Fixing millions of gas pedals and brakes and convincing customers their vehicles are safe could end up being the least of Toyota’s challenges. Some experts think the price tag from legal settlements could end up topping the company’s estimate of $2 billion in recall costs.
There are already more than 30 U.S. lawsuits filed against Toyota involving the problems with its gas pedals alone, according to Craig Hutson, senior investment grade analyst at Gimme Credit, a bond research service firm. And there are more lawsuits are in the works.
"Lawyers are champing at the bit to get at these guys, and the company has come out and largely admitted mistakes in respect to these issues," said Hutson. "It’s hard to put a dollar amount on it, but multi-billion dollar costs are not out of the realm of possibility."
Hutson isn’t alone in worrying about how much lawsuits could hurt Toyota. Credit rating agency Moody’s cited the litigation risks when it warned Tuesday that it might downgrade Toyota’s credit ratings.
The company also faces at least one class action suit involving problems with the brakes on 2010 models of the Prius and other hybrid vehicles. Toyota announced a recall for those hybrids Tuesday.
New reports of problems with the steering of its Corolla could mean more lawsuits against Toyota.
Safety experts estimate official complaints involving Toyota gas pedals show there have been 19 fatalities involving the recalled vehicles.
But Gary Robb, an attorney in Kansas City who is looking at filing cases, says he believes that number will increase significantly as people look more deeply into accidents for which no cause was ever determined.
"We’ve had so many calls from so many people now that this news has come out," he said. "Accidents that were heretofore attributed to driver error are very likely due to a malfunction of the gas pedal. There’s going to be dozens of those incidents arising."
Cases involving death or serious injury will likely be handled in individual lawsuits.
Suing to reclaim lost value. Robb said he’s also looking at a class action case to try to recover billions of dollars he claims were lost in the resale value of the recalled vehicles. He said his experts estimate total losses could be in the $6 billion to $8 billion range paydayloans. "For many people their car is their second largest investment," he said.
Other experts suggest that the loss in resale value is not as high as Robb’s figure, but that it is still likely in the billions.
Kelley Blue Book, a leading used-car value service, is lowering its estimated prices for the recalled models this Friday by 2.5% to 3.5%. That’s enough to lower the value of each vehicle by between $250 and $800.
The National Highway Transportation Safety Administration estimates that more than 6 million U.S. vehicles are affected by the recall. So based on Kelley Blue Book’s estimates, the overall loss in resale value is likely to be at least $2 billion.
Toyota wouldn’t comment on its legal exposure from the recalls. As to the reduction in resale value by Kelley Blue Book it said, "Historically Toyota and Lexus vehicles have held their value very well relative to other vehicles. We expect that to be true in the future as well."
It’s not clear whether courts will allow plaintiffs to collect that much money. James Henderson, a law professor at Cornell University, said legal precedent is against them.
But Henderson does think the recall opens Toyota for a rash of new personal injury cases. He added that if it is determined that Toyota knew of problems with the gas pedals and did not warn a driver involved in an accident, the company could be hit with punitive damages.
Hutson said beyond the cost of any jury verdicts or settlements, the lawsuits have the potential of causing continued damage to Toyota’s reputation, keeping the problems and company’s failures in the news. That could cost the company additional sales going forward.
He said if any documents come out which prove Toyota engineers knew something needed to be fixed, it will be difficult for Toyota to ever regain consumers’ trust.
"When your image is one that has been largely built on quality and dependability, you can’t afford that kind of smoking gun," Hutson said.
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The St. Louis Council of Construction Consumers gave a Best Practice Award for the renovation of the historic Woolworth Building in midtown St. Louis.
The $8 million renovation project was completed last year. Involved in the project were McCormack Baron Salazar, S.M. Wilson, Trivers Associates, Christner, Fox Architects, Big Brothers Big Sisters, Craft Alliance and Grand Center.
In addition, the council gave the following Best Practice Awards for:
— Design effectiveness for the Ameren Training Center in St. Louis. Recipients were AmerenUE, Burns & McDonnell, and Kozeny-Wagner.
— Pre-project planning for BJC St. Peters Hospital. BJC, BJC St. Peters, Pratt Design, Tarlton, Murphy, Sachs, KJWW, and LEAN Project Consulting payday loans for people with bad credit.
— Partnering for the SSM St. Clare Health Center at Fenton. SSM, Alberici, and HGA.
The council also presented the Construction Industry Safety Excellence Award to Nooter Construction.
Finally, the council presented the following Diversity awards:
— Organization of the Year to Metropolitan Sewer District.
