Financial thoughts

WASHINGTON–Ford, Subaru and Volkswagen lead the insurance industry’s annual list of the safest new vehicles, according to a closely watched assessment used by car companies to lure safety-conscious consumers to showrooms.

The Virginia-based Insurance Institute for Highway Safety awarded its "top safety pick" on Wednesday to 19 passenger cars and eight sport utility vehicles for the 2010 model year. The institute substantially reduced the number of awards compared with 2009, because of tougher requirements for roof strength.

Ford Motor Co. and its Volvo unit received the most awards with six, followed by five awards apiece for Japanese automaker Subaru and German automaker Volkswagen AG and its Audi unit.

Chrysler Group LLC received four awards followed by two each for Honda Motor Co. and General Motors Co.

Toyota Motor Corp., BMW AG, Mazda Motor Corp. and Mitsubishi Motors Corp. were shut out in the annual IIHS review.

Ford’s recipients include the Ford Taurus and Lincoln MKS passenger cars and the Volvo S80 and C30 passenger cars and the XC60 and XC90 SUVs.

Ford said in a statement it is "committed to providing customers with safe vehicles for a broad range of real-world crash conditions.”

Subaru recorded winners with the Subaru Legacy, Outback and Impreza cars and Tribeca and Forester SUVs. Subaru was the only automaker with an IIHS winner in all four vehicle classes in which it competes.

The automaker, which has bucked the brutal U.S. sales market with a 13 per cent increase during the first 10 months of 2009, attributed its safety success to a unique engine design that sits low in the vehicle chassis and moves down and under occupants in a frontal collision.

Tom Doll, executive vice president and COO of Subaru of America, said the awards were a "tribute to the engineering that goes into Subaru products.”

Volkswagen scored with the 4-door versions of the Jetta, Passat and Golf, the Audi A3 and the Volkswagen Tiguan, a small SUV. Mark Barnes, Volkswagen of America’s chief operating officer, said the "safety of our cars is of the utmost concern, from the initial design stages all the way through the maintenance procedures at dealerships.”

Chrysler won the award for the Chrysler Sebring and Dodge Avenger sedans equipped with optional electronic stability control, the Dodge Journey midsize SUV and the Jeep Patriot with optional side thorax air bags loan until payday.

Scott Kunselman, Chrysler’s senior vice president-engineering, said the awards underscore the Auburn Hills, Mich., automaker’s “engineering capability and leadership in occupant protection.”

General Motors Co. and Honda Motor Co. both received two awards. GM was recognized for the Buick LaCrosse and the Chevrolet Malibu while Honda won for 4-door versions of the Civic with optional electronic stability control and the Honda Element.

Other winners included the Nissan Cube, the Kia Soul and the Mercedes C Class.

The vehicles are selected for best protecting motorists in front, side and rear crash tests based on Institute evaluations during the year. The vehicles are required to have electronic stability control, or ESC, to qualify for the award. Earlier this year, the Institute said vehicles would need to receive its highest score in its roof strength evaluation to qualify the safety pick designation.

"With the addition of our roof strength evaluation, our crash test results now cover all four of the most common kinds of crashes," said Institute president Adrian Lund. "Consumers can use this list to zero in on the vehicles that are on the top rung for safety.”

The Institute awarded its top prize to 94 vehicles in 2009 and attributed the decline in awards this year to the roof strength requirement. The Honda Accord and the Ford Fusion both dropped off the list because 2010 versions didn’t earn high enough scores on the roof test.

The Toyota Camry would have made the list, the Institute said, if it had received the highest rating in rear crash protection. The Institute said the Camry’s seats and head restraints were rated marginal for protection against whiplash injuries.

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On the Net:

Insurance Institute for Highway Safety: http://www.iihs.org

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Bank of America Corp’s search for a new chief executive has been hurt by federal pay limits that played a major role in the senior vice chairman of PNC Financial Services Group Inc spurning feelers from the company, the Wall Street Journal reported on Saturday.

PNC’s William Demchak rejected a feeler from a recruiter for Bank of America last week, and the required approval of U.S. government pay czar Kenneth Feinberg for any compensation package was a major factor in the decision, the paper said, citing a person familiar with the situation.

