WORLD ECONOMY HOT NEWS

Nothing so cheers the soul of a hardened businessman as the sight of a competitor on his knees. So you'd expect the spectacle this week of Detroit's struggling Big Three carmakers begging Congress for $34 billion in loans and lines of credit would be cause to break out the sake in Japanese boardrooms.

After all, Japan's own big three — Toyota, Honda and Nissan — have battled for decades to surpass once mighty GM, Ford and Chrysler. Now it would appear victory is at hand. Even if lawmakers bail out all three, the U.S. companies will require major restructuring that will leave them smaller and weaker, making it easier for their Asian rivals to gain market share both in the U.S. and globally. (See the 50 worst cars of all time.)

Yet Japan's automakers are not celebrating. Far from it. They are suffering mightily from the same massive decline in auto sales that is killing Detroit. Moreover, the bankruptcy of one or more of the Big Three could create havoc among parts suppliers that sell to Japan's carmakers; job losses would send more shock waves through the U.S. economy, deepening the recession in what is by far the largest single market for Japanese cars. "What we're seeing is the 30-foot tsunami that not even Toyota can cope with," says Tatsuo Yoshida, executive director and senior analyst at UBS Securities Japan.

While no Japanese automaker is on the brink of bankruptcy, Toyota's executive vice president Mitsuo Kinoshita calls the sharp contraction of global sales "unprecedented." Toyota, Honda and Nissan are slashing earnings estimates, firing workers and trimming production. In November, the Japanese auto industry saw its worst month in more than three decades, as domestic sales fell 27.3% compared with the same month last year. Sales of Japanese cars in the U.S. fell more than 30% last month.

Toyota, the industry behemoth, just recorded its seventh consecutive month of declining sales, and the company's second-quarter net profit plunged nearly 70%. Toyota has cut its earnings forecast for the fiscal year ending March 2009 to $6 billion, which is just one-third the profit it made the previous year. "You are looking at the deepest downturn that Japanese automakers have ever seen," says Chris Richter, senior research analyst at CLSA, a Hong Kong–based brokerage house. "They've faced downturns before, but not downturns in virtually every global market simultaneously. Even Honda Civics and Toyota Priuses aren't selling well."

This bleak outlook could get even worse, at least in the short term, if GM, Ford or Chrysler went bust. That's because of a domino effect that would probably result in the subsequent failures of parts suppliers that also sell to factories operated by Toyota, Honda and Nissan in the U.S. Vehicles built on American soil accounted for 63% of Japan's total U.S. sales in 2007, according to the Japan Automobile Manufacturers Association. A sudden parts shortage could force companies to shut down some of those assembly lines, generating major losses.

In addition, the loss of hundreds of thousands of jobs due to the disappearance of a major manufacturer — not to mention the blow that would be dealt to U.S. consumer confidence by the bankruptcy of an iconic brand — would mean even fewer cars sold. That would take another bite out of consumer finance receivables, the biggest asset on carmakers' books. So even though Japan would almost automatically gain market share if a U.S. carmaker went under, any gains would be outweighed by the negative impacts. "In this environment, gaining market share is not a good strategy," says Yoshida.

In ordinary times, gaining market share was Job One for Japan. But now executives are trying to figure out how to cope under circumstances they have never faced before. Sacred cows are being sacrificed to preserve earnings: Honda announced today that it was pulling out of Formula One racing to focus on its core business. Toyota, which has seen its stock drop more than 50% since the beginning of the year, established an Emergency Profit Improvement Committee chaired by company president Katsuaki Watanabe. Since forming the committee last month, Toyota has planned cuts to production, as well as layoffs for 50% of its contract workers by the end of March and a 10% reduction in winter bonuses for managers.

Additional steps are expected. But Toyota's options are dwindling, says Yoshida. The company in October tried to stimulate U.S. sales by offering 0% financing, a tactic Detroit can no longer afford. But frightened, cash-strapped consumers didn't bite. Japanese car companies are also shifting their focus to India and China, but even though those markets are still growing, they remain relatively small, and their contribution to profits isn't significant enough to offset the decline in North America. Says Yoshida: "The water that has spilled out of the bucket cannot be caught by a small single glass." At least Japanese carmakers are unlikely to kick the bucket. Detroit may not be so fortunate.

See the 50 worst cars of all time.

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The Treasury Department's latest prescription for the ailing housing market could turn out to be more placebo than cure, and a costly placebo at that. Some economists question whether just lowering interest rates to a historically low 4.5% will be enough to boost housing sales or prices. What's more, the plan could end up costing $25 billion a year, using up valuable funds needed to fix the housing market and providing no relief to the millions of homeowners now facing foreclosure.

"It's an unmitigated mistake," says Edward Glaeser, a Harvard University economics professor. "The amount of help this plan offers is vastly smaller than the problem. It's just not worth the cost." (Read Four Steps to Ending the Foreclosure Crisis.)

At the heart of the plan that the Treasury is reportedly considering is the idea that lower mortgage rates will boost home sales and eventually house values. The plan hasn't been officially announced so it's not certain exactly what the Treasury would do, but one way it could work would be for the government to offer to directly purchase all newly originated loans by banks and mortgage lenders provided the loans carry rates of 4.5% or less. Proponents of the plan say the plan would be costless, and might even turn a profit. That's because based on current Treasury bond yields, the government can borrow money at 2.7% to fund the program, pocketing a profit of 1.8%.

