Tuesday, December 30, 2008

Spring Hill worries about idle GM plant

SPRING HILL — Another temporary closure of the General Motors plant here until at least Feb. 9 has spread anxiety among workers and nearby business owners who rely on consumer spending by GM's local workers to bring profits to their stores.

"There's a lot of concern throughout the plant and the community," said Rob "Boomer" Lazzara, who retired from the facility in 2006 after 30 years with GM. He now operates a music store in Columbia, Tenn., just a mile from the facility's south entrance.

"Spring Hill has become a very diverse area over the past few years, so we don't depend on GM as much as we once did," Lazzara said. "But even so, if this plant were to close permanently, it would devastate the merchants. For most of us, GM employees and their families are at least 50 percent of our business."

The 3,500-employee plant, which makes the new Chevrolet Traverse crossover vehicle, stopped production Dec. 23 and will remain closed until at least Feb 9, said Michael Herron, chairman of United Auto Workers Local 1853, which represents the facility's hourly workers.

Local officials and suppliers that work closely with GM say they're worried, too. Three nearby companies that supply parts and service to the GM plant employ another 1,000 or so people in addition to Spring Hill's direct payroll.

Johnson Controls Inc., based in Columbia, which makes center consoles and seats for the Traverse, has already announced 110 layoffs.

But the broader fear this time is that GM itself might not survive, as poor auto sales fueled by a weak national economy and consumer credit crunch have pushed the U.S. automaker near bankruptcy.

GM, along with rival carmaker Chrysler, was forced to turn to the federal government for an emergency loan, which President Bush approved last week.

A total of $17.4 billion could flow to the two carmakers by spring. GM received the first $4 billion installment of the money on Monday, as did Chrysler LLC.

On the assembly line, workers say they fear for their jobs and the pensions that many of them have worked decades to earn.

Norm Jenks, 49, has worked for GM almost 29 years. He was one of the original Saturn employees when the Spring Hill plant opened in 1989 to make what was then a novel four-door sedan.

"There are a lot of people scared right now, not only about their jobs but also about whether they will be able to afford to retire," Jenks said. "A lot of us are already close to retirement age, but if GM fails, where will our pensions and health-care benefits go?"

While GM ordered most of its facilities to extend their holiday closings to early February to help bring vehicle inventories in line with consumer demand, the company has said that shutdowns could be continued if sales don't pick up in January.

"My fear is that this is only the beginning if the auto market doesn't settle," Jenks said.

80 pecent of pay

The temporary shutdown won't hurt the workers in the pocketbook right away.

They will receive at least 80 percent of their regular pay during the time off, when state unemployment benefits are combined with supplemental pay guaranteed by the union's contract with GM.

But Spring Hill workers wonder whether their plant can survive the growing turmoil in the auto industry over the long haul on a single product, the Traverse crossover, whose sales have not met expectations since its launch in September.

A crossover is a SUV-like vehicle built on a car chassis to improve ride and handling and fuel economy.

"People on the floor at the plant see the writing on the wall," said Carl Grammatico, 51, a 32-year GM employee who has 18 years at the local plant. "We need another product to survive. We can't do it on the Traverse alone.

"I've never been so worried in my life," he added. "I've got all these years in, but right now I don't know whether GM will make it."

Many workers are so concerned about their futures that they, like many other American consumers, "are not going anywhere and not buying anything right now," Grammatico said. "We're all wondering if we'll have a job six months from now."

Lenny Canter, 47, who has worked at GM for 24 years and at Spring Hill since 1993, said he believes that GM "will ultimately survive. But it won't be the company we see today. It's going to be smaller and leaner."

Spring Hill's strengths

In a pared-down GM, the Spring Hill facility has a better chance than most of the car maker's plants to continue production, though, workers, union members and local officials believe.

"In terms of efficiency and flexibility, this is a good plant," said Frank Tamberrino, president of the local economic development group, The Maury Alliance. "This is obviously one of the top facilities for GM, and we're in better shape than many other GM communities. You look at where some of the other plants are, and we're very lucky."

GM spent $690 million over the past year to retool the Spring Hill plant to build the Traverse, but the work also made the plant flexible enough to build "any product that GM makes, except for the Hummer," Tamberrino said.

"It has won the chairman's top award for efficiency the past three years, and it has great relations between labor and management," he said. "But even though this plant has a lot going for it, we know that there are no guarantees in the auto industry."

For now, merchants who depend on the plant will try to survive the latest shutdown, and will hope that it's only temporary, said Dawn Kelley, owner of Snappy Pizza, near the plant on the northern edge of Columbia.

"The uncertainty has really been affecting our business, which is down 30 percent to 40 percent," she said. "People are scared, so they're just not coming in. We're all worried about what's going to happen to GM."

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Plan ahead, work harder for trade show success

In a challenging economy, dollars you spend to generate sales have to work harder than ever, and trade show attendance is no exception.

Attendee travel, registration and membership fees, booth shipping and set-up costs, product brochures, and company branded give-away items are some of the expenses associated with the opportunity to meet and present to key decision-makers.

But the return on your investment can be rewarding when you plan ahead.

One company I worked with made the decision to attend a trade event, but not exhibit with a booth, since we were launching a new program. We decided to focus more on arranging time to meet with potential partners; in fact, we scheduled several meetings in advance.

Then, during breaks in the trade show we met with other potential clients and followed up later. We easily justified the cost of attendance, since we met with multiple companies at one site versus the cost of traveling to multiple locations. The momentum we generated during the show definitely impacted sales for the balance of the year. And the event became a crucial part of our acquisition strategy.

What are some other tips for trade show success?

Marc Beauchamp, consultant and trainer for the financial services industry, says a company with a product to tout should let its target audience and potential customers know in advance that it's coming to a trade show. He recommends sending a consistent message with marketing materials, promotions and the trade show booth.

Attracting potential customers to the booth and quickly building rapport is vital. Collect their contact information and gather follow-up questions to address after the event ends.

Fun ways to follow up

During an airport industry trade show, we invited potential clients into our booth to try their hand on a short putting green to see if they could land a hole in one.

While waiting their turn, they had the opportunity to ask questions and we gathered more information from them.

Those that made the mark received a branded give-away item. Business cards were collected for a drawing at the end of the event to win the putter. It was an informal, easy way to meet potential clients for the first time and do the follow-up.

Planning ahead, working your plan once you are there, and following through can lead to sales that make a trade show worth the money spent.

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Monday, December 29, 2008

Nashvillians will ring in new year more quietly

New Year's Eve celebrations across Middle Tennessee are being scaled back or even canceled this year, a final ignominious ending to an economically disastrous year.

"Consumers are either (financially) strapped or are saving cash because they aren't sure what's going to happen next year," said Milton Pedraza, CEO of the New York-based Luxury Institute, a research organization. Consumers are watching their purchases, and "certainly what's expendable is champagne and New Year's Eve parties," Pedraza said.

Fewer people purchased concert tickets to attend Sommet Center's annual New Year's Eve bash, causing the cancellation of the event. Tickets for the concert featuring Lynyrd Skynyrd and Trace Adkins ranged from $49.50 to $250 each.

"There is no denying that our core audience has been financially challenged by the hard realities of a flattened economy," Steve Moore of MEG/AEG Live said in a statement. Moore said the company would work to bring the concert back next year "to a better market environment."

Meanwhile, a New Year's Eve fundraiser for Montgomery State Bell Park is seeing slower ticket sales for a $175 couples package that includes admission, champagne toast and breakfast, as well as overnight accommodations, said Dana Stein, secretary for the group Friends of Montgomery Bell State Park.

So far, the group has sold 30 packages, but that is only about a break-even amount with the event's costs, Stein said. Ticket sales "are going pretty slow," Stein said. "We have really seen how the economy has really been hitting people."

At Sambuca restaurant on 12th Avenue South, administrative assistant Dawn Kote said she's hopeful that New Year's Eve reservations will sell out before the day arrives. Late last week, the restaurant was 75 percent booked for its late-night seating, with even more tables available for the early shift around 7-7:30 p.m.

"We're keeping our head above water," Kote said. "We are just so thankful for everything we get."

Meanwhile, some other venues have started selling discounted tickets earlier than usual for their New Year's Eve bashes, including the Gaylord Opryland Resort & Convention Center, which will host four parties this year. The hotel started selling some less-expensive tickets in November without requiring a hotel stay as part of its party package. In past years, those bargain sales usually didn't start until just a couple of days before New Year's Eve.

"We knew that there would be more people who are price sensitive," said Amy Atkinson, vice president of marketing and public relations.

