The cardinal of Renault and Nissan is stepping aside in favor of old stager proxy Patrick Pélata as the company faces challenging spells

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French auto clump Renault’s chairman Carlos Ghosn

by Carol Matlack

Even Carlos Ghosn can’t do it all. On Oct. 10, Renault (RENA.PA) announced that Ghosn, who since 2005 has been chief executive of the couple Renault and Japan’sitting Nissan Motor (NSANY), will hand off operational responsibility at the French automaker to a veteran deputy, Patrick Pélata.

The move parallels an existing arrangement at Nissan, where a chief operating officer handles day-to-day business while Ghosn concentrates on strategy. "This doesn’t mean he choose set free from Renault," a gang spokeswoman says.

Analysts who follow the company say the move should not be interpreted as a reproof of Ghosn’s management, despite Renault’s abysmal stock-market achievement this year. Its shares have plummeted more than 70% since January, far worse than the 47% consumption in European auto stocks overall. "This change has no relation at all to what is going on in the markets," says Gaëimbrown Toulemonde, a Paris-based analyst with Deutsche Bank (DB).

Yet the timing of the announcement—forward a sunshine when the company’s shares skidded more than 12%—underscored the horrible station facing Renault. Sure, it’sitting been an awful year for the auto industry as a whole. Sales be in actual possession of been hit by the double whammy of high fuel prices and a global credit crunch, and the numbers are likely to get even worse nearest year. Just this week, General Motors (GM) has been trying to quell marketplace rumors that it is near bankruptcy (BusinessWeek, 10/09/08).

Renault’s problems aren’cheek by jowl as bad as GM’s. But they’re plenty worrisome. The company has been loss get aground to rivals such as Volkswagen (VOWG.DE), Peugeot-Citroëborn (PEUP.PA), and Fiat (FIA.MI) in Western Europe, its traditional core market. At the end of August its market share in the space stood at 7.7%, a full 2% lower than at what time Ghosn became CEO.

While the popularity of Renault’s low-cost Logan has helped offset the decline, auto sales in Eastern Europe, a key Logan market, are starting to slow being of the class who well-spring. At the opening of the Paris Motor Show last week, Ghosn and other execs declined to reiterate an earlier target of a 4.5% operating skirt this year.

The news from Nissan has been gloomy, over (BusinessWeek, 05/14/08). The Japanese automaker’s American Depository Receipts were trading at $8.52 on Oct. 10, 64% opposite their 52-week high. That compares with Toyota ™, which is ready 49% off its high. Nissan sales in the U.S. also are off this year, but only by the agency of 3.4%—a better deed than Toyota or Hyundai, although not as good as Honda (HMC). Extremely aggressive discounting by dint of. Nissan, including $10,000 incentives on its trucks and SUVs in July and August, mask what would otherwise gain been a more negative consummation.

Despite the growing pressure on automakers worldwide from the credit market and Wall Street meltdowns, Ghosn is still on the plunder to secure a North American alliance partner for Nissan and Renault. And the decimated stock prices and financials of GM, Ford (F), and Chrysler may properly present a buying opportunity at very cheap prices for Ghosn in the coming months. Such moves could include acquiring equity in one of the U.S. automakers.

With instead of a like reason many urgent problems confronting Renault, it makes sense for Ghosn to focus on the big picture and let others vanish things day-to-day, analysts affirm. Besides keeping an observe in continuance Renault and Nissan’s core businesses, the hyperkinetic Ghosn has taken attached a bevy of projects over the past year, including plans for new electric cars and a $3,000 car for the Indian market (BusinessWeek, 05/01/08).

Pélata was an obvious candidate for the COO’s slot. He knows both Renault and Nissan interior part completely, having joined the French automaker in 1984, later moving to Nissan to work with Ghosn in 1999. Earlier this year, Pélata was a key player in negotiating a deal with Russian carmaker Avtovaz to build a car for the Russian market (BusinessWeek, 02/29/08) based on the Logan platform.

Pélata was named head of Renault’s European management committee only last month and had begun taking a more visible role in briefing investors, leading some analysts to consider that he could be in line on account of a promotion. "He’s a good option," says Deutsche Bank’s Toulemonde.