"It raises the question as to whether the government should be offering low mortgage rates all the time, not just during a crisis," says Laurence Yun, chief economist of the National Association of Realtors, which has been pushing for a plan to lower mortgage rates for the past month. Yun predicts lowering 30-year fixed mortgages to 4.5%, from their current rate of 5.5%, would produce an additional 500,000 home sales in the next year. "We need to do this because the economy will not stabilize until home prices stabilize," says Yun. "The way to do that is to get buyers back in the market." (Read States' Financial Outlook: Getting Worse Fast.)

But critics of the plan say that is will do little to boost sales, and could wind up being surprisingly expensive. Here's their math: In order to get lenders to make the loans at below market rates, the government would have to basically pay banks the difference between the market rate and the 4.5% they would like banks to lend at — currently 1%. That would still leave a profit of 0.8% on every loan the government helped originate through the program.

The government, though, would only be able to pocket that profit if everyone paid back their mortgage in full, which even in good times is not the case. Historically, about 1% of all mortgages end up in foreclosure. That would mean during normal times this program would end up costing the government 0.2% of all the loans it originates. (Read It's the Housing Market, Stupid.)

But these are not normal times. Right now the foreclosure rate is running at 3%, and it could ratchet higher in the next few years if the recession drags on. The government could mitigate its losses by only lending to people with high credit ratings. But even high quality borrowers will default at higher rates in a down economy. At a 3% default rate, the plan could cost the government as much as $25 billion a year. And that's only if 10-year Treasury rates remain at 2.7%. A year ago, the government bonds yielded 4%. At those levels, the 4.5% mortgage plan would cost nearly $50 billion a year. Treasury officials declined to comment on these projections.

On another troubling note, some economist question whether the lower mortgage rates would even boost sales or home values. A 2006 study of mortgage rates and New York City housing prices going back to 1975 by Lucas Finco of Quadlet Consulting found no correlation between lower mortgage rates and higher housing prices, or vice versa. "The relationship between mortgage rates and home prices is pretty obscure," says Jack Guttentag, a professor emeritus of finance at the Wharton School of Business.

James Hamilton, a professor of economics at the University of California, San Diego, says he used to think that lower mortgage rates were responsible for rising home sales in the first half of this decade, and for that reason he projected home prices would rebound in 2007. He now says rising home sales were the result of deterioration of lending standards and not lower mortgage rates. "I was wrong. The real story with home sales has to do with the availability of credit," says Hamilton. "And credit is tight now."

What's more, the Treasury's proposed program would only make the low-cost mortgages available to people making new home purchases. That would do little to help people who are already behind on their mortgage, or at risk of facing foreclosure. And many economists argue housing prices won't stop falling until foreclosure rates come down. On Thursday, Federal Reserve Chairman Ben Bernanke said that he thinks the government should do more to stop foreclosures. He named a number of possible programs, including a plan floated a few weeks ago by Sheila Bair, who heads the Federal Deposit Insurance Corporation, for the government to pay mortgage servicers $1,000 per modification and split the default risk in order to encourage them to lower the monthly loan payments of borrowers at risk of foreclosure.

Harvard's Glaeser calculates that in a stable market reducing mortgage rates to 4.5% would boost home prices by 5.2%. But this isn't a stable market. Before the announced plan, housing prices were expected to drop as much as another 20%. That means the Treasury's proposed mortgage rate cut will fall well short of stopping the continued fall in real estate prices. "All of these subsidies end up with taxpayers holding the bag," says Glaeser. "It's a terrible idea."

See TIME's Pictures of the Week.

See pictures of the global financial crisis.

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By Justin Fox

And now they drive back to Detroit. The second money-begging pilgrimage to Washington by the CEOs of the three U.S.-based automakers went a lot better than their first vist two weeks ago. Then General Motors' Rick Wagoner, Ford's Alan Mulally and Chrysler's Ron Nardelli came in corporate jets and left with the angry words of lawmakers ringing in their ears. This time they traveled in hybrid cars, offered detailed plans for how they would spend and repay the $34 billion in government loans they requested, and met with a much friendlier reception. They still didn't leave with any money — although that could change next week. (Read TIME's biographies of the Big Three CEOs)

It wasn't that nobody wanted to give them any. The members of the Senate and House committees who interrogated the auto CEOs Thursday and Friday seemed mostly united in the conviction that something must done to avert the companies' collapse. The sticking points remain how, and with whose money.

Ever since the automakers first asked for a bailout last month, the Bush Administration has been urging that it come out of a $25 billion loan package Congress approved in September that the automakers were supposed to use to retool their assembly lines to build more fuel-efficient vehicles. Democratic Congressional leaders have wanted the cash to come instead from the $700 billion financial rescue pot they gave Treasury Secretary Hank Paulson in October — which is why the auto executives found themselves in the strange position of pleading their case before the House and Senate banking committees.

During Friday's House Financial Services Committee hearing, Michigan Republican Thaddeus McCotter proposed what he called a "Solomonic approach" — taking half the money from each pot. By Friday night, Democratic Congressional leaders were signaling that they were ready to cede ground and take all the funding from the $25 million loan program, on the assumption that they can replenish it later. But even if that flies, there remain a lot of big questions about how it would work.