Partygoers cut back

In the past, Scott Harris, 37, a director of marketing for Brentwood-based ForeFront Golf, would dress up and attend elaborate New Year's Eve parties at places including Gaylord Opryland. But after the recession hit, Harris and his wife started a new tradition that will continue this year: going to their in-laws' house for New Year's because it's cheaper.

"Now, it's jeans and a sweatshirt as opposed to much fancier attire," Harris said.

But even parties at home are being scaled back.

Mike Pardue, 57, said he's asking his 10 family members to bring finger foods to his annual New Year's Eve party. In years past, he and his wife would buy most of the food and drinks for the party.

Pardue is the president of UAW Local 1832, which represents the union members at the Peterbilt truck plant in Madison. Those workers have been locked out of the plant since June.

"My plans are to stay at home and be thankful for what we got and hope we have better days," Pardue said. "You got to make the best of a bad situation, and we are definitely in a bad situation."

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Marketing soothsayer takes uncertainty out of 2009

Most businesses are happy to kiss 2008 goodbye, but they're anxious about starting the new relationship with 2009. A look ahead done by Karl Albrecht International for the Destination Marketing Association International may reduce some of the anxiety.

It's called the 2008 Futures Study, and it provides some helpful insight and tips for marketing planning.

It identifies trends for consumers, the economy and technology and assesses the implications.

On the consumer front:

• Consumers are becoming increasingly comfortable ordering products online.

• Nearly all teenage children of middle- and upper-income families have cell phones and Internet access.

• People increasingly expect businesses and organizations to "know it is me" and deliver an individualized value package (offers, products and services that appeal "directly to me").

• Ethnic minorities in the U.S. are acquiring ever-higher buying power and consumer influence.

Consumers desire access to businesses beyond normal operating locations and hours.

They want 24-7 access, and that primarily means online. The next generation's expectations will only increase.

You are behind the curve if you are not building or improving a "smart" customer relationship management (CRM) system to enhance your marketing and customer service.

Product design and marketing programs must embrace all American consumers.

According to the Selig Center at the University of Georgia, spending by African-American and Hispanic consumers outstrips the gross domestic product of all but nine countries in the world.

Predictions and observations about the economy:

• Despite the decline in gasoline prices in recent weeks, the era of cheap oil is over; prices of petroleum-based products will increasingly dominate economic development, energy allocation and international politics.

• Baby boomers are entering the retirement zone in ever-increasing numbers.

• Growing consumer debt makes the U.S. economy more susceptible to economic swings.

• Americans continue to amass credit card debt while saving at the lowest rate of any developed country.

Economic uncertainty, tight credit and energy are not short-term issues.

• Expect many people to delay retirement.

• Look for retailers in all categories to embrace layaway programs.

• Anticipate increasing consumer demand for energy-efficient products.

Create a plan

Ensure that your marketing program is culturally relevant. Focusing on value in times of economic turmoil is always appropriate. Institute programs to reward frequent customers.

Develop an annual plan, but be willing to rethink your strategy if market conditions change.

Looking at technology, consider these trends:

• Web site design and implementation will be increasingly important.

• The massive shift of "content" to the Internet continues to accelerate.

• There is more information clutter, more "noise."

• Social networking and blogs are creating stealth competitors to traditional information-based enterprises.

Design and functionality must be a priority, not only for your product or store but also for your Web site. Conduct research with customers and prospects before beginning the design. Invest the time and money to make your Web site stand out.

Social networks and blogs can be catalysts for spreading your message online. In fact, the Internet Advertising Bureau called social networking "the ultimate manifestation of user-generated content, and as such, holds more potential for growth than any other form of content on the Web today."

Sites such as LinkedIn, MySpace, Facebook and YouTube are social networks that have become mainstream media for advertising. Ponder this finding from Jupiter Research: One-fourth of all Web users visit social networks at least once per month.

Consider these trends as you finalize your business plans for next year. Your "blind date" with 2009 might be more pleasant than you first thought.

Sunday, December 28, 2008

Recession drags on

If you thought 2008 ended badly, be prepared for a slower start to 2009.

Middle Tennessee's economy probably will continue to deteriorate well into the new year. Rising unemployment, a stagnant housing market and uncertainty about one of the area's most important industries, auto manufacturing, will cast a pall over the region, economists, business people and other observers say.

Some see hopeful signs in everything from plans to build solar-panel components in Clarksville to lower mortgage rates making home purchases more affordable. But other analysts expect consumer pessimism and tight lending standards to squeeze the local economy for at least the first six months of 2009.

"I think we're still in the beginning of the recessionary period," said Ralph Schulz, president of the Nashville Area Chamber of Commerce. "No one knows quite how long it's going to take."

The early data on the recession suggest Middle Tennessee could experience a milder downturn than most of the country. The area's unemployment rate — one of the best indicators of the health of the Nashville area's economy — remains below the national average, for instance.

But the region's fortunes will nonetheless be shaped by the tumultuous economy around the globe. Not even the pillars of Middle Tennessee's oft-touted economic diversification, industries such as health care and manufacturing, are strong enough to remain unshaken by what's expected to be the worst recession since the early 1980s.

"No region … is ever going to be insulated against global trends," said Achintya Ray, a professor of economics at Tennessee State University. "I'm not trying to take the very narrow position that we are special."

Manufacturing tumbles

One of the biggest questions facing the Middle Tennessee economy is the future of its auto industry.

Plummeting demand for cars and trucks has led to production cuts at Nissan's plant in Smyrna and General Motors' plant in Spring Hill. General Motors has taken the additional step of shutting down Spring Hill through the entire month of January, idling 700 of the plant's 3,000 line workers.

"People are underestimating the importance of autoworkers," said Mike Herron, chairman of the Spring Hill chapter of the United Auto Workers union. "We'll get a good idea of the impact in January."

GM is set to receive a portion of a $17.4 billion federal aid package next year, but conditions placed on the money mean there's a chance GM could be forced into bankruptcy. If the Spring Hill plant were ever to close as a result of that, more than 30,000 jobs could be lost throughout Middle Tennessee, Herron said, citing a recent study by the independent Center for Automotive Research.

The impact would affect companies that supply the Spring Hill plant and spread to businesses that normally benefit from spending by autoworkers.

GM and Nissan aren't the only carmakers that are suffering. Other major carmakers, many of which also are customers of the companies that supply parts to GM and Nissan, are cutting production as well. Toyota has delayed plans to build a new plant in northern Mississippi.

German carmaker Volks wagen, though, remains on track to build a $1 billion assembly plant in Chattanooga.

Matt Kisber, the state's commissioner for economic development, says he remains certain that the project will continue. Whereas Toyota already has 13 parts and vehicle manufacturing plants in North America, Volks wagen has only one — in Mexico.

Volkswagen believes it must expand its production capacity in the United States if it's going to become a bigger player in the American market, Kisber said. "This is probably the most important investment they're committed to," he said.

The Volkswagen plant and Hemlock Semiconductor Corp.'s planned solar- panel component plant in Clarksville should generate manufacturing jobs throughout Middle Tennessee, but neither will open until 2011 or later.

As it stands, the state is suffering a deep reduction in manufacturing employment, a loss of more than 12,000 jobs since November 2007.

"When you've invested so heavily in automotive manufacturing and the industry has taken a huge hit, it's going to have a significant impact on the state's economy," said
Ken Currie, director of the center for manufacturing research at Tennessee Tech University in Cookeville.

Currie expects the state to continue to lose manufacturing jobs next year. And when the economy rebounds, manufacturers may hold off on hiring at first and instead invest in new machines or try to squeeze more productivity out of existing staff.

Construction may grow

The construction industry, however, will benefit sooner from the Volkswagen and Hemlock projects. Both are expected to cost $1 billion or more to build, money that will be spread throughout the state starting next year as workers are hired and suppliers tapped.

Such big-ticket projects are seen by many economists as essential to turning the economy around. Gregory Brown, an economist with Martin Methodist College in Pulaski, Tenn., said he expects the recession to bottom out around midyear if President-elect Barack Obama's plan to spend billions on government projects such as roads and schools gets implemented.

The recession has also been hard on homebuilders. For them, the downturn began two years ago, and many in Middle Tennessee, particularly smaller builders, are struggling.

Bruce Hancock, a Nashville builder of luxury homes, said he considers himself fortunate to have two contracts signed to build new homes that will keep him busy through most of 2009. But he also strains under the debt from two homes he built speculatively in 2007, just as the downturn was becoming apparent.

"I knew that we had such a great run in homebuilding that nothing is forever," he said. "I was real good at thinking about it and predicting it, but not good at following my own advice, to be honest."