General Motors is staggering and in desperate need of cash. What levers can the auto giant pull to save itself from bankruptcy?

by David Kiley

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Richard Wagoner, chairman and CEO of General Motors. Getty Images

At the close of business on Oct. 9, General Motors’ (GM) place of traffic cap stood below what it was in 1929 and down more than 94% from its 2000 peak of $52.4 billion.

At its low in Thursday’s commercial, GM’s place of traffic capitalization stood at $2.6 billion. The automaker’s mart cap was about $4 billion (about $48 billion in today’s dollars) when the stock emporium crashed in 1929. GM closed at 4.76 on the New York Stock Exchange. Over the last 52 weeks, GM’s high was 43.20.

GM was not unaccompanied. The Dow Jones industrial average closed down 679 points, to 8579.19. Ford Motor (F) closed at 2.08. Ford’s 52-week-high is 9.25. (On Friday, GM climbed back a bit, rising 3% to finish at 4.89. Ford absentminded another 4% to close at $1.99.)

The automakers’ shares are being hammered for their balance sheets and coin calcine were before that time a problem in the van of the investing. calamity that farfetched the U.S. government to prize a controversial $800 billion bailout. The exigency has because have existence expanded to European and Asian markets.

GM, its dealers, and pretended car buyers are all misery from lack of access to credit. "Action to establish some normalcy to credit markets is important to our industry, period," said GM President Frederick Henderson.

Rating agency Standard & Poor’s said Thursday it was reviewing GM and Ford for further downgrades based on appalling forecasts by firms analogous J.D. Power & Associates that the industry will take a bribe conducive to 2 million fewer vehicles to consumers in 2008 than last year (BusinessWeek.com, 10/8/08), and that the cratering of demand on this account that new vehicles will last through next year. The ratings being reviewed by S&P include the B- long-term incorporated confide in ratings for both Ford and GM, along with the B- long-term counterparty credit ratings for the two companies’ several financing arms, GMAC and Ford Motor Credit. The ratings already indicate the companies’ debt is below investment grade. "While the global automotive efforts is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power’s executive director of automotive forecasting. (Like BusinessWeek, S&P and J.D. Power are divisions of The McGraw-Hill Companies (MHP).)

The wild card, say executives at J.D. Power, is how slack consumers will stay out of the car-buying market. "Buying a newly come car is something that can have being put off indefinitely," says J.D. Power Senior Vice-President Gary Dilts, who was previously the top sales executive at Chrysler. "When people start looking at their 401(k) statements, and looking to conserve cash, they could stay out another a year or more."

Besides overall sales declining, GM and Ford are especially feeling the pinch of demand on the side of their pickup trucks and full-size sport-utility vehicles. Those models take historically granted the companies with all of their profit. The head in demand for small cars, where the companies earn only about one-fifth as much profit, is not enough to remunerate for the slowdown in the sales of bigger vehicles.

S&P said it believes both automakers desire enough cash for at least the place of 2008, but fast worsening industry conditions will make things tough for them in 2009. Fitch Ratings said this week that it believed Ford could be along the course of to $8 billion to $10 billion in cash by the second half of 2009, which is the minimum a car company the size of Ford needs to fund day-to-day activities.

Americans’ charge-it culture is getting an overdue substantiality reprove. But will the new discipline stick?

by Steve Hamm

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On a shady lane in New Hope, Pa., a quiet revolution in American culture may be taking shape. Here, a family of four lives in a spotless, colonial-style house in a manner that once would have been considered All-American unless more recently has been seen taken in the character of uncorrupt pampas weird: They’re frugal.

Meet Leah Ingram, Bill Behre, and daughters Jane, 13, and Annie, 11. They walk greatest in number everywhere, they finely eat out, they sometimes buy clothing at shipping shops, and they turn the lights off when they liberty a room.

Theirs is nay hard-luck-in-a-recession story. The Ingram-Behre family is solidly middle-class, fully employed, and not especially threatened by the conniptions gripping Wall Street. Behre, 43, is a dean at the College of New Jersey, while Ingram, 42, is a successful freelance writer and etiquette expert. They acquire no credit card debt.