The bank, which borrowed $45 billion from the government, would “get blasted” for buying out Demchak’s PNC shares, the unidentified source told the Journal. Demchak also did not see Bank of America’s situation as fixable given the government’s heavy influence, the paper said.

Feinberg declined to comment to the Journal, which also could not reach Bank of America Chairman Walter Massey.

Bank of America has argued the added regulation, like the pay czar’s compensation limits, hurts its ability to compete with other financial firms.

Those limits are expected to be in place for any successor to Kenneth Lewis, who is scheduled to retire at year end and gave up his 2009 salary and bonus at Feinberg’s request.

Other high-profile external candidates linked to the job — like Bank of New York Mellon’s CEO Bob Kelly and BlackRock CEO Laurence Fink — have either declined the post or denied interest to begin with. At least two internal candidates have expressed interest, according to reports.

Bank of America’s next chief faces a bevy of operational, regulatory and political challenges.

The bank is struggling to stem real estate and consumer credit losses while integrating two large businesses, mortgage lender Countrywide Financial and brokerage Merrill Lynch & Co.

On top of that, government regulators have issued a secret regulatory oversight agreement that overhauled Bank of America’s board and mandated pay cuts for some top employees.

The bank’s credit problems are the key to relieving the pressure of government involvement, analysts have said. Once the bank’s loan book stabilizes, it can start to pay back the money it borrowed from the U.S. government, which came with some serious strings attached including Feinberg’s control of compensation for top executives.

(Reporting by Ben Klayman, editing by Vicki Allen)

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Most Federal Reserve policymakers believe that an economic recovery has started, although they view the turnaround as weak enough that some want the central bank to take additional steps to stimulate the economy, according to minutes of a meeting last month that were released Wednesday.

The minutes of the two-day meeting, concluded Sept. 23, were the most explicit statement yet that the Federal Open Market Committee now believes the recession that started in December 2007 is over. The committee comprises the group of Fed governors and district bank presidents who set interest rates and take other steps to spur or slow economic growth.

"Most thought an economic recovery was under way," the minutes stated. "Many participants noted that since August, they had revised up their projections for the second half of 2009 and for subsequent years."

Up to now, the Fed’s statements have been more circumspect. Its statement , released at the end of the meeting, said simply that economic readings suggest "that economic activity has picked up following its severe downturn."

This is the first time that Fed minutes explicitly said that most members believe the recession is over. However, in response to a question in an appearance at the Brookings Institution last month, Fed Chairman Ben Bernanke did say that the recession is "very likely over."

The decision on when a recession begins and ends is not up to the Federal Reserve, but instead the National Bureau of Economic Research. That group doesn’t make any sort of declaration until months after the fact, in order to take into account final readings of various economic measures such as employment, income and industrial production.

For example, the NBER didn’t declare that the recent recession had begun in December 2007 until a full year after the fact.

There is a growing consensus among outside economists that the recession is over. A survey of top forecasters by the National Association for Business Economics earlier this month found 81% believe the economy is in recovery.

Still, there was debate at the Fed’s September meeting about what to do next. There was broad agreement that the fed funds rate, the key rate used to pump money into the economy, should be kept near 0%, and that the statement should say "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

But some members wanted to increase the amount of mortgages the Fed will buy from the $1.25 trillion level that had been previously announced. The Fed is buying up those mortgages in an effort to keep mortgage rates low.

At least one member wanted to instead cut the amount of mortgages purchased before reaching that level.

The members agreed that the job market is likely to stay weak for the foreseeable future — and that is likely to keep wages from rising.

But there was a "a range of views" among members about how soon inflation would reappear as a result of trillions that the Fed has pumped into the economy in the last year.

Bernard Baumohl, executive director of the Economic Outlook Group, said he thinks there is a "vigorous debate" going on right now within the Fed as to when it should take steps to pull out the money it has pumped into the economy.

"If we’re getting signs that the recession is over and recovery is gathering steam, the Fed is going to have to move very quickly to begin to withdrawal the stimulus, or else it will sow the seeds for inflation," he said.

Even with the debate about purchases of mortgages and the threat of inflation, there appears to be general agreement that the recovery is likely to be modest.

"Despite…positive factors, many participants noted that the economic recovery was likely to be quite restrained," according to the minutes. 

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Time Warner Inc will eventually sell the Time Inc magazine unit and could buy holdings in its core entertainment category, Gordon Crawford, managing director of its largest shareholder, said during a presentation this week.

