Entries from May 2009 ↓

ANN ARBOR, Mich. – Saying his client is not a “crook,” the lawyer for the former head of Kmart Corp. is asking jurors to clear him of civil fraud charges in a case filed by the federal government.

Scott Lassar says Charles Conaway hid nothing from investors in fall 2001 because there was nothing to conceal. He says the retailer had poor sales, and Wall Street punished Kmart stock as a result.

But the Securities and Exchange Commission claims Conaway withheld information from stock analysts and regulators about how Kmart was dealing with a cash crunch in the months preceding bankruptcy in 2002.

Lassar says the charges are “absurd.” Jurors heard closing arguments Friday after 10 days of testimony in federal court in Ann Arbor. They need instructions from a judge before starting deliberations.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ANN ARBOR, Mich. (AP) — The former head of Kmart Corp. used “lies, deceptions and half-truths” to keep investors in the dark about a cash crisis in the months leading to a 2002 bankruptcy, a government lawyer told jurors Friday at the end of a civil fraud trial.

The Securities and Exchange Commission is not accusing Charles Conaway of cooking Kmart’s books or fleecing the company for personal gain. The allegations center on a phone call with stock analysts and a quarterly report to the SEC, both in November 2001.

The government says Conaway is liable for Kmart failing to specifically disclose that it had been delaying payments to vendors and prioritizing bills as a way to save cash. The company also was dealing with an ill-timed purchase of $800 million in merchandise.

“This case at its core is about credibility. … It’s about the senior-most executives at Kmart covering up with lies, deceptions and half-truths a liquidity crisis,” SEC lawyer Alan Lieberman said in his closing argument.

“It’s not about whether Kmart was a broken company when he took over,” Lieberman said.

Conaway, 48, was considered a turnaround specialist when he was hired as Kmart’s chairman and chief executive in 2000, a time when the venerable retailer was getting crushed by Wal-Mart Stores Inc. and Target Corp.

Conaway testified that he didn’t write or even read the management-analysis portion of the quarterly report to the SEC. He said the company was catching up with vendor payments and had $1 billion in cash and credit when the report was filed.

He said he was candid with Wall Street about poor sales — and the stock price subsequently took a 15 percent dive.

Lieberman told jurors that Kmart had a legal obligation to explain in its SEC report that liquidity had improved because there was a “mountain of unpaid, past-due bills.”

“It’s a matter of common sense,” he said. “What would the reasonable investor want to know?”

A closing argument from Conaway’s lawyer, Scott Lassar, was set for the afternoon.

Earlier Friday, on the 10th day of trial, jurors saw a videotaped deposition of Jeff Boyer, who was fired as chief financial officer just a few weeks before Conaway’s conference call with analysts.

Boyer said it was not “illegal” or “unethical” to delay payments to suppliers. But he didn’t believe Kmart’s board “had a sense” of what the company was doing to conserve cash.

If the SEC wins the case, it’s possible Conaway could be barred from serving in management at a public company.

Kmart emerged from bankruptcy as a smaller retailer and now is part of Sears Holdings Corp., based in Hoffman Estates, Ill.

Lawyers give closing arguments in Kmart case

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NEW YORK – The mortgage crisis is spreading and hitting new heights: Borrowers with good credit now make up the largest share of foreclosures as job losses and pay cuts exact their toll.

A record 12 percent of homeowners with a mortgage were behind on their payments in the first quarter, the Mortgage Bankers Association said Thursday. And the trend is predicted to continue until the end of next year, about six months after unemployment is expected to peak.

The genesis of the recession — risky adjustable-rate loans made to borrowers with bad credit — remains a significant factor in foreclosures. Today, almost half of all subprime ARMs are past due or in foreclosure. In Florida, New Jersey and New York the number is above 55 percent.

When those borrowers started defaulting in droves in late 2006, it forced dozens of lenders out of business and sparked a credit crisis in the summer of 2007. Businesses nationwide couldn’t get short-term loans to finance new orders or even cover their payrolls. Economic production began shrinking at the end of 2007 in what has become the longest recession in the United States since World War II.

The impact has now filtered out, consuming homeowners who until recently had a good track record of paying their bills on time. Nearly 6 percent of these prime borrowers with fixed-rate mortgages were past due or in foreclosure, nearly doubling in the last year.