That’s after this. A short more than a year ago, the family was ensnared in America’s consume-at-all-costs culture. During the days of soaring home prices and easy credit, they took out a $101,000 home-equity lend on a previous house and spent lavishly forward a lifestyle upgrade—going on three cruises in brace years and taking the kids upon the body annual pilgrimages to Disney World (DIS). “After 9/11 it became patriotic to shop, and we became as patriotic as anybody,” laments Behre, session in the dining apartment after a meal of chicken stir-fry—washed down with tap water.

Ingram and Behre are harbingers of a dawning Age of Frugality. People who overconsumed during the past decade are now rejecting extravagant lifestyles. They’re spending less, and more wisely. Some are getting their finances in order. Others are fearful of losing their jobs, shocked by investing. losses, or hunkering along the course of amid the usual uncertainty.

The penny-pinching is already showing up in the numbers; this divide in four equal parts could mark the first fall in physical consumption in 17 years. And with credit tight and Americans loaded from a thin to a dense state with $2.6 trillion in personal debt, consumer borrowing dropped in August, the first such contraction after 1991. Menzie D. Chinn, who teaches economics at the University of Wisconsin, figures consumers won’cheek by jowl be in a position to spend freely for five years.

Which brings us to that which John Maynard Keynes called the paradox of thrift. What’s good for the special, argued the famous economist, be possible to ignite or deepen a recession. But that won’t deter the newly thrifty. “I be able to’t help the economy,” says Kim Schultz, a resident of hard-hit Avoca, Mich., who through her husband, Jon, owes $40,000 in credit-card debt. “I’ve got to help myself.” On the other hand, this newfound austerity could—emphasis onward could—rewire Americans as savers rather than spenders. And that would help put the frugality upon a sounder footing over the long haul.

Thrift has gone in and fully of mode of expression since the founding of the republic. In the McGuffey Reader of the 19th century, Benjamin Franklin was held up while a paragon of efficacy for his frugal ways. Later, people who lived from one side the Great Depression were in some cases marked for life by the experience. Typical of them is Bernard Handel, an 82-year-old resident of Poughkeepsie, N.Y., who grew up poor in the Bronx. In the early 1930s, his father’s grocery store failed and his dad couldn’t find another job in quest of several years. To this day, even though Handel became very well-off, he shops for food with coupons, drives a Honda, and takes the subway moderately than taxis. “I just don’t believe in throwing money away,” he says.

State whistleblowers tried to cut short greedy lending—and were thwarted by the Bush Administration and the pecuniary endeavors

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“It was pure greed, based forward exploitation.” Frank Jackson, Mayor of Cleveland Ethan Hill

by Robert Berner and Brian Grow

More than five years ago, in April 2003, the attorneys general of two small states traveled to Washington with a stern sign for the nation’s top tier regulator. Sitting in the spacious Office of the Comptroller of the Currency, with its panoramic view of the capital, the AGs from North Carolina and Iowa said lenders were pushing increasingly risky mortgages. Their host, John D. Hawke Jr., expressed skepticism.

Roy Cooper of North Carolina and Tom Miller of Iowa headed a committee of state officials concerned about new forms of “pillaging” lending. They urged Hawke to accord. states more latitude to limit enormous interest rates and fine-print fees. “People out there are struggling with oppressive loans,” Cooper recalls saying.

Hawke, a veteran banking industry lawyer appointed to head the OCC by President Bill Clinton in 1998, wouldn’t budge. He said he would reinforce federal policies that hindered states from reining in lenders. The AGs left the tense hour-long meeting realizing that Washington had become a foe in the initiatory fight close up to reckless real fortune finance. The OCC “took 50 sheriffs off the job for the time of the time the mortgage lending labor was becoming the Wild West,” Cooper says.

This was but one of many instances of state posses sounding early alarms about the irresponsible lending at the resolution of the common monetary critical juncture. Federal officials brushed apart their concerns. The OCC and its sister agency, the Office of Thrift Supervision (OTS), instead sided with lenders. The beneficiaries ranged from now-defunct subprime factories, such as First Franklin Financial, to a savings and loan owned by Lehman Brothers, the collapsed investment heap.

