Terror Attacks Stagger the New Mumbai

Meet the targets of the Mumbai terrorist attacks: CEOs meeting their boards, millionaires looking to buy yachts, financiers prepping for a private equity conference, a prominent family and friends gathered for a wedding.

Until Wednesday night, Nov. 26, when armed gunmen sneaked in from the Arabian Sea and plunged this city into a three-day nightmare, these were the people who made up the new Mumbai; staunchly cosmopolitan, ferociously competitive on the global stage, and luminous markers of India's soaring aspirations.

Now, after three nights of gun battles and explosions that left at least 150 dead—more than a dozen of them foreigners—Mumbai may have taken a hit to its most precious asset: its reputation. "You can't keep having these events and not affect the image of the city," says Aninda Mitra, an analyst at Moody's (MCO). "But if you can't [improve things fast] the government will find itself not just worrying about the image, but the reality."

Amid an Economy Losing Steam

In recent years, Mumbai has been transformed from a city known for textiles and kitschy cinema to a financial powerhouse that serves as a gateway to India. It's the brightest beacon of the country's economic miracle, though there's still an overabundance of poverty—and no shortage of the secular strife that often threatens to rip India apart. In July 2006, 187 people were killed as coordinated bombs ripped through commuter trains in the crowded city. Three years before that, 60 people were killed by car bombs. And a decade before that, in 1992 and 1993, Hindu-Muslim riots claimed another 1,000.

Yet through it all, Mumbai has thrived, positioning itself proudly as an alternative to Hong Kong or Tokyo as the capital of Asian finance. Its stock exchange is among the world's busiest, its banking community the envy of South Asia, and its restaurants and nightlife closing in on those of any global cultural capital. "This sort of thing has happened before, and it can't stop Mumbai," says Omkar Goswami, the founder of the Corporate & Economic Research Group, and once the chief economist for India's biggest industry lobby. "Nothing has stopped our economy, nothing has changed Mumbai."

Indeed, on Friday, the Bombay Stock Exchange opened just a short distance from where terrorists still held hostages. The markets flared up in patriotic defiance, with the benchmark Sensex index closing up 66 points on a day when most expected it to drop. But India's economy has already lost steam, with GDP growth slowing to 7.6% and foreign institutional investors withdrawing more than $13 billion from its equity markets, leaving the Sensex at less than half where it stood a year ago. "The important question to ask is, what will the Indian state do now?" says Goswami. "The police, the intelligence gathering, how do you beef them up? These are the decisions which will decide what the impact of these terrorist attacks are."

Without doubt, Mumbai's economy, which contributes as much as 5% of India's $1 trillion GDP and nearly a third of its direct taxes, will take a while to limp back to normal. For three days now, trains have run empty, schools and offices have remained closed, and Mumbai residents, heeding a call from the government, have stayed indoors. On Friday afternoon, when a few people started trickling out of their homes, a false alarm about more armed gunmen at train stations sent them scrambling back. "There will be fewer board meetings, fewer deals being made, fewer people doing business," says Mitra, of Moody's. "But this won't last long." After all, says A.M. Naik, chairman of Indian engineering giant Larsen & Toubro, "Despite these issues, the world is not going to miss participating in an economy growing between 7 to 8%."

Why Delhi Bombings Target Business

Global Economy: No Help from China's Consumers

Jack Tan was a Western marketer's dream. The 24-year-old bank manager from the southern Chinese city of Shenzhen regularly spent a big chunk of his $1,200 monthly salary at Pizza Hut (YUM), McDonald's (MCD), and TGI Friday's. He wears Nikes (NKE), carries a Nokia (NOK) phone, and listens to Linkin Park and Green Day on his iPod (AAPL) nano. His pick-me-up? A latte at Starbucks (SBUX).

But lately Tan has changed his ways. Much of his $30,000 in savings has evaporated with the Chinese stock market, down more than 60% this year. When he eats out, Tan frequents local Chinese noodle and dumpling shops, and his plans to buy a car have been put on hold. Instead he expects to salt away half of his salary next year. "Everyone is saving so we can make it through the hard times to come," he says.

Economists had hoped China's burgeoning middle class might pick up where U.S. shoppers have left off. But even big spenders like Tan have tightened purse strings as stocks plunge, real estate values fall, and thousands of factories close their doors. While China has long been a big contributor to worldwide expansion, that has been largely fueled by factories that churn out ever more goods to fill U.S. malls.

Beijing understands that it needs to boost consumption at home to achieve healthier growth, but Chinese consumers have been reluctant to spend without an adequate safety net. "Only when the Chinese are sure their government will take better care of their social welfare will they decide they are saving too much," says Andy Xie, an independent economist. "Growing consumption is a gradual process. It cannot immediately become an economic engine."

This is bad news for multinationals that were counting on China to make up for tough times elsewhere. Retailers and manufacturers alike are seeing Chinese sales slow. Cell phone sales, for instance, have grown by 30% a year over the past half decade, but over the next five years they'll be lucky to hit 9% annual growth, says researcher BDA China. The slowdown has crunched margins for the likes of Nokia, Motorola, Wal-Mart, and Carrefour, though the companies declined to discuss the details of their China business. "No one involved in China today is unaffected," says Joerg Wuttke, president of the European Union Chamber of Commerce in China.

The gloom was apparent at the annual Guangzhou Auto Show. While there was no shortage of sleek concept cars and models in miniskirts at the annual event, which opened Nov. 18, auto executives painted a glum picture of their prospects and called for a handout from Beijing. China's car market has grown by more than 20% annually since 2001, but next year it could contract by 2%, researcher J.D. Power & Associates (MHP) predicts. China has long been a bright spot for General Motors, but the company says Buick sales will likely tumble by 12% this year, and J.D. Power predicts they'll fall by another 21% in 2009. GM says the decline won't be that steep, but acknowledges that the financial crisis is taking its toll in China. Nissan Motor (NSANY) had expected China to pick up the slack from the U.S., but that now looks unlikely. "This year is O.K., but I have some concerns about next year," says Yasuaki Hashimoto, president of Nissan's affiliate in China.

As multinationals suffer, their suppliers do, too, completing a vicious cycle: Ailing factories fire more workers, who then stop spending. The impact of the crisis on Chinese exporters in the Pearl River Delta north of Hong Kong has gotten so severe that Premier Wen Jiabao made a special tour of the region. On Nov. 14 he stopped in at Li Kai Shoes Manufacturing, a Dongguan company that makes New Balance sneakers. With orders at the plant down from9.3 million in 2007 to 7 million this year, Li Kai has laid off 22% of its 9,000 workers since January. "Consumers are unsure about the future so they're cutting down on expenses," says Stanley Chen, China boss for New Balance.

MEGAPROJECTS WON'T HELP

Longer-term, it's not unreasonable to expect China's middle class to become an engine of global expansion. But it may be years before they open their wallets enough to make a difference. Despite efforts to get citizens to spend more, consumption as a percentage of gross domestic product has shrunk in recent years, to 37.1% in 2007, from 46.8% a decade earlier. In the U.S., by contrast, consumption makes up 70% of GDP. And while China's $586 billion stimulus plan includes some measures aimed at boosting consumption, the bulk of the money will go to megaprojects such as new highways, railroads, and airports.

The stimulus also aims to boost real estate, but housing prices are flat or down. In Shenzhen, for instance, they have fallen by 15% this year—leaving the likes of Xu Shungang in the lurch. Construction has ground to a halt, so the 38-year-old laborer sits with other migrants at the railway station. After just 20 days in Shenzhen, Xu is cutting short his planned three-month stay and heading back to Henan province. Though he is looking forward to Chinese New Year at home, he won't be bringing many presents. It's better to save for the future, Xu says, eyeing a plastic duffel bag stuffed with his belongings. "There are no more jobs now," he says. "We'll come back when the economy is stronger."

China Prepares for Urban Revolution

World Economic Forum: China Looms Large

China's Factory Blues

Entrepreneur Tim Hsu first started making lamps more than 20 years ago in Taiwan. And like tens of thousands of other factory owners in Taiwan, Hong Kong, and Macau, he later moved operations to the Pearl River Delta region of Guangdong in South China, setting up his Shan Hsing Lighting in a sleepy hamlet of rice fields and duck farms called Dongguan. Since then the region has grown into the largest manufacturing base in the world for a host of industries, including electronics, shoes, toys, furniture, and lighting. The combination of low wages, minimal regulation, and a cheap currency was unbeatable. Hsu was so confident of Guangdong's future as the world's workshop that he spent $7 million on a much larger factory, which opened earlier this year.

Now many of China's manufacturers—including Shan Hsing—are undergoing the kind of restructuring that tore through America's heartland a generation ago. The U.S. housing market, which generated demand for everything from Chinese-made bedroom sets to bathroom fixtures, has plummeted. A new Chinese labor law that took effect on Jan. 1 has significantly raised costs in an already tight labor market. Soaring commodity and energy prices, as well as Beijing's cancellation of preferential policies for exporters, have hammered manufacturers. The appreciation of the Chinese currency has shrunk already razor-thin margins, pushed thousands of manufacturers to the edge of bankruptcy, and threatened China's role as the preeminent exporter of low-priced goods.

Hsu's new factory, it turns out, is running at just 60% of capacity, and he predicts that half of China's lighting factories—almost all based in Guangdong—will have to close their doors this year. "Shoe factories, clothing, toys, furniture, everyone is shutting down," he says. Hsu's not alone in his alarm. "We spent 20 years building up our industry from nothing to one of the biggest in the world," says Philip Cheng, chairman of Strategic Sports, which produces half the global supply of motorcycle, bicycle, and snowboarding helmets out of 17 plants in the Pearl River Delta. "Now we are dying." Cheng says he once earned 8% margins. His margins now? Almost zero.

