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  1. GM, Ford still cutting prices

  2. G8 closer on debt deal, split on who gets help

  3. Barclays shares fall after bad debt warning

  4. Glazer claims shares control of Man Utd

  5. EasyJet says May passenger numbers rise 21.9 pct

  6. ECB in interest rate cut dilemma


  8. Government launches MG Rover investigation

  9. Unilever sells fragrance unit to Coty for $800 mln

  10. Morrison delivers fresh profit warning

  11. Farm monopolists

  12. German business


GM, Ford still cutting prices

Price breaks will continue for consumers looking to buy a new car.

General Motors said yesterday it will cut prices on 30 of its 2006 models as it stops giving employee discounts to all buyers. Ford also reduced prices and said it would extend its employee discounts until Sept. 6.

The reductions amount to $2,455, or 16%, on the Saturn Ion, and $645, or 3%, on the Pontiac G6, GM said.

The automaker will offer 50 models with some combination of lower prices or added features, extended warranties or other changes at no extra cost. Ford said it's cutting prices on most 2006 Ford, Lincoln and Mercury models.

GM chief exec (executive) Rick Wagoner plans to boost sales by making the prices of GM vehicles more attractive, particularly in Internet comparisons, and relying less on rebates. GM lost more than $2.2 billion making cars and trucks in the first half of this year as it trimmed North American production to reduce inventories of unsold models.

The new GM program, called "Total Value Promise," continues a strategy that began earlier this year, Mark LaNeve, vice president of North American marketing took over the reins.

GM, which sells 76 models in North America, is trying to retain market-share gains after ending the two-month employee-discount offer yesterday. The promotion sparked a 47% gain in GM sales in June.

Ford, the No. 2 U.S. automaker, announced earlier yesterday that it plans to cut prices as much as 6.8% on its 2006 Ford Explorer, the world's best-selling sport-utility vehicle(SUV).

Chrysler, which also echoed GM's strategy in July, is scheduled to announce its next incentive plan today.

Toyota, however, said July 29 it would raise prices on 10 of its 2006 models an average of 1.2%.


Bloomberg News

Originally published on August 2, 2005


G8 closer on debt deal, split on who gets help
Sat Jun 11, 2005 11:20 AM BST

By Gernot Heller and Swaha Pattanaik

LONDON (Reuters) - The Group of Eight most industrialised nations moved closer on Saturday to a historic deal to lift Africa out of poverty, but finance ministers (not financial) were still wrangling over exactly how countries should qualify for debt relief.

Britain, chairing the club, is determined to seal an accord on debt relief and aid for the impoverished continent where millions die each year of disease and hunger by the time G8 leaders meet in Gleneagles, Scotland, next month.

But Germany, France and Japan were still to be convinced of the merits of a proposal that would wipe out $40 billion of the debts owed by the world's poorest nations and officials described heated exchanges between ministers late on Friday.

"I am a little more optimistic, but no agreement yet," Germany's deputy finance minister Caio Koch-Weser told reporters as ministers returned to their debate an hour earlier than planned on Saturday.

While a deal that would provide immediate debt relief for 18 countries was nearer, officials said the G8 nations were divided on matters of principle on how to decide who should be helped.

Germany wants debt relief to be considered on a case-by-case basis and argues countries should have to show they are deserving by improving governance and clamping down on corruption.

Officials said there was also heightened tension between France and the United States over how to handle the debts owed to the International Monetary Fund.


The finance ministers -- from Britain, France, Germany, Italy, the United States, Canada and Russia -- also took stock of their own economic problems on Saturday morning, such as slow growth in Europe and Japan, record deficits in the United States and tension over China's currency policy.

A G8 source told Reuters a final statement from ministers would call for vigorous action to tackle imbalances in the global economy which were the main obstacle to continued robust, global growth. High and volatile oil prices were also a problem.

There would be no mention of the need for more flexible exchange rates in Asia in the final statement, the source said.

U.S. Treasury Secretary John Snow still wanted his Chinese counterpart Jin Renqing to scrap the yuan's exchange rate peg to the dollar. But the appeal is unlikely to spark any rapid action.