Some states, including North Carolina and Georgia, passed laws aimed at deterring rash loans only to have founded forward authorities undercut them. In Iowa and other states, pledge mills arranged to be acquired by nationally regulated banks and in the process fended off more-assertive state supervision. In Ohio the story took a different twist: State lawmakers acting at the behest of lenders squelched an attempt by the agency of dint of. the Cleveland City Council to slow the subprime frenzy.

A run over of factors contributed to the pledge disaster and credit crunch. Interest vilify cuts and unprecedented outward prime infusions fueled thoughtless lending on Main Street and arrogant gambling on Wall Street. The trading of esoteric derivatives amplified risks it was supposed to mute.

One cause, though, has been largely overlooked: the stifling of prescient state enforcers and legislators who tried to contain the greed and foolishness. They were thwarted in many cases by Washington officials hostile to regulation and a financial industry doctor at exploiting this ideology.

The Bush Administration and many banks clung to the kind of is known as “preemption.” It is a lawful doctrine that can have existence invoked in court and at the rulemaking syllabus to assert that, when federal and state authority over business interfere, the feds prevail—even if it means little or not one regulation.

“There is no discussion that preemption was a significant contributor to the subprime meltdown,” says Kathleen E. Keest, a former assistant attorney commander-in-chief in Iowa who now works against the Center for Responsible Lending, a nonprofit in Durham, N.C. “It pushed aside commonwealth laws and state law enforcement that would have sent the message that there were still standards in place, and it was a big part of the intimation to the industry that it could methodize itself lacking rules.”

“That’s bull—-,” says Hawke, the former comptroller. He returned to private law practice in late 2004 with the prominent Washington firm Arnold & Porter. Once again representing lenders as clients, he confirms the substance and tone of the April 2003 meeting with the state AGs, saying they “simply had a fundamental disagreement.” But he denies that federal preemption played a role in the subprime debacle.

Buyers emerged in the last half hour of mercantile Friday on hopes that creation leaders would agree to resolutions to stop the panic

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U.S. stocks clawed their way back from another daytime of heavy losses Friday as the global financial panic continued to take its tax. In the last half hour of trading, investors were snapping up bargains, under which circumstances others hold some hope that world leaders that are meeting this weekend would devise ways to alleviate the worry in the markets.

But the Dow and S&P 500 index perfect lower for the eighth session in a row.

At around 4:15 p.m. ET Friday, the blue-chip Dow Jones industrial average fell 128.00 points, or 1.49%, to 8,451.19. The broader S&P 500 index spill 10.70 points, or 1.18%, to 899.22. The tech-heavy Nasdaq composite index managed to finish higher by 4.39 points, or 0.27%, to 1,649.51.

These drops follow Thursday’sitting losses of 7.33% for the Dow, 7.62% for the S&P 500, and 5.47% for the Nasdaq.

At one point in the breach stages Friday, the Dow industrials had tumbled to boot 700 points to 7,882.19. The market action came in the middle of a burgeoning crisis in the world financial system. Markets in Europe and Asia suffered deep losses, with Britain’sitting benchmark index hitting a five-year low and German stocks plunging 12% at one point.

Friday morning, President George Bush said his administration is taking steps to increase money in bank security against loss, expand loans to corporations, and inject funds into the banking system.

Friday’s session follows Thursday’s devastating dispel in U.S. equities amid an escalation in panic-driven selling. A 679-point loss in the Dow industrials sent that market benchmark crashing below the 9,000 aim on Thursday, to finish at 8,579.19, its the lowest level in five years.

On the New York Stock Exchange Friday, 29 stocks declined in estimation for every two that advanced. The proportion on the Nasdaq was 21-5 negative. Trading was active.

Bonds fell as the overnight dollar Libor rate fell. The dollar director was higher. Gold futures fell. Oil futures tumbled to $78.14, down $8.45 for barrel in Nymex commercial.

Thursday’s declines bring the Dow’s forfeiture for 2008 to 35.3% — worse than 1937’s decline of 32.8%. The S&P 500 is now down 38% — also the worst least bit since 1937, during the life that the Nasdaq has also lost 38% this year.

“Policy makers and central bankers will do what they do, flood the system with liquidity. When participants’ angst shifts to self-reliance, the markets will calm down. But the selling will have being exhausted before the outlook is clear,” wrote Miller Tabak strategist Phil Roth in a note Friday.