“Time Warner just spun off their cable division, they are going to sell their print division, they are going to spin off AOL and they’re just going to be Warner Brothers, HBO and the Turner Networks,” said Crawford, managing director of The Capital Group.

“Now, they will make acquisitions … but they’re probably going to buy just stuff in their wheel house of those businesses. They’re not going to, I don’t think, go very far afield from their core competency.”

Crawford made the comments during a September 24 discussion at University of Southern California’s Annenberg School for Communication entitled “The Art of the Long View: The Media Company of 2020.”

Time Warner declined to comment on Saturday no fax cash loans.

Time Inc’s magazines include popular titles such as People and Sports Illustrated. In the second quarter, revenue at Time Inc publishing, the largest U.S. magazine publisher, fell 22 percent to $915 million due to a 26 percent decline in advertising revenue.

While Crawford did not name specific acquisition targets, he did say there would be a “winnowing process” during which weaker companies in the sector would be gobbled up.

Capital Research Global Investors held 98.6 million shares of Time Warner, or 8.32 percent of the company’s total shares outstanding, as of June 30.

The presentation, which was available online, was discussed in a BusinessWeek blog posted on Friday.

(Reporting by Jessica Wohl, Editing by Sandra Maler)

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California became the first state to see gas prices top $3 a gallon since October, according to a daily survey of gas prices.

The national average price for a gallon of gas rose 0.6 cent Monday to $2.669, according to motorist group AAA. Prices have been steadily climbing higher since April 29 and are up 63% from the start of the year.

On Jan. 1, the national average for a gallon of gas stood at a mere $1.618. Still, prices remain well below the levels of last July, when the national average hit an all-time high of $4.114.

California now tops the list for having the highest gas prices, with the average price for a gallon of regular gas reaching $3.006, according to AAA. The last time gas prices topped $3 was Oct. 17, when the national average was $3.040 a gallon. On that same date, California prices averaged $3.3912 a gallon.

A cloud over the Golden State. The pain at the pump is particularly troubling for the nation’s most populous state.

California has already been battered by the downturn in the housing market. And unemployment surged to 11% in April - the fifth highest of any state.

At the same time, Sacramento is now facing a $24 billion budget shortfall that could force more cuts in state services like education and health care.

Furthermore, gas prices are higher in California because the state has one of the highest gas tax rates in the nation, said AAA’s Green.

And the state’s stringent clean air laws require retailers to offer several different fuel blends, many of which push up the average price per gallon, he added.

Consumer budget crunch 1 hour payday loans. The surge in gas prices comes at a time when household budgets are already strained by rising unemployment and a depressed housing market.

Many analysts worry that a major spike in gas prices could forestall an economic recovery as consumers cut back on spending in other areas to make up for higher prices at the pump.

Gas prices have been driven higher by a run-up in oil prices as investors bet the world’s appetite for energy is poised to rebound. The price of oil, which is the main ingredient in gasoline, has more than doubled since late December.

California often sets the tone for the rest of the nation when it comes to certain economic trends. However, the old adage "as goes California, so goes the nation" may not ring true in this case.

Looking ahead, AAA spokesman Troy Green said gas prices could top $3 a gallon in "a few other states," such as Hawaii and Alaska, where prices are already nearing $3 a gallon. However he said such pricey petrol "won’t be widespread."

Has the rebound in gas prices caused you financial hardship? Are you spending less on other items to help with the cost of driving? Have you postponed summer driving plans? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.  

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Time is running out for California residents wanting to take advantage of a $10,000 tax credit. The state set aside $100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.

"We’re less than four months into it, and all the tax credits authorized are gone, or practically gone," said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).

The program launched in March and by June 3 nearly $24 million in tax credit certificates had already been issued, according to the state’s Franchise Tax Board.

That leaves nearly $76 million in credit available - but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only $17.5 million will be left in the fund. And it has a run rate of about $10 million per week.

"The program is working better than intended," said Coyle. "It’s really pushing people off the fence."

How it works

The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it’s an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home — even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer’s income.

The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.

For example, if the buyer’s tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn’t claim the extra $1,333 back from the state.

First-time, new-home buyers in California can claim both the federal credit and the state if they qualify cash loan till in one hour. That could reduce taxes by $11,333 for the first year of ownership.