Comprehensive statistics on shutdowns are hard to come by. But the Federation of Hong Kong Industries predicts that 10% of an estimated 60,000 to 70,000 Hong Kong-run factories in the Pearl River Delta will close this year. In the past 12 months, 150 factories making shoes or supplying shoemakers have closed in Dongguan, says the Asia Footwear Assn. More plants will disappear as demand slows: UBS (UBS) analyst Jonathan Anderson expects overall export growth of just 5% or less for China this year.

Chinese policymakers so far profess little concern. The closures are mainly hitting lower-value, labor-intensive exporters that pollute heavily and use energy inefficiently. Beijing now wants cleaner industries that produce higher-quality items for the local market, from cars and planes to biotech products and software. That emphasis not only helps boost domestic consumption—a key national goal—but also reduces frictions internationally from the ever-swelling trade surplus. "We are not abandoning the [exporters]," said Guangdong Governor Huang Huahua on Mar. 8. "[But] selling domestically is good for the country, good for the collective, and good for the people."

Still, the shift in the manufacturing base is likely to hit harder and be felt more widely than officials expect. So far, most shutdowns have been in Guangdong, but the pain is hardly limited to the region. When more than a hundred South Korean-owned factories closed over the Chinese New Year in the eastern province of Shandong, 1,200 miles from the Pearl River Delta, thousands of workers were left without jobs—and with unpaid wages.

LOSING ITS ALLURE

The bigger multinationals may be having second thoughts, too. A report by the American Chamber of Commerce in Shanghai found that more than half of foreign manufacturers in China believe the mainland is losing its competitive advantage over countries like Vietnam and India. Almost a fifth of the companies surveyed are considering relocating out of China. "The big story here is that globalization is for real—and China is no longer what it was," says Ronald Haddock, a vice-president at consultant Booz Allen Hamilton, which wrote the report.

The rise of the yuan may be the biggest single factor driving companies to relocate. But other government policies are contributing to the crisis. Last year, Beijing decided to cut or cancel tax rebates on more than 2,000 items used to make exported goods. The impact has been huge. "The end of rebates has raised the cost of manufacturing many goods by 14% to 17% at the factory level," says Harley Seyedin, president of the Guangzhou-based American Chamber of Commerce in South China.

Global Economy: No Help from China’s Consumers

Can Olympus Keep Its Medical Video Camera Edge?

Olympus can't do anything about today's financial and economic turmoil, which is dashing sales of digital cameras. But the company has managed to take charge of a fast-growing market that the average shutterbug probably doesn't even know it's in: medical video cameras.

Olympus was the first company to incorporate high-definition television signals into cameras known as "videoscopes," which surgeons snake through patients' bodies to search for stomach tumors, perform colonoscopies, or assist in removing diseased gall bladders. HDTV sharpened the quality of the images doctors could generate and turned Olympus into the No. 1 player in the $2.5 billion gastrointestinal endoscopy market, with 70% of global sales. (Japan's Pentax and Fuji vie for second and third place.)

But with competition on the rise and hospital budgets weighed down by the struggling economy, Olympus must persuade customers that its $20,995 surgical cameras are still worth the premium price. "These devices have to enable them to do more procedures, and to do them more efficiently," argues F. Mark Gumz, chief executive of Olympus Corp. of the Americas, who has been calling hospital CEOs personally to try to assess how far their spending might fall. "It's a concern—there will be significant financial stress on hospitals."

Virtually no one would have expected Olympus to dominate a market by employing HDTV, one of today's hottest consumer-electronics inventions. The Tokyo-based company has spent much of its 89-year history trailing behind far more popular camera makers, such as Kodak, Canon, and Fuji. In 2005, when Olympus introduced its first surgical cameras with HDTV, its medical equipment venture began to outrun its consumer business. In fiscal 2008, which ended in March, Olympus' surgery sales grew 29%, pushing the company's total medical sales up to $3.4 billion, or 31% of Olympus' $10.8 billion in annual sales.

Surgeon Appeal

Olympus' HDTV endeavor was fueled by technological persistence and a dash of foresight. Several years ago, the company's scientists were looking for ways to improve its surgical cameras. The company already had custom-designed and manufactured image-sensor chips, giving it a head start on HDTV. Even though the broadcast industry hadn't fully embraced high-def yet, Olympus executives predicted the lifelike images would appeal to surgeons. After hearing the pitch for the product, executives in Tokyo in 2002 committed to adding HDTV to equipment in the U.S. "We wanted to produce images that were comparable to what the human eye would see," says Frank Filiciotto, executive director of marketing for Olympus America.

To get that effect, Olympus' scientists combined HDTV with a technology called narrow band imaging, which filters out obscuring colors. The technologies work together to magnify fine structures like capillaries—the tiniest blood vessels in the body—letting surgeons easily detect abnormal tissues, such as those that might be precancerous. Then Olympus put the technology in a 6-mm diameter camera at the end of a flexible scope, which can turn corners in the body and produce images from almost every angle.

A version of the scope is now being widely adopted for a new type of surgery that's rapidly gaining in popularity. The surgery, known as laparoendoscopic single site, or LESS, allows complicated work such as gall bladder operations to be done in the abdomen through one tiny, nearly invisible incision in the belly button. The Olympus camera has become the tool of choice because of its crystal clear images and a flexible tip that allows it to see around corners, says Dr. Alex Rosemurgy, professor of surgery at the University of South Florida. "Now we can operate and leave no scar," he says. (Rosemurgy has no financial relationship with Olympus.)

Despite successes on the medical side, investors still think of Olympus as a consumer-focused business, and that's not a flattering angle these days. Since September, Olympus shares, which trade on the Tokyo Stock Exchange, have dropped 54%, while the Nikkei 225 index has lost 37%. Citing the "difficult environment" Olympus faces in consumer products, Credit Suisse analyst Kunihiko Kanno wrote recently that investors would be wise "to focus on Olympus for its medical business." He expects Olympus' medical sales to grow 13% next year and to be further fueled by the company's recent $1.9 billion acquisition of Gyrus, a British endoscope maker.

Growing Competition

Persuading hospitals that LESS is more won't be easy in today's recessionary times, however. The market for surgical video cameras is fiercely competitive, and an increasing number of Olympus' rivals are incorporating HDTV into their products. U.S. medical devices giant Stryker introduced its first HDTV product last December. And Stryker sells not only surgical video equipment but devices such as artificial hips and knees, as well. That gives Stryker leverage with hospital purchasers.

Furthermore, Olympus' HDTV equipment costs about 10% more than the non-HDTV cameras sold by its competitors. The cost issue is a palpable marketing challenge for all players. "The real issue for hospitals is that if they transition their cameras to HDTV, their monitors and image capture devices must also be replaced," says Brady Shirley, president of Stryker's endoscopy division, in an e-mail. "Transitioning to HDTV becomes more expensive because of the need to also purchase the other products."

CEO Gumz's latest worry is that patients may be delaying elective surgeries because they can't afford them. So far, he says, the decline has been limited mostly to cosmetic surgeries. "We'll continue to monitor this," he says. "I hope people don't put off these procedures." But he's quick to add with an apologetic tone, "I'm not an economist."

Sony Blames Profit Warning on Yen, Weak Demand

Behind Rising Health-Care Costs

Universities Try Out New Digital Devices

Will Bank Rescues Mean Fewer Banks?

Is the government using the credit crisis as a chance to reshape the entire banking sector? Evidence is mounting that it is.

Banks big and small are getting a helping hand from Uncle Sam as Washington seeks to strengthen the financial system. Just before Thanksgiving, Citigroup (C) boss Vikram Pandit managed to secure $20 billion in capital and a federal guarantee for some 90% of the bank's shakiest assets. That's on top of $25 billion Citi got in October. Through Nov. 25, 109 banks had either received or expected to receive $209 billion from the U.S. Treasury. Even tiny Saigon National Bank (SAGN) of Westminster, Calif., with $55 million in assets, expects $1.5 million. "It's a bit surprising to see the depth and breadth of which banks are receiving funds," says Frederick Cannon, chief equity strategist for banking analysts Keefe, Bruyette & Woods (KBW).

Yet an unknown number of other banks, deemed by the feds as too weak to survive and prosper, are seeing their requests for aid under Treasury's Capital Purchase Program quietly turned away. In at least a few cases, they are finding themselves nudged—or pushed—into the arms of stronger suitors. Regulators in late October told National City (NCC), a big Ohio bank stung by aggressive lending, not to expect federal aid—and to consider finding a partner, fast. National City was promptly acquired by Pittsburgh's PNC Financial Services (PNC). In November, four life insurers sought access to Treasury capital after banking regulators steered them to buy several ailing thrifts. "We're seeing a consolidation, and it's really driven by government policy," says Harvard economist Kenneth S. Rogoff.

The Treasury doesn't appear to have actually rejected any applications for funds yet. Instead, banking regulators "may go to the institution and say, 'We recommend you withdraw your application,' " said Treasury's Neel Kashkari at a Nov. 19 lunch meeting of a trade group. Kashkari is the official in charge of administering $700 billion in Treasury bailout funds.

The banks can take a hint, and the dealmaking is under way. As healthier banks acquire weaker ones with the de facto aid of the bailout fund, what could emerge is a barbell-shaped system with megabanks, small banks, and little in between. "There is tremendous pressure on the regionals to get bigger or sell themselves," says Jaret Seiberg, an analyst with Stanford Group. Some estimates are that 1,000 banks out of 8,000 will disappear.

