Money & Business
Did Cerberus Get a Bargain or a Lemon?
Talk about poor resale value. Less than a decade after Daimler-Benz spent $36 billion to buy Chrysler, it unloaded the U.S. automaker like a used car-but could fetch only $7.4 billion for most of the company. Clearly, the Germans made a bad initial purchase. But did buyer Cerberus Capital Management, the private-equity firm headed by former Treasury Secretary John Snow, get a broken-down lemon or a genuine steal? Private equity has been gobbling up myriad high-profile U.S. companies. But none have presented as daunting a challenge as Chrysler. As part of the deal, which is still subject to approval, Cerberus must take on the roughly $18 billion in pension and healthcare liabilities tied to Chrysler workers and retirees. Of course, Daimler officials boasted that with 34 new model introductions since 2001, Chrysler has a relatively young product line. This should buy Cerberus some time. But Merrill Lynch analyst John Murphy points out that by 2011, which is just around the corner in Detroit's product development cycle, Chrysler's lineup will go back to being older than average. And without Daimler's Mercedes line to fall back on, Cerberus will probably need to beef up Chrysler's luxury offerings as well.
Don't Look Now, but Food Prices Are Picking Your Pocket
While economists fret about rising energy prices, another household budget item is threatening the consumer's wallet: grocery bills. Energy costs have risen 2.9 percent over the past 12 months, but food expenses have shot up even more: 3.7 percent. "There is little relief in sight," says Merrill Lynch economist David Rosenberg. Part of the problem, he says, is that grain farmers are diverting acreage from food for human consumption, using the land to grow corn for ethanol production. This is boosting agricultural costs, which in turn drive food prices higher. According to the Labor Department, the cost of cereals and bakery goods has been rising at a rate of more than 5 percent a year. And the price of meats, poultry, fish, and eggs is growing at a steep annual rate of nearly 7 percent.
Attention, College Grads: Employers Are Hiring
Though the economy is slowing-and jobs are being created in fits and starts-new college graduates need not worry. Employers plan to jack up their hiring of new college grads this year by more than 19 percent. That's according to a recent survey by the National Association of Colleges and Employers. This isn't surprising, says employment expert John Challenger. "In a weak economy, hiring suffers the most among middle managers and above," he says, not among low-paid, entry-level workers. So where should a freshly minted grad start looking? According to Challenger, Gray & Christmas, some promising industries are healthcare, financial services, and technology.
Do the home builders know something the rest of us don't? While new-home sales are off considerably from their recent peaks, demand for newly constructed houses actually ticked up slightly in March. But according to the Commerce Department, the rate of new building permits being sought by home builders fell 9 percent in April versus the previous month and is off 28 percent compared with the same period last year. UBS economist Maury Harris notes that building permit issuance tumbled to the lowest point since June 1997 and has "fallen in 10 out of the last 12 months." Clearly, the home builders don't think the worst is over yet in residential real estate. This week, Wall Street will learn how bad things may have gotten as reports come out on existing- and new-home sales in April.
So much for government forecasts. The Energy Information Administration predicted last month that regular gasoline prices would average $2.81 a gallon this summer. Yet even before the summer driving season has begun, the average price at the pump nationwide has topped $3.10-a new record. This week, the EIA will report if that record was shattered once more.
This story appears in the May 28, 2007 print edition of U.S. News & World Report.