“These (borrowers) are the best of the best out there,” said real estate analyst Mike Larson with Weiss Research in Jupiter, Fla. “Clearly, borrowers far and wide are getting hit by this.”

The worst of the trouble continues to be focused in California, Nevada, Arizona and Florida, which accounted for 46 percent of new foreclosures in the country and reported the worst delinquency and foreclosure rates on prime fixed-rate loans. The four have suffered massive job cuts in the housing industry. There were no signs of improvement.

But experts expect the pain to spread throughout the country as job losses mount. MBA’s chief economist Jay Brinkmann estimates the unemployment rate will top out in mid-2010 and foreclosures to abate about six months afterward.

The number of newly laid off people requesting jobless benefits fell last week, the government said Thursday, but the number of people receiving unemployment benefits reached 6.78 million in mid-May, the highest on record.

The continuing rise in unemployment, which economists say could reach double digits, means more trouble for the ailing financial system and the economy. Lower incomes and lost jobs are the No. 1 reason people lose their homes through foreclosure. Higher unemployment also means people have less money to spend on basic necessities, let alone luxuries.

And borrowers without jobs are harder for lenders to help with loan modifications.

Nadine Harris in Bakersfield, Calif., is hoping to modify her 30-year fixed-rate mortgage under President Barack Obama’s loan modification and refinancing program introduced earlier this year.

The 55-year-old was laid off two years ago by Sears after working there 34 years. Harris found another job, but she makes $20,000 less a year. The $925 she takes home every two weeks doesn’t cover her $1,522 mortgage and other living expenses. She’s used all her savings to stay current on her payments, but next month the reserves will run dry.

“I’ll have to scrimp to make up the payment in June,” she said.

Jodi Woodsmith, a housing counselor at Self-Help Enterprises in Visalia, Calif., said in the last eight weeks she’s seen more and more homeowners with similar stories walk through her door.

“Those who had savings, they’ve exhausted their savings hoping they could ride it out,” she said.

Woodsmith said a recent change to the president’s program allows borrowers to use unemployment benefits as a source of income for a loan modification. Income from spouses who are not on the mortgage also is taken into account.

Though the plan might stem some foreclosures, it might not be enough to significantly alter the crisis.

“It may be too much to say that the numbers will fall because of the plan,” Brinkmann said. “It’s more correct to say that the numbers won’t be as high.”

Borrowers with good credit fuel foreclosures in 1Q

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NEW YORK (Reuters) – A federal judge on Friday approved New York Attorney General Andrew Cuomo's request to delay the U.S. Securities and Exchange Commission's pension kickback case, rejecting defense attorneys' arguments that this could give the federal regulator an unfair advantage.

Cuomo, a Democrat, is investigating millions of dollars of fees investment firms paid to middlemen in return for being hired to invest some of the state's $110 billion pension fund.

The SEC is conducting a separate, civil probe of the same ties between investment firms and the agents, lobbyists and lawyers they hired.

"This litigation is a non-entity until the criminal matter is concluded in the New York State Supreme Court," said Judge Colleen McMahon, of the Southern District of New York in Manhattan, at the hearing.

Cuomo's request is common in such investigations, as prosecutors fear that defendants in criminal trials will benefit from any materials turned over to them in civil proceedings.

A New York grand jury indicted the former comptroller's fund-raiser, Henry Morris, and pension investment officer, David Loglisci. Lawyers for the two say they are innocent.

Grand jury proceedings are sealed, which means Cuomo cannot share any information reaped from them with the SEC.

But these secrecy rules do not apply to the state securities law, the Martin Act.

While the stay stops discovery for the SEC and the defendants, Cuomo could give the SEC what he gleans under the Martin Act, said an attorney for Dallas-based Aldus Equity Partners, which the SEC charged in the pay-to-play probe.

Defense attorneys suffered another setback when State Comptroller Thomas DiNapoli, who has sued Aldus, said he might sue other firms. He said pension lawyers had advised him against revealing how the probe-linked firms performed.

If their investment results were solid, it would be harder to show the public was harmed, lawyers say. That is why so much of the probe focuses on whether the fees were disclosed.

The lawyers noted that all investments were vetted by multiple staffers and outside consultants, as required.

"The key part is the decision-making process was 100 percent analytically arrived at (according to) policy and procedure," a source familiar with the issues said.

