The Wallstrip Blog

Automakers finished their plea on Capitol Hill today in front of the Senate Baking Committee. Overall, the 6 hour ordeal came off as a love fest between senators and overpaid executives. There were laughs, there was candor, there were numerous thanks, and Michigan was confused with Mexico…but there was a bit of bad news.

Mark Zandi, chief economist for Moody’s Economy.com, testified that 34 billion dollars would not be enough to solve the problems of the Big Three automakers, and that they would return for additional funds during 2009. But that wasn’t the end of the bad news. He also estimated that the final cost of financial aid to the automakers could be up to 125 billion dollars. Yeesh.

Will the American public want to invest that much money in Detroit? Eh, it doesn’t matter. We don’t get a say.

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It’s a bad time to be in the money management business right now. Why? Because no one has any money to manage right now. And so, jobs will be shed. Yesterday, State Street Corp, the huge money management company, announced plans to cut 1,800 people. These people will get the ax in the first quarter of 2009. In the end, 6 percent of the company’s staff will see pink slips.

The company expects to save 400 million dollars a year from the layoffs. That’s more than 200,000 dollars per person. And the bulk of the layoffs will come from the company’s U.S. operations in middle management. Hopefully these guys were smart enough to manage their own money for lean times.

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As we mentioned earlier, AT&T plans to layoff 12,000 employees in the near future. But that was only the first shoe to drop. DuPont, Viacom, and Credit Suisse Group all announced plans for layoffs as well. In all, more than 20,000 jobs will be eliminated between the 4 companies. This latest news just adds to a week of bad news related to the job market.

Only yesterday, ADP announced that private sector payroll was reduced by 250,000 people and Challenger, Gray & Christmas tallied 181,000 planned job cuts in October. So far, 1.2 million jobs have been lost within the first 10 months of the year, and some analysts think that things will get a lot worse.

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AT&T announced today that it would cut 12,000 jobs, or 4 percent of its workforce. The telecommunications company cited “economic pressures, a changing business mix and a more streamlined organizational structure” as the reasons behind downsizing.

It looks like “streamlining organizational structure” is the new fad: the government’s latest monthly unemployment report will be released tomorrow and is expected to show more than 300,000 jobs lost in November alone.

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Citigroup just can’t catch a break. First it lost Wachovia, now it can’t even hold onto a little regional lender. Capital One announced today that it will buy Chevy Chase Bank, a Washington firm previously courted by Citigroup, for $520 million in cash and stock. After Citi experienced its latest set of problems, Capital One jumped on the opportunity like a barbarian on a defenseless town. The deal is emblematic of the consolidation that is running throughout the banking industry.

“What’s going on right now is that the strong banks are eating the weak banks,” said Howard Shapiro, an analyst with Fox-Pitt Kelton. The vikings in Capital One’s commercials should be proud that the bank has followed their tradition so closely. But with all this consolidation, it is hard to keep track of who owns who. Seriously, Capital One, what’s in my wallet?

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Research In Motion has adjusted its revenue and earnings guidance for the third quarter. The handset maker blamed an unfavorable foreign exchange rate and the sagging economy. People just aren’t willing to spend 500 bucks on a new crackberry anymore. And corporate sales of new phones have certainly dropped.

But RIM itself is partially to blame. The company’s two new phones, the Blackberry Bold and the Storm, were not released on time. And the latter, a supposed iPhone-killer, has gotten pretty lukewarm reviews.

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Ugh. This holiday season could turn out to be the most miserable time of the year for a lot of us. The ADP National Employment Report (released today) showed a larger loss of jobs in the private sector than anyone expected. For the month of November, 250,000 jobs were lost in the United States. Analysts had expected a loss of only 200,000 jobs for the month.

Of course, this report does not include farm-related jobs, so once all of the data is collected, the number will certainly be much larger. And it seems like there’s no end in sight.

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So, the Big Three automakers pleaded their cases yesterday before congress, and it turns out that they need a butt-load of cash. 34 billion dollars, to be exact.

GM may need a total of 18 billion dollars by the time the dust settles. The company would need immediate access to 4 billion dollars to pay the rest of its bills through the end of the year, and another 8 billion for the first quarter of 2009. The automaker would then need access to an additional 6 billion dollars if turnaround efforts fail.

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Apparently, Warren Buffet can’t always get what he wants. French energy giant Electricite de France bid more than 4.5 billion dollars for a 50 percent stake in Constellation Energy’s nuclear power business. The deal is nearly twice the amount offered by Warren Buffet to purchase all of Constellation.

Warren Buffet originally bid for the company in September for 26.50 a share. Constellation’s stock price has been battered during the financial turmoil of the last few months. The company’s stock has lost over 75 percent of its value during the last year, making it ripe for the taking.

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November auto sales have not been released yet, but are expected to be abysmal. Analysts expect a 28 percent drop for the month and sales are expected to be below a million cars for the third consecutive month, but things could be a lot worse (and they still might be). Some European countries have experienced drops as steep as 50 percent.

Maybe now that the price of gas is falling, people will decide to buy some big American gas guzzlers…or not…

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Delta Airlines, fresh off of its purchase of Northwest Airlines, has decided to trim domestic and international capacity in 2009. For the first time in years Delta will cut international capacity.

The airline industry has had a very hard time turning a profit over the last few years. Most recently, astronomical fuel prices have been the biggest burden for the industry.

Now, airlines face a slowing economy, not only in the United States but abroad as well. So once again cuts will be made.

Oh, and you might want to pack light. Your FIRST checked bag could cost you soon.

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Ford Motor Company was the first up in Washington today. The big automakers had until today to come with detailed plans for the future. If all goes well, the big 3 may finally gain access to a proposed 25 billion dollar bailout for the auto industry.

Ford is actually in the best financial state of the 3 automakers. The company does not burn through nearly as much cash as GM, and it has more liquidity. But the company’s statement did mention the importance of saving all three companies. If one fails, it may make things much worse for the company left standing.

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