Treasury officials, who declined to elaborate on public statements, have said consolidation isn't the formal plan, but neither do they discourage it. Other recent moves suggest the government wants mergers: In October tax authorities relaxed rules to let banks benefit from the accumulated tax losses of institutions they acquire. The change effectively subsidizes deals.

In November the Office of the Comptroller of the Currency made it easier for private equity investors to buy financial institutions. Now private equity players can more readily acquire smaller or ailing banks and combine them. As the Treasury quietly decides which banks will get funds and which won't, dealmakers will have plenty from which to pick and choose.

Paulson’s $250 Billion Bank Buy

Britain’s Big Banks Bailout

Is the Fed's $800 Billion Plan Cause for Concern?

While all eyes are on Treasury Secretary Henry Paulson and his $700 billion bailout plan, Federal Reserve Chairman Ben Bernanke is conducting his own economic recovery program—and his is measured in trillions, not billions. What's more, unlike Paulson, Bernanke doesn't have to check with Congress before shoveling out the money. On Nov. 25 the Federal Reserve announced another buying-and-lending program that will probably boost the central bank's assets (such as loans to financial institutions) to around $3 trillion. That's triple the level in mid-September, when the Fed began its expansionary campaign.

The Fed is trying to kill two birds with one very large stone, namely a drastic expansion of its balance sheet. One of its twin objectives is to get more money circulating in the economy. The other is to prop up weak financial institutions to avoid a cascade of failures. If the Fed succeeds it will appear both brilliant and efficient. The risk is that by trying to accomplish too much, the central bank will fall short of one or both of its objectives.

It's easy to get lost in the blizzard of details. Since the credit crisis began in August 2007, the Federal Reserve has taken 51 measures to fix the financial system, not including its conventional tool of cutting the federal funds rate, according to a count by UBS (UBS).

But the big picture is simple. The credit crunch is so severe that the Fed has been forced to go beyond its peacetime role of guiding the economy by steering short-term interest rates. With banks weakened and afraid to lend, it is making or guaranteeing loans to particular institutions and in some cases outright buying assets. On Nov. 25 the Fed waded deeper than ever into a kind of monetary industrial policy. It announced it would directly buy $500 billion worth of mortgage-backed securities backed by Fannie Mae (FNM), Freddie Mac (FRE), and Ginnie Mae, as well as $100 billion of the corporate debt of Fannie, Freddie, and the Federal Home Loan Banks.

Warnings of Risk

Meanwhile, the Federal Reserve Bank of New York will lend up to $200 billion to holders of highly rated securities backed by auto, student, and small business loans and credit-card receivables. All of those loans and purchases will show up as assets of the Federal Reserve System, which have already shot up to about $2.2 trillion from $1 trillion in September.

What could go wrong? Fed watcher James D. Hamilton, an economist at the University of California at San Diego, warns that the Fed is buying, or accepting as loan collateral, assets that no one else wants. The danger of this approach, he says, will become clear when the economy starts to strengthen. At that point the Fed will need to drain away lots of excess money in the financial system. Ordinarily it does that by selling securities on its balance sheet and calling in loans. But it won't be able to do that if the assets are so toxic that no one wants them or dumping them would destabilize weak institutions. "It's tricker because the Fed has exposed itself to risks," says Hamilton.

But Columbia University economist Frederic Mishkin, who stepped down as a Fed governor in August, says Fannie and Freddie debt should be easy to sell, while the loans to holders of asset-backed securities are temporary by design. Plus, says Mishkin, the Fed has to act boldly: "This shock is in many ways more complex and harder to deal with than the financial shock that occurred during the Great Depression."

The Bailout: What Does Paulson Do Now?

Paulson’s $250 Billion Bank Buy

Citigroup’s Uneasy Victory

Marcial: Put Amazon in Your Shopping Cart

It's the prototypical Internet success story: Online retailer Amazon.com () has experienced rapid growth in both sales and the dizzying array of wares it offers in its relatively short life of 14 years. And in doing so, it has outstripped the sales growth of such brick-and-mortar rivals as Best Buy (BBY), Target (TGT), and even the 800-pound gorilla of U.S. retail, Wal-Mart (WMT).

Yet Amazon's stock, like those of other retailers, has dropped like a stone in the current market ugliness. From a 52-week high of 97.43 a share on Jan. 2, 2008, it has tumbled to a low of 34.68 on Nov. 20. By Nov. 25 it had regained a bit of ground, climbing to 42.19.

Part of the reason, of course, is that retailers aren't favored by Wall Street these days as the recession crimps consumer spending and merchants fail to pull in big crowds. But shopping online continues to be strong, judging from Amazon's third-quarter sales and earnings.

"Amazon.com continues to demonstrate the strength and worldwide potential of its business model," says Michael Souers, an analyst at Standard & Poor's, who rates the stock a buy. Part of its success comes from expanding its revenue sources, according to Souers. "[Continued] investments in long-term growth opportunities, such as Amazon Prime [shipping], seller platforms, and digital media stores" should provide added sources of revenues, says Souers. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

Margins May Expand

Such initiatives, he says, should result in continued strong sales and "significant margin expansion as it leverages its leading brand name and position as an Internet retailer."

Since 1995, when Amazon opened for business as the "Earth's Biggest Bookstore," the company has expanded its offerings to include a vast array of products such as apparel, shoes, jewelry, electronics, and computers. Later it broadened into movies, music, games, toys, and tools as well as sports, home-and-garden, grocery, and health products. It seems the list could go on if Amazon has its way.

About 55% of the company's sales come from North America and 45% from international. Media products accounted for 62% of 2007 sales; electronics and general merchandise, 35%; and other, 3%. Amazon has about $3.1 billion in cash, with only $1.3 billion in long-term debt.

Souers expects sales will rise by 30% in 2008, and continue to climb robustly the following year, driven by growth in new-product categories, expansion overseas, and a rise in third-party sellers. Based primarily on the jump in sales, he expects earnings to rise to $1.30 a share in 2008 and $1.63 in 2009, up from $1.21 in 2007. Souers sees the stock leaping to 62 in 12 months.

Gain in Market Share Ahead?

Indeed, Amazon has become a formidable online marketplace. Considering the tight economy, the e-tailer performed admirably in the third quarter ended in September, with sales rising 31%, although that marked the company's lowest year-over-year gain in 24 months. Even so, the performance still handily beat the average U.S. retailer's growth rate of only 1%. That suggests "a substantial gain in market share for Amazon," Warren Thorpe, an analyst at Value Line (VALU), said in a Nov. 21 report.

How does Amazon do it? First, this online retailing pioneer has attracted a loyal following. The number of active customers who make at least one purchase a year has climbed 17%, to 84 million. And the average customer spent 12% more than in the year-ago period, says Thorpe. He attributes the higher outlays to both a broader product catalog and the success of Amazon Prime's shipping service. Participation in the service rose 70% year-over-year, he adds.

Thorpe concedes that with consumer spending down so much, the retailer will likely have a difficult time maintaining its high performance levels. Nonetheless, he sees fourth-quarter revenues advancing 23%, to nearly $7 billion, from $5.6 billion a year ago. His sales estimate for 2009's fourth quarter is $8.3 billion.

Next year the operating environment will probably continue to be a challenge, says the analyst. Still, he predicts top-line growth in revenues of 17%, to $22.6 billion, in 2009, up from $19.4 billion in 2008 and $14.8 billion in 2007.

How does he expect Amazon to hit such targets? Aggressive pricing and heavy marketing should continue to attract shoppers, says Thorpe. The company should further benefit from a "very efficient infrastructure," thanks to heavy investments in info tech in the past couple of years.

Having fallen hard, the stock is a buy based not only on how Amazon has fared this year in such a difficult retailing environment, but more importantly as a play on the economy's potential for recovery. Think of what the company's top line and bottom line will look like—and how powerful its stock will be—once the economy turns up.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Focus Stock: Tough Times Favor Family Dollar Stores

Stocks: The Individual Investor's Dilemma

The drama of the current financial crisis has featured star turns by Wall Street titans and Washington power players. But what about the little guy?

The worst stock market in a lifetime has left the average investor stunned. After the past year has taken a bite of 40% or more out of their portfolios, investors are split on whether to run away from equities, buy more, or stay the course.

Many institutions and wealthy investors are being forced to pull out of the market. Hedge funds, for example, are selling off stocks because credit troubles make it harder to invest using borrowed money, and customers are demanding their money back. Investors withdrew an estimated $40 billion from hedge funds in October, according to Hedge Fund Research.

Ignoring Buffett's Advice

But at least in theory, individual investors should be better able to withstand a downturn. Billionaire investor Warren Buffett is buying stocks and urging others to do the same, citing dirt-cheap valuations on many of the best U.S. companies.

There's only anecdotal evidence that individual investors are actually following this advice. Financial advisers interviewed by BusinessWeek.com say a small percentage of their clients—often those who are younger and further from retirement—are shifting more of their portfolio toward stocks.

Others, clearly, are yanking their money out, or shifting their portfolios toward safer investments such as cash or bonds. According to TrimTabs Investment Research, almost $165 billion has been pulled out of equity mutual funds since early September.

Few investors are taking the drastic step of pulling all money out of investment plans. Hewitt Associates (HEW), a firm that runs 401(k) retirement plans for 2.7 million U.S. workers, says only 4% of employees have stopped contributing to 401(k) plans entirely this year.

