBI is maintaining to spur investment demand. Only through fiscal consolidation can this vicious circle be broken up. In short, there is a trade off between the short-term objective of stimulating growth and the medium term objective of fiscal consolidation. It is going to be a major challenge for the government to manage this trade off. Just a few days earlier, RBI Governor D. Subbarao had expressed this fiscal dilemma in a slightly different way. Pointing out that economic recovery can be sustained only by practising financial rectitude, he urged the government to undertake fiscal consolidation over the near term. The Union budget for 2009-10 due to be presented (according to the latest reports ) in early July will provide important clues to the way the new government looks at its finances but even in these early days after Cabinet formation it is clear that the following will receive the governments attention. First, the economy, though not on a downward spiral, may still require fiscal stimulus packages to boost demand. Besides, Indias infrastructure deficiencies are well documented and no budget exercise can ignore them. Certain sectors such as textiles, badly hit by the global recession, cry out for public support. In the run up to the budget many other sectors/industries will join the race for government handouts. Second, the deteriorating state of government finance does not allow any delay in planning a programme of fiscal rectitude. Last, there is the pressing issue of reforms including financial sector reform. The government will have to consciously decide on new fiscal stimulus packages without undermining the already weakened fiscal situation. The UPA Government appears to have scored major gains in the elections on the basis of its track record in conceiving and implementing social sector schemes such as the National Rural Employment Guarantee Scheme. That being the almost universal belief, the new government is likely to go slow on such schemes. Whether the extra spending will be in the form of stimulus packages or as normal budgetary spending towards expanding the scope of these schemes or the infrastructure sector is immaterial as far as government finances go. The Finance Minister has said that increased spending will continue well into 2009-10. Strained finances The interim budget had pointed to a deterioration of government finances. For 2008-09 the estimated revenue and fiscal deficits at 4.4 per cent and 6 per cent were sharply higher than the budgeted 1 and 2.5 per cent, respectively. The consolidated fiscal deficit of the Centre and the States including the off-budget items is estimated to be above 11 per cent of the GDP. The RBIs concern over high government borrowings is genuine. It is true that inflationary pressures can be contained because of the existence of excess capacities in many sectors. However, large public borrowings will be inflationary and will also crowd out private investments. The measures that merit attention in coming months include considerable improvement in delivery of public services, ensuring greater accountability, efficient targeting of expenditure, weeding out wasteful expenditure and constant monitoring. All these are not new and have been prescribed by even international agencies for a long time. However, they remain significant especially when the government tries to reconcile the short-term goals with the long-term ones. http://www.hindu.com/2009/06/01/stories/2009060150911400.htm | |
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