More money coming?

Because the money has gone so quickly, the state legislature is considering adding another $200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it’s running a $24 billion budget deficit and has the lowest bond rating of any state.

But Coyle argues that the credit is a net win for state coffers and it puts people to work. "Every time you build a home in California, you’re generating $16,000 in taxes," he said.

During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.

Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.

There has been little opposition, she said, but the program has to be "revenue neutral," which could limit how much is made available as funds would have to be cut from other areas to pay for it.

There is also one big change from the original offering: People buying homes under construction - not just those already finished - will qualify, which should help put projects back on track.

"It creates a reservation system that was absent in the first bill," said Caballero. "Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract."

"Contractors in Southern California were reporting no housing starts last January," she added. "Now, they have new crews out on the job. That’s significant for California." 

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The 10-year Treasury yield soared to 4% for the second day in a row Thursday - before backing off later in the session — heightening inflation fears and threatening to upset the nascent signs of an economic recovery.

Just six months ago, the yield on the 10-year note hovered around the 2% level, as investors opted to park money in government-backed debt rather than higher risk equities.

The bond market typically takes a back seat to the stock market, which offers higher rewards but also higher risk. As the economy slogged through the recession, investors have remained cautious and plugged into bonds.

Prior to Wednesday, the benchmark yield had not reached 4% since mid-October. But Wall Street’s tectonic plates have started to shift.

The Dow Jones industrial average has surged 30% since hitting its 12-year low on March 9. Investors have been shrugging off bad economic news and seeing ‘less bad’ news as good news. As investors grow more optimistic about the "green shoots" of recovery, the bunker trade into the Treasury market has waned.

And historically, a 10-year yield at 4% is low. "Getting back over 4% is just one step in the right direction," said said William Larkin, portfolio manager at Cabot Money Management. "It is a sign that the economy is recovering and that people are starting to look at the other side."

The sharp drop off in debt prices is also a result of the massive amount of supply hitting the market. The government has been spending at a breakneck pace and has been selling an unprecedented amount of debt to finance its rescue efforts.

Housing. Rising interest rates have been pulling the rug out from a housing recovery.

The 30-year fixed mortgage rate moves in tandem with the benchmark 10-year Treasury yield, which has been on a tear. Mortgage rates hit 5.95% last week, according to a Bankrate.com’s most recent national survey.

To try to keep a cap on mortgage rates, the Federal Reserve unveiled a program in mid-March to buy back $300 billion of its own debt. The so-called quantitative easing program was launched to jolt the Treasury market with demand, boost prices. The program worked for a while: Mortgage rates fell and refinancings surged.

But the benefits of the Fed’s program were short-lived. And the debt buyback program is beginning to look a lot like the government using a soup ladle to keep a river from overflowing its banks.

Just this week, the government had three auctions lined up to sell $65 billion in debt: $35 billion of 3-year notes were sold Tuesday, $19 billion in a reopening of the 10-year note was sold Wednesday and $11 billion in the reopening of a 30-year bond hit the block Thursday.

Waning support. Other countries have started to doubt the creditworthiness of the U.S. Russia and China have both indicated that they are concerned about the unsustainable pace of spending. Russia said Wednesday it would consider shifting assets to other safe havens, like International Monetary Fund bonds cash loans for bad credit.

"Longer term, the concern over foreign interest is a wake up call to Congress and the president," said Nick Kalivas, vice president of financial research at MF Global, in a daily research note. "The idea that the IMF bond is getting attention is a sign of investor worry over the U.S. fiscal situation."

What’s next? With inflation fears rising and an economy still breathing on the lifeline of the government, the future of the bond market is murky. Some investors are looking for the Fed to try to increase its commitment to the debt buyback program. The Federal Open Market Committee is slated to meet June 23 and 24.

"There are some people speculating that they will expand their Treasury buyback program," said Craig Ziegler, managing director of Broadpoint Securities Group. "But I just don’t know how much that helps when you are still issuing $150 billion in Treasurys in a month, not including bills."

Going forward, Larkin expects there will be more conversations about being fiscally conservative. When the rhetoric changes, that will help other foreign central banks feel more confident in U.S. debt, he said.

While Larkin does not expect the Fed to hike rates any time soon, he does expect the Fed to use aggressive language in coming statements to hint to the market that a rate hike is coming. "They are going to try to change the expectation so people can get used to the change."