Reallocating 401(k) Assets

But as stock markets plunge, fewer individual investors are buying stocks. According to Hewitt Associates, 53.8% of 401(k) assets are held in equities, down from 68.1% a year ago and the lowest since the firm started tracking the data in 1997. A survey by the American Association of Individual Investors shows individuals allocating only about 45% of holdings to stocks, down from a historical average of 60%.

Falling markets have prompted many to fuss over their plans: A total of 1.25% of 401(k) balances were moved around in October alone, almost three times the historical average. Often these adjustments come at the worst possible time during a volatile market: Investors will sell the day after the market falls and then buy after the market rises—essentially committing the classic investor error of selling low and buying high, says Pamela Hess, Hewitt Associates' director of retirement research.

Why You Shouldn’t Bail on Stocks Now

Flat Holiday Sales for E-tailers?

Bernardo Huberman has sifted through reams of data from Facebook, YouTube (GOOG), Digg, and Amazon.com (AMZN) to build mathematical models that can predict how popular information posted to a Web site will become based on the speed at which users discover it. The director of HP's (HPQ) social computing lab, Huberman and his team of social scientists have also modeled how users' attention declines over time. One key finding: That the long lists of recommended add-on products commonly featured on e-commerce sites yield diminishing returns. Web shoppers tend to stop paying attention after a certain point. "Attention is truly a currency," says Huberman, an Argentine physicist who studies economics and computer networks.

Earlier this year, the computer giant began applying Huberman's research to its e-commerce site selling home and home office computer gear. Out went the long lists of add-on products; in came more precise recommendations based on Huberman's data. HP showed buyers of its high-priced notebooks certain photo printers that sold well with those models, and more utilitarian printers to lower-end laptop buyers. The result: A 30% increase in customers who paired the products when they checked out. HP saw similar results applying the models to software and monitor recommendations. "With Bernardo's help, we've been able to listen to everything customers are telling us with their clicks," says Mike Ritter, vice-president of HP's home and home office store.

Retailers are going to need fresh thinking amid what's shaping up to be the first Scrooge-like Christmas for online retailing since the category first took off a decade ago. Market researcher ComScore (SCOR) on Nov. 25 forecast no growth in U.S. online retail sales in November and December, vs. last year's 19% increase. Retail analysts are warning of dismal holiday sales (BusinessWeek.com, 11/25/08) overall, and online sellers including Amazon and eBay (EBAY) have forecast yearend softness. The online selling season this Christmas looks to be the historic worst "by a mile," says ComScore chairman Gian Fulgoni.

Retailers Caught Off Guard

The stock market meltdown in late September and early October may have been the last straw for shoppers atop a load of bad news including job losses, inflation, and falling housing prices, says Fulgoni. Retailers have been caught flatfooted. "No one was expecting the magnitude of the slowdown," he says. E-commerce sales, excluding travel, dropped 4% from Nov. 1 to 23, to $8.2 billion, ComScore reported, the first drop since the medium's inception. October e-commerce sales increased just 1% in the U.S., according to ComScore; last October they were up 19%.

Consumers have shut their wallets. Those earning less than $50,000 cut their online spending by 3% in the third quarter compared with a year ago, and households that earned $50,000 to $100,000 increased spending just 1%, according to ComScore. Now, the question is whether the drop in gas prices the past few weeks will free up more disposable income for online purchases, which are almost purely discretionary.

Focus Stock: Tough Times Favor Family Dollar Stores

Rough Times Ahead for the Electronics Industry

Citigroup's Uneasy Victory

Federal regulators got a fresh inside look at Citigroup's (C) books over the weekend—and it wasn't pretty.

The result: a new $306 billion federal bailout for the bank. On the one hand, it provides more clarity as to the lengths the government will now go to shore up the U.S. financial system. On the other hand, investors continue to be wary about whether Citi was worth saving from oblivion. Worse, some of them worry that if a bank with one of the highest capital ratios nearly went under, who's next?

"You had a tremendous amount of people looking inside at Citi in the last few days to figure out how bad it was, and they came away thinking that the capital markets can't handle this," says David Ellison, manager of the $185 million FBR Small Cap Financial Fund (FBRSX). "So, Citigroup wasn't a going concern. What does it tell you about the industry and everybody else all around the world that has the same assets?"

On Monday, at least, the market chose to view the bright side of the Citi deal. Citi's shares jumped 2.18, or 58%, to close at 5.95 on Nov. 24. And the prospect of stability for financial stocks lifted the broader market, as the Dow Jones industrial average gained 397 points, or 4.9%, to 8,443.39. The Standard & Poor's 500-stock index gained 52 points, or 6.5%, to 851.78.

Bailout Terms

Citigroup agreed to the unprecedented series of steps with the U.S. Treasury, the Federal Reserve Board, and the Federal Deposit Insurance Corp. to strengthen the bank's capital ratios, reduce risk, and increase its liquidity. Under the program, announced on Nov. 24, the Treasury will invest an additional $20 billion in Citi preferred stock under the Troubled Asset Relief Program (TARP), on top of $25 billion the bank received about a month ago.

Also, Citi will issue an incremental $7 billion in preferred stock to both the Treasury and the FDIC as payment for a government guarantee on $306 billion of securities, loans, and commitments backed by residential and commercial real estate and other assets. The bailout agreement also means that Citi must submit any executive compensation plans to the government for approval.

Under the guarantee, Citi will assume any losses on the $306 billion portfolio up to $29 billion on a pretax basis—meaning the government will assume 90% of any losses.

According to people familiar with the negotiations, the government struck a plan to "ring-fence" around about $300 billion in questionable assets, which will remain on Citigroup's books. That was the only group of assets for which the feds and Citi could agree on a potential value, sources say. That amounts to just 15% of Citi's total assets, which are a shade over $2 trillion.

The plan is not only good for the system, say those sources, but it provides cheap insurance for the government compared with the costs of a financial system in meltdown mode.

Sources also say that the calculations on the value of the portfolio were made on the "very unlikely event" that the U.S. economy has a downturn as severe as the Great Depression. The values of the assets in that $300 billion pool were based on projected cash flows for the life of the assets and not on their current and fluctuating distressed prices.

Paulson’s $250 Billion Bank Buy

Citigroup’s Worries Mount

Marcial: Apple Is Ripe for the Picking

Apple Inc. (AAPL) is definitely ripe for the picking. After reaching a 52-week high of 202.96 on Dec. 27, 2007, the stock plunged to a low of 80.49 on Nov. 20, 2008. (It closed at 82.58 on Nov. 21.)

What's interesting here is that Apple is one of the few "growth" stocks that has morphed into an appetizing "value" play, trading way below its intrinsic, or asset, value. Apple, of course, has long been a household name, thanks to an array of innovative products—from the sleek Macintosh computer to the wildly popular iPod and iPhone—that have won the Cupertino (Calif.) company praise for its creativity and design savvy.

But plaudits are hard to come by in the stock market these days as shares of many iconic companies continue to get hammered. Faced with a global recession and the stock market's plunge to its lowest level in many years, shares of Apple have been severely beaten down.

Perhaps it's time for investors to "think different." The strong consumer appeal of Apple's products is widely known, but it is the compelling attraction of Apple's stock that needs renewed reflection. The case for Apple is simple: Its stock is cheap based mainly on strong earnings and sales growth, and the outlook for further expansion of sales and profits. And the stock's profile based on such benchmarks as its technical chart pattern and price-earnings ratio affirms Apple's attraction.

Standard & Poor's analyst Thomas Smith, who recommends buying the stock, says his optimistic opinion reflects the potential he sees for some new products to spur sales. "We also believe present valuation levels are attractive for the pace of earnings-per-share growth we anticipate," he adds. Apple continues to provide what he describes as "simple, superior, and differentiated products." Smith concedes, however, that gross margin trends may narrow as demand for consumer electronics is likely to soften because of the U.S. economy's downturn. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

Indeed, some analysts worry that the major risk in Apple's otherwise rosy story is the macroeconomic story, specifically the depth and length of the current recession. Even so, Apple fans believe the stock remains strikingly attractive at its current price.

"We believe Apple's valuation is compelling, given its cash of $27 a share and prospects for $10 a share in free cash flow in fiscal 2010," says Ben Reitzes, tech analyst at Barclays Capital (BCS). He rates Apple, a client, overweight with a 12-month price target of 113 a share. Apple ended its fiscal fourth quarter with $24.5 billion in cash. In that sense, "Apple has turned into a free-cash-flow-generating machine," says Reitzes. Surprising as it seems, says Reitzes, Apple has become an appropriate investment for "value" investors.

Based on fourth-quarter results, the iPhone has emerged as the largest revenue and income generator in Apple's product portfolio, says Charles Wolf, tech analyst at investment bank Needham, who owns shares. He is maintaining his rating of strong buy, with a 12-month price target way above those of other analysts: 240 a share.

The iPhone, iPod, and Mac lines are expected to drive continued sales and earnings growth at Apple. S&P's Smith expects the company's revenues to grow at a 15% pace in fiscal 2009 (ending on Sept. 30), and at 22% in fiscal 2010. All of Apple's major products have been refreshed and improved ahead of the yearend selling season, he notes. New iPhone models, says Smith, have been available since July 11, and new iPods have been out since Sept. 9. And the new MacBook PCs have been on the market since Oct. 14.

Smith figures Apple is worth 137 a share, based on 24 times his projected earnings of $5.70 a share in fiscal 2009. For fiscal 2010, he estimates earnings of $7.30, aided by a healthy balance sheet. That p-e of 24 is still below the historical upper range of Apple's p-e. It was as high as 98 in 2004. Last year, Apple's p-e went as high as 52 and as low as 21.