In its restructuring proposal, GM called for the creation of a federal Oversight Board that would not only watch over the taxpayers' money but twist the arms of the company's creditors to get them to reduce their demands — essentially playing the role that a bankruptcy judge would if the company filed for Chapter 11. Almost everybody on Capitol Hill liked the idea, and the other two automakers endorsed it. But GM and Chrysler both say that because of plummeting auto sales they won't have enough cash to pay their bills by the beginning of next month, long before an effective oversight board could get up and running.

New York Democrat Chuck Schumer recommended that a single official — the Treasury Secretary, or someone else — be appointed to oversee the process. But nobody's volunteering for that job. Officials at Treasury and the Federal Reserve, already overburdened with the banking bailout, aren't interested. And the rest of the Bush administration seems to be running on autopilot for the final weeks of its existence.

This means the really big decisions about the automakers' future will have to wait until Barack Obama takes over in January. But again, GM and Chrysler don't have that much time, so discussion Friday turned to the possibility of a bridge loan to get them through until the end of March. Under questioning from Pennsylvania Democrat Paul Kanjorski, Wagoner said GM needed $10 billion to survive that long, and Nardelli said Chrysler would need $4 billion. Ford could make it that far without any help, Mulally said.

So that's what appears to be on the table: A $14 billion loan, from sources undecided, to be administered by parties unknown. Said House Financial Services Chairman Barney Frank after Friday's hearing, "We will now see whether we can put a bill together."

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White House says auto talks are constructive, rejects using Wall Street rescue for Big 3

By JULIE HIRSCHFELD DAVIS Associated Press Writer
WASHINGTON

Facing massive job losses, the White House and congressional Democrats are negotiating a deal to provide about $15 billion in loans to prevent Detroit's weakened auto industry from collapsing.

The White House said it was in "constructive discussions" with lawmakers in both parties to dole out the assistance as House and Senate staff aides worked through the weekend drafting bailout legislation that is expected to come to a vote next week.

A breakthrough on the long-stalled rescue came Friday when House Speaker Nancy Pelosi, D-Calif, yielded to President George W. Bush on a key point: allowing the aid to be drawn from a fund set aside for the production of environmentally friendlier cars.

White House press secretary Dana Perino said that was central to any agreement, along with requirements that the carmakers swallow tough business decisions and taxpayers be protected.

"Taxpayers should not be asked to finance assistance for automakers without a strong likelihood that they will be paid back," Perino said in a statement before Bush left Washington to attend the Army-Navy football game in Philadelphia.

Pelosi said the House would consider legislation in the upcoming week to provide "short-term and limited assistance" to the U.S. auto industry while it undergoes "major restructuring."

"Congress will insist that any legislation include rigorous and ongoing oversight to guarantee that taxpayers are protected and that resources are directed to ensure the long-term viability and competitiveness" of the industry, she said in a statement Friday. The Senate is also scheduled to be in session next week.

The legislation being developed this weekend would act as a lifeline to General Motors Corp., Ford Motor Co. and Chrysler LLC while meeting demands from many skeptical lawmakers that Congress refrain from writing a blank check for the beleaguered industry.

Pelosi, a close ally of environmentalists, had steadfastly refused to tap an existing $25 billion auto loan program — meant to finance the production of more fuel-efficient vehicles — for emergency aid to the carmakers. But Bush refused to use money from the $700 billion Wall Street bailout to help the Big Three. With time running out on the current Congress and the automakers' situation increasingly dire, the window for an agreement was quickly closing.

Pelosi spoke to White House chief of staff Josh Bolten on Friday to signal her change in position, several officials in both parties said.

She said the billions of dollars set aside to modernize plants and develop green cars would be repaid "within a matter of weeks." Democrats said her hope was to include the funds in an economic recovery bill that lawmakers are expected to prepare for President-elect Barack Obama shortly after he takes office Jan. 20.

Officials in both parties said the legislation would include creation of a trustee or group of industry overseers to make sure the bailout funds were used by automakers for their intended purpose. The funds are designed to last until March, giving the incoming Obama administration and the new Congress time to consider the issue anew.

One senior Democratic aide said Pelosi wanted to bar the automakers from using any of the funds to pursue a legal challenge to states seeking to put in place tougher auto emission standards. The aide spoke on condition of anonymity because the legislation was not yet drafted.

The discussions came hours after the government reported that employers slashed 533,000 jobs in November, the worst single month's job loss in 34 years. Bush warned that at least one of the automakers might become a casualty of the severe economic crisis.

Top executives from the Detroit automakers spent two consecutive days on Capitol Hill pleading for $34 billion in loans to help the industry survive. GM and Chrysler said they needed a combined $15 billion to help them maintain their operations through early 2009. Ford wants access to a line of credit of up to $9 billion but only if market conditions deteriorate.

Detroit's automakers employ nearly a quarter-million workers, and more than 730,000 others produce materials and parts for cars. If just one of the automakers should declare bankruptcy, some estimates put U.S. job losses next year as high as 2.5 million.

Associated Press writers David Espo, Ken Thomas and Ben Feller contributed to this report.