One benefit to building now is that construction workers and suppliers are plentiful, Hancock said. Builders also say they have begun to see some benefit from mortgage rates that have fallen to nearly 5 percent.

But they want the government to stimulate residential real estate still more. Trade groups for both industries are lobbying the government to buy down mortgage rates and extend tax credits that will encourage home purchases.

"We need something to move buyers off the fence," said John Sheley, executive vice president of the Home Builders Association of Middle Tennessee.

Next month, the local builders association plans to roll out a new tactic to get potential buyers looking. It will begin featuring one home a week on its Web site that will sell at a reduced price. The goal is to entice bargain hunters with deals too good to ignore.

"It's trying to satisfy buyers who are intent that they're only going to buy if it's a steal," said Peggy Krebs, the association's president. "It's a loss leader, but we hope it'll generate more traffic."

Confidence is down

Real estate agents also want the government to take steps to bolster sales in an economy in which many people are afraid to buy lest they lose their jobs.

Such a scenario happened to Leanna Choi, a 26-year-old advertising representative. Two months after buying a condo near downtown Nashville, Choi lost her job as an account executive at the CW Television Network.

The layoff came with little warning. Upon returning to her desk after appointments with potential advertisers last month, she was given 30 minutes to clear out and start looking for new work.

Choi still has the condo and is relying on savings to carry her through until she finds a new job.

"It's been one of the worst years I've ever had," she said. "I'm hoping it won't last longer than another month or two."

Until people become more certain about their jobs, nothing will turn around housing, said David Penn, an economist with Middle Tennessee State University.

"Will (lower interest rates) bring a lot of buyers in? Not if they don't have some confidence that they're going to get an income," Penn said.

As unemployment has spread across the state, reaching levels this fall that hadn't been seen since the 1990-91 recession, even people with jobs have started to worry.

Middle Tennessee State University's latest reading of consumer confidence found that optimism about the economy is essentially nil. State sales tax collections, meanwhile, are expected to fall this year for only the third time since 1968.

"Sales tax is not just retail sales," said Bill Fox, an economist at the University of Tennessee in Knoxville. "It signals a decline both in consumer spending and in business investment."

Consumer wariness has caused some retailers to change the way they do business.

For example, men's apparel store Bachrach has switched from off-the-rack merchandise to selling custom suits in its Green Hills location. The change has let the retailer reduce its inventory and has given some customers a new reason to come into the store.

"Retail was not like it was in the '80s or '90s. People have Internet access. They buy online. You don't have the customers that you used to have walking through your door," said manager Joseph Tetreault. "You have to have a niche."

Health care is pinched

Even in the health-care industry, carving out a niche will be important to survival. While medical care is always in demand regardless of what happens in the economy, people's ability to spend for services is sensitive to downturns.

Some hospitals have been cutting jobs in response to weaker demand for services related to more people being out of work. Hospital chain HCA, for instance, recently cut more than 100 information technology jobs in a move attributed in part to the economic downturn.

But with the baby boomer population aging, specialized services, such as disease management and home health care, are still expected to grow in 2009. And these services depend heavily on nurses.

Many nurses who had left the field are returning, said Colleen Conway-Welch, dean of Vanderbilt University's nursing school. A refresher course that the school offers for those whose licenses had lapsed has drawn 24 enrollees this month.

A total of 36 nurses took the course all of last year.

"It's an imperfect short-term resolution because as soon as the economy stabilizes, those nurses will likely leave the work force again," Conway-Welch said. "They're only working under duress."

Nashville-based CareAll Home Care has hired 197 people in the past three months, including certified nurse technicians or personal sitters and licensed practical nurses, said J.W. Carell, its chief executive. The provider of in-home care hopes to add 500 more people to its current staff of about 1,200.

Helping businesses that are already in the region expand is the centerpiece of the Nashville Area Chamber of Commerce's strategy to weather the recession, said Schulz, the chamber's president.

Relocation plans stall

During the economic expansion from 2001 to 2007, the chamber put a lot of its resources into persuading big businesses, such as Nissan North America and Louisiana-Pacific, to relocate to Middle Tennessee.

But the recession has made major companies reluctant to make such big moves to new cities. So now the chamber is focused more on services such as weekly webcasts, during which small-business owners can seek advice from experts, and business mixers designed to connect owners with local lenders.

"We look at things that are restraints to expansion and try to minimize those restraints," Schulz said.

State economic development officials, meanwhile, say they are not changing their strategy in response to the recession. With Volks wagen and Hemlock on their way in, the officials believe autos, cleaner energy and health care can remain engines of growth for a decade or more.

Not even tighter state budgets brought on by lower tax collections will diminish the commitment to pursuing companies beyond Tennessee's borders.

"I don't see the budget standing in the way of bringing in a good opportunity," said Kisber, the state's economic development commissioner.

The recession should reveal how well the state's efforts to attract new investment have been working, adds TSU economist Ray.

"When times are good, everybody does good," he said. "It's difficult to differentiate between the really good and the not so good. We're kind of doing the separating now. … There cannot be a truth-telling until times really get tough."

For those who have already been bruised by this recession, the question is, how much longer will the tough times last — a few more months, until the end of 2009, or beyond.

Not even the most skilled of economists can answer that question, but all agree the pain will last at least through the winter and into the spring.

For Choi, the advertising representative who lost her job in the fall, the only balm is optimism — faith in the idea that as bad as 2008 has been, next year has to be better. "When you're down, there's nowhere to go but up," she said. "Next year is definitely a new year. Hopefully everything will look up then."

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Economists to keep eye on vital signs

WASHINGTON — It may come as a surprise, given all the bad news of late, but the U.S. economy is expected to emerge from the recession sometime around mid-2009.

Until that happens, the economy will remain mired in one of the deepest and longest downturns the nation has seen in decades.

If the recession continues past the spring, as many economists predict, it will be the most prolonged one since the Great Depression. Employers are expected to continue to shed jobs at a rapid pace. Consumers will pull back spending. Businesses will cancel equipment purchases. Unsold, empty homes will dot city blocks.

However, once the massive amount of fiscal stimulus currently being crafted by lawmakers and aggressive action by the Federal Reserve kicks in, the economy is expected to improve, according to several economists and business owners.

Predicting the economy's future is particularly tough this year, given rapid changes in the economy and financial markets, and uncertainty about what course of action Congress and President-elect Barack Obama's administration will take to boost the economy in the new year, said Conrad DeQuadros, senior economist at consulting firm RDQ Economics.

"When it comes to all of these forecasts, there is a lot less clarity than usual," he said.

A look at five key areas of the economy to watch in 2009:

Jobs: The outlook for jobs is probably the worst aspect of the economy in 2009. Employers are expected to trim payrolls until the end of the year, shoving the jobless rate above 8 percent, according to forecasts from Barclays Capital, John Hancock Financial Services, Citigroup, Mission Residential, Wachovia and National City.

That excludes those who have given up on finding jobs or who work part time because they can't get full-time work. The jobless rate was 6.7 percent in November, the highest in 15 years.

Job losses could be particularly brutal in the first half of the year. Last month, 60 percent of U.S. CEOs said they expect to cut workers in the next six months, according to the Business Roundtable. Even after the economy stabilizes, job losses probably will continue for a while. That's common in recovery periods as wary businesses await more evidence that the economy is on solid footing. Employers cut jobs for nearly a year after the 2001 recession ended, for example.

Housing: The long-depressed housing market is widely expected to hit a bottom in 2009. But the rebound probably will be very slow and gradual, given rising unemployment and a sluggish economy.

While sales and construction are expected to flatten or edge higher, it's more murky as to when prices will stop falling.

The timing of the price recovery depends, in part, on how strongly state and federal governments step in to stop foreclosures, economists say. Wells Fargo senior economist Scott Anderson predicts prices won't rebound until 2010 because home sellers will keep cutting prices to compete with banks selling foreclosed homes.

Consumer spending: Consumer confidence has taken an enormous hit in recent months, and Americans are expected to be tight with money early in the year, then slowly increase their spending.

The massive loss of wealth from the decline in stock and home prices has taken a huge toll on U.S. households. Net worth was down more than 11 percent in the July-September quarter from a year earlier, according to the Federal Reserve. When people are less wealthy — even on paper — they tend to spend less. And Americans finally are building up their savings — after years of spending more than they earned.

"When unemployment is high and confidence is low, people accumulate a little bit of a nest egg," National City chief economist Richard DeKaser said.

Business spending: Businesses are expected to cut spending dramatically through much of 2009. A number of economists, including those at Citi, UCLA, National City and Wachovia, don't expect business investment, which accounts for about a 10th of U.S. economic activity, to decline through 2009.