While a debt relief deal still seemed likely, the second of Britain's ambitious proposal for Africa hardly got discussed, officials said, leaving it hanging for the Gleneagles summit.

Brown had sought backing for an International Finance Facility (IFF) that would double aid to the poorest countries to $100 billion by issuing bonds using rich nations' development budgets as collateral.

But Washington opposed the plan so Brown is likely to launch a pilot IFF instead that would provide funds for vaccination programmes in Africa without U.S. or Japanese support.


shares fall after bad debt warning

Mark Tran
Thursday May 26, 2005

Shares in Barclays, Britain's third largest bank, tumbled as it warned today that bad debts were rising more than had been expected.

The update on bad debts at the bank's credit card business overshadowed accompanying revenue growth and sent shares down by 5.7%, leaving them at 520.88p (Shares on the London Stock Exchange are usually sold in pence (penny) = p) in late morning trading.

Earlier this month, the Department of Trade and Industry said the number of people going bankrupt reached record levels in the first quarter of this year.

With consumer borrowing now standing at more than £1000bn, the five interest rate rises since the end of 2003 have led to a growing number of individual insolvencies.

The DTI said the number of bankruptcies (bankruptcy (n)) jumped to 13,229 between January and March - up 1.6% on the previous quarter and 28% higher than a year ago.

Barclays, the largest supplier of credit cards in Europe, said the main increase in bad debts had been in credit card lending at the Barclaycard consumer loans unit, where rising costs more than offset improved income performance in the first quarter.

There was a "significantly smaller impact in consumer loans and mortgages", the bank said.

It is the first of the UK's big commercial banks to update (=to inform) the market on trading this year ahead of first-half results. Investors are concerned that slowing revenue growth and rising bad debts could dent profits after the increases in interest rates.

The Barclays warning followed comments from its rival HSBC last week warning that UK consumer lending credit quality was worsening. Retailers such as Next and Kingfisher have reported falling sales as consumers have reined in spending against the background of a softer housing market.

The Bank of England has cited the consumer slowdown as a key risk to the economy. Earlier this month, it held interest rates unchanged at 4.75% for the ninth month running.

In recent years, consumers have been cushioned from high debt by rising salaries. However, rising tax and fuel costs have put a dent in disposable income. As a result, people are now struggling to pay back their loans.

Despite the rise in bad debts, the bank reported strong profit growth in the first quarter of the year. In February, Barclays posted 2004 pre-tax profit of £4.6bn, up 20% from a year ago.

However, the results were helped by lower than expected bad debt provisions.



HSBC Holdings plc is a banking and financial services organization. The Company's international network is comprised of over 9,500 offices in 79 countries and territories in Europe; Hong Kong; the rest of Asia-Pacific, including the Middle East and Africa; North America, and South America. It offers a range of financial services to personal, commercial, corporate, institutional, investment and private banking clients. HSBC manages its business through the following customer groups: Personal Financial Services; Commercial Banking; Corporate, Investment Banking and Markets, and Private Banking. HSBC's largest subsidiaries and are The Hongkong and Shanghai Banking Corporation Limited; Hang Seng Bank Limited; HSBC Bank plc; CCF S.A.; HSBC Bank USA; HSBC Bank Brasil S.A.-Banco Multiplo; HSBC Private Banking Holdings (Suisse) S.A., and Grupo Financiero Bital S.A. de C. V.

Barclays Bank is the fourth largest bank in the UK. The bank can trace its routes back to 1690 in London. The name "Barclay" first arose in 1736. Today the bank is a global financial service provider operating in the UK, Europe, US, and Africa. The bank's headquarters are at Lombard Street in the City of London. Currently, offices are under construction at One Churchill Place for a new head office building. Barclays currently owns more stock (3.9%) than any other stockholder in the largest company on the planet, Exxon Mobil .

Services typically offered by banks

Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:

  • Directly taking deposits from the general public and issuing cheque (checking US) and savings accounts (or deposit and current accounts)

  • Making money available for withdrawal on demand.

  • Lending out money to companies and individuals

  • Cashing cheques (checks US)

  • Facilitating money transactions such as wire transfers GIRO and SWIFT

  • Issuing credit cards, ATM cards, and debit cards.