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House Chairman Says Country "Held Hostage" By Unemployment, Making Help For Auto Industry Even More Urgent

(CBS/AP) A key House committee chairman said Friday that new bleak unemployment figures make helping the beleaguered domestic auto industry even more urgent and cautioned colleagues that doing nothing "would be a disaster."




Rep. Barney Frank, D-Mass., said "the country is held hostage" by the debate raging over how to help Detroit's Big Three automakers - and the prospect of congressional inaction.

Frank spoke during the second day of testimony from the automakers seeking a government bailout of up to $34 billion - and shortly after the government reported the biggest monthly job loss in 34 years.

Skeptical lawmakers are weighing whether to dole out as much as $34 billion in aid to the automakers as the once-mighty companies make their second round of pleas for government help to keep them from collapsing by year's end and potentially deepening the nation's already painful recession.

"For us to do nothing, to allow bankruptcies and failures in one or three of these companies in the midst of the worst credit crisis and the worst unemployment situation that we've had in 70 years would be a disaster," Frank said ahead of testimony to his House Financial Services Committee from the CEOs of General Motors Corp., Ford and Chrysler LLC.

Congress is considering a range of options, including a government-run oversight board. With several lawmakers in both parties pressing them to consider a pre-negotiated bankruptcy - something they have consistently shunned - members of Congress and the Big Three both were contemplating a government-run restructuring that would yield similar results, including massive downsizing and labor givebacks.

But no plan seems to be gaining much traction.

It is the second day of testimony for the auto chiefs, who tried to sell the Senate Banking Committee on Thursday on a new plan that would total $34 billion, up from the $25 billion they requested just two weeks ago.

"I don't want to send you home again because it's going to get more expensive," joked Democratic Rep. Gary Ackerman of New York.

He told the automakers they faced "the fury of the American public" and that was making it harder for Congress to reach a consensus.

Employers slashed 533,000 jobs in November, shooting the unemployment rate to 6.7 percent, the Labor Department reported Friday.

Separately, GM said it would lay off about 2,000 more factory workers early next year as the U.S. auto sales slump continues to wreak havoc.

The government would order a major restructuring of Detroit's struggling Big Three auto companies in exchange for a multibillion-dollar bailout under a plan circulating in Congress.

With several lawmakers in both parties pressing automakers to consider a pre-negotiated bankruptcy - something they have consistently shunned - members of Congress and the Big Three both were contemplating a government-run restructuring that would yield similar results, including massive downsizing and labor givebacks.

The rescue, though, was facing fresh obstacles in Congress, with lawmakers still unconvinced they should support yet another bailout and congressional officials saying a leading proposal for helping the carmakers wouldn't come close to covering the cost.

"We're looking at a death sentence" for the auto companies, Sen. Chris Dodd, D-Conn., the Senate Banking Committee chairman, said Thursday, pledging to try to help the Big Three. He quickly added, "I'm not a miracle worker and no one here is."

Finding the money was proving to be an uphill battle. Congressional budget analysts said one leading proposal - to use an already approved fund set aside for making cars environmentally efficient - would provide just $7.5 billion - a fraction of what General Motors Corp., Ford Motor Co. and Chrysler LLC say they need.

Chrysler President Jim Press on Friday suggested the market for the Big Three's cars could evaporate quickly without emergency aid.

"All this talk of bankruptcy has caused our customers and our suppliers to have a lack of confidence, we've got to restore that confidence," Press said on CBS' The Early Show. "By the first quarter, we could run into difficulty paying our bills."

Democratic congressional leaders are leaning on President George W. Bush to tap into the already enacted $700 billion Wall Street bailout fund to aid the auto industry, arguing that a carmaker collapse would have a devastating impact on the financial firms the program is designed to help.

The Bush administration has said it has no intention of doing so.

White House deputy press secretary Tony Fratto said that the $700 billion program, nicknamed TARP, was not intended for that purpose.

"Instead, they can’t get congressional support for their idea to use the TARP money, so they want us to do it instead. That's not leadership," Fratto said, reports CBS News White House correspondent Mark Knoller.

Auto state lawmakers are threatening to block the administration from accessing the second half of the financial rescue fund unless it comes to the aid of the Big Three.

And President-elect Barack Obama wasn't stepping forward with an alternative. Rep. Barney Frank, D-Mass., who has been dealing with both the financial bailout and the auto rescue proposal as chairman of the House Financial Services Committee, said Obama is "going to have to be more assertive than he's been."

Repentant after a botched first crack at bailout pleas, the companies' executives said they were willing to overhaul their companies and own up to past errors.

"We made mistakes, which we're learning from," GM chief Rick Wagoner said. Ford CEO Alan Mulally also acknowledged big missteps, saying his company's approach once was "If you build it, they will come."

"We produced more vehicles than our customers wanted, then slashed prices," he said. But as a result of these past mistakes, "we are really focused," he said.

United Auto Workers union President Ron Gettelfinger, aligned with the industry in pressing for the aid, told senators that any kind of bankruptcy, even a prepackaged one, was not "a viable option." Gettelfinger said consumers would not buy autos from bankrupt companies, no matter the terms of the arrangement.

