Global Investing

The S&P 500 has closed out its first annual advance in two years, underpinned by strength in the technology and materials sectors on hopes that the economic recovery will spur a rebound in capital spending and fuel demand for natural resources.

The benchmark index ended 2009 up 23.5 percent on the year, reversing a slide of 38.5 percent in 2008. The S&P 500 is now off 28.8 percent from its October 2007 record close.

The run-up in sectors like technology underscores the extent of the damage done to financial stocks in the credit crisis of 2008. Financials were once the largest sector in the S&P 500, but tech is now the biggest. The top 10 S&P 500 stock performers of 2009 do not include a major U.S. bank. Heading the list is Bermuda-based insurer XL Capital.

Citigroup has lost half its value this year, putting it among the S&P 500′s top 10 laggards. But Ford is among the standouts as the automaker continues to steer itself through the turmoil that sent rivals Chrysler and General Motors into bankruptcy.

See also:  Factbox of major market moves for 2009

"You wonder if your chance will ever come or if you're stuck in square one."

When I heard about GM keeping its Opel unit, that line from a song by British band Coldplay came to my mind. After all those long nights of paltering on job cuts and money, GM was having a change of heart.

The sale of Opel to a group led by Canadian car parts maker Magna -- announced in September -- was widely considered a done deal. Turns out, it was less done than more. Citing improving business conditions and the strategic importance of Opel, GM decided it would be better to alienate the German government that provided it with a loan to sweeten the sale of the unit to Magna than to lose the business. GM said it would repay the rest of the 1.5 billion euro ($2.2 billion) bridge loan if Berlin requested. The loan helped save Opel from being sucked into GM's dip into bankruptcy this year.

"This is a black day for Opel," an employee, who declined to be named, said in front of the company's headquarters in Ruesselsheim, near Frankfurt. German government officials were said to be seething, as were the Russians, who's Sperbank had tied up with Magna to do the deal. But not all of Europe was angry. British unions welcomed the news. "It is fantastic news for the UK and right that General Motors does not break up its family and instead retains ownership of (Opel sister brand) Vauxhall," said Tony Woodley, joint general secretary of the Unite union.

This week's Thomson Reuters Investment Banking Scorecard shows bankruptcy-related M&A at a five year high.

There were five bankruptcy-related M&A deals announced during the week, including the acquisition of venture-backed public company Nanogen by French investment holding company Financiere Elitech for $25.7 million. 

So far this year there have been 173 bankruptcy-related deals, the highest level since the same period of 2004 when there were 202.

Arzu Cevik, director at Thomson Reuters Strategic Research, writes:

“With Citi shares trading below $1, the first time since 1970 that a “penny stock” traded on the Dow Jones Industrial Average, it is widely expected that it will be removed from the index.

“The company was added to the Dow in 1997 when it was still known as Travelers, and the last company to be removed from the Dow was AIG last September (when its stock hovered above $1) and was replaced by Kraft Foods.

“It’s also expected that General Motors may be removed from the Dow. GM shares are trading slightly above $1 and there’s speculation it may be headed toward bankruptcy.

Around 200 union workers and some local politicians protested wage cuts and other givebacks required by the Bush administration’s bailout of General Motors and Chrysler.
    
“The call for wage cuts is an attack on the middle class,” said Rex Lux, a truck driver at Chrysler who said he had come to the rally to show his support for organized labor. “The middle class send their kids to college, they buy cars and they keep the American economy going.”
    
“Why break the middle class?” he asked.
 
The protest in Warren, Michigan, came two days after a smaller rally (pictured above) outside the Detroit auto show by members of the United Auto Workers union.
 
The $17.4 billion federal bailout for the U.S. automakers includes concession targets such as making union-represented workers’ wages competitive with foreign manufacturers by December 2009 and eliminating the union jobs banks, which pays laid-off workers.

(Photo/Reuters)

Tennessee Sen. Bob Corker (right, in the driver’s seat next to Mark Fields, Ford’s president of the Americas), who pushed for tough conditions on the $17.4 billion U.S. government bailout for General Motors and Chrysler, said at the Detroit auto show that he hoped Chrysler would find a merger partner to survive.

“Chrysler probably needs to merge with somebody, not necessarily disappear from the standpoint of existence,” said Corker, who added the automaker owned by Cerberus Capital Management was not making the needed investment to remain competitive. He spoke to reporters as he toured the show before meeting with executives for GM, Chrysler and Ford.

Corker, whose home state includes the U.S. headquarters for Japan’s Nissan, also said he felt GM’s debt load was too heavy and it may not meet the restructuring targets set out under the $13.4 billion loan granted to the company by the Bush administration.

This post was written by colleague Christiaan Hetzner.