  • online banking and mobile banking

  • Storing valuables, particularly in a safety deposit box

Types of banks

There are several different types of banks including:

  • Central Banks usually control monetary policy and may be the lender of last resort in the event of a crisis. They are often charged with controlling the money supply, including printing money. Examples: the European Central Bank and the US Federal Reserve Bank.
  • Investment Banks "underwrite" (guarantee the sale of) stock and bond issues and advise on mergers. Examples of investment banks are Goldman Sachs of the USA or Norma Securities of Japan.

  • Merchant Banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provides capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.

  • Private Banks manage the assets of the very rich. An example of a private bank is the Union Bank of Switzerland.

  • Savings Banks traditionally just did savings and mortgages, and have special charters, but at present there is nothing inherently distinct about a savings bank.

  • Offshore Banks are banks located in jurisdictions with low taxation and regulation, such as Switzerland or the Channel Islands. Many offshore banks are essentially private banks.

  • Commercial Banks, is the term used for a normal bank to dinstinguish it from an investment bank. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with corporations or large businesses.

  • Retail Banks primary customers are individuals. An example of a retail bank is Washington Mutual of the USA.
  • Universal Banks, more commonly known as a financial services company, engage in several of these activities. For example, Citicorp, a large American bank, is involved in commercial and retail lending; it owns a merchant bank (Citicorp Merchant Bank Limited) and an investment bank (Salomon Smith Barney); it operates a private bank (Citigroup Private Bank); finally, its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Almost all large financial institutions are diversified and engage in multiple activities. In Europe, big banks are very diversified groups that, among other services, distribute also insurance.


Glazer claims shares control of Man Utd
By Rhys Blakely, Times Online
Malcolm Glazer tonight claimed the inevitable triumph in his battle for control of the world's richest football club, when the American billionaire's aides confirmed that he had purchased more than the 75 per cent stake in Manchester United that he needs to take the club private.(opposite = public)

Tonight, a spokesman for Red Football Ltd, the Glazer family's investment vehicle, confirmed that it had now acquired 75.7 per cent, having purchased 2.35 million shares during the day in deals estimated to be worth more than £7 million.

Mr Glazer can now delist Manchester United from the London Stock Exchange and implement new plans for the club without having to seek approval from other shareholders. This includes transferring personal debt to the company - it is believed that Mr Glazer has borrowed at least £300 million to fund the share purchases, having valued the company at £790 million.

It is not yet clear if the Glazers intend to continue buying shares in the market until they reach the next key threshold of 90 per cent, above which he can force out any remaining minority shareholders.

The outcome had seemed inevitable, and retaining shares in a company in which there will be no dividends paid and where no influence can be exercised over its running would seem futile, according to other analysts.

"The issue now is not whether he gets to 75 per cent but more a question about what the man’s vision is," Richard Hunter, an analysts with Hargreaves Lansdown stockbrokers, said.

"There are questions around repaying the debt and making Manchester United a much bigger brand than it is now. This is a shrewd businessman who has probably got something up his sleeve."

The American has already pledged to delist United "not less than 20 days" after he reached the 75 per cent mark. The 76-year-old billionaire, who owns the Tampa Bay Buccaneers, the American football team, has been mopping up shares in the former champions.

It was understood that Mr Glazer, who has been stalking the club for months, had instructed brokers to continue buying the shares at that price, although he had not made a formal offer. Supporters fear that Mr Glazer has no sentimental attachment to the world's most profitable football club and intends to sweat the company's assets by raising ticket prices in order to repay the debts incurred in his takeover bid.

Supporters' groups are asking fans to wear all black and carry black flags at the showpiece event, while also boycotting United's main sponsors, including Vodafone, Audi and Nike.

Supporters, who own an estimated 18 per cent of the club, have tried to secure financial backing from a Japanese bank to buy more shares in an effort to block Mr Glazer’s bid.


EasyJet says May passenger numbers rise 21.9 pct
Tue Jun 7, 2005 9:22 AM BST

LONDON (Reuters) - Low-cost airline (also budget airline but not “wooden seat”) easyJet said on Tuesday passenger numbers rose 21.9 percent in May from a year ago to 2.55 million as it continued to expand in Europe.