He also warned that without action by Congress: "I believe we could lose General Motors by the end of this month." He said the situation was dire.

It wasn't enough for some skeptics.

"I don't know how they're going to make it," Sen. Richard C. Shelby, R-Ala., said of the auto makers.

Shelby said Chapter 11 bankruptcy was their way to stay in business. Asked Friday morning on CBS whether there was anything the auto executives could say to change his mind about government aid, Shelby said: "Absolutely not."

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NEW YORK – News of a rapidly weakening job sent stocks falling Friday as investors feared that the recession will be deeper and more prolonged than many have expected. The major indexes were all down more than 2 percent and the Dow Jones industrials fell more than 200 points.

The Labor Department's report that employers slashed 533,000 jobs in November came in much higher than the 320,000 that economists forecast. The job losses were severe enough to add to expectations that Washington will have to take even bigger steps to boost the economy.

Although stocks fell after the report, analysts said Friday's retreat likely would have been steeper if the market hadn't tumbled in the final hour of trading Thursday in anticipation of a weak reading.

"What we're seeing here is the market telling you that a downward drop in employment was somewhat expected," said Craig Peckham, equity trading strategist at Jefferies & Co.

"In a kind of paradoxical sense, the really ugly employment numbers probably helped the case for more help from Washington, whether it's through the broader stimulus plan or more targeted industry measures."

Job losses were widespread, hitting manufacturing, construction, retail, financial and other sectors. It was the biggest monthly loss of jobs since 1974.

While the rise in the unemployment rate wasn't as steep as the 6.8 percent forecast, investors clearly believe the employment outlook remains bleak — especially as the layoffs keep coming. On Thursday, bellwether companies like AT&T Inc. and DuPont Co. announced they were cutting thousands of jobs.

The fear on Wall Street is that a rising unemployment rate will, among other things, lead to a more severe pullback in consumer spending, which is a crucial component to helping the economy rebound. Weak retail sales reports for the month of November released Thursday added to these concerns.

"The news is consistently dreadful and is likely to remain so for some time as layoffs continue and economic reports come in," said Gary Townsend, president and chief executive of Chevy Chase, Md.-based private investment group Hill-Townsend Capital Inc.

In the first hour of trading, the Dow Jones industrial average fell 208.67, or 2.49 percent, to 8,167.57 after falling 216 points Thursday.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 22.76, or 2.69 percent, to 822.46, and the Nasdaq composite index fell 38.55, or 2.67 percent, to 1,407.01.

The Russell 2000 index of smaller companies fell 13.87, or 3.16 percent, to 425.72.

Six stocks fell for every one that rose on the New York Stock Exchange, where trading volume came to a moderate 213.8 million shares.

Bond prices showed modest movements Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, inched up to 2.57 percent from 2.56 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.02 percent from below 0.01 percent late Thursday, but still indicated extreme fear among investors.

The dollar rose against other major currencies, while gold prices fell.

Light, sweet crude fell $1.22 to $42.45 a barrel on the New York Mercantile Exchange. Concerns about the economy and weakening energy demand have kept oil prices down near four-year lows. The price of oil has fallen a staggering 70 percent since peaking at $147.27 in July.

While some analysts have been hopeful that the string of recent gains signals some stability may be returning to the market, many warn that much volatility remains as Wall Street struggles to emerge from bear territory.

"The markets are, in my view, acting not stable at all but with excessive volatility and unpredictability," Townsend said. "It's a very difficult market to invest into and a very difficult market to trade."

Investors are awaiting a second day of congressional hearings with the heads of Detroit's top three automakers, who are appearing on Capitol Hill in an effort to save their troubled industry.

General Motors Corp., Ford Motor Co. and Chrysler LLC are collectively seeking $34 billion in emergency funding. While the market largely expects the companies to win some sort of government aid, support for the troubled carmakers isn't assured.

GM fell 25 cents, or 6.2 percent, to $3.86, while Ford rose 7 cents, or 2.6 percent, to $2.73. Chrysler isn't publicly traded.

Meanwhile, Merrill Lynch & Co. shareholders approved the investment bank's sale to Bank of America Corp. early Friday, in a move that will create the nation's largest financial services firm.

Bank of America agreed to buy Merrill for $50 billion after the collapse of rival investment firm Lehman Brothers Holdings Inc. in September raised doubts about the viability of independent investment banks in general. The value of the all-stock deal has since fallen to about $20 billion, based on Bank of America's Thursday closing price of $14.34.

Bank of America shareholders are set to vote on the acquisition at 11 a.m. EST. The deal is expected to close during the first quarter.

Optimism that buoyed some overseas markets following massive interest rate cuts across Europe Thursday deflated following the report on U.S. jobs. In afternoon trading, Britain's FTSE 100 fell 1.69 percent, Germany's DAX index fell 3.81 percent, and France's CAC-40 declined 4.83 percent. Japan's Nikkei stock average dipped 0.08 percent in earlier trading.

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WASHINGTON – A key House committee chairman said Friday that new bleak unemployment figures make helping the beleaguered domestic auto industry even more urgent and cautioned colleagues that doing nothing "would be a disaster."

Rep. Barney Frank, D-Mass., said "the country is held hostage" by the debate raging over how to help Detroit's Big Three automakers — and the prospect of congressional inaction.