— Minority/Woman Business to BAM Contracting.
— Diversity Champions. Deborah Henry of St. Louis Community College, and Scott Wilson of S.M. Wilson.
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A blizzard paralyzed the region Saturday, putting a serious dent in a weekend that was supposed to be filled with holiday events and lots of shopping.
The storm started dumping snow quickly after 10 p.m. Friday, just as the last of the last-minute shoppers left supermarkets, malls and shopping centers across the region.
Ritchie Highway in Glen Burnie was nearly impenetrable as shoppers rushed in to the many shopping centers along the road to buy what they needed for a weekend stuck in the house. The usual toilet paper, bread and milk shared space in the car with Christmas tree and greens bought at the highway’s many tree lots.
By Saturday morning, most people were staying off the road and the cancellations kept pouring in. So far, the Baltimore Symphony Orchestra’s Holiday Spectacular, a musical review known for its dancing Santas, was still on. The BSO’s Web site said it wasn’t making a decision until 11 a.m. on whether to cancel Saturday’s shows personal loan for poor credit. The Ravens didn’t wait long to make a change, announcing Friday the football game had been moved from 1 p.m. to 4 p.m.
But many retailers weren't about to change their plans despite the storm. This is the busiest weekend of the year for the Sound Garden in Fells Point. The music store was open early Saturday and already had customers milling about its aisles before 10 a.m.
Manager Alex Ashkenes send customers an e-mail telling them the parking lots was plowed and Thames Street was clear. He encouraged shoppers to support local independent businesses.
Reached by phone, Ashkenes was optimistic about the day. He would remain open as long as the weather didn't get too treacherous.
"There are people walking about in Fells Point," he said. "I expect the other stores to open."
Option-ARMs: File under, "It sounded good at the time."
These exotic mortgages allowed homebuyers to come to closing with little cash and choose, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.
Of course, the last option is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.
But eventually, everyone has to pay the piper.
Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.
That means borrowers are about to start paying very hefty prices for their homes. In one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.
25% default rate
But that doesn’t just spell bad news for borrowers. Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report’s coauthors.
And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.
That includes all option-ARMs issued in 2007. But if you calculate default rates for only 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.
So, while there may not be an awful lot of these loans out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.
Bubble markets
And the markets where they’ll produce the most foreclosures are still among the most vulnerable in the nation.
Option ARMs were most popular in bubble markets — California, Nevada, Florida and Arizona — where double digit home annual price increases put the cost of buying a home out of reach.
In fact, 60% of these loans went to residents of California and other Western states, places where prices have fallen the most, according to report coauthor Diane Westerback. "The geography is negative for these products," she said.
Many borrowers in these places could only afford a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.
We all know how that worked out.
Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves severely underwater.
"Because borrowers of [options ARMs] are in a much worse position," said Westerback. "You’ll see defaults rising very rapidly."
And most option ARM borrowers will not be good candidates for refinancing or mortgage modifications because their loan-to-value ratios will be far too high. Under the administration’s Making Home Affordable program, for example, mortgages with balances that exceed 125% of the home’s value are not eligible for help.
Not so white lies
There is another little problem that many option-ARM borrowers seeking refinancing would face: "Upwards of 80% of were stated-income loans," said Westerback.
These are the so-called "liar loans" in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers’ income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.
Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.
Beth Daniels had a big problem.
Orders were coming in for her "Around the Table" conversation games, so she ordered a lot of inventory. Then she and her husband, Tom Daniels, looked at each other. "How are we going to come up with the money for this?" she asked. "We were in crisis mode for sure."
Daniels found the answer in the Missouri Small Business Loan program, run by the state Department of Economic Development.
Daniels, of Eureka, invented a series of games consisting of questions printed on cards. They are designed to get conversations started, with questions such as "What’s the funniest hair style ever?" Or "What’s the one thing you can’t live without?" There are varieties for families, grandparents, teens, camps and buddies.
Daniels, an occupational therapist turned work-at-home entrepreneur, just landed a contract with Cracker Barrel restaurants, and she expects sales of over $100,000 this year. But she has to pay to produce the games before she can sell them.
The Missouri Small Business Loan program provides loans of $2,500 to $25,000 to companies with five or fewer employees. The state allocated $2 million for the program this year, and less than half of it has been lent.
Daniels got a $25,000 loan at 3 percent interest. Problem solved.
More information on the loan program can be found at http://ded.mo.gov.