According to a survey of 679 chief financial officers from Duke University and CFO Magazine, U.S. businesses expect to cut capital spending by more than 10 percent in the next 12 months, a sharp deterioration from September, when the CFOs expected business investment to increase slightly.

Prices: With the economy in a slump, prices are falling for a variety of goods — prompting worries that the economy could sink into a deflationary spiral. Deflation is a broad, sustained decline in prices that is hard to stop once it takes hold. If consumers expect prices to decline, they put off making purchases, thus crippling the already weak economy.

While many economists say the chances of deflation are remote, the Federal Reserve is taking no chances. This month, the Fed slashed interest rates to near zero.

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GOP legislators promise to be friendly to business

Charles Stofel, general manager of the Columbia Neon Co., received an unwelcome surprise when he went down to Columbia City Hall about six months ago for a permit.

He expected quick approval of a sign he was building for a client, but instead was told that the state had begun requiring expensive engineer-approved drawings along with the permit application, adding at least $400 to the sign's $2,000 cost, and perhaps as much as $600 or $700.

The state regulatory change, which was later rescinded but could be revived in the General Assembly, would be a major financial burden for Stofel's small sign-making businesses, he said. And it would come on top of his rising license costs, which have been spiraling upward by thousands of dollars a year.

Tennessee is already a business-friendly, low-tax state, but Republicans who now have majorities in the House and Senate are promising to make doing business here easier in the next legislative session, which starts in January, pledging to keep down costs for small-business owners and ease regulations.

"This economy is tough enough without having any burdensome laws or regulations hurting people even more. We want to be about providing a very strong pro-business, pro-jobs, pro-citizen environment in Tennessee," said Majority Leader Jason Mumpower, a Bristol Republican who's likely to be the next speaker of the House, where the GOP now has a slim 50-49 edge.

Mumpower said GOP law makers plan to fend off "job killer" bills, such as minimum-wage legislation and expanded workers' compensation, but said a business agenda is still being formed as bills are filed. Business groups plan to propose a raft of business legislation to lawmakers before the session begins.

Rep. Mike Turner, an Old Hickory Democrat, said that the General Assembly is already business-friendly, and that working Tennesseans will suffer with the Republicans in charge.

"We're a right-to-work state, we don't have a lot of excessive labor laws, so I don't know what he's talking about doing, unless he wants to go back to a plantation mentality where the workers have no rights whatsoever," he said. "It looks like that's what they want to do."

'A pretty strong agenda'

Stofel, who's been with the 76-year-old Columbia Neon since the 1960s, said he has found many Democratic allies over the years, but expects a slightly more sympathetic hearing with Republicans in charge.

"I think they'd have more of a receptive ear to the fact that small businesses are really struggling right now and really having a hard time," he said.

Jerry Lee, president of the Tennessee AFL-CIO Labor Council, didn't foresee major changes, saying the legislature already is sensitive to business concerns. But he did predict that the Republicans would move swiftly to cut back on workers' compensation coverage and institute medical malpractice limits, for example. Hopes for long-sought minimum-wage legislation, he said, are "dead in the water."

"It's the first time since 1869 they've had control of both houses, and I'm sure they've got some pent-up emotions and some pent-up agendas they're going to let loose. I think you're going to see a pretty strong agenda," he said.

Rep. Susan Lynn, a Mt. Juliet Republican who sits on the Commerce Committee, takes the view that government should "get out of the way" of business.

"So long as they're not risking anyone's life, their safety, or playing foolishly with their future welfare, or causing monopolies — those are the things governments should be concerned about — let's let people dream and be entrepreneurs," she said.

Business groups, while careful to note that many Democrats also have been supportive of business interests, generally expect a smoother ride for bills geared toward business, and a steeper climb for legislation they oppose, such as minimum-wage legislation.

Jim Brown, state director of the small-business group the National Federation of Independent Business, said the GOP leadership probably will be more amenable to certain business reforms, such as tort reform, which in the past have sometimes disappeared into committees dominated by Democrats. It also could mean that regulations erected in the past could be revisited and struck down.

"It doesn't necessarily mean that things are going to change dramatically. It means that you're going to see debate on topics that weren't debated in the past," he said.

Help for nursing homes

One beneficiary of the change could be the nursing home industry, which last year sought to cap nursing home liabilities for residents who sue, and steer lawsuits into arbitration, where damages would be limited.

Nursing home representatives said the legislation was needed to stem what they see as out-of-control litigation brought by personal injury lawyers; critics said it was a means to dodge accountability for poor care in residences. One outspoken critic, Rep. Henry Fincher, D-Cookeville, mockingly called it the "Kill Old People Cheap Act of 2008." The bill stalled in a House committee in the face of opposition.

Ron Taylor, president of the Tennessee Health Care Association, which lobbies on behalf of nursing homes, said that he did expect Republicans to pay close attention to issues like tort reform, and that the nursing home bill could get a new, more sympathetic look.

"Tort reform in general, and tort reform specific to nursing homes, will be significant issues again in the upcoming General Assembly," he said.

Green issues won't die

Environmental issues, often identified with Democrats on the national level, won't necessarily suffer with the GOP in charge, and may fare the same, said Stewart Clifton, a lobbyist for Tennessee Conservation Voters.

Some of the biggest environmental champions in the legislature are Republicans who support policies friendly to business, he said, pointing out that some environmental legislation that advanced last year in the GOP-controlled Senate — such as a mountaintop mining bill opposed by coal companies — met their demise in a Democrat-controlled House committee.

"I think you can safely say over the last eight years on the national level that the Democratic Party has been more receptive to environmental concerns, but I don't think that necessarily holds true on the state level," he said. "We have strong supporters in both parties."

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Gift card sales are unlikely to save retailers

Retailers often rely on strong gift card sales to push consumers to return to stores after the holidays and buy more expensive spring merchandise. But many local consumers with gift cards said they would go after discounted items this year instead, foreshadowing more difficult times ahead.

"Retailers in my mind are in trouble," said Britt Beemer, chairman of Charleston, S.C.-based America's Research Group. "When you start screaming 70 percent off and they don't come, you're in trouble."

Rachel Raines, a 27-year-old administrative assistant who was shopping at the Mall at Green Hills on Christmas Eve, said she plans to use her gift cards on sales merchandise. Raines said she hopes clothes selling at 20 percent off before Christmas drop to 50 percent off after Christmas.

"I would probably wait around for the best sales to get the most out of the gift cards," Raines said.

Fewer people this year received gift cards as presents. Gift card sales as a category dropped to 51.5 percent, the lowest level since 2005, according to America's Research Group.

"Clearly the retail world out there is in for a rude awakening because there won't be as many gift cards this year," Beemer said.

Stores to close

Twenty-seven-year-old Nashville resident Sherita Patton, who was laid off from her job earlier this year as a bookkeeping assistant, said that last year she spent more than $500 on gift cards for six of her friends and family. This year, she's not getting any of those people a gift, she said.

"This year, times are hard," Patton said.

People may also have shied away from giving gift cards this year because of several announced store closings, including Sharper Image, Beemer said.

Pedro De La Torre, a 40-year-old strategic and financial planner who was shopping at the Mall at Green Hills on Christmas Eve, said he planned to use any gift cards he received sooner rather than later because of the closures.

"I would use them as soon as possible," he said, especially if he gets cards from retailers who have filed for bankruptcy.

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Saturday, December 27, 2008

Insulation company will reorganize

Murfreesboro Insulation & Afterpaint Specialists has filed for bankruptcy protection, citing debts of more than $500,000.

The company listed nine major creditors in requesting reorganization Monday under Chapter 11 of the bankruptcy code. Among its debts are $116,235 owed for materials to an Alabama company and $102,936 in disputed worker's compensation claims.

The company indicated that it has $100,000 to $500,000 in assets.

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After-holiday prices reach 'rock bottom'

While it's been the Christmas that most retailers want to forget, with some stores marking items down 60 percent or more, consumers are eager to see how deep the post-holiday discounts will go, starting today.

"Consumers, honestly, they have no problem spending right now if the price is right, and unfortunately, the price is rock bottom," said Ellen Beeson Zentner, senior economist for the Bank of Tokyo-Mitsubishi UFJ. "You can't believe that (retailers) are not pressing their margin down to nothing."

Today, JC Penney will open at 5:30 a.m., the earliest time ever in the company's history, and offer more than 100 early-bird specials — double the amount from a year ago.

Macy's will open at 6 a.m. today and offer discounts of up to 75 percent off on selected designer apparel brands, compared with the 50 percent to 60 percent price cuts before Christmas.