Frank spoke during the second day of testimony from the automakers seeking a government bailout of up to $34 billion — and shortly after the government reported the biggest monthly job loss in 34 years.

Skeptical lawmakers are weighing whether to dole out as much as $34 billion in aid to the automakers as the once-mighty companies make their second round of pleas for government help to keep them from collapsing by year's end and potentially deepening the nation's already painful recession.

"For us to do nothing, to allow bankruptcies and failures in one or three of these companies in the midst of the worst credit crisis and the worst unemployment situation that we've had in 70 years would be a disaster," Frank said ahead of testimony to his House Financial Services Committee from the CEOs of General Motors Corp., Ford and Chrysler LLC.

Congress is considering a range of options, including a government-run oversight board. But no plan seems to be gaining much traction.

It is the second day of testimony for the auto chiefs, who tried to sell the Senate Banking Committee on Thursday on a new plan that would total $34 billion, up from the $25 billion they requested just two weeks ago.

"I don't want to send you home again because it's going to get more expensive," joked Democratic Rep. Gary Ackerman of New York.

He told the automakers they faced "the fury of the American public" and that was making it harder for Congress to reach a consensus.

Employers slashed 533,000 jobs in November, shooting the unemployment rate to 6.7 percent, the Labor Department reported Friday.

Separately, GM said it would lay off about 2,000 more factory workers early next year as the U.S. auto sales slump continues to wreak havoc.

The government would order a major restructuring of Detroit's struggling Big Three auto companies in exchange for a multibillion-dollar bailout under a plan circulating in Congress.

With several lawmakers in both parties pressing automakers to consider a pre-negotiated bankruptcy — something they have consistently shunned — members of Congress and the Big Three both were contemplating a government-run restructuring that would yield similar results, including massive downsizing and labor givebacks.

[Read More...]

By JEANNINE AVERSA, AP Economics Writer

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By JUSTIN ROOD

After a lengthy public flogging for flying private jets to Washington to ask for a multi-billion dollar bailout, the Big Three auto CEOs rolled into town in more modest, fuel-efficient cars Wednesday.

GM and Ford announced plans this week to sell off their corporate aircraft, and they're hardly alone. A bad economy -- and bad press -- are spurring more corporations to hock their fancy private jets.

Troubled banking giant Citigroup has quietly put up for sale two of its planes, richly-outfitted Falcon 900EXs, according to online advertisements and public records. The planes seat twelve passengers in ample club chairs, a divan and a single "VIP seat," amid mahogany woodwork with gold trim, according to the ads. The planes' asking prices are not listed, but similar aircraft are advertised for $30 million.

The company last week negotiated a $300 billion deal with the U.S. government to "backstop" its potential losses and keep from going under.

A Citi spokeswoman declined to confirm the planes were for sale, which was first reported on the Web site CityFile.com. In a written statement, she claimed the company had reduced the size of its air fleet by two thirds over the last eight years, and said that executives "are encouraged to fly commercial whenever possible to reduce expenses."

Also selling planes is foundering insurance giant AIG, which has taken $150 billion in U.S. taxpayer money to stay alive. It has three planes on the market, including one it has ordered but is not scheduled to receive until next year.

Of the planes for sale it currently possesses, one is a nearly-new 2007 Falcon 2000EX. Its brief life with the company began earlier this year, around the time AIG's troubles began to be publicly known.

AIG executives could enjoy the aircraft's "Ultraleather" club seating, store refreshments in its custom cabinetry, and enjoy drinking water from its UV water treatment system, according to the list of features in the plane's online ad. The jet also features "convenient tie downs for golf bags or skis," the ad claims.

Execs Want to Avoid Public Criticisms that Hit Auto Titans

AIG sold two other planes earlier this year, according to company spokesman Joseph Norton. The company has cancelled an earlier order for a new plane that was scheduled to be built in 2010. Once those sales go through, AIG's fleet should be pared down to five planes.

"The economy sucks, everybody knows that. As a result of a bad economy, people are looking for ways to cut costs, cut overhead, and that leads to airplane sales," said Josh Mesinger, vice president of J. Mesinger Corporate Jet Sales in Boulder, Colo.

But executives also want to avoid the kind of public remonstrations the automotive titans suffered, after they rode in luxury to ask Washington for billions in bailout funds.

"Everybody wants to stay under the radar," said Mesinger. "Some are selling because they have to, but some are selling because they don't want the profile of having it."

At Starbucks, dismal sales have led execs to close 600 stores and increased pressure from stockholders to find millions of dollars in savings. A 2002 Gulfstream V that government records shows as owned by the coffee company is listed for sale on public Web sites. (Federal Aviation Administration records show the company also has a Bombardier 12-seat plane.)

Frequent use of the aircraft had made company chairman and billionaire Howard Schultz a target of criticism. Shultz has enjoyed free air travel on the planes valued as high as $475,000 a year, according to reports.

Starbucks' asking price for the plane is not listed in its advertisement, but similar planes are advertised for more than $40 million. The company did not respond to repeated requests for comment.

The Starbucks Gulfstream seats 16 in "tasteful" neutral-toned leather and cloth seats, according to its advertising copy, and comes with in-flight satellite television, DVD and CD players -- and a coffee maker.