Ford Motor Co said on Thursday it will increase production over the rest of the year after a surge in sales triggered by the U.S. government’s “Cash for Clunkers” sales incentive program.
Ford has emerged as one of the clear winners from the $3 billion sales program, which offers rebates of up to $4,500 for consumers who trade in older and less fuel-efficient vehicles.
But like other automakers, Ford was caught off guard by the incentive-fueled jump in sales that began in late July and raised the prospect that the battered industry had hit bottom.
In response, Ford said on Thursday it will build another 6,000 Focus sedans in the current quarter by adding overtime and a Saturday shift at an assembly plant in Wayne, Michigan.
And a second plant in Kansas City, Missouri, will drop plans to shut down for two days later this month and increase output of the Escape small SUV by another 3,500 vehicles.
The moves take Ford’s third-quarter output in North America to 495,000 vehicles, up 18 percent over a year earlier.
The No. 2 U.S. automaker also set a fourth-quarter production target of 570,000 vehicles. That would represent a 33 percent annual gain.
“I think we were surprised by the speed and the urgency with which consumers went to dealers,” said Ford sales analyst George Pipas quick cash.
The output gains will translate into higher revenue for Ford, the only U.S. automaker to have avoided bankruptcy. Shares were up 2.2 percent to $7.87 in afternoon trading.
Ford posted a sales increase for July, its first since late 2007, and the automaker has been gaining U.S. market share.
In a sign of its momentum, Ford has also taken 16 percent of the deals made under the Cash for Clunkers program, compared with a retail market share of 13 percent this year to date.
“Ford and some Asian brands have been the biggest beneficiaries of the vehicle trade-in program,” Standard & Poor’s equity analyst Efraim Levy said in a note for clients.
FORCED TO MOVE EARLY
Ford had previously planned to detail production plans in early September but said it had been forced to act earlier because sales remained strong in early August.
Other major automakers have also raised production. General Motors Co GM.UL said it will spell out stepped-up production plans for the rest of 2009 by the end of August.
U.S. small businesses say they feel slighted by the Obama administration and efforts to shore up the economy, with large companies taking much of the government’s attention and stimulus cash.
The government decision last week against bailing out small business lender CIT Group raised fears of thousands of companies left without funding for day-to-day operations, and the lack of support showed big corporations can get bailout cash but small business interests are less pressing, some say.
With only some potential relief buried in the healthcare reform proposals in Congress, small businesses feel pushed aside in the stimulus and recovery efforts, they say.
“There has been nothing really in all the stimulus package that has really helped small business in general,” said Kelli Glasser, president of Exhibit Concepts in Dayton, Ohio, whose 87 employees build trade show and museum exhibits.
“Most of the help has been in the form of supporting loans, but we’re not looking for loans right now,” she said. “We’re not looking to heavily invest in equipment. We’re just trying to keep our doors open.”
Small business is not that small, representing 99.7 percent of all U.S. employer firms.
The U.S. Small Business Administration got $730 million this year to recharge the small business lending market, nearly doubling its budget. However, some say the package was not well structured and dwarfed by the $180 billion the government committed to save insurer American International Group compare car insurance.
‘HAVING A TOUGH TIME’
“Only $730 million going to the SBA didn’t really help the small business owners,” said James Tracy, president of America’s Best Companies in Illinois, which represents small businesses nationwide.
“Small business owners are having a tough time financing themselves today because I believe that the stimulus plan should have allowed for more loans to small business owners,” he said.
A $15 billion administration plan to buy small business loans for resale on the secondary lending market has not taken effect, in part because market activity picked up after the plan was announced in March, the administration says.
The Obama administration wants small businesses to come out ahead in the reform effort, said Melody Barnes, a domestic policy advisor at the White House.
“We absolutely want to make sure that small business owners and small business can continue to thrive,” she said in an interview with Reuters Television.
But applying for a small business loan can be more trouble than it’s worth, said Joe Olivo, owner of Perfect Printing in Moorestown, New Jersey, who said his bank advised against it.
“The paperwork was so onerous that my bank told me it was not worth my effort to try and get that money,” Olivo said.
Wuhan, Chongqing and Chengdu aren’t exactly names that roll off the tongue for foreign investors in China’s real estate, but these cities may offer more bang for the buck than their more-famous coastal cousins or capital Beijing.
Helped partly by the government’s “Go West” policy and their less export-focused economies, Chinese cities in the country’s interior have posted higher per-capita-income growth than Shanghai, Beijing, Guangzhou and Shenzhen in the past year.