The airline said its load factor -- an indication of how many seats it has filled on flights -- was 84.1 percent, 3 percentage points higher than a year ago.

EasyJet said its market guidance was unchanged since its first-half results last month.

"At prevailing fuel prices and exchange rates, we continue to expect reported pre-tax profit to be below last year but in line with current expectations," Chief Executive Ray Webster said in a statement.

EasyJet has expanded aggressively in the past 12 months on short-haul (c.f. long haul) European routes but remains under pressure from high oil prices. It expects total revenues per seat for the year to be flat.

The increase compared to low-cost rival Ryanair's 34 percent rise in May passenger numbers to 2.9 million, while British Airways last week reported a 4.2 percent rise in passenger traffic.

Webster said last month he planned to step down later this year and earlier than scheduled, while the airline's founder and major shareholder Stelios Haji-Ioannou would rejoin the carrier's board.


ECB in interest rate cut dilemma
By Ralph Atkins and Mark Schieritz in Frankfurt
Published: June 14 2005 17:43 | Last updated: June 14 2005 17:43

European Central Bank uncertainty about whether interest rates might have to be cut to boost the flagging eurozone economy has spilled into a semi-public debate among members of its rate-setting council.

Hints by Jean-Claude Trichet, ECB president, and Otmar Issing, the bank's chief economist, that the possibility had increased of borrowing costs falling have contrasted with comments by several national central bank governors on the committee.

The differences highlight the dilemma faced by the ECB. Economic growth, lacklustre for the past four years, has slowed again, and politicians are increasing the pressure for a further cut in borrowing costs. But excess liquidity and oil price increases are sounding inflationary alarm bells.

The confusion puts pressure on the ECB to clarify its stance at its next rate setting meeting on July 7.

The stance taken by individual ECB governing council members - mostly national central bank governors - is understood not to be related to the relative strength or weakness of their national economies. The concern is the overall eurozone (or euro area) weakness.

Publicly, the ECB's stance changed significantly at the last governing council gathering on June 2. Subsequently, Mr Issing - usually regarded as among the more hardline members of the governing council - has pointed out that weak economic growth had reduced inflationary dangers and hinted financial markets might be right to price in a possible cut.

However, Nicholas Garganas, Bank of Greece governor, put a different emphasis on the ECB's deliberations in an interview on Tuesday with Agence France-Presse. "The balance of inflationary risks is on the upside," he said. "That assesment was right at the beginning of the year and it remains true at present."

Meanwhile, Nout Wellink, the Dutch central bank governor, has said he sees no reason for discussion about a cut and has argued strongly that such a move would not help boost growth.

The direction in which the ECB swings in coming weeks will depend on the bank's analysis of economic developments.

The euro's fall against the dollar may have reduced the pressure for a cut, while economic figures on Tuesday suggested some of the recent gloom might have been overdone.

Industrial production in Italy - among the weakest of the eurozone economies - jumped unexpectedly by 1.9 per cent in April, while the Bank of France reported a marked improvement in business confidence in May.



Not in front of the voters

Apr 7th 2005

From The Economist print edition

The real debate about pensions will be held after the election

THE British used to be smug about pensions. Unlike many other European countries, Britain had managed not to saddle taxpayers, present and future, with unaffordable pension pledges. Instead, the government had spread the load of pension provision by forging a partnership with private employers and individuals building up funded pensions.

Complacency has been blown away by what David Willetts, the Conservative spokesman on pensions, has called the perfect storm. That storm has dashed hopes that the private sector will be able to deliver future pensions on the scale needed when the big generation of baby-boomers (born 1946-64) retires. This has left a looming gap, which will require sweeping pension reforms if it is to be filled.

Employer pension plans have long been the bedrock (foundation) of private provision. Typically, these schemes have offered “defined benefit” (DB) pensions, based on years of service and final salary. The post-war spread of these plans is the main reason why today's pensioners are so much better-off than their predecessors.
Future generations of pensioners will not be so fortunate. Among Britain's top 350 quoted companies, 67% have closed their DB schemes to new entrants, who instead join “defined contribution” (DC) plans, where they build up their own retirement savings. In many ways, DC plans are preferable to DB schemes, which penalise job-changers and encourage early retirement. The snag is that workers are not saving enough in them: the joint contribution rate by employers and employees is much lower than for DB schemes.

