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Downsizing In Detroit


General Motors' (GM) revival plan shifted into second gear. In early November it chopped health benefits for retirees by $1 billion. Then, on Nov. 21, CEO Rick Wagoner said he will jettison 30,000 jobs, shutter 10 U.S. plants, and shrink output at others. But will that stop the carmaker from rolling downhill? Investors don't think so: The stock slid 3.2% by Nov. 22. Some GM insiders say the auto maker may eventually need to cut more. Ford (F), meanwhile, is headed down the same road. It's trimming 4,000 white-collar positions, and executives say it, too, will announce big restructuring steps soon.

As if that weren't enough of a flat tire, consider this: Toyota (TM) may end GM's 73-year reign as the world's No. 1 carmaker next year or in 2007. While GM is shedding capacity, its Japanese rival is opening a pickup truck plant in San Antonio and scouting locales for another factory in North America. GM made 9 million cars and trucks last year and Toyota 7.4 million. But in 2005, GM expects to turn out 9.1 million and Toyota 8.2 million. You get the idea.

See "GM's Slimmed-Down Economy Model"

Cisco Systems (CSCO) is famous for its formulaic approach to the art of the high-tech acquisition. It almost always sticks to buying tiny outfits located near its Silicon Valley headquarters that boast promising Net-based technologies. So why does the network-gear giant want 50-year-old Scientific-Atlanta (SFA), which makes cable set-top boxes -- a product that many think is headed for commodity hell or total disappearance in a few years? The $6.9 billion deal, announced on Nov. 18, may help Cisco land huge contracts with cable and phone companies. Most of them want to offer customers "quadruple play" bundles: broadband access, Net phoning, wireless, and video on demand. While Cisco already excelled at the first three, the purchase will make it a master in the video realm as well. For good measure, Cisco on Nov. 22 inked a major deal with Chinese telecom gear maker ZTE.

See "Cisco's Bold New TV Bet"

Christmas gift suggestion: a T-shirt for President George W. Bush that says, "I went to China, and all I got was this lousy Boeing (BA) deal." Actually it wasn't so lousy (see following item), but it also was no surprise, since Beijing's leaders like to reward their U.S. counterparts with buy orders to help smooth ties. During his Nov. 19-21 visit, Bush called on Beijing to end piracy of U.S. software and entertainment, pay more heed to human rights, and ease currency controls on the yuan. As in the past, Beijing politely promised to think about it. Bush said the two sides made progress on North Korea and avian flu.

And as for Boeing, its recent scores aren't even the big ones it's dreaming of. But hey, who's complaining? At the Dubai Air Show on Nov. 20-24, the Chicago planemaker booked orders for 42 of its 777 models, worth about $9.7 billion at list prices -- though the buyer likely got a discount up to 30% -- and 26 of its 787 Dreamliners, valued at nearly $3.5 billion. In Beijing on Nov. 19, Chinese officials said they will buy 70 of the 737 narrowbodies, list price $4 billion, and may take 80 more in the near future. Next, the trifecta: Singapore Airlines, Qantas, and Cathay Pacific are likely to spring for monster orders in December, and analysts pick Boeing to win the bulk of them. The sales cap a year when Boeing took wing again. It may outfly Airbus in orders for the first time since 1999.

See "Boeing Roars Ahead"

Hollywood's drive to make a little extra dough off video junkies has run into a pesky rebel. TiVo (TIVO) announced on Nov. 21 that its customers soon will be able to grab just about anything on TV without having to pay the folks who created it. Instead, TiVo would get the proceeds from a subscription plan that allows users to download programs to iPods and Sony's (SNE) PlayStation Portable. That means war, since TV and movie execs are bent on controlling who can view their shows -- and on bagging their fair share. The struggling digital video recording pioneer may face the fight of its life.

Remember the halcyon days of GE Capital? That was the mysterious finance side of General Electric's (GE) operations -- a black box of businesses ranging from insurance to credit cards that accounted for almost half of earnings during the last days of Jack Welch. Then Jeff Immelt took over, lifted the veil, and revealed insurance to be, relatively speaking, a dog. It ate up too much capital, didn't grow fast enough, and produced choppy returns. Last year, GE spun off a chunk of its life- and mortgage-insurance business, now called Genworth (GNW). On Nov. 18 it sold the reinsurance business for $6.8 billion in cash and stock to Swiss Re. Sure, 2006 may prove a topping year for reinsurers as they spike rates in reaction to natural disasters, and Swiss Re, now the world's largest reinsurer, thinks it can make money where GE can't. But that won't shake Immelt. In any weather, this is one business he's glad to lose.