And retailers like Ann Taylor Loft didn't even wait until after Christmas was over, starting its after-holiday sales of up to 70 percent off on dresses, pants and sweaters earlier this week.

"The main thing that we tried to shout in all of our advertising is value. We realize the position our consumers are in," said Denise Mann, manager of the JC Penney in CoolSprings Galleria. "We definitely made an effort to get more coupons in customers' hands."

Mann said that overall during the holiday shopping season sales were down compared with last year and the store ordered 15 percent less winter merchandise this year in preparation for weaker sales.

At women's apparel store Cato at RiverGate Mall in Goodlettsville, some items that have already been marked down 25 percent off will be discounted an additional 25 percent or more at the store's after-Christmas sale that starts Sunday.

This year, more shoppers have been browsing through the store's clearance racks, looking for deals, said store manager Kristi Stegall.

"I think the sales are already so good that they are probably even waiting for a better markdown," Stegall said.

Anaxet Jones, a 29-year-old attorney shopping at the Mall at Green Hills on Christmas Eve, said she planned to go shopping for herself for items such as DVD players and kitchenware after Christmas when she anticipated the sales would get better.

Even though some stores at the mall on Wednesday were already advertising up to 70 percent off, Jones said she was skeptical about those prices.

"There's a part of you that wonders how good the discounts are," Jones said. "This is why I want to do the bulk of my shopping after Christmas."

Buyers lack confidence

It's been a rough quarter for retailers this year, as many consumers scaled back on their purchases and waited until the last minute to look for bargains.

"When the economy is down in the dumps, it's hard to muster up that excitement for Christmas," Zentner said.

"Christmas takes on a different meaning. It starts to feel more like a burden. … Rather than (having the) excitement of buying a hot toy for your kid, you're more dreading opening your wallet."

Retailers are eager to move discounted Christmas items off their shelves to make way for spring merchandise that can be sold at a higher price and will continue to slash prices to get consumers to buy, analysts said.

"Christmas 2008 for the retailers will likely go in the history books as one of the noteworthy negative notes," Jennifer Black, president of research company Jennifer Black & Associates, said in a research note.

"More importantly, however, it may go down as one in which the consumer psychologically reached a tipping point in which enough was really enough."

Black said the lackluster shopping season won't mean the end of retailing, but it will mean the "intensification of more focused, deliberate, budget-based consumer spending."

The one retailer that has been unanimously identified as a winner this Christmas was discount retailer Wal-Mart, whose same-store sales were up 3.4 percent in November compared with a year earlier, and were expected to be in that range for December as well.

Britt Beemer, chairman of America's Research Group, said he expected Christmas retail sales to fall 2.8 percent compared with last year.

Next year may be worse

The bleak holiday sales foreshadow even worse sales in 2009 for retailers, Beemer said.

"It's going to be a disaster," Beemer said. "We're going to see negative sales next year."

Beemer listed 10 troubled retailers, including stores such as Macy's, Dillard's and Belk. Beemer said stores on this list did not appeal as much to consumers for a variety of factors that could include merchandise, pricing and customer service.

Sarah Boyce, owner of boutique Fabu on Charlotte Pike, said she would spend part of her Christmas Eve evaluating how much to discount certain items at her store after Christmas. Sales during the holiday shopping season there were down
20 percent.

Boyce said this holiday that she had more consumers visiting her store for items under $25, such as scarves, leaving her with customers spending lower amounts per purchase. She plans to focus on buying more affordable items for her store next year.

"We're as cautious buying it as the folks who are buying from us," Boyce said. "We're taking a look at how much it costs."

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Friday, December 26, 2008

Hedge fund shakes up O'Charley's, CEO to retire

Nashville-based O'Charley's Inc. said Tuesday that Gregory L. Burns, its longtime chairman and CEO, will retire early next year after an agreement that cedes more control to an activist shareholder group on the restaurant chain's board.

The move comes as the casual dining sector sees fewer guests and weaker sales amid crashing consumer confidence and reduced spending. O'Charley's stock closed on Friday at $2.22 a share — far off its 52-week high of nearly $16 a share.

One of the company's largest shareholders, New York-based hedge fund Crescendo Partners, pressured O'Charley's into putting three Crescendo nominees on the restaurant company's board this summer, and on Tuesday the two firms said a revised agreement will give the hedge fund a fourth seat within 10 days.

That means Crescendo will control one-third of O'Charley's 12 board seats — a clear sign to analysts that the hedge fund will have a big say in determining the company's next leader.

Amy Greene, a research analyst with Avondale Partners, said she believes the new CEO will come from outside O'Charley's.

"You're going to need someone with turnaround experience, particularly in casual dining," Greene said, adding that the ideal candidate would have experience with different types of casual dining concepts.

Sale of chain isn't likely

Crescendo Partners is "a major shareholder. It's a reflection of that reality," said analyst Bryan C. Elliott of Raymond James & Associates Inc. "They will certainly have a major role to play" in the selection of the new CEO.

Last year, the hedge fund said it wanted O'Charley's to consider repurchasing stock, undertaking a sale-leaseback of real estate, re-franchising company-owned restaurants in poorly performing markets and perhaps selling its steakhouse chain, Stoney River, or the entire company.

O'Charley's Chief Financial Officer Lawrence E. Hyatt, who will fill Burns' job on a temporary basis, said the national credit crunch makes it unlikely that all or part of the company will be sold anytime soon.

"Now is a very difficult time for transactions as a result of conditions in the capital markets," Hyatt said. "If at some point in the future, if the way to maximize value would be through some kind of transaction, we would certainly consider that. But that probably is not on the horizon on the short-term."

Burns, 53, will retire Feb. 12. The company will start a nationwide search for Burns' replacement. Hyatt declined to comment when asked if Crescendo Partners forced Burns to step down. Starting Feb. 13, Hyatt will become interim CEO.

Board member Richard Reiss Jr., chairman of a private investment management firm, becomes lead independent director, and Douglas Benham will be chairman of the O'Charley's executive committee.

Benham, former president and CEO of Arby's Restaurant Group, was one of Crescendo's picks for O'Charley's board.

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Jobless claims make surprise jump

WASHINGTON — New claims for unemployment benefits rose more than expected last week, the government said Wednesday, while consumers cut back on their spending for the fifth straight month amid a deepening recession.

The Labor Department reported that initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ended Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.

That's also the highest level of claims since November 1982, though the work force has grown by about half since then.

Spending decreases

The Commerce Department said consumers reduced their spending by 0.6 percent last month after a 1 percent drop in October. But the steep plunge in gasoline prices, which is good news for consumers, made the declines look worse.

Excluding price changes, consumer spending would have dropped by 0.5 percent in October and actually risen by 0.6 percent in November. The November increase excluding inflation was the best showing in more than three years.

Analysts attributed the rebound in inflation-adjusted spending to the huge plunge in gasoline prices and aggressive discounting by retailers trying to salvage the holiday shopping season. But they viewed it as a temporary blip and not the start of a sustained recovery for the consumer sector.

Brian Bethune, an economist at IHS Global Insight, predicted that consumer spending would fall at an annual rate of 2.5 percent to 3 percent in current quarter after a 3.8 percent drop in the third quarter. That decline was the worst in 28 years.

Consumer spending is closely tracked by economists because it accounts for two-thirds of the total economy.

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Thursday, December 25, 2008

Small retailers get creative to draw shoppers amid slump

Retailers everywhere are expecting lousy holiday sales. But one group is bracing for an especially harsh season — small, independent businesses that don't have the cash cushions or price-slashing abilities of the major chain stores.

Many small companies already are struggling this year due to sharp drops in consumer spending, the credit crunch and a weak national economy. Grim holiday sales could be enough to force many that rely heavily on the holiday season to shut their doors permanently.

"There are some independent retailers that will do fine, but the bulk of them will see a very, very difficult year," said Craig Johnson, president of Customer Growth Partners LLC, a New Canaan, Conn., consulting firm. "They really have to be creative in finding ways to get people to shop at their stores."

The dire forecast comes two days before Christmas amid separate projections by the International Council of Shopping Centers that November and December sales will dip at least 1 percent this year compared with 2007.

Luxury sales, meanwhile, fell 34.5 percent in the first week of December from the same period a year ago, according to SpendingPulse, a data service provided by MasterCard Advisors, and were down 23 percent in the five weeks ending Dec. 6.

Most independent retailers don't have the margins to compete on price. So, many are scrambling to find a competitive model this year — offering exclusive gift items, giving more personalized service or hosting events and fundraisers to lure in foot traffic.

Others are seeking customers in new markets or dabbling in direct sales to groups.