Along the coast, the port city of Tianjin is fast becoming the business center for northern China as authorities move to revitalize what was once the country’s industrial heartland. Dalian and Shenyang are other northern cities growing rapidly.
Michael Klibaner, head of research at Jones Lang LaSalle in Shanghai, said burgeoning growth in these second-tier cities would push up local demand for real estate and raise the capital value of commercial and residential properties.
“From a property perspective, these cities derive more demand from domestic companies than many Tier-I and coastal cities,” Klibaner said.
Nicole Wong, head of Hong Kong and China property research at CLSA, said the best way to tap the faster growth in Tier-2 and 3 cities would be to buy shares of major Chinese developers which have expanded there, such as China Vanke and China Overseas Land.
“Rather than buy physical property, it’s much better to have exposure to the experienced developers. You’ll have the best players mirroring the difference in growth rates by changing their geographical exposure to have a heavier presence in second-tier cities,” she said.
China’s 600-plus cities are divided into six different categories with a top tier comprising the most developed metropolises of Beijing, Shanghai, Guangzhou and Shenzhen cash advance lenders.
A second tier of around 15 large cities, comprises the independent municipalities of Tianjin and Chongqing and many of the provincial capitals.
Tier-1 cities now account for about 32 percent of Vanke’s projects in terms of gross floor area, down from 40 percent in 2002. For China Overseas, the ratio has dropped to about 33 percent from 71 percent.
Jones Lang LaSalle estimated Tier-1 cities accounted for about 27 percent of commercial real estate activity in China in 2007, down from 37 percent a decade earlier. The percentage could fall to below 10 percent by 2010 as smaller cities develop.
“The construction sectors in first-tier cities have become somewhat mature, with housing starts in Beijing and Shanghai consistently falling since 2004,” Australian securities firm, Macquarie Securities, said in a recent report.
China has been busy building roads, rail and other infrastructure in its interior and north since 2000 to narrow the income gap between cities along its southeastern seaboard and the rest of the country.
That process has quickened in recent months after the launch of China’s near $600 billion economic stimulus package last year.
Chinese cities such as Tianjin, Chongqing and Wuhan last year reported economic growth in the mid-teens compared with the 9 percent-plus expansion in Beijing and Shanghai.
The price of nearly one in four U.S. homes for sale on July 1 had been sliced at least once since landing on the market, data compiled by real estate website Trulia.com showed on Friday.
Prices were cut by an average of 10.4 percent from the original price, or $41,655 of a median house price, Trulia.com said in a report obtained by Reuters prior to its scheduled release.
Detroit, Las Vegas and Miami had the biggest price reductions, down by an average of 21 percent, 16 percent and 15 percent, respectively, the data showed.
As of July 1, a total of 24.6 percent of homes had seen their prices cut, up from 23.6 percent the previous month.
The lowered prices, however, are not necessarily a negative.
“Price reductions will help stabilize the overall market,” Pete Flint, Trulia co-founder and chief executive, said in an interview with Reuters.
“Buyers are still waiting for sellers to become more realistic about their asking price and when that occurs, buyers are swooping in,” he said. “The good news is sales continue to increase and with the prices continuing to drop, inventory levels will drop as well new car loans.”
Nationwide, total reductions for all homes for sale on the market on July 1 was $27.1 billion, Trulia said.
Of luxury homes, or those costing $2 million or more, 24.3 percent have seen a price reduction, with an average reduction of 14.4 percent off the original asking price.
For homes costing $2 million or less, 24.4 percent have been reduced in price, with an average price drop of 9.5 percent, the data showed.
“The luxury market will be the last area to rebound,” Flint said. “Most active buyers today are investors and first-time home buyers and they are not interested in the luxury market.”
Of single-family homes for sale, 26.9 percent have seen at least one price reduction and the average reduction was 9.8 percent. Among condominiums for sale, 28.2 percent have been reduced in price at least once and the average reduction was 10.5 percent, the data showed.
(Editing by Leslie Adler)
Four employees of Australian miner Rio Tinto have been arrested in China on charges of stealing state secrets, the official Xinhua news agency said on Thursday, citing Shanghai state security authorities.
The suspects included Stern Hu, an Australian national and general manager of the company’s Shanghai office, who was also in charge of Rio Tinto’s iron ore business in China, Xinhua quoted the Shanghai municipal state security agency as saying cash advance payday loans.
“The case was being investigated according to law,” Xinhua said. It gave no further details.
Rio Tinto declined to make any immediate comment on the arrests.
(Reporting by Tom Miles and Benjamin Kang Lim; Editing by David Fox)
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