Glenn Colton, the attorney who represents Aldus Equity, said neither the SEC nor the comptroller has said that Aldus was not a prudent choice as an investment advisor, or that the pension fund paid inflated fees, or that the pension dollars were invested in a subpar manner.

"The actions of ruining people's businesses … and creating the impression of pensioners being bilked in an Enron- or WorldCom type of way is grossly inaccurate," he said.

The cases made by Cuomo and the SEC — at least so far — face other hurdles. Aldus was recommended by Memphis-based Consulting Services Group, which asked the SEC to "correct inaccurate allegations" about its pact with Connecticut-based Searle & Co, where Morris was registered as a broker-dealer.

Any case against Morris partly hinges on his ability to influence pension staffers in choosing which firms were hired.

The SEC's case is SEC v Morris et al, 09 cv 2518.

(Additional reporting by Grant McCool)

(Editing by Dan Grebler)

NY AG wins court OK staying SEC pension case

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HONG KONG (Reuters) – The Australian dollar surged to a eight-month high on Friday on the back of rising raw material prices, while crude oil matched a six-month high above $65, up some $4 this week on hopes that a global economic recovery will spur energy demand.

Higher commodity prices this week, which have also been propped up by the falling U.S. dollar, supported mining and energy-related stocks in Asia, though investors were reluctant to take big bets on increasingly expensive shares until more evidence emerged of a sustained recovery.

Major European stock markets opened up as much as 1.2 percent, according to financial bookmakers, underpinned by rising commodity prices. U.S. stock futures rose 0.1 percent, pointing to a higher open.

Growing confidence that the global economy has seen the worst of the financial crisis and that some struggling Asian economies will return to growth in the second quarter have supported equity markets since early March and pushed up raw materials prices.

Copper traded on the London Metal Exchange was headed for a fifth consecutive month of gains.

"We are getting some better numbers and the currency markets are supporting metals prices," said Mark Pervan, ANZ Bank's senior commodities analyst.

"We may now be looking at a W-shaped recovery. We are in the first V, and another is to come though, I don't think it will be as steep as the first."

The ICE Futures U.S. dollar index (.DXY), a measure against six other major currencies, fell 0.4 percent, within sight of a five-month low plumbed a week ago.

The U.S. dollar was down 0.2 percent to 96.70 yen, though was still up 1.9 percent in May, the biggest monthly gain of the year, with Japanese investors finding value mostly in foreign bond markets.

The yen got a boost after data showed Japanese industrial production rose 5.2 percent in April on a monthly basis, the largest monthly gain since 1953, and the government expected continued gains through June.

The Australian dollar bolted to a eight-month high at US$0.7931. Higher commodity prices and evidence of an economic strength in China have launched the Australian currency for the last three months, making it a proxy for global growth prospects.

COMMODITY BULLS ON PARADE

The Reuters-Jefferies CRB index (.CRB), a global commodities benchmark, was up 12.3 percent in May, on its way to the biggest monthly gain since July 1974.

"Gains in commodities reflect continued recovery of demand outlook from its collapse after Lehman's bankruptcy triggered concerns of a depression," said Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong.

"Medium-term outlook remains positive for commodities and other risky asset classes as we continue to expect that U.S. GDP will start to expand in Q3 and several major Asian economies already in Q2," he said in a note.

A 1.7 percent rise in Australia's benchmark S&P/ASX 200 equities index (.AXJO) led modest gains across Asia's stock markets.

Japan's Nikkei share average (.N225) rose 0.75 percent to a seven-month high, having punched above its 200-day moving average earlier in the week.

Data showed Japan's industrial output jumped 5.2 percent in April, much more than expected and the second straight month of increases, as companies continue to restock after a heavy run-down of inventories late last year. But output was still less than two-thirds of a year earlier, and it is still not clear if there has been a return to sustained consumer demand necessary for a global economy recovery.

Hong Kong's Hang Seng index rose 1 percent (.HSI) after opening at an eight-month high, helped by a 4.2 percent gain in shares of offshore oil firm CNOOC Ltd (0883.HK).

The MSCI index of Asia Pacific stocks outside Japan rose 1.6 percent to its highest since October 3, on its way for a third consecutive month of double-digit percentage gains.

Asia has continued to lead a global equity rally that began on March 9. The MSCI index has surged 52 percent since March 9 while the all-country world index has climbed 34 percent.

U.S. oil for July delivery rose 0.55 percent to $65.44, matching the highest levels since early November reached on Thursday, after OPEC held production at current levels.