With Apple's solid balance sheet and hefty cash stash—it has no long-term debt—the company could either buy back its owns battered shares, or initiate dividend payments. Or maybe do both.

Any of these moves could propel the stock higher—possibly way above the 100 level once again. That's probably one of the reasons why most analysts are still upbeat on Apple. Of the 34 analysts who track the stock, 27 call it a buy, and five rate it a hold. Despite the gloomy economic outlook, only two analysts tag it a sell.

For investors who already own the stock—and who, obviously, may have bought in at much higher prices—Apple's currently depressed price marks an attractive opportunity to add to their holdings of this technology leader. And the current price also represents a nifty entry point for those who have never owned the stock. Apple's whiz-bang products fetch premium prices, but its stock is looking more and more like a bona fide bargain.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

RIM Shares Hammered

Architect Aoki's Office Wins Good Design Award

When Jun Aoki's new building, SIA Aoyama, opened in Tokyo earlier this year, it wasn't immediately obvious who the tenants were. Standing 60 meters tall, the smooth all-white tower looked as if it might be apartments or offices or a hotel. And there was something slightly off-kilter about its design: Instead of conventional wraparound windows, Aoki had created large, square punch-out windows of varying sizes that didn't seem to line up. From outside, it's difficult to tell where each level begins and ends. "It looks like an 18-story building, but because each floor has 6-meter-high ceilings, it's only 9," says the 52-year-old Aoki. "I like the gap between appearance and reality."

On Nov. 6 the building earned Jun Aoki & Associates one of this year's 15 Good Design Gold prizes, Japan's top design award. The prize committee, appointed by the government-funded Japan Industrial Design Promotion Organization, praised Aoki for a plan that "breaks away from the typical notion of what an office building should look like."

The SIA Aoyama doesn't jump out at you the way the buildings of Frank Gehry or Zaha Hadid do. You wouldn't notice it, for instance, if you were a half block away on the main thoroughfare that connects Tokyo's hip Omotesando and Shibuya districts. And on a recent weekday afternoon, hardly anyone walking by it stopped to look.

Blending In

That's fine with Aoki. He didn't want the monolith to seem too out of place in a neighborhood of homes and low-slung offices. So he gave the building rounded corners and chose a white paint that had a splash of purple and gray mixed in and didn't cast a glare in sunlight. "We thought its proportions should fall somewhere between that of an apartment and office," he says.

The tower is a shift for Aoki, whose six Louis Vuitton shops in Japan, New York, and Hong Kong have won him admiration abroad. His first shop for the luggage maker, in the central Japanese city of Nagoya, set the tone for the others: They have a box-within-a-box appearance that Aoki created by layering glass windows with other materials. But the similarities end there. Another, built in 2002 in Tokyo's Omotesando district, has a metal mesh curtain covering its glass facade and resembles several pieces of luggage stacked on top of each other. In the swank Roppongi Hills shopping area, he designed a shop where the Louis Vuitton sign is a clever combination of polished steel, glass tubes, and glass windows and resembles a hologram. "Aoki is the most intellectual architect in Japan," says Taro Igarashi, an architect and a professor at Tohoku University's graduate school of engineering. "His designs are playful…and there are many hidden tricks to his work."

Aoki seems unfazed by all the attention he's gotten lately. A diminutive man with a mustache and John Lennon glasses, he is disarmingly courteous. And unlike Japan's older generation of "starchitects" whose uniform was collarless button-down shirts, Aoki prefers to rough it. He showed up for an interview in worn jeans, a black long-sleeved shirt and a leather newsboy cap.

Aoki went into business for himself in the early '90s after spending 17 years working under architect Arata Isozaki. His timing couldn't have been worse. Japan's economic bubble had just imploded, and businesses and land developers were more interested in slashing costs than trying to add to Tokyo's skyline. The resulting recession had a profound influence on his work, which ranges from homes and offices to a museum, a bridge, and an aquarium. "During the bubble years, a lot of money was spent on buildings that were merely different," says Aoki.

Beijing Olympics: The Buildings

Network Security Breaches Plague NASA

America's military and scientific institutions—along with the defense industry that serves them—are being robbed of secret information on satellites, rocket engines, launch systems, and even the Space Shuttle. The thieves operate via the Internet from Asia and Europe, penetrating U.S. computer networks. Some of the intruders are suspected of having ties to the governments of China and Russia, interviews and documents show. Of all the arms of the U.S. government, few are more vulnerable than NASA, the civilian space agency, which also works closely with the Pentagon and American intelligence services.

In April 2005, cyber-burglars slipped into the digital network of NASA's supposedly super-secure Kennedy Space Center east of Orlando, according to internal NASA documents reviewed by BusinessWeek and never before disclosed. While hundreds of government workers were preparing for a launch of the Space Shuttle Discovery that July, a malignant software program surreptitiously gathered data from computers in the vast Vehicle Assembly Building, where the Shuttle is maintained. The violated network is managed by a joint venture owned by NASA contractors Boeing (BA) and Lockheed Martin (LMT).

Undetected by the space agency or the companies, the program, called stame.exe, sent a still-undetermined amount of information about the Shuttle to a computer system in Taiwan. That nation is often used by the Chinese government as a digital way station, according to U.S. security specialists.

By December 2005, the rupture had spread to a NASA satellite control complex in suburban Maryland and to the Johnson Space Center in Houston, home of Mission Control. At least 20 gigabytes of compressed data—the equivalent of 30 million pages—were routed from the Johnson center to the system in Taiwan, NASA documents show. Much of the data came from a computer server connected to a network that tracks malfunctions that could threaten the International Space Station.

BEYOND HACKERS

Seven months after the initial April intrusion, NASA officials and employees at the Boeing-Lockheed venture finally discovered the flow of information to Taiwan. Investigators halted all work at the Vehicle Assembly Building for several days, combed hundreds of computer systems, and tallied the damage. NASA documents reviewed by BusinessWeek do not refer to any specific interference with operations of the Shuttle, which was aloft from July 26 to Aug. 9, or the Space Station, which orbits 250 miles above the earth.

The startling episode in 2005 added to a pattern of significant electronic intrusions dating at least to the late 1990s. These invasions went far beyond the vandalism of hackers who periodically deface government Web sites or sneak into computer systems just to show they can do it. One reason NASA is so vulnerable is that many of its thousands of computers and Web sites are built to be accessible to outside researchers and contractors. Another reason is that the agency at times seems more concerned about minimizing public embarrassment over data theft than preventing breaches in the first place.

In 1998 a U.S.-German satellite known as ROSAT, used for peering into deep space, was rendered useless after it turned suddenly toward the sun. NASA investigators later determined that the accident was linked to a cyber-intrusion at the Goddard Space Flight Center in the Maryland suburbs of Washington. The interloper sent information to computers in Moscow, NASA documents show. U.S. investigators fear the data ended up in the hands of a Russian spy agency.

U.S. Cybersecurity Is Weak, GAO Says

Citigroup's Worries Mount

Investors are quickly losing faith in Citigroup (C). Shares of the company, once the largest and mightiest U.S. bank by assets and market value, have fallen 66% in November, and finished down 1.85, to 4.55, on Nov. 20. The last time the shares traded that low was 14 years ago. While the stock sank, the price soared on its credit default swaps, which measure the cost of insuring Citi's debt—another worrisome sign. The market woes are raising speculation that some sort of government intervention or major outside investment may be necessary.

Says William Fitzpatrick, an equity analyst at Optique Capital Management: "Clearly the solvency issue is back on the table."

Citi is doing its best to calm investors, reiterating that the bank isn't in critical condition. Citi issued a formal statement on Thursday, Nov. 20, saying that it "has a very strong capital and liquidity position and a unique global franchise. We are focused on executing our strategy, including our targeted expense and legacy asset reductions, and we believe the benefits will be seen over time."

Saudi Prince Pledges Support

Indeed, Citi has bolstered the capital on its books in recent weeks. Less than two weeks ago, the bank—which is now fifth-largest in terms of assets—received $25 billion from the federal government, one of nine commitments made to large banks for a piece of the $700 billion bailout. Citi also received new assurances from Saudi Prince Alwaleed bin Talal, once the bank's largest shareholder, who said publicly he intended to increase his stake by $350 million, to 5%, from less than 4%, and pledged "full and complete support to Citi management."

After the Nov. 20 market close, analyst Richard X. Bove of Ladenburg Thalmann (LTS) dashed off a note reiterating his buy rating for Citi, arguing that the bank has positive net free cash flows, a strong capital base, and a diversified business base. Bove says in the end "cash flows are all that matters" and that it would "take a Depression every bit as large and long as the 1930s debacle to shake this company's viability.…I would be a buyer of this stock."

Still, the market shrugged off the support and Chief Executive Vikram Pandit continues to lose market confidence. Says Len Blum, managing director of Westwood Capital: "I don't think that Pandit has really shown the market that he has any direction. They are turning into an also-ran."

Counting on the Consumer

Losing the Wachovia (WB) acquisition to rival Wells Fargo (WFC) in October was "a big blow" to Citi, says Blum, and now "every one of its employees is absolutely distracted for fear of losing their jobs. They're not calling on accounts and clients." On Nov. 17, Pandit announced a plan to eliminate 52,000 jobs (BusinessWeek.com, 11/18/08) as part of a program to cut expenses 20%. William B. Smith of Smith Asset Management in New York says it's not enough and has renewed his call for a breakup: "The board and management have breached their fiduciary responsibility to shareholders and employees. Can [anyone] still justify Pandit?"