Employers have headed for the exits because they have woken up to the financial risks in running a DB pension plan. The three-year bear stockmarket from the start of 2000 increased the trend. Employers can no longer bank on high equity returns to pay for pension costs, which have escalated because of rising longevity and lower long-term interest rates.

Poorly conceived Labour policies (not Labour Party policies) have made matters worse. Gordon Brown's tax raid on pension funds in his first budget has cost them over £5 billion a year. Not for nothing did the National Association of Pension Funds call it “the biggest attack on funded pension provision since the war”. This year, private pension funds have to start supporting an insurance scheme for pension-plan members who are short-changed when their firms fold. The reform, while necessary, is likely to impose excessive costs on company pension schemes.

Labour's pension credit, which tops up the meagre basic state pension, is discouraging retirement saving. The credit is withdrawn at a rate of 40% for every extra pound of savings income, thus imposing in effect the top rate of income tax. The disincentive to save is affecting a worryingly large number of people. According to the Institute for Fiscal Studies, almost two-thirds of pensioners will be eligible for the pension credit in 20 years' time.

The pension credit has fouled the pitch for one of Labour's better policies, the low-charge stakeholder pension. The government wanted it to expand private pension coverage among middling-income workers in smaller businesses. But it has flopped in this target group, appealing instead mainly to richer individuals.

As private employers have stepped back from pension provision, the privileged status of public-sector workers has come to the fore. The public sector's share of occupational and personal pension wealth is double its share of total earnings. The public sector accounts for 17% of earnings and 18% of employment, but 36% of pension rights.

By the 2020s, the overall pension system will be failing to deliver adequate retirement income, said the Pensions Commission in a report last year. It suggested three ways of averting this outcome. First, revitalise the partnership with the private sector, which will require “radical rather than incremental change”. Second, rebuild state pensions, which will require big tax increases. Third, follow the Australian example and introduce a large-scale compulsory saving programme.

None of the parties is advancing election proposals that rise to the challenge set by the commission. Both Labour and the Liberal Democrats are keen on versions of a “citizen's pension”, which ties basic benefits to a residential qualification rather than contributions. The Conservatives, who switched the uprating of the basic state pension to prices in 1980, now want to restore the link to earnings, which rise faster than prices.

A debate on the more fundamental options set out by the commission has been postponed until it delivers its recommendations this autumn. That way the government can make the decision that really matters safely after the election.

1. state pension

2. employer’s pension /employer funded pension

3. personal pension /private pension provision


Government launches MG Rover investigation
Tue May 31, 2005 1:34 PM BST

By Gerard Wynn

LONDON (Reuters) - The Department of Trade and Industry launched a full investigation on Tuesday into the collapse of carmaker MG Rover, after an accounting watchdog unearthed unanswered questions in its books.

MG Rover filed for bankruptcy in April under debts of 1.4 billion pounds, including a pension hole of 415 million pounds, compared to assets of just 80.5 million pounds.

Its owners Phoenix Venture Holdings bought the company in 2000 for just 10 pounds from German auto giant BMW , and has since awarded its directors with 40 million of pounds in salaries and bonuses.

The new investigation aims to satisfy public interest in the bankruptcy, which has so far cost the jobs of some 5,000 workers, the Trade and Industry Secretary Alan Johnson said in a statement.

"The appointment of administrators on 8 April was a huge blow to the employees of the company, to their families, to MG Rover's suppliers and the local community," he said. "People want to know what happened."


Unilever sells fragrance unit to Coty for $800 mln

Fri May 20, 2005 4:49 PM BST

NEW YORK (Reuters) - Unilever on Friday said it would sell a fragrance business to Coty Inc. for about $800 million (438 million pounds), continuing its program of selling noncore assets and giving U.S.-based Coty the licenses for prestige perfume brands such as Calvin Klein.

Coty Chief Executive Bernd Beetz told Reuters the privately held company had courted Anglo-Dutch consumer products maker Unilever about the fragrance business for some time.