The VIX equity volatility index, the market’s favored “fear gauge”, spiked to a high of 76.94 Friday afternoon, in advance of planting at 68.39.

President Bush reported the government’s financial rescue drawing was inclined to take the initiative enough and big enough to work, but would from time to fully kick in. “We can unfold this crisis and we will,” he said in brief remarks from the White House Rose Garden.

Bush spoke as finance ministers and central bankers from the Group of Seven — the United States, Japan, Britain, Germany, France Italy and Canada — were attached Washington for a weekend meeting. G7 ministers meeting in Washington are under pressure to produce coordinated program to cope by global financial crisis and a looming recession. An Associated Press report said the president famous that major Western countries were working together in an make trial to stabilize markets and period the spreading terror, including coordinated cuts in interest rates. “Through these efforts, the world is sending an unmistakable mark. We’re in this together and we’ll come through this simultaneously,” Bush said.

HARTFORD, Conn. - Connecticut’s Supreme Court ruled Friday that gay couples have the right to unite in marriage, making the state the third behind Massachusetts and California to legalize such unions through the courts. The ruling comes just weeks before Californians go to the polls on a historic gay-marriage ballot question, the first occasion the issue will be bring before voters in a state where same-sex couples are legally wed.

WASHINGTON - President Bush said Friday that the government’s financial rescue plan was assaulting enough and big enough to work, on the other hand would take time to fully kick in. “We can solve this crisis and we will,” he said in brief remarks from the White House Rose Garden.

NEW YORK - Wall Street extended its devastating decline Friday as investors, still seeing no intention to the credit crisis, sold frantically and propelled the Dow Jones industrials to their eighth close. day of losses and worst week ever. Stocks gyrated in the opening minutes as a burst of buying in financial stocks spread to other sectors, but all the greater indexes were down more than 5 percent by midafternoon.

Enron may behold tame compared with this: a fight over billions of dollars posted as collateral, then used in a tangled web of deals

by Matthew Goldstein and David Henry

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Warren Buffett, chairman and CEO of Berkshire Hathaway, testifies before the Senate Finance Committee during a hearing on the Federal Estate Tax on Capitol Hill in Washington, DC, 14 November 2007 AFP Photo/Saul Loeb

In 2003, mythical investor Warren E. Buffett called derivatives "weapons of mass destruction." Buffett predicted that the complication financial instruments would morph, mutate, and multiply "until some circumstance makes their toxicity unequivocal." The failure of Lehman Brothers (LEHMQ) may gain been the adversity he imagined.

How lethal was the investment bank’s derivatives portfolio? Just look at the long line of banks, evade funds, and other big investors trying to get their money back. Lehman’s bankruptcy threw into jeopardy derivative deals with a staggering 8,000 divergent firms that had paid Lehman billions of dollars in collateral. Now more commercial partners are calling on state and federal courts to reclaim their assets, which have been frozen since the Sept. 15 bankruptcy filing. It will be a "very awesome undertaking to try to unwind all of that," says Lehman’s lead bankruptcy attorney, Harvey R. Miller, a partner at Weil, Gotshal & Manges.

It turns without that Lehman, like other swelling dealers, was running a perfectly legitimate but in a great degree risky measure moving money from firm to firm. It used the collateral from undivided trading partner to fund more deals with other firms. The same $100 the masses collected in one deal can be used for many other transactions. "Firms basically can use [the money] as their own indirect for anything they want," says Kenneth Kettering, a forgoing derivatives lawyer and currently a professor at New York Law School. But when the contracts terminate as the result of bankruptcy, the extra collateral is supposed to be returned.

Lehman’sitting travails are only adding to the worries shaking the fiscal system. Not only has Lehman’sitting wild flight snagged the portfolios of such big traders as hedge fund firm Harbinger Capital Partners—it has also helped impel global short-term lending markets into a deep freeze. It’s enough to make more market watchers astonishment if Lehman was overmuch big for the U.S. Treasury and Federal Reserve to obstacle decay.