Oil is set for the biggest monthly percentage increase in May since March 1999.

The Organization of the Petroleum Exporting Countries kept output targets unchanged on Thursday, as expected, betting on a strengthening world economy and tentative signs of increased demand to boost oil prices.

(Additional reporting by Nick Trevethan in SINGAPORE)

(Editing by Kim Coghill)

Australian dollar up, commodity bulls are loose

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BERLIN/DETROIT (Reuters) – General Motors Corp took a major step toward going through the kind of bankruptcy it favors by persuading major bondholders to accept a sweetened deal, even as talks to sell its Opel business between Berlin and Washington hit a rough patch.

GM said on Thursday it reached a deal with some major bondholders that would give them a bigger stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury.

The announcement was the clearest indication yet that GM, the No. 1 U.S. automaker, is close to filing for bankruptcy under the direction of the Obama administration. It would be the biggest-ever bankruptcy for a U.S. industrial company.

Under the proposed deal, which is supported by creditors holding about a fifth of its debt, bondholders representing $27 billion in debt would be offered 10 percent of a reorganized GM — the same stake they had been offered previously.

But as an incentive, bondholders would also receive warrants to acquire another 15 percent of the equity in the new company, provided they support a quick Treasury-backed sale process similar to one now being used for rival Chrysler.

Bondholders would have until 5 p.m. EDT on Saturday to indicate they would not oppose the sale process as planned, GM said. If bondholders do not provide those indications, common equity and warrants "would be substantially reduced or eliminated."

A committee representing the major bondholders said they supported the revised offer as the "the best alternative … in the current difficult and dire situation."

OPEL CONTINUES

In Europe, Germany's goal of shielding Opel from GM's imminent bankruptcy hit a road block, raising the risk of insolvency for the German carmaker.

German Foreign Minister Frank-Walter Steinmeier said he would talk to U.S. Secretary of State Hillary Clinton later in the day, after German ministers emerged from 12 hours of talks having failed to strike a deal to provide Opel with temporary financing in the event of a GM bankruptcy.

"(I will) urgently ask that attention is directed at Opel in the coming hours," he said.

The battle for Opel has effectively narrowed to a race between carmaker Fiat and auto parts supplier Magna, but it remains unclear whether Opel will be drawn into GM's bankruptcy.

German ministers put the blame for the failed deal talks on GM and the U.S. Treasury.

OBAMA-MERKEL MEETING

The transatlantic strains over Opel come a week before U.S. President Barack Obama is due to visit Germany and meet with Chancellor Angela Merkel in Dresden.

The two have had an uneasy relationship since Obama took office in January, with German officials complaining about their lack of access to his administration and mixed signals from his advisers.

The fate of Opel and its workforce is a hot political topic in Germany, where unemployment rose for the seventh month in a row, according to data released on Thursday, and where the government is facing elections in September.

GM Europe head Carl-Peter Forster told a German magazine last week that Opel and GM Europe's Vauxhall operations in Britain had enough liquidity to last into the third quarter.

Participants in the talks are clinging to hope that an agreement can be reached, albeit with concessions on both sides, sources in the negotiations and close to GM said.

GM Europe had no immediate comment on the outcome of the talks, nor on a statement by a GM labor panel that GM management was responsible for the failure of the Berlin talks.

Meanwhile, Magna Chairman Frank Stronach said his company had significantly boosted the amount of its own capital it was prepared to offer in its bid and that talks between his company and GM were to take place later on Thursday.

A source with knowledge of the negotiations said an offer by Magna to plug the 300 million euro financing gap itself had been rejected by the U.S. parties.

Even so, Magna's bid emerged as a favorite, with several German politicians speaking out in support.

FIAT, MAGNA BATTLE

Italian carmaker Fiat and Canadian-Austrian auto parts supplier Magna both remained in the race to buy Opel, the ministers said, while Belgium-listed holding RHJ International SA was out of the running. China's Beijing Automotive Industry Corp was not present at the meeting, but the option for it to return with a more detailed offer remained open.

EU industry ministers will meet on Friday to discuss the Opel sale, a spokesman for the EU executive said. The EU is concerned that government aid to Opel could be tied to job guarantees in the aid-giving country, at the expense of Opel jobs elsewhere in the bloc.