With the purchase of Unilever Cosmetics International, Coty would get the perfume licenses for Cerruti, Vera Wang, Chloe and Lagerfeld, as well as Calvin Klein.

Unilever has been selling off noncore businesses to focus on food, cleaning and personal care brands such as Knorr soups, Dove soap and Cif cleaning products.

"This is an excellent strategic move for Unilever and one that is fully in line with our strategy to focus on our core categories," Unilever Chief Executive Patrick Cescau said in a statement.

Unilever could receive further deferred payments depending on future sales of UCI (Unilever Cosmetics International), according to both companies.

Coty declined to comment on the specific financial terms of such payments, but a Unilever spokesman said the company could get up to $100 million extra for the sale.

Unilever Cosmetics International generated sales of more than $600 million in 2004. Coty posted $2 billion in sales last year.

Coty, whose existing brands include JOOP!, Jennifer Lopez and Nikos, said the deal would increase its sales in the United States and Europe and give it a much stronger presence in Asia.

The addition of brands such as Calvin Klein "really completes our portfolio," Beetz said.

Coty, which launched the Jennifer Lopez line three years ago, is also adding to its roster of celebrity fragrances with the introduction of Sarah Jessica Parker and David Beckham fragrances (football boots?????)this fall.

Unilever shares were up 1.9 percent at 545.5 pence in London and 2 percent higher at 53.90 euros in Amsterdam.


Morrison delivers fresh profit warning

(delivering fresh is a play on words because this is a supermarket)

Wed Jun 8, 2005 11:18 AM BST

By Ben Harding and Trevor Datson

LONDON (Reuters) - The fourth-largest grocer Wm Morrison delivered the latest in a string of profit warnings (győr jelentés) on Wednesday, raising serious questions over its ability to assimilate the Safeway chain it acquired in 2003.

In what it called a "clarification statement", which analysts said did little to clarify Morrison's troubles and even less to reassure the market, the company said pretax profits would now fall in a range of 50 million to 150 million pounds.

Before this warning on profits in the past 12 months, analysts had forecast a range of 225 million to 275 million pounds.

Shares in Morrison fell more than 3 percent to a 10-month low of 178-1/2 pence after the news, but recovered some of the ground lost to stand 1.9 percent off at 182-1/4p by 1013 GMT.

Executive Chairman and company founder Ken Morrison may be rueing his decision to acquire Safeway, in what was for a time a six-way struggle for control of the mid-market supermarket group before regulatory issues forced the likes of Tesco and Sainsbury out of the running.

Early hints of the problems in store came last summer when problems linked to harmonising the accounting of supplier discounts in the Morrison and Safeway chains were flagged.

A string of complicated trading updates followed that showed a dramatic tail-off in sales at unconverted Safeway stores, offset to some degree by increased revenue at those converted to the Morrison format, but the overall picture remains foggy.


Morrison has encountered much greater problems than expected in the dual running of IT systems and start-up costs for converted stores, culminating in a surprise May 26 announcement that the board could give no reliable indication of profitability for the year.

Richard Hunter, analyst at brokers Hargreaves Lansdown was not optimistic.

"It's just one thing after another with Morrisons. It's three profit warnings in the last six months. A big hole just ahead of their results and the City really questions whether they've got their arms around the Safeway acquisition at all."

Morrison has spared no effort to complete the Safeway integration swiftly, but its two-a-week store-conversion rate has been a real strain for a mid-sized retailer in Europe's most competitive retail market. (cf. wholesaler)

Questions have also been raised regarding how successfully Morrison's value-oriented image washes with the more affluent customer base of Safeway's southern English heartland. (how something washes with something else)

But while a company spokeswoman said she could not guarantee that Wednesday's bad news would be the last, Morrison did promise brighter prospects ahead.

"In 2006/7 there remains every indication that financial performance will improve significantly following completion of the conversion process, the company said."

And Numis Securities analyst Iain McDonald did not regard the profit warning as a big surprise at all.

"If you do buy into this story that this is all double-running costs ... then in theory next year, it should be just as good as people were previously forecasting," he said.