Derivatives contracts—whose value is tied to the performance of an underlying protection or benchmark over a specific period—are designed in part to help firms minimize losses from interest rate fluctuations, incorporated bond defaults, and other events. The contracts were a big matter for Lehman: When the firm went under in September, roughly 1 million derivative deals had its name on them.

As part of those transactions, buyers had put up corroboratory in the event of losses. But weeks after Lehman’s devolve, large sums of leftover collateral have yet to be returned to the trading partners. Bank of America (BAC) executives tried several times to persuade Lehman officials via e-mail and phone calls to fork over funds, according to a suit. But BofA was rebuffed. In one e-mail exchange, a Lehman employee wrote to BofA: "All activity has been suspended to the time when farther on notice."

Nasreen Bulos, a lawyer as far in the manner that concerns one of Dubai’s sovereign treasure funds, got the same chilly response. The Global Strategic Equities Fund of Dubai, component of the gulf state’s $12 billion investment portfolio, gave Lehman $40 million in June viewed like part of a deal pegged to life hercules BP’s (BP) stock. According to an evidence., Bulos started contacting Lehman on Sept. 15 to get back $27 million in collateral. Four days later, Lehman told Bulos it would not honor the entreat or say anything farther on on the matter.

It is possible to calm the waters, but it’ll mean unlearning our post-Depression lessons

through Peter Coy and Stanley Reed

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The world’s governments are shocked and dismayed by their disqualification to stop the increasingly engrave financial crisis. Nothing they have attempted has gotten lending flowing normally. Profitable companies are cut off from borrowing. Confidence is shot. Through Oct. 7 the U.S. stock market had its quell five-day performance since 1932 on fears of a severe household downturn. Says Stephen Jen, currency economist at Morgan Stanley (MS) in London: "The choices for the real economy are between a recession and a depression."

Can anything be done to halt this panic? As a matter of truth, yes. It won’t subsist quick or easy. But the prerequisite for a new come near is unlearning doctrines that were developed in the aftermath of the Great Depression, the last time pecuniary conditions were worse than this. The world has changed in the intermediate seven decades, and which worked to quell the financial exigency then may not work now—as anyone trying to borrow money can see.

So alienated, emergency managers in the U.S. and abroad have relied mostly on using "helicopter currency"—that is, dropping dollars across the pecuniary view in hopes of reviving lending and spending. Generations of mainstream economists around the world learned this draw near at the feet of the a day after the fair Nobel laureate economist Milton Friedman, who coined the helicopter metaphor. Federal Reserve Chairman Ben Bernanke, though parting from Friedman in some particulars, shares his universal approach—and in fact earned the moniker "Helicopter Ben" after citing Friedman’s coinage in a 2002 speech.

Following this logic, the Federal Reserve is aggressively lending money to all comers. The synchronized international rate cuts on Oct. 8—which lowered the U.S. federal funds rate to equitable 1.5%—is another example of helicopter standard of value. Central banks figure that by means of flooding the banking system with reserves, they be possible to get banks to relend the money to the rest of the economy. But while lowering interest rates and providing liquidity is essential, it’session no longer enough, says Paul J.J. Welfens, president of the European Institute for International Economic Relations in Wuppertal, Germany. Says Welfens: "It’sitting very dangerous if you dress in’t have a tactics. The situation is worsening because no one is doing a [basic] program to restore confidence."

An alternate approximate that’s gaining favor in many dwelling is to place money strategically where it can be sufficient the greatest number good, even if that means picking winners and losers and allowing some channels of securities to dry up for the time being. One tactic: direct government investments in selected banks on a large escalade. The theory behind this approach is that the banks are so wounded that plainly lending them in greater numbers money won’familiarily solve anything. To restore their positive clear worth so they can grant freely, banks exigency fresh equity, and government is the only party that’s capable of providing it in these extreme stipulations. Sweden used this strategy to end a banking crisis in the early 1990s. And on Oct. 8, Britain took a giant step in the same direction, announcing an offer to buy up to $88 billion worth of preferred shares in Britain’s biggest banks. The government also said it would guarantee up to $437 billion of the banks’ debt. "This is beginning a process of [undoing] a big puzzle where banks won’face to face lend to each other for long-spun periods," Chancellor Alistair Darling told Sky News.