For example, men's apparel store Man of Fashion at Hickory Hollow Mall has visited more than 20 church congregations in the past three months, said assistant store manager Marques Santiago, adding that it has helped win new business. But sales are still flat to slightly down compared with a year ago.

The store also is giving a 10 to 20 percent discount to customers who bring in toys that go to charity, Santiago said. The drive has brought in new customers, who promise to shop at Man of Fashion again.

"We're doing as best as we can," Santiago said.

Stores ramp up service

Stephen Hoch, a retail expert at the University of Pennsylvania's Wharton School in Philadelphia, said small retailers need to be innovative about their marketing and use a personalized approach to compete against the big retailers that are "drowning them out" with advertising right now.

"They really have to go back to that mailing list of prior customers and make a direct appeal and send a compelling offer, such as a private sale or special event," he said. "The local guys need to be local, need to be relevant, need to be personal and play to their strengths."

Fine women's boutique Coco on Harding Pike in Nashville said it has tried to provide more customer service this year. Business is down about 10 percent compared with last year, though, said the store's buyer, Donna Duensing.

"We just try to be there for our customers," she said. "We're very customer-oriented."

Holiday sales are down

Hoch said small retailers shouldn't be afraid to haggle on price with prospective customers who are particularly price-sensitive.

Nino's, a men's apparel store at RiverGate Mall in Goodlettsville, offers discounted clothing packages at its stores in a bid to entice consumers to buy. For example, customers can buy a shirt, suit, tie and shoes starting at $119 — roughly a 50 percent discount, said owner Willie Anki.

Still, sales have dropped about 40 percent, compared with a year ago, Anki said. Customers that used to spend $200 to $300 on gifts at his store last year are now spending $10 to $20 on cheaper T-shirts and belts.

"It's not going that well," Anki said. "We have a recession. People don't have (any) money."

Other small retailers are trying to hold on through the holidays by finding new channels of potential business.

"It's very concerning that the market is so soft in what is usually our most profitable time of the year," said Vicki Updike, vice president of marketing and merchandising at Miles Kimball Co. of Oshkosh, Wis., which produces retail catalogs under several brands. Sales are down about 10 percent this holiday season.

So, in October, the 400-employee company began sending out 50,000 catalogs to residents of Canada through a company called Canada Post, which helps retailers handle the logistics of shipping products into the country.

So far, the results have been "encouraging," Updike said, with revenue per order from Canada about double that of U.S. orders. The company plans to continue expanding into Canada and hopes it will help boost sales in the months ahead.

"I think we're in survival mode right now," she said.

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Traverse slowdown costs Columbia supplier 110 jobs

Johnson Controls Inc. said it will lay off 110 of the 410 workers today at its plant in Columbia, Tenn., that makes seats and interior consoles for the new Chevrolet Traverse, according to the United Auto Workers, which represents the facility's hourly employees.

The new crossover utility vehicle is built at General Motors Corp.'s nearby plant in Spring Hill.

The layoffs are in response to GM's decision to trim production of the Traverse by about 20 percent as the automaker reduces capacity throughout its manufacturing plants because of extremely weak auto sales, said Michael O'Rourke, president of UAW Local 1853.

In addition to the layoffs, which are permanent, O'Rourke said, Johnson Controls will suspend all production at its Columbia plant from Jan. 5 to Feb. 9 to correspond with a shutdown of the Traverse assembly line at Spring Hill during much the same period.

The UAW local represents workers at both plants.

"Everything is driven by GM's schedule," O'Rourke said, adding that a 20 percent cut in Traverse production translates to roughly a 20 percent cut in production and jobs by all of the suppliers that make parts for the vehicle. Many of those are in the Columbia area.

The Johnson Controls facility, in the Maury County Industrial Park, hired its workers this past summer and began making the Traverse seats and consoles in early September when production of the vehicle began at Spring Hill.

Johnson Controls plant manager Robert Stecker declined to comment on the layoffs.

The UAW organized the plant after a brief strike in July, when the employees were still in training and only about 175 had been hired. The rest of the 410 workers were brought on board before production started in September.

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Wednesday, December 24, 2008

Madoff investor commits suicide

NEW YORK — The founder of an investment fund that lost $1.4 billion with Bernard Madoff was discovered dead Tuesday after committing suicide at his Madison Avenue office, marking a grim turn in a scandal that has left investors around the world in financial ruin.

Rene-Thierry Magon de la Villehuchet was found sitting at his desk about 8 a.m. with both wrists slashed, New York Police Department spokesman Paul Browne said. A box cutter was found on the floor along with a bottle of sleeping pills on his desk. No suicide note was found.

De la Villehuchet was one of several fund managers to be hit hard in Madoff's alleged $50 billion Ponzi scheme. Investment funds that lost big to Madoff are also facing backlash and investor lawsuits for not protecting their clients from the alleged fraud.

It is not immediately known what kind of scrutiny de la Villehuchet was facing over his Madoff losses through his Access International Advisors, located a couple of blocks from Rockefeller Center.

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Investors flee stocks

One of the hallmarks of the long market downturns in the 1930s and the 1970s has returned: Rank-and-file investors are losing faith in stocks.

In the grinding bear markets of the past, huge stock losses left individual investors feeling burned. Failures of once-trusted firms and institutions further sapped their confidence. Many disenchanted investors stayed away from the stock market, holding back gains for a decade or more.

Today's investors, too, are surveying a stock-market collapse and a wave of Wall Street failures and scandals. Many have headed for the exits: Investors pulled a record $72 billion from stock funds overall in October alone, according to the Investment Company Institute, a mutual-fund trade group. While more recent figures aren't available, mutual-fund companies say withdrawals have remained heavy.

If history is any guide, they may not return quickly.

"I don't have any confidence in buying any new stocks," says David Herrenbruck, a 52-year-old New York photographer at the peak of his ability to save and invest. Herrenbruck was a big believer in stocks in the late 1990s, but he was burned by the tech-stock meltdown. He has since moved much of his money to real estate, and he has recently invested in bonds and certificates of deposit. "If I have some cash lying around, it is going to be in CDs," he says.

Discomfort has grown

Individual investors arguably form the bedrock of the market. It's difficult to pinpoint how much stock they hold because they own shares through mutual funds, retirement accounts and other vehicles. But once retirement accounts are factored in, individuals probably account for half or more of all U.S. stock holdings, according to data from Birinyi Associates in Westport, Conn.

Investors' discomfort with stocks has been growing for years, since just after the 2000 sell-off of dot-com shares. From 2002 through 2005, investors put an average of $62 billion a year into U.S. stock mutual funds, less than half the annual level of the previous decade. Since 2006, investors have been pulling money out of U.S. stock funds at a rate of about $40 billion a year.

Such skittishness already promises to put a brake on the stock market's recovery, which could make it harder for companies to raise capital and could squeeze financial firms' profits. That, in turn, could delay the economy's emergence from the severe recession that began last year.

Many are skeptical

Individuals aren't the only ones who have become skeptical of stocks. Many of the buyers who pushed indexes to record levels this decade — including private-equity firms and hedge funds — also appear to be increasingly looking beyond stocks. College endowments and hedge funds, for example, have in recent years funneled more money into alternative investments such as real estate, commodities, art, and even farms and timberland.

There's no way to know how long individuals could stay away from shares. Their confidence could be restored more quickly than in the past, optimists say, pointing to policymakers' efforts to avoid repeats of the 1930s and 1970s. Federal officials have sought to stabilize financial markets by injecting hundreds of billions of dollars, slashing target interest rates for overnight loans to nearly zero and announcing plans to buy up mortgage-backed securities.

Also, today's individual investors are different than those of past eras. In the 1930s and 1970s, stock investing was the province of a minority of rich Americans. Now, thanks to 401(k) programs and other retirement plans, nearly half of U.S. families have stock holdings.

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Tuesday, December 23, 2008

Bailout is relief for automakers, but not for all

DETROIT — Automakers are breathing a sigh of relief. Thanks to the $17.4 billion bailout loan approved by the Bush administration, they'll suddenly have the cash to pay their bills and avert a bankruptcy — at least for a little while.

The companies spent weeks lobbying hard for an emergency bailout, and their suppliers, the United Auto Workers and car dealers were chiming in, too.

Every player stood to lose in the event of a total collapse of the U.S. auto industry. And nearly everyone stands to gain from the bailout President George W. Bush ordered Friday — except for the workers whose jobs will be cut as the companies aim for viability, and shareholders and bondholders who will see their investments diluted.

Here are some questions and answers about who wins, and who loses, in the auto industry bailout.