Debt prices. Bond prices had been lower early in the day, sending yields soaring, but prices rallied into the 30-year bond auction. After a healthy auction, with nearly $30 billion bid for $11 billion in debt sold, the longbond led a charge forward, adding to earlier gains.

The 30-year bond rallied 1-29/32 to 92-22/32, and its yield fell to 4.25%. Earlier in the session, the long bond yield reached 4.83%.

The benchmark 10-year note rose 21/32 to 93-31/32, and its yield dipped to 3.86%. Earlier in the session, the benchmark Treasury touched 4%. Bond prices and yields move in opposite directions.

The 2-year note rose 3/32 to 99-6/32 and its yield dipped to 1.33%. The yield on the 3-month note held steady at 0.18%.

Lending rates. One key bank-to-bank rate continued to move lower. The 3-month Libor edged to 0.63% from 0.64% the day prior, according to Bloomberg.com.

The overnight Libor rate held steady at 0.26%.

Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money. The closely-watched benchmark is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor. 

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With Hannah Montana and the newest American Idol in the house, Wal-Mart’s CEO touted the retailer’s improved performance at the annual shareholder meeting Friday, saying he expects new customers to stick around even after the recession is over.

"Our customers will stay with us when this economy turns around. I promise you that," Mike Duke told the thousands of attendees at the Bud Walton Arena in Fayetteville, Ark.

Friday’s gathering marked the first shareholder meeting as CEO for Duke, who took over the reins from former CEO Lee Scott on Feb. 1.

Wal-Mart once again trotted out some big starpower at the gathering. Besides "Hannah Montana" star Miley Cyrus — who will launch a new clothing line at the story — and recent "Idol" winner Kris Allen, actor Ben Stiller and former basketball star Michael Jordan were in attendance.

Rally cry: The meeting began with executives’ rally cry of "Who’s time is it? It’s Wal-Mart time."

"Winning feels good, doesn’t it? Eduardo Castro-Wright, vice chairman of Wal-Mart Stores, asked

That’s because while most of its peers are struggling to survive in a recession, Wal-Mart (WMT, Fortune 500), the world’s largest retailer with annual sales of more than $400 billion, is one of few merchants that’s actually boosted its market share.

Not only are Wal-Mart’s sales at its stores open at least a year — a measure known as same-store sales — increasing during the downturn, it’s also registering an uptick in the number of people shopping at its stores as more consumers across all income levels shop for its low-priced products.

According to sales tracker Thomson Reuters, Wal-Mart’s same-store sales have risen 3.4% so far this year. By contrast, there’s an average 4.6% decline in the firm’s same-store sales index for 30 large retail chains, including Target (TGT, Fortune 500), J.C. Penney (JCP, Fortune 500) and Macy’s (M, Fortune 500).

"Our results are loud and clear. We have improved our comparable sales again and again," Castro-Wright said. "For five consecutive quarters we have had better same-store sales growth than the market."

That trend, however, has not yet helped boost Wal-Mart’s shares. Wal-Mart’s stock has shed 9.3% of its value so far this year and has lost about 12% of its value over the past 12 months.

Wal-Mart also announced a new program to repurchase $15 billion of its shares. The plan replaces a two-year-old $15 billion repurchase plan that had bought $11.6 billion in stock.

New "normal" in shopping behavior: One concern, according to industry analysts, is whether or not Wal-Mart will be able to hold on its new customers when the economy rebounds no teletrak payday loan.

Craig Johnson, president of retail consultant Customer Growth Partners, said two of Duke’s biggest challenges will be how to retain the "new Wal-Mart Moms" it has gained over the past year and identifying its next major growth engine versus incremental growth opportunities over the next decade.

Duke, who headed Wal-Mart’s international operations before taking the reins as CEO, indicated his company is ready for the challenge.

"We are not going back," he said. "I do believe that this economic crisis worldwide has brought a fundamental shift in consumer behavior.

"There is a ‘new normal,’ in which people want to save money and are getting smarter about saving money," he added. "People appreciate the values at Wal-Mart."

He also cautioned against becoming complacent. "This is not a time to slow down and take comfort in our success," Duke said." We need to be obsessed with understanding customers however they shop, whether it’s on a mobile phone, a laptop, or in a local store."