Mostly, the market is spooked by two large unknowns: What is the extent of damage and losses in the bank's derivatives portfolio, and how bad will the consumer downturn continue to pressure results?

Banks: Beyond the Citi Carnage

Banks: Beyond the Citi Carnage

Porsche's Next Boxster and Cayman

Porsche has unveiled its second generation mid-engined Boxster and Cayman sports cars at the Los Angeles Auto Show. The highlights of the new generation are the new flat-six boxer engines which offer both more power, and greater fuel efficiency than their predecessors and the new double-clutch gearbox which will be known as the Porsche-Doppelkupplungsgetriebe (PDK).

Newly developed Boxer engines with even more power on even less fuel

Displacing 2.9 litres, the "basic" engine develops 255 bhp (188 kW) in the Boxster and 265 bhp (195 kW) in the Cayman, an increase by 10 and, respectively, 20 horsepower over the preceding models. The 3.4-litre power unit in the S-versions, benefiting from Direct Fuel Injection, now delivers 310 bhp (228 kW) in the Boxster S and 320 bhp (235 kW) in the Cayman S, up by 15 and, respectively, 25 bhp. An outstanding power-to-weight ratio ranging from 4.2 kg (9.3 lb)/bhp on the Cayman S to 5.2 kg (11.5 lb)/bhp on the Boxster offers the driver maximum driving dynamics on minimum fuel. As a result, the Cayman S with PDK and Launch Control featured in the optional Sports Chrono Package accelerates to 100 km/h in 4.9 seconds, setting the benchmark in the range, while the Boxster with its six-speed manual gearbox featured as standard completes the same exercise in 5.9 seconds.

Featuring PDK, both the Boxster and the Cayman for the first time outperform the nine-litre consumption mark: Both models with the new 2.9-litre Boxer engine make do with 8.9 litres/100 kilometres (equal to 26.4 mpg US) according to the EU4 standard—11 per cent less than the former models with Tiptronic S. Reducing fuel consumption by an even more significant 16 per cent to 9.2 litres/100 kilometres (equal to 25.5 mpg US), the 3.4-litre versions with PDK offer an even greater saving over their predecessors with Tiptronic S.

Roadster and Coup with even more signs of distinction

The new two-seaters are clearly distinguishable from outside through their newly designed front and rear ends. The new halogen headlights with their integrated direction indicators are reminiscent of the lights on the Carrera GT, the new LED rear lights tapering out to the outside and integrated elegantly in the modified rear end of the car.

From the front the Roadster and Coup differ clearly from one another through the distinctive design of their air intakes, from the rear through the new rear panels with diffuser inserts on the Boxster and a wind deflector plate on the Cayman.

The rod-shaped positioning lights in LED light conductor technology add a particular touch of class in terms of the cars' looks, also through their horizontal arrangement in the outer air intakes. Yet a further highlight is provided by the foglamps featured as standard—rectangular in shape on the Boxster, round on the Cayman. For the first time both models are available with a Lights Package featuring bi-xenon headlights, dynamic curve lights and LED daytime driving lights. Replacing the foglamps, these light units are made up on the Boxster of four LEDs positioned next to one another, while on the Cayman four LEDs are arranged in round light units like the eyes of a dice.

PDK: shifting gears even more quickly, reducing fuel consumption by up to 16 per cent

All four sports cars are available for the first time with the Porsche-Doppelkupplungsgetriebe or PDK carried over directly from motorsport and replacing the former Tiptronic S. Equipped with the PDK double-clutch gearbox, the Roadster and Coup accelerate to 100 km/h or 62 mph 0.1 seconds faster than with the manual six-speed gearbox now also featured on the "basic" models.

Acceleration is particularly fast and dynamic with one of the optional Sports Chrono Packages featuring Launch Control for maximum acceleration from a standing start and the Race Track Gearshift Strategy for the fastest conceivable gearshift as an exclusive highlight on the PDK models. Benefiting from Launch Control, the respective models accelerate from a standstill to 100 km/h or 62 mph yet another 2/10ths of a second faster.

Porsche Racer

The 500 hp Bentley Azure T

The German Hybrids Are Coming

Congress to Detroit: What's Your Plan?

After going to Capitol Hill and begging for a $25 billion bailout, the three chief executives of General Motors (GM), Ford (F), and Chrysler have been sent away with a request for a "plan" by members of Congress. And if they want to get the taxpayers' money they so desperately need, they had better come up with something good.

The problem is, there's not a lot they can say that Congress, specifically Senate Republicans, wants to hear.

Many people, inside and outside the industry, believe the Big Three need to make wrenching cultural and strategic changes if they are to survive. One is former Treasury Secretary Paul H. O'Neill, who sat on the GM board from 1993 to 1995. "This is not going to work," O'Neill says, "unless there is 100% change [in Detroit]."

Which brings us to the question: How can government give Detroit a bridge loan while ensuring that the companies do more to be competitive? While the automakers offered nothing new in Washington, GM sources say President and Chief Operating Officer Frederick A. "Fritz" Henderson has talked almost daily with United Auto Workers President Ron Gettelfinger, discussing different things the two sides can do to cut costs. For its part, Ford says it can last into later next year, and Chrysler has been seeking a buyer.

UAW Calls for Concessions

In the meantime, government, labor, and the automakers need to come up with a plan that Congress will buy. Otherwise, bankruptcy is a possibility. If that happens, buyers would be turned away and revenue would plummet, Henderson said in an interview on Nov. 18.

But here's the tricky part. According to one Big Three lobbyist, Democratic congressional leaders don't want a plan that slashes jobs and cuts union benefits. Republicans think that's a great idea. With no clear direction from Washington yet, here's what a smart bailout package might look like. Let's start with the union. There's no question the UAW has made huge concessions over the past three years. The union cut more than 100,000 jobs and agreed to a new $14-an-hour wage for new workers (half the rate of veteran employees), as well as a health-care deal that will make GM much more competitive with Toyota (TM). Detroit will reap that savings mostly in 2010.

But there's a big problem. None of the companies can hire new workers because they have to retire the veterans first. Plus, sales are too low to justify new hiring so none of them have been able to realize the savings, says Henderson. For GM, he says the company can find its breakeven point even at sales rates as low as 11 million or 12 million vehicles a year, but it will take time and any new action must be negotiated.

To see these companies through to 2010—and send the message to Congress that management and the union are serious about helping to build the bridge—the UAW could agree to cut to Toyota-level pay and lower benefits at least until the loans are repaid. The good news is that UAW chief Gettelfinger indicated at a news conference on Nov. 20 that he'd be willing to do something. "The UAW is at the table," he said. "We welcome all stakeholders to make concessions."

White-Collar Perks Under Scrutiny

So the union is prepared to make cuts if Congress demands it. UAW workers in domestic plants make $29 an hour while Toyota workers make at most $25.

The Man Who Could Run GM

Of the three auto executives begging Congress for a bailout, General Motors Chairman G. Richard Wagoner Jr. looks the most exposed. Politicians have said that a Detroit management shakeup is long overdue, while the commentariat has been crackling with outraged calls for the GM chief's scalp. For weeks, Wagoner said he was staying put—despite presiding over $33.8 billion in losses in the past three years—and GM's board backed him. But after the Washington hearings on Nov. 19, he told reporters that he would step aside if that would help GM get a bailout.

Assuming Wagoner pulls the ripcord, GM would likely promote an insider: heir apparent President and COO Frederick A. "Fritz" Henderson.

Is he the man to fix America's largest carmaker?

Henderson, who has spent half of his 49 years at GM, is a creature of Detroit. Like Wagoner, he hails from the company's finance ranks and is not a "car guy." Henderson, who declined to comment, has largely echoed his boss's assertion that GM's massive restructuring efforts will allow it to bounce back when the economy improves.

"SENSE OF URGENCY"

Then again, Henderson is no Wagoner. Where the boss is measured and aloof, Henderson is fast-talking and direct. He attacks problems with gusto, which is why GM sent him to trouble spots on three continents. "Fritz has a real sense of urgency," says Joseph Phillippi, principal of firm Auto Trends Consulting. "His intensity would be a big plus."

Earlier this decade, Henderson shored up GM's flailing European operations. He needed to cut jobs and came out swinging—announcing 12,000 layoffs even before inking a deal with union bosses. The move sparked a wildcat strike in Germany, but Henderson got his way. He also helped introduce the Chevrolet brand to Eastern Europe. After years of losses, GM Europe made $357 million in 2006 and a small profit last year. (Those gains have deteriorated along with the global economy.)

During a two-year stint in Asia, Henderson simplified GM's brand strategy. The company used to sell Saturn, Chevrolet, and cars from former partners Isuzu, Suzuki, and Subaru in Japan. Henderson focused solely on Chevy. He can't take all the credit, but Chevy is now GM's global brand.

Since returning to Detroit nearly three years ago, Henderson has spent much of his time negotiating with the United Auto Workers. The deal he cut with the union will save GM billions a year. "If it weren't for Fritz and his team," said UAW President Ron Gettelfinger at the time, "this deal would never have come about."

A fair question: Who in their right mind would want Wagoner's job? At least three of GM's eight brands must vanish, the UAW will have to be persuaded to give up a lot more, GM's battered image needs to be rebuilt—the list goes on. Henderson, assuming he got the post, likely would need government help. It's not clear that, once enthroned, his boldness and clear thinking would be enough. That said, two years ago Henderson told BusinessWeek that "no brand has a God-given right to exist." Imagine Rick Wagoner saying that.