Does this money save General Motors from filing for bankruptcy?

For now it does. GM will receive a total of $9.4 billion this month and next month, and an additional $4 billion from the second half of a $700 billion financial-sector bailout plan Bush signed this fall — as long as Congress allows that half to be released.

GM executives said the immediate loans would allow it to pay bills at the end of the month and into January.

What does this mean for Chrysler? Will its parent company, Cerberus, be able to keep the automaker in business?

It means Chrysler will be able to pay its bills and probably will make it until March, but its future is murky beyond that. Cerberus has stated publicly that it is patient and wants to turn the automaker around, but it has shopped Chrysler to General Motors and the combined Renault SA and Nissan Motor Co.

If auto sales don't come back, though, Chrysler's financial problems will persist. The company says it needs $7 billion every 45 days to pay parts suppliers, but expects to have only $2.5 billion on hand at the end of this year.

And what about Ford?

Ford says it doesn't need immediate funds and is working to avoid using any federal aid. But the company is watching developments closely; Ford executives have said that a GM or Chrysler bankruptcy would hurt them, as well, because the companies share several suppliers.

Ford CEO Alan Mulally said he testified in front of lawmakers to stand with the industry. But since then he has been trying to distance the company from the other two automakers because Ford has enough money to survive well into 2009.

What does this mean for the thousands of auto suppliers across the country?

Anything that makes automakers more stable is good news for suppliers, which rely on the car companies to do business. Many suppliers would have gone under if GM or Chrysler were unable to pay them on time next month.

And the dealers? They've already been struggling to arrange financing for potential customers — will the bailout help?

Dealers have been pushing for such a loan, as a collapse of one of the U.S. automakers would scare off customers. Who wants to buy a car from a bankrupt company, worrying it won't be around in a few years when they need service covered by their warranty?

If one of the car companies went under, many dealers would eventually shut their doors.

Will United Auto Workers members lose jobs or take pay cuts as part of the bailout deal?

Yes — GM and Chrysler must pare down in an effort to become profitable.

Claire McClinton, a GM metal center worker in Flint, Mich., said challenges lie ahead for employees. "We're not hopeful about the future. We as workers still have work to do in terms of fighting to maintain our standard of living."

UAW President Ron Gettelfinger said terms ordering the companies to bring wages in line with what foreign automakers pay in the U.S. added "unfair conditions singling out workers." The union said it would appeal the conditions to the incoming Obama administration.

Bush's bailout plan sets "targets" for Chrysler and GM to reduce labor costs and change work rules so they are competitive with foreign automakers that operate U.S. factories, such as Toyota Motor Corp., by the end of 2009.

It also seeks elimination of the "jobs bank," in which UAW workers get about 95 percent of their pay for up to two years after being laid off. It also says the union should accept stock as half the companies' payments into a trust fund that will take over retiree health-care expenses in 2010.

The union already agreed to give up the jobs bank, but negotiations with top Senate Republicans that would have imposed the other requirements fell apart earlier this month. That thwarted bailout legislation and forced the White House to step in.

What happens to stockholders? Will shares rise because the companies have been pulled from the brink?

Stockholders probably will take the biggest hit. A couple of bailout provisions will force GM to issue more shares, diluting the value of its stock, said Efraim Levy, a senior auto industry analyst with Standard & Poor's.

One is a requirement that the government gets the right to purchase shares in the company. The other is a provision saying that when GM pays into a union-administered trust fund that will cover retirees' health care, the proportion of the payment that will be company stock will increase.

Levy figures the additional shares will dilute stock values by three to five times.

Will bondholders receive the full amount on their holdings?

Bondholders — people and institutions that have invested in the companies' debt — may be left with a take-it-or-leave-it proposition, with the government requiring them to exchange two-thirds of their holdings for stock that may not be worth as much. But they, too, could try to negotiate later on with the Obama administration.

If they don't take the deal, GM could wind up in bankruptcy and the bondholders would get little or nothing, said Pete Hastings, an auto industry corporate bonds analyst with Morgan Keegan & Co. in Memphis.

How will Detroit fare? Is the city saved from the brink of disaster?

The auto industry isn't confined to Detroit, as cities and towns across Michigan — and throughout the Rust Belt — are home to U.S. auto plants and their suppliers. And of course there are auto dealerships in every state.

For Michigan, the move helps stave off massive layoffs. The unemployment rate in the state rose to 9.6 percent in November, the highest monthly rate since March 1992.

Michigan Gov. Jennifer Granholm is hopeful. "This is going to help lead the nation out of this economic downturn," she said Friday on CNBC.

What does this mean for owners of GM and Chrysler vehicles, or people looking to purchase a new one?

The deal bodes well for consumers because it means the automakers aren't going anywhere and their warranties will still be worth something. Under bankruptcy, warranty holders are treated as unsecured creditors, which means the guarantees on the cars are basically worthless.

Also, thanks to the rescue, potential buyers still will have a wide selection of vehicles to choose from.

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Nashville hotel developers take hit but keep building

A banner hung from the upper floors of the old American Trust Building on Union Street hints at the conundrum faced by developer Mark Lineberry.

Against a blue background, the banner announces his latest project, a downtown Hotel Indigo, with a haiku: "Awake to Music/The Inspiration Begins/2007."

But as the calendar flips into 2009, Lineberry and his partners remain months from completing the project. After five years of planning, setbacks and, finally, the start of construction, it wasn't their intention to build a business hotel during a recession.

But, in the end, that turned out to be unavoidable.

"We had kind of bit in so hard we didn't want to stop and take a loss," the Mt. Juliet developer said last week. "You've got to carry it through."

Office buildings, shopping centers and even condominium developments have slowed as the nation's economy grapples with recession. But one type of project that appears to be pressing along here despite the financial turmoil is hotel construction.

With at least one new project starting up and several old ones wrapping up in Midtown, downtown and Cool Springs, hotel developers are banking that demand from business travelers will hold up even as the broader economy sputters.

Nashville hotel managers are among the few in the country who have been able to keep room rates up so far even as occupancy rates have edged lower. (See graphic at right.)

But plenty of risk remains over the next year or so, several developers and industry observers said. Most expect economic conditions to deteriorate well into 2009, and as they do, Nashville's newest hotels will feel pressure with the possibility of more empty rooms and lower nightly rates.

"It just costs less to finish and start receiving revenue," said Walt Baker, executive director of the Greater Nashville Hotel & Lodging Association. "Even if they lose money in the market now, they're probably going to lose less than if they stopped."

Lineberry's project is emblematic of the difficult situation.

There were two Hotel Indigos planned for Nashville — the first opened on West End Avenue last year. Lineberry and his partners were on the verge of starting to build the second in 2007 when their lender, Alpharetta, Ga.-based Integrity Bank, collapsed.

The group arranged new financing from BB&T, but by the time construction work finally started this fall, evidence of a recession was undeniable.

Nashville market viable

Still, Lineberry sees some reasons to remain optimistic. While occupancy is down across the country, Nashville is one of a handful of major lodging markets where room rates are still growing.

"It's not like it fell off a cliff here," Lineberry said.

Lineberry also believes his hotel will hit an untapped niche. The quirky, boutique-style Hotel Indigo is aimed at business travelers, especially younger ones, who want an upscale room in a convenient location and are uninterested in 24-hour room service and other expensive amenities.

Many of the other projects under construction take a similar approach. The Courtyard Franklin Cool Springs, a Marriott-branded property, boasts proximity to downtown Franklin and a "refreshing business" style that it says is meant to encourage socializing among business travelers.

Meanwhile, the Hutton Hotel, which opens next month on West End Avenue, says it will offer easy access to Vanderbilt University, Music Row and downtown Nashville and a style that balances comfort and sophistication.

"We understand and like the long-term prospects for Nashville and West End a lot," said Jon Cummins, chief operating officer at Hutton developer Amerimar Enterprises.

The recession has clearly had an impact on the market. Occupancy dropped to 63.1 percent in October from 71.8 percent a year ago, according to Smith Travel Research, a Hendersonville-based lodging research firm.

But the average daily room rate here actually increased 3.5 percent over that same time frame, to $100.06 a night from $96.67. Only Houston, which has been dealing with an influx of lodgers since Hurricane Ike hit nearby Galveston, experienced a bigger jump in average rates.

Construction cheaper

Those fundamentals are the main reason hotel developers say they're reasonably confident their projects will succeed, despite the poor economy. It's also the basis for a Clarksville group's plan to build a pair of hotels at the corner of West End and 18th avenues.

But there are limits to the optimism. Much of the construction under way now was financed before the recession hit. Other projects, including plans to build a Westin hotel on Lower Broadway and an InterContinental at the corner of West End and 16th avenues, have been suspended indefinitely.