Opel traces its roots in Germany back to the 19th century and employs about 25,000 staff in four plants there. UK-based Vauxhall Motors, which employs 5,000 people, is being spun off from GM Europe along with Opel.

Adding to fears that a GM filing could cause a domino effect among suppliers, U.S. parts maker Visteon Corp filed for Chapter 11 bankruptcy protection for its U.S. operations.

($1=.7232 Euro)

(Additional reporting by Reuters bureaus across the world; Writing by Helen Massy-Beresford; Editing by Patrick Fitzgibbons, Will Waterman and Matthew Lewis)

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UNITED NATIONS, May 27 (Xinhua) — The United Nations on Wednesday issued a report which has downgraded its world economic forecast for 2009 with a shrinkage of 2.6 percent, from an already pessimistic estimate made five months ago, and said the poorest countries would be hit the hardest.

“The world economy is expected to shrink by 2.6 percent in 2009, down from a decline by 0.5 percent according to the pessimistic scenario of the forecast presented in January,” according to a press release on the mid-year report “World Economic Situation and Prospects 2009,” by the UN Department of Economic and Social Affairs (DESA).

Rob Vos, director of DESA’s Development Policy and Analysis Division, told a news conference in New York, “We are less sanguine than some observers about possible green shoots emerging. If they are there they don’t give much sign of being spring time. It is still very wintry landscape.”

With its increasing impact both in scope and depth worldwide, the global financial crisis poses a significant threat to world economic and social development, including the fulfillment of the Millennium Development Goals and other internationally agreed development goals, according to DESA.

Although the crisis originated in developed countries, “it is now evident that developing countries are being hit disproportionately hard through capital reversals, rising borrowing costs, collapsing world trade and commodity prices, and subsiding remittance flows,” the report stated.

During the first quarter of this year, world trade dwindled at a “dramatic” annual rate of more than 40 percent, with the deepest impact felt by the exporting countries of Asia.

Growth in Africa’s gross domestic product (GDP) is expected to slow to 0.9 percent, down from 4.9 percent in 2008. South American economies are expected to shrink by almost 1 percent on average in 2009, while Mexico and the Central American economies are projected to fall by more than 4 percent.

The report estimated that between 73 million and 105 million more people will remain poor or fall into poverty in comparison with a situation in which pre-crisis growth would have continued.

“Most of this setback will be felt in East and South Asia, with between 56 and 80 million people likely to be affected, of whom about half are in India,” the report said. “The crisis could keep 12 to 16 million more people in poverty in Africa and another 4 million in Latin America and the Caribbean.”

The report added that at present the stimulus is very unbalanced. “Eighty percent of the stimulus is concentrated in developed countries, while most developing countries lack the fiscal space to provide social protection and counteract the consequences of the crisis.”

“In a more balanced global response, about 500 billion U.S. dollars in additional development finance would be made available for countercyclical responses by developing countries,” the report said.

The report predicted that with a coordinated, development-oriented policy scenario, the world economy would recover to an annual growth of 4-5 percent in 2010-2015, led by a robust growth of 7 percent per year in developing countries. This is in contrast to the uncoordinated scenario in which developing countries would recover at only half that rate, DESA said.

UN downgrades world economic forecast for 2009, poorer countries to suffer most

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Filed at 4:38 a.m. ET

HONG KONG (AP) — World stock markets shot higher Wednesday after a report showing Americans more optimistic about their economy strengthened hopes that the global recession would soon abate.

The swing higher lifted most industries and markets, with Hong Kong shares up 5 percent, following days of jittery trade amid concerns about the economy, debt ratings of Western countries and North Korea’s nuclear standoff. Oil prices hovered above $62 a barrel.

Bullish sentiment took hold after a key measure of U.S. consumer confidence jumped in May to its highest level since September, far surpassing most economists’ expectations.

It was a reassuring sign because any lasting recovery still hinges greatly on the spending moods of consumers, who make up more than two-thirds of U.S. economic activity and help drive demand for exports, particularly from Asia. The news, which trumped another dismal reading of the country’s housing industry, added to the case for a year-end revival of economic growth and sent Wall Street soaring.

But traders cautioned that markets, having rallied since March, are now being largely driven by hot money. The liquidity is pushing stock prices far above what many companies can actually earn without a dramatic pick up in economic activity in the coming months.