Biggest supermarkets in Britain by market share:


2. Asda, the UK's second largest supermarket owned by Wal-Mart of the US

3. J Sainsbury competes on quality rather than price

4. Morrisons


Farm monopolists

Jurassic twilight

Jul 28th 2005
From The Economist print edition

Canada's and Australia's wheat-export monopolists risk extinction

DINOSAURS live. Two have been roaming the Canadian prairies and parts of Australia, respectively, for decades, and are still at it: the two countries' legally enforced wheat-export monopolies. But till when? American farmers think it is time they were extinct. They came under fire at this month's World Trade Organisation talks in China, and if its new trade round is to live, the two most probably must die.

American farmers have no objection to rigged markets. They love their own subsidies and protection. But recent weeks brought them bad news on both. George Bush spoke openly of cutting American farm subsidies if the European Union (EU) would do so too. It was no secret that both must cut, if the WTO round is to succeed, but this still shocked the prairies. And an American wheat tariff that has hit imports from Canada since 2003 was denounced by a North American Free Trade Agreement (NAFTA) panel. After that double whammy (cf. hat trick), both foreign wheat monopolies were obvious targets for retaliation.

The two bodies, between them controlling about one-third of the world's annual 100m-plus-tonnes of wheat (buza) exports, are certainly oddities in these days of free trade. In 1935, Canada's wheat-growers were going bust. So a state-run but voluntary body was set up to market their crops collectively and get better prices. In wartime 1943 it became compulsory. Today, the Canadian Wheat Board (CWB) is still compulsory, still state-controlled, and still has a monopoly of all west-Canadian wheat (and barley (árpa)) exports. In some years, it is the biggest grain-exporting body in the world. And America is fed up with it.

In 2003, after repeatedly attacking CWB's monopoly and alleged state subsidies, the Americans, seeing it take 20-25% of their own demand for hard red spring wheat and durum (pasta wheat), slapped on duties of 4%, later raised to 14%. That killed the trade. Meanwhile the Americans had also denounced the CWB to the WTO.

They got a surprising answer: like it or not, the CWB's monopoly did not break WTO rules. Canada hit back, calling first for a WTO probe of the American duties, then backing off to one by NAFTA. But last July the WTO called for new restraints on all farm monopolies such as the CWB. The EU too is hostile: it made it plain that in China if it is to cut export subsidies, others must end export monopolies.

Less predictably, some west-Canadian farmers are hostile, too. Why should they be forced to sell their grain for export to a single agency, on its terms, at its “pool” price? The CWB is still state-run, which also rankles, although growers now elect ten of its 15 directors. It claims that it gets a premium price, but critics say they could do better themselves.

Australia's “wheat board” is odder still. Officially, it no longer exists. Set up in 1939, it was privatised in 1999 and, as plain AWB, is now quoted on the stockmarket. Yet it still has a legal monopoly of all but the smallest exports. And, just by the way, in 2003 it bought Australia's largest supplier of farm inputs and handler of 20% of the wool clip and livestock trade.

It faces little criticism from Australia's 40,000 wheat growers. They want more information on AWB's supply-chain costs, so they can judge alternatives better. But they firmly support its bulk-export monopoly, reckoning its pool prices earn them more than they would get from the world's mighty commercial traders.

They may be right. As AWB proclaims, it ensures “that Australian growers are not played off against each other” and that “the price for Australian wheat cannot be bargained down”. To “Australian” add “Canadian” and that, say their critics, is precisely what's wrong with AWB and the CWB: they do what monopolies are meant to—they enrich sellers, at buyers' expense.

But by how much? In the world market, they are but two among many sellers. They are no more monopolists, argue supporters, than Toyota is in a car market with plenty of rivals. The real free-market case against them may be the opposite: their power inside the two countries, especially Canada, as dominant buyers.


German business

Dark days for Volkswagen

Jul 14th 2005 | FRANKFURT

From The Economist print edition

Germany's most protected company has been rocked by a boardroom scandal just as its business is facing a severe test

VOLKSWAGEN (VW) cars ranked a miserable 34th out of 37 brands in a recent quality poll by J.D. Power, a market-research firm. “Unacceptable”, says Wolfgang Bernhard, head of VW branded vehicles, who addressed investors on July 13th in an effort to convince them that the firm's quality and cost issues are being tackled. But these are just a symptom of deeper problems at Europe's biggest carmaker. The real sickness lies at the management level—the source of a sex and corruption scandal now gripping Germany.