Politicians gave European Central Bank President Jean-Claude Trichet a drubbing when he appeared before a European Parliament committee on Nov. 21. They were outraged that he had suggested the bank would raise rates on Dec. 1, just when the EU economy was showing signs of life, growing at a 2.4% annual rate in the third quarter. But the expected 0.25% increase, bringing the benchmark rate to 2.25%, probably won't throttle growth. And it's needed to preserve the ECB's credibility as oil prices heat inflation above the bank's 2% comfort zone, Trichet argued. He reminded the legislators that the euro zone would be better off if certain states could tame their budget deficits. He didn't name names, but France, Germany, and Italy spring to mind.

Hard-core gamers braved the chill to lay their hands on the first Xbox 360s at the stroke of midnight on Nov. 22. The Microsoft (MSFT) machine leads the next generation of video-game consoles, featuring high-definition video and hot networking technology. Microsoft figures to sell up to 3 million in three months, well before rivals Sony and Nintendo (NTDOY) get their new devices to market. Those numbers sing sweetly to retailers, who may be in for happy holidays. What with strong Xbox sales and gentler gas prices, they're likely to take in $439.5 billion in November and December, up 6% from the year before, says the National Retail Federation. Only two months ago the group was projecting a 5% gain.

See "Microsoft's Red-Ink Game" and "A Bit of Cheer for Holiday Sales"

After doing the dead man's float for most of the year, the stock market hopped on a speedboat. In the strongest four-week stint of 2005, the Dow jumped 6% from Oct. 21 through Nov. 22. Can the ballyhooed end-of-year rally continue? Certainly. Many investors are gaining confidence that the Fed will quit hiking short-term rates next year without having torpedoed the economy and corporate earnings. That's why economically sensitive stocks, such as Caterpillar (CAT) and Alcoa (AA), are leading the move. Buyers also feel better because energy prices are sliding instead of climbing toward doomsday peaks. Despite the run, stocks aren't yet expensive. The Dow is barely higher than on Dec. 31. The odds favor this rally.

Count on one thing as boomers age: Treatments that hide the evidence will ring up beauteous sales. That's why four major players seem so sexy to one another. Medicis (MRX) (anti-wrinkle drugs) wants Inamed (IMDC) (breast implants) and was close to completing a deal for $2.8 billion. Along came Allergan (AGN) (Botox) on Nov. 15 with a $3.2 billion proposal for Inamed. Not to be left out, Mentor (MNT) (liposuction) offered $2.2 billion for Medicis a few days later. Medicis snubbed Mentor and on Nov. 22 asked Inamed's board to rally shareholders to reject Allergan. Mentor refuses to go away, saying its Medicis offer stands. A date to watch in this bedroom farce is Dec.6: If Inamed's board doesn't recommend by then that shareholders spurn Allergan, Medicis can terminate its own offer and console itself with a $90 million broken-engagement fee. It's enough to give anyone blotchy skin.

So you live in the Bronx, and you're worried about your heating bills. Who ya gonna call? Hugo Ch??vez, that's who. The Venezuelan President has discovered an ingenious new use for Citgo, which is owned by state oil company PDVSA: shaming his archenemy, President Bush. Citgo will supply 12 million gallons of heating oil at a 40% discount to 40,000 low-income households in Boston and New York. The $10 million gesture is a drop in the bucket for PDVSA, which expects $6 billion in 2005 profits. Ch??vez, a close ally of Fidel Castro, has infuriated Washington since becoming president in 1999. But he has earned a friend in Representative Bill Delahunt (D-Mass). "It is gratifying that at least one major oil company is willing to step up to help," he says.

Can't a guy hold an intimate $62,000 birthday party for his wife in peace? Not if much of the cash may have come from company coffers. Former Hollinger International (HLR) CEO Conrad Black is due in Chicago on Nov. 30 to face eight counts of fraud stemming from his alleged abuse of perks and charges that he "fraudulently diverted" almost $84 million. Although he faces up to 40 years in jail, the fallen media baron continues to rage against anyone who suggests he did wrong. Black, 61, faces heat from regulators on both sides of the border and has been playing jurisdictions against each another. He wants the Supreme Court of Canada to rule that U.S. prosecutors have no power over his Toronto holding company, Ravelston. And he has essentially tried to take the Fifth -- despite there being no Fifth Amendment in Canada -- arguing that what he says there could be used in the U.S. case. Black's lawyer, Edward Greenspan, says his client has always acted within the law.

See "Black Thursday for Conrad"


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