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By KEN THOMAS, Associated Press Writer

WASHINGTON – U.S. automakers are returning to Congress for high-stakes hearings they hope will persuade skeptical lawmakers to save their troubled industry with $34 billion in emergency aid, but a top Senate Democrat wants to hand their problem to the Federal Reserve.

Two weeks after a botched attempt on Capitol Hill, repentant leaders of General Motors Corp., Ford Motor Co. and Chrysler LLC were appealing to the Senate Banking Committee on Thursday with three separate survival plans that include massive restructuring, the ditching of corporate jets and vows by CEOs to work for $1 a year.

But they could expect a chilly reception on Capitol Hill. Even a top Democrat in charge of evaluating their aid requests made it clear he was eager to avoid voting on a bailout. Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, wrote to Federal Reserve Chairman Ben Bernanke on Wednesday asking the central bank chief whether there was anything stopping him from using his considerable lending authority to help the automakers.

And Senate Majority Leader Harry Reid, D-Nev., said it was up to the Bush administration to unilaterally rescue the Big Three with loans drawn from the $700 billion Wall Street rescue fund, since Congress was still unwilling to do so. "I just don't think we have the votes to do that now," he told The Associated Press.

Dodd's committee was hearing testimony on the companies' plans from GM CEO Rick Wagoner, Ford CEO Alan Mulally, Chrysler CEO Bob Nardelli, UAW president Ron Gettelfinger and the head of the Government Accountability Office. The House Financial Services Committee was to hold a similar session on Friday.

Automakers were trying to make the case that the billions in loans would be a bridge to survival and profitability.

In the streets outside the Capitol, all three companies were showcasing their futuristic, green models in hopes of counteracting their image as purveyors of gas-guzzling SUVs. Wagoner planned to drive to the hearing in a test version of the Chevrolet Volt, an extended-range electric vehicle expected to go on sale in 2010.

Reid and House Speaker Nancy Pelosi, D-Calif., said the hearings would help determine whether Congress would consider a massive aid package for the industry in a special session next week. Critics say the companies have been poorly managed and failed to show they won't be back for another government rescue.

The Big Three are struggling to stay afloat heading into 2009 during an economic recession, a steep decline in sales and a tight credit market. The three companies burned through nearly $18 billion in cash reserves during the last quarter.

Chrysler said it needed $7 billion by year's end to keep operating. GM asked for an immediate $4 billion as the first installment of a $12 billion loan, plus a $6 billion line of credit to use if economic conditions deteriorate. Both said in plans submitted to Congress that they could drag the entire industry down if they fail. Ford requested a $9 billion "standby line of credit" in case one of its Detroit competitors fails.

Wagoner and Mulally both say said they'll work for $1 a year — a move Chrysler's Nardelli has already made — if their firms accept government loans. All three plans envision the government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover.

In Detroit, the United Auto Workers union said it would delay the three companies' payments to a multibillion-dollar, union-run health care trust and essentially end a jobs bank program in which laid-off workers are paid most of their salaries. They also decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed last year, a move that could lead to wage concessions.

The companies, union officials and car dealers were lobbying feverishly for the loans, arguing that the collapse of one or more of the Detroit carmakers would throttle the already weakened U.S. economy and jeopardize the nation's manufacturing sector.

Yet the bailout remains unpopular with the public. Sixty-one percent oppose providing the auto companies with billions in federal assistance, according to a CNN-Opinion Research Corp. poll released on Wednesday. Fifty-three percent said it would not help the country's economy.

The auto executives were roundly criticized for taking corporate jets to the hearings last month and this time made the 520-mile trip to Washington aboard hybrid cars. Underscoring the different approach, Wagoner and GM officials ate lunch Wednesday at Quiznos at a Pennsylvania rest stop along the way.

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Associated Press writers Julie Hirschfeld Davis, Erica Werner and Jennifer Loven in Washington, Kimberly S. Johnson in Detroit, and Joe Milicia in Cleveland contributed to this report.

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LONDON (AFP) – Oil prices sank under 44 dollars on Thursday, reaching the lowest points for almost four years as the world's biggest energy consuming nation, the United States, faces a deep recession, traders said.

Brent North Sea crude for delivery in January slumped to 43.80 dollars a barrel in Asian trading -- the lowest level since February 20, 2005.

Later on London's InterContinental Exchange (ICE), Brent recovered to stand at 44.80 dollars, down 64 cents from Wednesday's close.

Light sweet crude for January fell 60 cents to 46.19 dollars a barrel on the New York Mercantile Exchange (NYMEX).

Economic activity weakened across the United States over the past several weeks with most sectors facing pressure, the Federal Reserve said on Wednesday.

The report came two days after the National Bureau of Economic Research said the US economy had been in recession since December 2007.

As recession sweeps through the world's richest nations, demand for energy is tailing off, causing crude oil prices to tumble.

Oil prices are more than 100 dollars below their record highs of above 147 dollars reached in July, when fears of supply disruptions had sent them rocketing.

"The scale of the correction so far would indicate further pain to the downside," Simon Denham of Capital Spreads said Thursday.

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By GEORGE JAHN, Associated Press Writer

VIENNA, Austria – Oil prices sank Thursday to lows last seen nearly four years ago as more bleak news from the world's largest economy raised fears crude could tumble below $40 by the end of the year.