The latest and most senior head to roll, this week, was that of Peter Hartz, VW's director of personnel, a friend of Germany's chancellor, Gerhard Schröder, and architect of the government's labour-market reforms. Mr Hartz took responsibility for the alleged misuse of company funds by workers' representatives under his command. The allegations included the procurement of prostitutes and luxury foreign travel for employees who were also members of VW's supervisory board. State prosecutors are investigating.

In mid-June an internal audit by VW began to uncover a web of dummy companies that Helmuth Schuster, head of personnel at Skoda, VW's Czech subsidiary, and others at VW appear to have used to channel backhanders in exchange for business favours. Mr Schuster and Klaus-Joachim Gebauer, a personnel manager, were fired. Klaus Volkert, a workers' representative on VW's supervisory board, quit at the end of June. Juicy allegations have appeared in the tabloid press. VW has lived too long in a twilight world between business and politics. Its biggest shareholder, with 18.2%, is the state of Lower Saxony, which also has two seats on the supervisory board. According to a 1960 law, no single shareholder can exercise more than 20% of the voting rights—so VW is in effect protected from being taken over, while the political stake makes it hard to cut jobs or close excess capacity. The European Commission is trying to get Germany to change this law, arguing that it inhibits the free flow of capital across EU borders. It took the case to the European Court in March, but is unlikely to get a verdict before the end of 2006.

The workers rule, OK

The bad publicity and resulting management shake-up come as VW's core business is in its worst shape in a decade. Profit before tax fell from a peak of €4.4 billion ($3.9 billion) in 2001 to only €1.1 billion last year. The VW brand itself actually lost €44m in 2004: the firm's operating profit of €1.6 billion came from its other brands, such as Audi, and from financial services. Its plummeting quality reputation in America (especially) contributed to losses of over €900m there last year. The firm's Chinese business is no longer the nice little earner it was: General Motors has grabbed share in a market whose growth rate has been slowing down.

Still, the firm's brands remain ahead in western Europe, with a combined market share of nearly 18%, in front of France's PSA Peugeot-Citroën group (just over 14%). But VW-badged cars have slipped from 11% to 9.4%, allowing Renault to become Europe's leading brand. As well as France's resurgent carmakers, VW must contend with the renewed drive in Europe of Japan's and South Korea's carmakers.

Bernd Pischetsrieder, VW's chief executive, is still trying to rescue the firm from the legacy of the flat-out growth strategy pursued by his predecessor and (for now) supervisory board chairman, Mr Piech.

Mr Pischetsrieder's response to growing troubles last year was to hire Mr Bernhard, who had previously put Chrysler back on the road by cutting costs and improving quality. Mr Bernhard was due to take charge of DaimlerChrysler's Mercedes arm early last year, but he so ruffled the unions and middle management with talk of radical surgery that Daimler's boss Jürgen Schrempp got rid of him. Yet Mr Bernard's hands are tied by last year's labour contract, struck to great acclaim by Mr Hartz, which guarantees VW's workforce job security until 2011 in return for a wage freeze for three years.

Mr Bernhard aims to raise VW's operating profits by some €7 billion a year by 2008 to meet his boss's target of a boost to net profit of €4 billion by the same date, given the threat of rising steel prices and a falling dollar.

Mr Bernhard avoids going into detail of his plans, apart from insisting that he will do everything possible to honour the labour contract and avoid compulsory redundancies. He told analysts on July 13th that there would be no “sacred cows” when it came to cost cuts, but also said there were no plans for factory closures.

Will the scandal make it easier for Messrs Pischetsrieder and Bernhard to win concessions from the unions and change the culture at Wolfsburg (plant in Brussels)?

Mr Pischetsrieder certainly knows how highlighting a crisis can trigger change. While boss of BMW he shocked its British workforce during a product launch by his ailing Rover subsidiary when he publicly chastised them for poor productivity. The result was swift and unexpected: the board fired Mr Pischetsrieder for over-dramatising the firm's troubles. Surely history is not about to repeat itself?

VW pronounced “Vee Double U” also owns AUDI and Skoda and SEAT


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