Congress to Detroit: What’s Your Plan?

GOP to Detroit: Drop Dead

Russia's Economy: How Bad Will It Get?

There's no denying it any longer. Russia's long economic boom is finally over.

On Nov. 18 the World Bank became the latest organization to slash its forecast for Russia's gross domestic product growth next year, from 6.5% to just 3%. That came on the heels of the International Monetary Fund, which has also been scaling back its Russian GDP growth forecasts, most recently from 5.5% to 3.5%. Many experts are even gloomier, with some predicting that Russia's economy could actually go into recession next year.

"I see no way you can achieve 3% growth next year," says Anders Aslund, senior fellow at the Peterson Institute for International Economics in Washington. "We are seeing a rapid deterioration in everything: the banking system, real estate, construction, the metallurgical sector—and, of course, the oil price."

Drastic Turn of Events

Although part of a global phenomenon, the slowdown in Russia is especially sudden and shocking. It comes after years of momentous economic growth, averaging 7% since the beginning of the decade. As recently as the first half of this year, Russia's economy grew by 7.8% from the previous year. And until recently most ordinary Russians seemed oblivious (BusinessWeek.com, 10/24/08) to the deteriorating economic news.

Yet the severe impact of the global crisis on Russia's financial markets is becoming increasingly apparent. The banking sector is in turmoil, while the stock market has been among the worst affected in the world, losing 75% of its value in the past six months. The ruble has lost 17% of its value against the U.S. dollar since August.

Even so, the true extent of Russia's economic problems is only now being acknowledged at an official level. "Today it is clear that the crisis is spreading, unfortunately from the financial sector into the sectors of the real economy," Russian President Dmitry Medvedev admitted on Nov. 18.

A Daunting Scale

In sector after sector, corporate announcements about job losses, pay cuts, and production cutbacks show that the scale of the economic crunch is far more serious than most people had previously understood. On Nov. 19 Russian carmaker GAZ (GAZA.RTS) revealed it was introducing a three-day week, in response to slumping demand for vehicles. A day earlier, leading steelmaker Severstal (CHMF.RTS) announced it had slashed production by 50% since the summer and was deferring most of its $8 billion investment program for the next three years.

Just a few days before that, leading agricultural producer Razgulyay (GRAZ.RTS) announced it was sacking 2,200 members of its staff and cutting its investment by $190 million next year. "The situation is grim, and getting grimmer," says Chris Weafer, chief strategist at Russian bank Uralsib (USBN.RTS). "Until now, most people didn't think it would have an impact on their lives. Now the reality is beginning to dawn on them."

According to Russia's labor ministry, as of Nov. 13 some 3,079 Russian companies had announced plans for job losses, totaling 99,000. That's more than double the number of job losses announced just two weeks before. Companies in Moscow also are cutting employee pay, by anywhere from 1.5% to 10%, according to Moscow city officials.

Credit Crisis: The Risk Hits Russia

Georgia War Hits Russian Investment

Auto Bailout: Seeking Signs of Sacrifice

Maybe it would have been a good idea for the chief executives of the U.S. Big Three auto companies and the president of the United Auto Workers to save a few dollars and share a ride to their appearance before Congress, where they are asking for at least $25 billion to keep from going bankrupt.

Three different members of the House of Representatives pointed out on Nov. 19 that the three CEOs and the union chief were flown to Washington in separate, private planes. The representatives used that example to express skepticism that the executives are prepared to make the needed changes in their operations, accountability, and culture to turn around their sinking industry.

"As CEOs of your companies, you should set the standard here of what the future looks like," said Representative Gary Ackerman (D-N.Y.).

Outside the House Financial Services Committee hearing chamber, hallways were abuzz with rumors of dealmaking and jawboning over an auto rescue plan. But House and Senate leaders publicly expressed doubt that legislation would pass this week to free up $25 billion in loans.

Part of the problem for lawmakers who oppose an auto industry bailout is their conviction that $25 billion won't be enough. "I'm not convinced that this money won't be throwing money at a problem that won't be fixed," said Representative Spencer Baucus (R-Ala.),

"Careful Deliberation"

Representative Paul Kanjorski (R-Pa.) said he would consider voting for some provisional funds to the industry. But he wants to take up to three months, into the next Congress, to debate a more detailed bill that would emphasize accountability, oversight, and conditions. "The American people expect and deserve careful deliberation from this body, rather than a blessing of last-minute expedient deals," said Kanjorski.

General Motors (GM) CEO G. Richard Wagoner Jr. called his company's need for funds "more urgent than that." Both Wagoner and Ford (F) CEO Alan Mulally acknowledged they have run models with their companies entering Chapter 11 bankruptcy reorganization. Their conclusion? "It's not viable," said Mulally.

House Banking Committee Chairman Barney Frank said he did not view Chapter 11 as an option for the automakers and admonished those who view bankruptcy as a way of breaking the UAW. "We already have too much union busting," said Frank.

Despite the apprehension in helping the auto industry, there is also a widely held belief in Congress that a combination of deals will ultimately buttress the companies. "In the end, they [enough members of Congress and the Treasury Dept.] will rally and you will get what you want," said Representative Maxine Waters (D-Calif.).

Wage Limits

At the same time, the outlines of stringent conditions on any loans are also taking shape. Some have called for new management atop the auto companies. After the House hearing, GM's Wagoner told Bloomberg Television he would be willing to step down if it was a condition of getting federal aid. Besides a limit on CEO compensation, there has been a spotlight on how much the United Auto Workers and its retirees collect. Older UAW members make more than $70 per hour in combined wages and benefits, vs. around $40 for workers at rival Toyota's (TM) U.S. plants. New hires for the Detroit Three make wages about equal to those new workers for the Asian companies, however. And starting in 2010, the UAW will be in charge of handling its own health-care fund, albeit after billions of dollars in contributions from the automakers.

Chrysler’s CEO on a Bailout

Chrysler’s CEO on a Bailout

Duran Out, Olofsson In at France's Carrefour

Meager profits were the ultimate fashion faux pas for the boss of global No. 2 retailer Carrefour (CARR.PA). On Nov. 18, CEO Jos-Luis Duran was ousted in a coup orchestrated by an unlikely pair of investors: French luxury mogul Bernard Arnault and U.S. investment group Colony Capital, which teamed up last year to take a major stake in Paris-based Carrefour.

Duran is to be replaced on Jan. 1 by Lars Olofsson, a senior vice-president responsible for strategy and marketing at Swiss food giant Nestl (NESR.DE). Carrefour shares rose 3.7% on the news, as analysts applauded the shakeup. "Many investors have been frustrated at the slow pace of change" under Duran, a veteran Carrefour executive who has held the top job since 2005, says Christopher Hogbin, an analyst with Sanford C. Bernstein in London.

Carrefour, whose $103 billion in annual sales make it a distant global second to Wal-Mart Stores (WMT), was struggling even before Duran took over. Slow growth in its core Western European markets has weighed on the bottom line, as the company invested heavily to expand in China and other emerging economies. Pressure on management has mounted since 2007, when Arnault, the boss of luxury group LVMH Mot Hennessy Louis Vuitton (LVMH.PA), joined California's Colony Capital to take a 14% stake in the company, making them Carrefour's single largest shareholder (BusinessWeek.com, 3/8/07).

Shedding Assets

Although Arnault and Colony control only 3 of the company's 12 board seats, "they are clearly the main influence in the company," Hogbin says. Arnault, an investor with a keen eye for undervalued companies and little tolerance for poor returns, quickly turned up the heat on Carrefour. Along with Colony, he leaned on Duran to sell off real estate holdings and shed noncore assets. But progress has been slow, and the company's vast hypermarkets have lost market share in such countries as France and Spain as consumers defect to bare-bones discounters in a slowing economy.

Adding to its woes, Carrefour was targeted earlier this year by protests in China after French President Nicolas Sarkozy threatened to boycott the Olympic Games (BusinessWeek.com, 4/22/08) because of China's Tibet policies.

Olofsson brings impressive credentials to the job. Besides his experience in marketing, he knows French corporate culture, having run Nestl's operations in France from 1997 to 2002, and he speaks fluent French. Also, he'll sit on Carrefour's board, unlike Duran, who lost his board seat last summer in a restructuring spearheaded by Arnault and Colony.

A turnaround won't come easily, though. Slow-growing Western Europe still accounts for more than 70% of group sales. And with commercial real estate in the dumps (BusinessWeek, 9/4/08), this isn't a good time for the company to unload properties. Says Hogbin: "I don't think there are too many quick fixes."

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The 500 hp Bentley Azure T

Readers will no doubt find it surprising that the time-honoured Winged-B Bentley brand, which had its heyday in the thirties, had its most successful year in history last year measured in either profitability (EUR155 million) or production numbers (10,000). One of the models in the ever broadening range that has driven the company's success is the Azure T, billed by Bentley as "world's most elegant convertible." The new T is much faster than its predecessor, delivering 500 horses from the twin-turbo 6.8 litre V8. The characteristic Bentley "wave of torque" now peaks at 1000 Nm. If you like thunderous performance, driving a Bentley and experiencing being flung at the horizon whilst surrounded in absolute luxury is a treat—and with the Azure T, you can have the top down and share the experience with three friends, all the way to 179 mph.

Audi’s New A1 Sportback Hybrid

HP's Glad Fourth-Quarter Tidings

Hewlett-Packard CEO Mark Hurd has a simple credo: Follow the numbers. His insistence that employees focus on the bottom line is beginning to pay off.