Listening to GM Europe CEO Carl-Peter Forster (right), there is a big side benefit of having the thankless job of running a business in danger of being dragged under by its foundering parent. 
 
For one, you are not publicly humiliated by lawmakers with an ax to grind the next time you try and hit them up for aid.
 
Whereas U.S. congressmen eager to score points with taxpayers were just itching to take turns tag-teaming his boss Rick Wagoner, Forster said he is treated with far more respect and understanding by the German and Swedish governments when he participates in discussions over receiving billions in state loan guarantees. GM is looking to sell its Saab brand in Sweden.
 
Asked at the Detroit auto show whether the talks were considered in Europe to be as controversial as those in Washington, Forster replied: “Interestingly enough, the Europeans take a very, very different approach. Much less hostile, virtually not hostile at all, seeing the automotive industry as a very important industry.”
 
GM Europe has a funding requirement peaking this year, in part due to this year’s roll-out of the new Opel Astra and Saab 9-5 cars, key models for both brands.
 
 ”They (state officials) understand the extraordinary circumstances in Europe — by the way, the circumstances in the U.S. are even more extraordinary than in Europe. They know how important the industry is for the European economy and particularly for certain member states like Germany, France, Italy, the UK and so on. Absolutely no hostility, very open, understand the situation and try to come up with a solution.”
 
Perhaps lawmakers in the more socialist governments across the Atlantic better realize what would happen if Opel or Saab cannot get the loan guarantees needed to access to the European Investment Bank’s 16 billion-euro fund for the European auto industry, which is only open to companies with an investment grade rating. 
 
(Photo/Reuters)

Reuters interviewed Peter DeLorenzo, publisher of website Autoextremist.com during the Detroit auto show. Highlights follow:

Q: What kind of shape do you see the U.S. automakers in?

– Ford

“Ford is clearly distancing themselves from what I now refer to as the old Detroit two.”
       
– GM
   
“There’s kind of a Jekyll-and-Hyde thing going on with General Motors.”
   
– Chrysler

“I call it the dead car company walking. There are too many serious problems hovering over Chrysler right now.”
    
“The suppliers are starting to make contingency plans for a world that doesn’t have Chrysler in it.”
    
“I just don’t see them surviving the year.”
    
“If the economy doesn’t start to show signs of life, I don’t think Chrysler can keep the whole thing afloat.”
    
Q: Are electric cars finally going to be a reality given the time lines announced at the show?
    
“Will electric vehicles be a part of this nation’s fleet in the future? Absolutely, but I don’t think they will ever be more than 25 percent. Hybrids will be a strong player going forward.”
    
Q: Will those time lines put the U.S. automakers under greater pressure, however?
    
“Being put under the microscope in Washington just opened a Pandora’s box of attention on the Detroit automakers.”
    
Q: Will luxury auto market suffer even more than the overall market in the recession?
    
“I don’t think there’s any question that the availability of incentivized leasing programs allowed people to get into vehicles they couldn’t normally afford.”
    
“A shakeout is coming. It’s probably going to hit import manufacturers really hard.”
    
“It (the luxury segment) will still exist, but I think it will be at a reduced level and stay there for a while.” 

Reeling from crisis and in hock to the federal government for $13.4 billion, General Motors spent only about half of what it normally spends on its display at the Detroit auto show this year. There were no pyrotechnics, no marching bands, no celebrities, no models.

But GM Vice Chairman Bob Lutz surveyed the stripped-down display and found plenty to like in the new austerity.

“When you are really under severe financial stress and you have loans that you know that you are going to repay you start looking at what’s really important,” Lutz said.

Don’t put any money down for a high-end electric car just yet. 
     
General Motors has no current plans to make the Cadillac Converj (right), a luxury concept of the Chevrolet Volt plug-in electric car that was introduced at the Detroit auto show, said Mark McNabb, North American vice president of Cadillac/Premium Brands. 
     
GM Vice Chairman Bob Lutz said during the show the Volt remains on track to launch by the end of 2010. Showing off the Converj, Lutz said GM is confident enough about the Volt technology that the company can start looking at Volt derivatives. 
     
The Volt, which is being designed to run for 40 miles on battery power alone, will not be profitable until battery costs drop and one way to do that is to increase volume on the model. Offering the Converj would help, while also attracting higher profit margins. 
     
However, if the U.S. automaker decides to move ahead on the well-received Converj, a production version could look close to the concept, McNabb said. 
     
“It was done more to measure a little bit how the luxury market would assess ‘green.’ It is what it is. It’s just really an exploration into green versus luxury - can it be done and all that.” 
     
McNabb pointed out the Converj is based on existing technology. 
     
“It’s not like a pie-in-the-sky concept where you can’t build it or it’s years and years before you could. It’s more a concept of ‘let’s measure how luxury will accept this type of vehicle.’” 
     
(Photo/Reuters)