”The recovery that we have seen in the market so far has surpassed expectations and it remains to be seen if this trend will continue,” said John Mar, co-head of sales trading at Daiwa Securities SMBC Co. in Hong Kong.

”Finding investment ideas with lucrative upside is becoming far more difficult by the day. Current valuations are reflecting a very rapid global economic recovery and that seems unlikely,” he said.

As trading got underway in Europe, Britain’s FTSE 100 was up 0.4 percent, France’s CAC 40 gained 0.5 percent and Germany’s DAX rose 0.5 percent. Stock futures pointed to more gains Wednesday on Wall Street. Dow futures rose 20, or 0.2 percent, to 8,481 and S&P futures rose 2.6, or 0.3 percent, to 911.30.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock average rose 127.96 points, or 1.4 percent, to 9,438.77 as the country’s export slump eased in April, adding to growing evidence that the recession is loosening its grip on the world’s second-biggest economy.

Elsewhere, Hong Kong’s Hang Seng surged 893.71, or 5.3 percent, to 17,885.27. Shanghai’s index added 1.7 percent, Australia’s benchmark was up 0.3 percent, Taiwan’s stock measure gained 3.1 percent, and Singapore’s index added 2.8 percent.

But South Korea’s Kospi slipped 0.7 percent to 1,362.02, overshadowed by the rising tension on the Korean peninsula. In a sign of North Korea’s increasingly aggressive posture, Pyongyang reportedly restarted a weapons-grade nuclear plant as world powers moved Wednesday to punish the regime, possibly with new sanctions.

While Asian markets have been among the world’s strongest since March, the region may still be hard pressed to sustain growth unless the U.S. economy turns around.

Prominent economist Nouriel Roubini, who predicted the financial crisis, said the U.S. is likely to emerge from recession toward the end of this year. But he expects the world’s largest economy to manage growth of only one percent for a year or two.

”I think there is too much optimism that the recovery is just around the corner,” Roubini told reporters Wednesday on the sidelines of a technology forum in Seoul, South Korea.

”A more sober analysis of the data suggests we’re closer to the bottom, there is light at the end of the tunnel, but it’s gonna take a while longer and the recovery’s gonna be weaker than otherwise,” he said.

Hopes of greater consumer spending emboldened Wall Street overnight, and the Dow rose 196.17, or 2.4 percent, to 8,473.49.

The S&P 500 index rose 23.33, or 2.6 percent, to 910.33, and the Nasdaq rose 58.42, or 3.5 percent, to 1,750.43.

Oil prices were higher in Asian trade, with benchmark crude for July delivery up 79 cents to $63.24 a barrel. On Tuesday, the contract rose 78 cents to settle at $62.45.

In currencies, the dollar inched higher to 95.35 yen from 95.26 yen. The euro was lower at $1.3963 from $1.3997.

——

AP Business Writer Kelly Olsen in Seoul contributed to this report.

Asian and European Stocks Follow Wall Street Higher

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General Motors world headquarters in Detroit, (file photo)The fate of ailing American auto giant General Motors and its German-based Opel unit could be decided in a matter of days.GM is surviving on about $19 billion in emergency loans from the U.S. government and faces a June 1 deadline to drastically cut costs and restructure the company or declare bankruptcy. But the automaker’s future could depend on decisions by its U.S. workers and by debt-holders Tuesday.The union representing GM’s U.S. workers has already approved a tentative cost-cutting agreement and members are expected to approve the deal later Tuesday.  Debt-holders must also decide by the end of Tuesday whether to exchange the right to collect $27 billion in debt for a 10 percent stake in a restructured company, but many have already rejected the proposal.GM is also trying to sell its Opel unit to one of three bidders in an effort to raise money. German government officials said they could announce their preference as early as Wednesday.Italian automaker Fiat, Canadian parts maker Magna International and Brussels-based investment firm RHJ are all trying to acquire Opel, which employs about 25,000 people in Germany.Fiat chief executive Sergio Marchionne met with German Chancellor Angela Merkel about his company’s proposal Tuesday. But German Economy Minister Karl-Theodor zu Guttenberg said all three companies need to improve their offers.Fiat is already in the process of merging with Chrysler, the number three U.S. car maker, which has already filed for bankruptcy. Acquiring Opel would turn Fiat into one of the world’s biggest auto companies.Earlier Tuesday, GM won major concessions from its Canadian workers.The Canadian Auto Workers (CAW) union ratified a new contract with GM that cuts hourly wages for new hires by $13-14, and freezes retiree pension payments until 2015, but keeps GM plants in Ontario province open.  The Washington Post has reported the Obama administration is preparing to push GM into bankruptcy this week.