"We have to conduct ourselves not as a giant but as a nimble and innovative competitor in every market," he said. "So this is not a time to slow down."

Employee plans: In addition to comments about Wal-Mart’s business performance, Castro-Wright said the retailer was going to focus on improving competitive pay and benefits for its workers.

As the nation’s largest private-sector employer, the company employs 1.45 million workers in the United States and more than 2 million workers globally in 16 countries.

On Thursday, the retailer said it plans to hire more than 22,000 new workers this year for its domestic stores.

However, Wal-Mart continues to come under fire from its critics, including labor unions, for its pay and benefits policies.

Castro-Wright said Wal-Mart will implement a "new diversity strategy" that puts more women and people of color in leadership positions. Currently, about 40% of the company’s regional general managers and senior vice presidents are people of color and more than 20% are women, he said.

"How can we build a 21st century workforce? We may not find all the answers, but we will lead," he said.

The annual meeting concluded with shareholders re-electing all 15 of Wal-Mart’s board of directors. Six shareholder proposals, including one making executive compensation tied to performance and another involving recognition of gender identity, were defeated. 

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OTTAWA – The federal government is calculating the full value of the expected cost of the bailout of the battered auto sector – up to $7 billion for Ottawa alone – in its new budget deficit projection, an official says.

A rough estimate suggests the government is booking about $7 billion in new spending as part of its revised $50 billion deficit calculation. That amounts to just less than half of the $16 billion increase in the deficit announced Tuesday, a development that has sparked a political furore in the Commons.

The federal government had included $2.7 billion in loans to GM Canada and Chrysler Canada as part of the 2009-2010 budget brought down in late January.

However, with negotiations on a General Motors Corp. (NYSE: GM) bailout continuing, and the Chrysler restructuring inching along in a New York bankruptcy court, the cost to Ottawa and Ontario of rescuing the two companies' Canadian divisions has not been finalized.

But the broad outline of how much the two governments will be on the hook for in the North American auto restructuring is coming into focus, and it's much larger than anything previously reported.

According to the New York Times, GM has confirmed that the U.S. government will ante up US$50 billion for the Detroit-based automaker, making Canada's contribution between $8.25 billion and $11.1 billion, depending on the calculation of production share in Canada.

As with the Chrysler arrangement, the Canadian governments will advance their share in the form of repayable loans and by buying an equity share that could be as much as 10 per cent.

Along with the $3.37 billion going to Chrysler, the auto sector bailout could approach $14.5 billion for Ottawa and Ontario, which have agreed on a two-thirds, one-third split respectively.

Speaking to reporters late Wednesday, Industry Minister Tony Clement said his government was booking the entire two per cent equity stake in Chrysler and a proportion of loans in the budget shortfall.

In response to a question, an official with the minister said Thursday that for extra prudence, the government is writing off in the budget the entire $2 budget car insurance.26 billion federal portion.

"As part of the Chrysler deal is a straight forward repayable loan and the another part converts funds into equity in the company; each of those parts will count differently on the government's books, so the true fiscal impact to the government is not fully determined as yet," said Pema Lhalungpa, Clement's press secretary.

"Until the deal is complete, the government estimates the fiscal impact at its most conservative number or simply put dollar for dollar."

She said although the government does not yet know the final tally on the General Motors rescue, "to be safe the government is calculating numbers very prudently in order to be as truthful as possible with Canadian taxpayers."

Canadian Auto Workers economist Jim Stanford criticized the practice of writing off the total estimate of the rescue package as a cost to government.

He noted that the deal will involve the purchase of GM shares and loans, which have a value.

"It's a loan, not a bailout," he said. "A loan is very different from a direct expenditure and it's coming from the EDC (Export Development Canada) not the government.

"You could make a loan-loss provision as a bank does on what will be repaid and what won't, but you certainly wouldn't make a 100 per cent loan loss provision."

General Motors has been given until May 31 to submit a restructuring plan that would be acceptable to the three governments footing the bill – Washington, Ottawa and Ontario.

The company took another important step toward meeting that deadline Thursday with a deal with bond holders, who would take up to 25 per cent of the restructured company in return for US$27-billion in debt.

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Hewlett-Packard Co. cut its full-year sales outlook and announced another round of job cuts Tuesday as it reported that weak PC sales contributed to a 17% drop in quarterly profit.