On Nov. 18, the tech giant countered a spate of recent dour warnings from tech bellwethers, saying fiscal fourth-quarter results would beat analysts' forecasts. HP also issued a surprisingly upbeat outlook for fiscal 2009. "It's surprising, and not," says John Madden, a research director at Ovum in Boston. "This is a company with great financial discipline, and that certainly helps when the economy takes a tumble."

Palo Alto (Calif.)-based HP (HPQ) said profit for the quarter ended Oct. 31 was $1.03 a share, excluding items such as restructuring and acquisition charges related to its recent takeover of tech outsourcing firm Electronic Data Systems. Wall Street was expecting earnings of $1.00 a share, excluding items. "HP delivered another solid quarter as it continues to benefit from its global reach, diverse customer base, broad portfolio, and numerous cost initiatives," Hurd said in a statement. "Our ability to execute in a challenging marketplace differentiates HP, enabling it to increase share, expand earnings, and emerge from the current economic environment as a stronger force."

Cost-Cutting Pays Off

HP didn't elaborate which areas of its sprawling tech empire, ranging from PCs and printers to services and software, were doing well. The company is due to report full results on Nov. 24. Yet the preliminary results stood in stark contrast to announcements from tech giants Intel (INTC) and Cisco Systems (CSCO), which earlier this month pointed to a sharp slowdown (BusinessWeek.com, 11/12/08) in virtually all sectors of the PC and server markets. Retailers Best Buy (BBY), Circuit City, and Target (TGT) also have indicated consumers are conserving cash amid credit market turmoil. "There is just enough demand out there to feed some of the vendors who positioned themselves well ahead of time," says Roger Kay, president of tech analyst firm Endpoint Technologies Associates.

While tech stocks surged on Nov. 18, led by HP's 14.5% gain, much of the rest of the industry isn't faring nearly as well. HP is benefiting from Hurd's near-obsessive cost-cutting and what analysts consider world-class management of sales and supply chain. In what Hurd calls "data-driven decision-making," every segment of the company now uses metrics regularly to determine which hardware, software, and services merit the most attention. Research and development has been aligned closely with product planning, while a revamped sales organization has been given greater incentive to succeed, with "specialists" bearing responsibility for growth in their particular area of interest. HP also attributed some of its performance to global reach. About 70% of revenue comes from outside the U.S.

Looking ahead, analysts say HP stands to benefit from Hurd's strategic investments in areas such as managing corporate computer networks, which offer new sources of recurring revenue. The company in September completed its purchase of EDS, which specializes in providing IT services to corporations.

Marcial: ConocoPhillips, a Cheap Big Oil Play

The sharp drop in the price of crude oil—which traded at $55 per barrel in New York on Nov. 18, down from a record high of $147 in July&mdash has taken the pizzazz out of the shares of energy behemoths that not too long ago were Wall Street's top favorites. But for value investors, beaten-down oil stocks are an opportunity not to be missed.

In other words, now may be the time to snag a piece of Big Oil on the cheap.

One undervalued giant whose moves to improve and expand its reach have not been fully recognized on Wall Street is ConocoPhillips (COP). The stock has been slammed, sliding to 47 a share on Nov. 18 from a 52-week high of 95.96 on June 17. True, other oil issues and the rest of the stock market have also been pounded. ConocoPhillips, however, has a lot of positives that investors may be overlooking.

For starters, ConocoPhillips, the second-largest integrated oil company in the U.S.—and No. 4 in the world—is also North America's largest natural gas producer and the nation's second-biggest oil refiner. The company operates in 41 countries, but 71% of its revenues come from its U.S. operations.

Promising Acquisitions

In spite of the rapid and steep decline in oil prices, ConocoPhillips "remains an awesome company and [is] compelling when crude prices are in the 50s," says Sheraz Mian, an oil analyst at Zacks Investment Research.

Mian recommends the stock as a buy and sees significant upside potential based on the company's financial health now and prospects for growth—even with oil at its current levels. Like other analysts, Mian, whose earnings estimates were calculated when crude oil was selling at $90 to $100 a barrel, will likely have to reduce his estimates to adjust for the fall in prices. But he still expects Conoco to thrive. "I am more than confident that even if oil prices drop to the $45 level, ConocoPhillips will still be cash-flow positive and will be able to meet its capital and dividend requirements," says Mian.

Through acquisitions, alliances, and joint ventures in the recent past, ConocoPhillips has become a strong contender to join the "supermajors," the global elite of energy companies, according to Mian. The members of that top-tier group are ExxonMobil (XOM), Chevron (CHV), Total (TOT), BP (BP), and Royal Dutch/Shell (RDSA). In evaluating ConocoPhillips, he says, investors should no longer categorize it as a tier-two oil company, which should support an upward valuation of ConocoPhillips' stock by Wall Street.

The company has significantly strengthened its upstream (refining) operations over the past few years through its acquisition in 2006 of Burlington Resources for $43.8 billion, Mian notes. Burlington was a major independent exploration and production company with significant reserves in North America focused on natural gas. And ConocoPhillips' 2007 acquisition of a 20% equity stake in Russia's major oil company, Lukoil, also significantly increased its upstream growth prospects. Lukoil provides access to the lucrative Russian oil market, according to Mian. Its stake in the Russian company, he says, already contributed to ConocoPhillips' earnings in the first six months of 2008.

Cheaper Gas Prices, but Less Demand

Is Wal-Mart Stock Peaking?

Marcial: Could GE Be a Cheap Global-Comeback Play?

Stocks: Still Too Expensive?

Auto Execs in the Hot Seat

WASHINGTON—Chief executives of the three U.S. automakers tried to persuade key members of the Senate that they deserve at least $25 billion in government loans to help the industry survive the current economic recession, and that the taxpayers can expect to be repaid in the future. From the response they got, it will be a tough sell.

For two weeks, since General Motors (GM) revealed that it lost $4.2 billion in the third quarter and might not have enough cash to last the year (BusinessWeek.com, 11/7/08), Republicans have voiced opposition to helping Detroit. Democrats, meanwhile, have been angling to help either by using a portion of the $700 billion Wall Street bailout approved by Congress in October or a new $25 billion attached to an economic stimulus package.

All of that ramped up the anticipation for the Nov. 18 appearance of the Big Three CEOs—GM's Rick Wagoner, Ford's (F) Alan Mulally, and Chrysler's Robert Nardelli—before the Senate Banking Committee. The auto executives will continue their lobbying campaign Nov. 19 at the House of Representatives.

See You Next Year

But Capitol Hill staffers and key leaders said the chances of passing new legislation to help the automakers during the lame-duck congressional session were scant. "I don't think we can get the votes," said Senator Chris Dodd (D-Conn.), chairman of the banking committee. Senator Bob Corker (R-Tenn.) told the CEOs, "Nothing will get done this week, and I suspect you'll be back in January."

Still, the company CEOs and United Auto Workers President Ron Gettelfinger used the hearing to try to knock down some extremely negative perceptions about how they got to this point. And they took pains to make clear that they consider the situation dire.

GM and Chrysler indicated that without loans from the government, they will be below minimum cash requirements by end of the first quarter of 2009. GM's Wagoner said his company will have about $15 billion in cash at the end of the year. Nardelli said Chrysler has $6.1 billion now. "That is getting very close to our minimum needs of liquidity to operate," Nardelli told the Senate committee.

Ford said it can last into 2010, unless the market gets appreciably worse. But it worries that a GM or Chrysler failure will trigger the failure of hundreds of auto suppliers, freezing Ford's production and thus driving all three companies and an array of suppliers into Chapter 11 reorganization. GM is asking for $10 billion to $12 billion in loans. Chrysler has asked for $7 billion, and Ford, $7 billion to $8 billion.

Still, all three companies say their outlook beyond the immediate financial crisis is much brighter than generally understood. The auto execs say that dozens of plant closures and deals with unions should cut costs enough to make them profitable when the economy and auto sales turn up again. Many analysts expect sales to rebound by mid-2010.

Is Detroit to Blame?

But it was clear from the statements and questions posed by Senators to Wagoner, Mulally, and Nardelli that many think Detroit's problems are self-inflicted, and that the companies lack the innovation to climb out of their hole.

Dodd pulled no punches: "They have derided hybrid vehicles as making 'no economic sense.'…They have dismissed the threat of global warming…their boardrooms and executive suites have been famously devoid of vision." Even so, Dodd said, "I support efforts to assist the industry."

Republican Senators Richard Shelby of Alabama and Elizabeth Dole of North Carolina were among the vocal critics of the car companies. Both Alabama and North Carolina have benefited from investment from European and Asian automakers and their suppliers.

Congress Is Partly to Blame

Senators closer to Detroit's home turf, such as Sherrod Brown (D-Ohio) and Debbie Stabenow (D-Mich.), came to the automakers' defense. Not helping the industry, said Brown, "is the surest way to turn our recession into a depression." He said the Congress should take some blame for not passing tougher fuel-economy legislation that would have better prepared the companies for $4-per-gallon gasoline that decimated sales of sport-utility vehicles that Detroit has relied on for profits: "We are on shaky ground when we shake our finger at the industry."

Though all three CEOs were present, much of the focus was on GM Chairman and CEO Wagoner because the company is the largest of the three, and is closest to having to file for bankruptcy if government loans don't come through. Last week, GM told members of Congress that its chances were "50-50" to have enough money to operate beyond the New Year.

Automakers Rev Up for a Bailout, Too

Chrysler’s CEO on a Bailout

GOP to Detroit: Drop Dead