Some information for this report was provided by AFP, AP and Reuters.

Finish Line Looms for GM, Opel

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RÜSSELSHEIM, Germany — For Klaus Franz, the top union official at General Motors’ Opel unit here, the difference between how the United States and Europe confront the auto industry’s global overcapacity problem is simple.

“In the U.S., you get money to close down factories,” said Mr. Franz, referring to the tens of thousands of Chrysler and G.M. workers who will lose their jobs as part of the White House’s plan to restructure the American auto industry. “In Europe, you get money to keep them open and safeguard jobs.”

It is an appealing sound bite worthy of one of the Continent’s most powerful and articulate labor leaders — but the reality may be more complicated.

For even as Europe refuses to emulate the United States and reduce the ranks of its auto workers, its carmakers risk falling behind in the current wave of global consolidation that is transforming the industry. Eventually Europe may be forced to grapple with the fact that it does not need all the auto plants it has to meet demand.

In the last five years, the number of auto workers in Europe has held steady at roughly 2.3 million, even as the American automotive work force dipped from 1.1 million in 2003 to 781,000 by the end of 2008.

Sales have dropped sharply in both markets, however, and experts say Europe has at least 25 percent too much production capacity. In recent years, car production at new plants in central and Eastern Europe has surged, but few of the older, more expensive factories in France, Belgium or Germany have closed.

“If they don’t take the pain now the way the U.S. is accepting it, you’re just storing up a crisis in 10 years time,” Stuart Pearson, an analyst with Credit Suisse in London, said.

For now, however, European workers and politicians prefer to put off any hard decisions. As G.M. lurches toward a likely bankruptcy filing by June 1 and several bidders race to make a deal for Opel and the rest of G.M. Europe, the goal of preserving jobs, not profits, could determine the winner.

Along with G.M.’s endorsement, financial aid from the German government will be needed by any of the potential acquirers, which include the Italian automaker Fiat as well as Magna International, a Canadian auto parts maker with major operations in Europe, and RHJ International, a Brussels-based private equity firm.

“Too many players and too much capacity is a recipe for value destruction,” Mr. Pearson said. The stakes are especially high for Fiat, whose chief executive, Sergio Marchionne, has embraced the American approach and called for consolidation with a few global players dominating the industry.

Last month, Mr. Marchionne successfully persuaded Washington to give Fiat a 20 percent stake in Chrysler when it emerges from bankruptcy this summer, as well as billions in financing for Chrysler in exchange for new technology from Fiat that he claims will make Chrysler more efficient and broaden its product line.

But a similar strategy to acquire Opel and vault Fiat into the top tier of global car companies is faltering because Berlin fears Mr. Marchionne will use as much as 7 billion euros in government aid for Opel to shut factories and lay off German workers. Mr. Marchionne is set to meet Tuesday in Berlin with Germany’s chancellor, Angela Merkel, in a last-ditch attempt to win her support, with the German government expected to announce a decision later this week.

German officials prefer a rival bid by Magna because they believe it will preserve more jobs.

Few observers dispute that Europe has the capacity to produce too many cars for too few consumers. The 27-member European Union makes 30 percent of the world’s automobiles even though it is home to less than 10 percent of its population, and exports only a small, luxury slice of that output.

“It will have to be solved but it’s unlikely to be fixed in the short-term,” said Ivan Hodac, secretary-general of the European Automobile Manufacturers Association.

Because of generous severance requirements under European law, he said his members “can’t close factories in a time of crisis, you don’t have the money for it.”

“In times of economic growth, it’s also difficult,” he added. “The trade unions will say why?”

A decision on the fate of G.M. in Europe could come within days, but Mr. Franz does not betray much anxiety at a time when American union bosses are tallying their losses. Noting that Mrs. Merkel faces a re-election campaign in September, he said, “Do you think the German government will give once cent to close down factories in an election year?”

In a bid to reassure political and labor leaders, Fiat on Friday took the unusual step of publicly disputing German media reports that a Fiat acquisition of Opel would claim 18,000 jobs, insisting instead that total job losses throughout Europe would amount to less than 10,000 and that only a small portion of those would be in Germany. G.M. employs roughly 50,000 workers across Europe, about half of whom are in Germany.