But the company also said it was starting to see some improvement in consumer sentiment.

"We see some encouraging signs, and we saw some slight improvements with the U.S. consumer. I’m just not ready to call it better," said Chief Executive Mark Hurd on a conference call with analysts.

HP has benefited from its belt-tightening efforts but Hurd said that "the vast majority of cost savings are ahead of us."

In that vain, the company’s finance chief, Cathie Lesjak, announced on the conference call that the company would eliminate 6,400 jobs, or 2% of its total workforce of 321,000. That comes on top of more than 24,000 jobs being cut as part of the integration of tech services firm EDS, which HP acquired for $14 billion last May.

Meanwhile, slumping sales continue to cut into HP’s revenue, with sales of desktops, notebooks and printers falling by double-digits in the company’s second quarter ended April 30. Total net revenue fell 3% to $27.4 billion, meeting Wall Street’s forecasts.

HP (HPQ, Fortune 500) said it now expects full-year revenue to fall between 4% and 5%, worse than its previous range of 2% to 5%. That sent its stock down almost 5% in after-hours trading.

Hurd said he believes economic pressures will continue throughout the rest of the year. He said PC sales will be flat to slightly higher for the remainder of 2008 and maintained it’s too soon to call a bottom in the computer market.

Still, some analysts believe that HP may be too modest in its outlook.

"HP tends to be conservative with its guidance," said Dave Cearley, an analyst at tech consultancy firm Gartner. "There are signs that things are starting to bottom out, and companies are starting to loosen some of their purse strings. IT spending is opening up."

Profit beats Street: The Palo Alto, Calif.-based company reported second-quarter net income of $1.7 billion, or 70 cents per share. Results included a charge of 16 cents per share related to its purchase EDS. They also included a 2 cents per share charge related to a patent dispute.

Without the charges, HP earned 88 cents per share. That beat the 86 cents per share forecast of analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates.

The company said it expects a profit of 88 cents to 90 cents a share in the current quarter, in line with analysts’ expectations.

Weak PC, printer sales. HP, the world’s largest personal computer maker, reported desktop and laptop sales slumped 13% and 24%, respectively, during the second quarter business card. Still, shipments were flat, which comes as little surprise: During the first three months of 2009, HP’s PC shipments rose 3%, although industry sales slipped 7%, according to tech analysis firm IDC.

PC sales, of which HP maintains a 21% market share, account for more than a third of the company’s revenue.

HP makes about a quarter of its revenue from its imaging division, which sells printers and printer toner and cartridges. Consumer printer sales were down 31%. HP raised toner prices in the past quarter, so printer supplies sales were slightly better than printer sales, falling 14 % in the quarter.

The company’s solutions division also endured mixed results. HP’s server business took a 28% tumble in sales as businesses migrated to cheaper solutions like off-site cloud computing. But HP also offers many of those less expensive solutions as part of its services business, which got a 99% sales boost last quarter to $8.5 billion.

HP’s services unit was the company’s most profitable division in the past quarter. Some see the company’s shift towards business products and services as a welcome change that will position HP for greater success in the future.

"I like HP’s product mix now better than a year or two ago," said Cearley. "The company was very heavily weighted on consumer devices, but it has changed to a company that is a balance between services, software and hardware."

Cost-cutting boost. HP’s cost-cutting measures, including a 5% company-wide salary cut implemented early in its second quarter, helped it navigate throughout the economic storm and offset some of the declines the company suffered in the quarter.

HP is also trimming costs by its ongoing efforts to eliminate overlap with EDS. The company announced in September that it would slash 24,600 jobs, or 8% of its combined workforce, by the end of 2011 as a result of the acquisition. To-date, half of those jobs have been eliminated, Hurd said Tuesday.

"Our services business continued to deliver strong profitability with an increased deal pipeline and the EDS integration tracking ahead of schedule," said Hurd.

HP is often compared to rival IBM (IBM, Fortune 500) because both are large players in a number of different tech businesses. Shares of HP have been flat since January, compared with IBM’s 25% rise and Dell’s (DELL, Fortune 500) 11% jump. But HP’s stock is up 41% since the stock market bottomed out on March 9, even with Dell’s 41% jump and better than IBM’s 26% rise. 

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