"It's a good time from a construction standpoint because the contractors are hungrier," said Michael Coolidge, senior vice president of development for Westin developer Sage Hospitality.

"If somebody is fully capitalized today … it is a good time to build."

For those who press ahead, the hope is that bargains from construction now will carry them until the rest of the economy turns around.

"This may be the best time to be building stuff," said Baker, "because by the time this is finished, we may be out of this."

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Monday, December 22, 2008

Troubled firm will sell 3 famous retail centers

WASHINGTON — A troubled mall operator is putting prominent retail centers in Boston, New York and Baltimore up for sale in a desperate attempt to shore up its finances.

Chicago-based General Growth Properties Inc. has hired a New York-based commercial real estate firm to put the well-known retail centers up for sale.

New York brokerage DTZ Rockwood LLC said last week it has been retained to sell off New York's South Street Seaport, Boston's Faneuil Hall Marketplace and Baltimore's Harborplace & The Gallery, all three of which are prominent tourist destinations.

The three properties combined generated about $300 million in retail sales for the year ending Sept. 30, according to DTZ's materials, which bill the properties as an "unprecedented investment opportunity."

3 were urban renewals

All three locations were developed by the Maryland-based Rouse Co. as part of urban renewal efforts in the 1970s and 1980s. General Growth took over all of Rouse's assets in a $7.2 billion acquisition in 2004.

The potential sale, however, comes at a time when there are few buyers for real estate of any kind. Plus, with the U.S. economy sinking, rents and vacancies at shopping centers and office buildings are expected to suffer next year.

Worse still, about $36 billion of commercial real estate debt will expire next year, and about $55 billion of debt on average will roll over annually by 2012.

All three properties are at or near their cities' waterfronts and were developed by James Rouse, who gained acclaim for leading urban development efforts. Rouse, who died in 1996, also developed the planned city of Columbia, Md.

General Growth, the country's second-largest mall owner, is saddled with huge amounts of debt it took on during the real-estate market's boom years when it aggressively bought up assets. Refinancing that debt has proven difficult.

Analysts are unsure whether new managers, installed in late October, will be able to keep the company afloat as the recession drags on and U.S. retailers struggle. The company last month ousted its chief executive, president and chief financial officer and hired law firm Sidley Austin as an adviser.

Stock value tumbles

Last week, General Growth received another extension on $900 million in loans for two Las Vegas properties.

Lenders agreed to place the loans in forbearance until Feb. 12 as the Chicago company looks to sell some of its assets or raise fresh capital to help pay upcoming debt maturities.

The mortgages cover two Las Vegas malls, Fashion Show and Palazzo. The company is also trying to sell its Las Vegas locations.

General Growth has a stake in more than 200 shopping malls in 44 states.

The company's stock has lost more than 95 percent of its value in the past six months.

Richard D. Hastings, a strategist with Global Hunter Securities, expects total retail sales will fall as much as 8 percent for the November through January period. "Consumer demand is much less than most of us understood even in September," said Hastings, who says the spending malaise is unlikely to hit bottom until the second half of 2010.

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Extended plant shutdowns give autoworkers the blues

TWINSBURG, Ohio — The auto industry's enviable tradition of holiday breaks has lost its luster with extended shutdowns that leave workers and car dealers wondering what's ahead in 2009.

Chrysler is closing all of its 30 North American manufacturing plants for four weeks because of slumping sales, Ford will shut down 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories — many for the entire month of January — to cut vehicle production.

Chrysler LLC, General Motors Corp. and Ford Motor Co. have been taking dramatic steps as they struggle to survive the recession, with U.S. auto sales at their slowest rate in 26 years.

Before President George W. Bush announced an emergency $17.4 billion rescue plan Friday, GM and Chrysler had said they might run out of money in just a few weeks. Ford is in better shape because it previously borrowed enough money to stay afloat through 2009.

Autoworkers will receive vacation pay during the normal two-week holiday shutdowns. For the extended closures, they get unemployment benefits and supplemental pay that total about 85 percent to 90 percent of normal wages.

"A lot of us realize all the plants are not going to open back up after the shutdown," Mark Blanks, 52, said Thursday as he headed to his electrician's job at the Chrysler plant in suburban Cleveland. "It's pretty depressing. We've got to keep our chins up."

Blanks said the job uncertainty had given him a new outlook.

"It changes my attitude of Christmas from materialism to spiritualism," he said. "There's no spending for gifts or anything because we don't know how long our reserves are going to have to last."

Brian Williams, 39, who supervises an assembly line at the Chrysler plant in Twinsburg, said he was concerned about talk earlier in the week that the Bush administration was considering an "orderly" bankruptcy for the automakers.

"This country is going into a tailspin. People are going to be afraid to go out and purchase something. I think it hurts everybody," he said between puffs of a cigarette before heading to work.

Williams said he would use the extra time off for a vacation. "I'm going to go to Florida, see my parents, take my Harley," he said.

At Ford's engine plant in the Cleveland suburb of Brook Park, the company's normal two-week holiday shutdown began one week early and, for now, will end Jan. 5.

UAW Local 1250 President Mike Gammella said morale "is as good as it could possibly be" because workers were spared a shutdown beyond the normal New Year's week restart.

Dealers court customers

While autoworkers are left to sit home and worry, dealers across the country are doing whatever they can to generate business, even opening up the phone book and making cold calls.

Giovani Villanueva, a 25-year-old Chrysler salesman in Fresno, Calif., said so few customers are walking onto the lot that he's resorted to calling people and asking if he can help lower their car payments.

"I just open up the White Pages and go down the list of names. I've gotten 10 car deals out of that," he said Thursday, standing in the fog blanketing Fresno Chrysler Jeep. "I was never a fan of getting on that phone and doing the telemarketing stuff, but in tough times you gotta do what you gotta do."

Villanueva's boss, dealership owner Tim Finegan, said new car sales are down 40 percent, and he's even having trouble moving his stock of used cars.

He's already laid off nearly one-third of his staff in the past year and has cut advertising to a minimum.

"I've been in this business since the time of Lee Iacocca, and all the bad times we went through in the 1980s were nothing compared to this," Finegan said. "But for now, our lights are still on and our bills are paid, so you just show up every morning and say maybe today will be a little better."

Paul Mullane, a fourth-generation auto dealer in Lockport, along the Erie Canal in upstate New York, has seen a 15 percent to 20 percent drop in sales of new Chrysler, Dodge and Jeep models over the past year. That's been offset in part by a 10 percent increase in used car sales.

"We'll do, literally, whatever it takes to get somebody in the new car," he said. "The word 'profit' on a new car has been gone a long time. It's not how much money we make on a new car; it's how much money we don't lose on a new car."

In Texas, the problem isn't a lack of customers, said Richard Taylor, general sales manager of the Allen Samuels Chrysler dealership in Fort Worth. He said sales have been down slightly, and he had only a few 2008 cars left. The problem is lack of financing.

"People talk about the problems and the quality, but it's because we haven't been able to loan people money to buy cars, and gas did go up," Taylor said. "If you're looking for somebody to blame, there's plenty to spread around. It's not only one thing."

Parts suppliers are wary

Also worried are auto suppliers.

Jim Gillette, director of financial services at auto industry consultant CSM Worldwide in Grand Rapids, Mich., said the extended shutdowns would ripple through the auto-parts supplier base.

When an automaker stops production at an assembly plant, its suppliers feel the effect immediately, he said. The suppliers can't afford to continue to buy steel, plastic and other materials to make the parts.

"It's usually pretty stupid to continue production because you end up stockpiling parts that may or may not be used," Gillette said. "You're taking a huge risk."

Lindsey Williams, spokesman for Delphi Corp., which has about 20 plants in North America and supplies parts to the automakers, said the company was assessing the impact of the long breaks.

"We are likely to align our production lines in our facilities to the downtime with the associated customer," Williams said.

Chrysler sales were off 47 percent in November from the same month a year earlier and are down 28 percent through the first 11 months of the year. Ford's U.S. sales were down 31 percent in November and are off 20 percent through the first 11 months of the year.

The one customer haunting the Fresno Chrysler Jeep lot Thursday didn't offer much hope.

George Dublin, 81, a retired computer engineer, had brought in his PT Cruiser for service and had little interest in Villanueva's overtures to swap it for a newer model.

"They've definitely got better deals now than when I bought my convertible," Dublin said, leaning against a shiny white model sporting a huge "SALE" sign. "I think Chrysler will ultimately hang in there. But I'm not about to spring for another five years of payments right now."

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