After sinking more than $1 earlier in the day to approach levels traded at in February 2005, light sweet crude was trading at $46.10, down 69 cents in electronic trading on the New York Mercantile Exchange by noon in Europe. The contract fell 17 cents overnight to settle at $46.79.

"You could see prices testing $40 by the end of the year because the economic data is really ugly at the moment," said Christoffer Moltke-Leth, head of sales trading at Saxo Capital Markets in Singapore. "Demand destruction is still very much the concern."

Oil prices have tumbled about 69 percent since peaking at $147.27 in July. But trader and analyst Stephen Schork suggested that the price decline had some ways to go before bottoming out, despite the arrival of the cold season in the U.S. and elsewhere in the Western hemisphere, which traditionally drives up demand.

"The only place colder than the (U.S.) Northeast and Midwest is the Floor of the NYMEX," he said, in his Schork Report.

Investors were dismayed at more poor economic news from the U.S. The Institute for Supply Management said Wednesday its services sector index fell to 37.3 in November from 44.4 in October. The reading was significantly lower than the 42 the market expected.

The Labor Department reported that productivity rose at an annual rate of 1.3 percent in the July-September quarter, down from a 3.6 percent growth rate in the second quarter.

Investors took little solace from a report showing U.S. crude inventories fell last week. For the week ended Nov. 28, crude inventories fell by 400,000 barrels, the Energy Department's Energy Information Administration said Wednesday.

Analysts had expected a boost of 2 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

"People are really looking at economic figures right now and how bad a shape the world is in," Moltke-Leth said.

The Organization of Petroleum Exporting Countries has signaled it plans to lower output quotas at a Dec. 17 meeting, adding to a production cut of 1.5 million barrels a day in October.

But analysts are skeptical that an output reduction by OPEC can reverse the fall in the prices.

"I don't think it will have a major impact in the near term," Moltke-Leth said. "However, low prices will increasingly lead drilling and exploration projects to be postponed or canceled, so supply will become a concern in the medium term."

In other Nymex trading, gasoline futures fell nearly 3 cents to $1.01 a gallon. Heating oil dropped almost 2 pennies to $1.57 a gallon while natural gas for January delivery was steady at 6.34 per 1,000 cubic feet.

In London, January Brent crude fell 74 cents to $44.70 on the ICE Futures exchange.

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Associated Press writer Alex Kennedy contributed to this report from Singapore.

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By KEN THOMAS and TOM KRISHER, Associated Press Writers

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By Rebekah Kebede

NEW YORK (Reuters) – Oil prices fell below $49 a barrel on Tuesday as news that OPEC made only two-thirds of its pledged output cuts last month outweighed a rebound in the U.S. stock market.

U.S. crude traded 53 cents lower at $48.75 a barrel by 12:54 p.m. EST, after touching a new 3-1/2-year low of $47.36. London Brent fell 73 cents to $47.24 a barrel, after touching $46.02, its lowest since February 2005.

"The story about OPEC still not in full compliance with pledged output reductions is the reason why crude futures are down right now," said Phil Flynn, an analyst at Alaron Trading in Chicago.

"This lack of compliance is disappointing to the market and this puts into doubt OPEC's indications that they will make more production cuts later this month."

Members of the Organization of Petroleum Exporting Countries had pledged to lower output by 1.5 million barrels per day for November, but were only 66 percent compliant with the target last month, a Reuters survey showed on Tuesday.

Crude prices have fallen nearly $100 a barrel from a peak of more than $147 in July due to weak demand for oil products during a mushrooming global economic crisis, pushing the cartel to agree to supply cuts.

OPEC's decision to wait until later this month to take more supply off the market, combined with a steep sell-off in U.S. stocks, led to a drop of more than 9 percent in U.S. crude oil futures on Monday.

Benchmark U.S. stock indexes were up more than 3 percent on Tuesday as investors hunted for bargains amid optimism about a government bailout for the U.S. auto industry.

OPEC CUTS

Still, OPEC members remained concerned about oversupply in the world oil market and may decide to cut output further at their next meeting in Algeria on December 17.

"We are concerned about the glut ... I think there is an indication that we will have another cut," Qatar Oil Minister Abdullah al-Attiya said.

Top oil exporter Saudi Arabia has highlighted $75 a barrel as a "fair price" for oil.

Meanwhile, sources said two OPEC members, the United Emirates and Kuwait, will increase oil sales to many major Asian customers, sending mixed signals about OPEC output cuts.

More bearish news for oil prices could be in store on Wednesday, when the U.S. government reports weekly oil inventory data.

A preliminary Reuters poll of analysts showed U.S. crude inventories likely rose by 1.8 million barrels last week, a third consecutive weekly build, as imports continued to increase.

(Additional reporting by Christopher Johnson and Jane Merriman in London and Annika Breidhardt in Singapore; Editing by Walter Bagley)

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By TOM KRISHER and KIMBERLY S. JOHNSON, AP Auto Writers

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SEOUL, South Korea – Most Asian stock markets fell Monday on signs that the U.S. holiday shopping season got off to a tepid start over the key Thanksgiving weekend. Major European markets opened lower.

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