In contrast, G.M. plans to shut 13 plants North American plants and lay off 21,000 workers as part of its turnaround plan. By 2014, G.M.’s goal is to cut its hourly work force to 38,000, compared with 61,000 in the first quarter of 2009.

If Magna were to win control of G.M. Europe, according to a top official familiar with the negotiations, G.M. would retain a 35 percent stake in the new company, with Russia’s Sberbank getting 35 percent, Magna taking 20 percent, and Opel’s employees owning 10 percent.

Fiat, on the other hand, would have a clear majority stake in a new Fiat-led auto group, with G.M. getting a smaller fraction of the new company. RHJ International’s bid foresees it taking a 51 percent interest, while G.M. would retain 49 percent.

If it is successful, the Russian support for the Magna bid might help Opel gain market share in Russia, and Mrs. Merkel discussed the offer with Russian Prime Minister Vladimir Putin over the weekend.

Regardless of who acquires Opel, experts say Europe needs to come to grips with the overcapacity problem if it is going to be able to compete with Japanese automakers now, as well as potentially more efficient American car companies when the economy recovers.

“Europe does have to make a choice,” said Garel Rhys, head of the Center for Automotive Industry Research at Cardiff University in Wales. “In North America, the unions have realized there will be no jobs left if the capacity issue isn’t dealt with. If Europe doesn’t do the same, the industry won’t be able to make the profits they need to invest for the future.”

Eventually, he warns, taxpayers will tire of making up the difference. “Patience is wearing pretty thin,” he said.

Despite European Union rules aimed at guaranteeing a single market without state intervention, Mr. Rhys said the concern over the job cuts in Germany, as well as the need for the loans from Berlin, makes it likely that workers in Britain and Belgium will shoulder a disproportionate share of any American-style plant closures.

If that were to happen, Rudi Kennes, the union head at the G.M. plant in Antwerp, warned, “They’d have a big problem and everybody knows it.”

The Antwerp plant is running significantly below its production capacity of 125,000 cars annually; while its work force has declined, G.M. has wanted to close it for years. But Mr. Kennes said he believed the 500 million euros in financial support recently offered by the local Flemish government would prevent that, much as the German government aid would protect jobs there.

Fiat and Magna have both identified Antwerp for potential cuts, but like Mr. Franz, Mr. Kennes does not seem especially worried. “We’re immune to these kinds of messages,” he said during an interview at the eerily quiet factory. “I hope to write a book, ‘The Plant They Couldn’t Close.’ ”

Europe Feels the Strain of Protecting Workers and Plants

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MOSCOW (Reuters) — The oil major BP said on Monday that it had nominated Pavel Skitovich for the post of chief executive at TNK-BP in a move that it hoped would mark the end of a shareholder conflict at Russia’s No. 3 oil producer.

Mr. Skitovich, a former Soviet vice consul in Uganda, served as chief executive of the gold mining company Polyus for five months in 2007 and had worked for the Interros group of the Russian billionaire Vladimir Potanin.

“As far as we are concerned, the search for a new C.E.O. is over. We have formally nominated a very strong candidate and we hope that the approval process will be completed in due course,” a BP spokesman Toby Odone said.

BP and the quartet of Russia-connected billionaires who share control of TNK-BP fell out publicly last year in a dispute that spooked foreign investors and led to the departure of many expatriate staff, including then chief executive Robert Dudley.

Though both sides say they have resolved their differences, a permanent chief executive has yet to be appointed. Tim Summers, the former chief operating officer now serving as chief executive, has said his contract expires at the end of June.

BP retains the right to nominate a chief executive for TNK-BP, but the Russia-connected shareholders have insisted that the candidate be a Russian speaker with experience in the country.

Neither TNK-BP executives nor Mr. Skitovich were immediately available for comment.

TNK-BP last year elected a new board, comprising an independent director as well as an equal number of representatives of BP and Alfa-Access-Renova, the grouping which represents the Russian side.

One of the conditions of the truce between the shareholders had been that the new chief executive would be independent from either side.

Denis Morozov, the former chief executive of the Russian mining comany Norilsk Nickel, had been seen as a likely candidate for the post but talks with him ground to a halt earlier this year.

Oil Giant Nominates Russian to Oversee TNK-BP

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