…Trade Barriers Toughen Up, Airbus and Boeing to Prop Up Carriers, Fed Sets Record Rate Cut and Firms Make Fewer Layoffs.

Automakers Idle Factories
Chrysler LLC announced Wednesday that it will idle all of its manufacturing operations from Dec. 19 through at least Jan. 19 to keep inventories in line with the lack of demand. “Chrysler’s sales were off 47 percent last month and was down 28 percent through the first 11 months of the year,” the Associated Press adds.

According to IndustryWeek, the auto manufacturer has 14 assembly plants, 10 powertrain plants, four stamping operations and five manufacturing affiliations outside of North America. Four of those plants, two in Ohio and one each in Ontario and Detroit, will be temporarily closed beyond Jan 19. The company did not disclose how many employees will be affected. As of September, Chrysler employed 63,480, says a company fact sheet.

General Motors Corp. (GM) and Ford Motor Co. have announced similar plans. Noting the automakers’ decisions, Bloomberg News reports, “The cutbacks showed how far” the companies are going “to save money and prune output in a year in which industry-wide U.S. sales are poised to fall to their lowest levels since 1991.”

GM says it is “halting North American operations during January” and suspending the construction of the $370 million Flint, Mich. engine plant that will be used to make 1.4-liter engines for the Chevrolet Cruze and Chevy Volt plug-in electric car. GM will be making sweeping cuts to its vehicle production and temporarily shutter 20 factories in North America, many for the whole month of January, according to AP.

Though it says it has enough cash to survive 2009, Ford begins the new year by extending its holiday shutdown at 10 plants for an extra week in January because of “sluggish sales.” The automaker’s U.S. sales were down 31 percent in November and are off 20 percent throughout the first 11 months of 2008.

Aid for Auto Industry
President George W. Bush’s administration announced plans Friday to extend up to $13.4 billion in loans to GM and Chrysler, with another $4 billion potentially available in February. Ford said it does not need a loan now as it has enough liquidity, but wants access to a $9 billion federal line of credit should the market worsen or if one of its rivals fails.

To the dismay of some Republicans, the White House moved on its own after Congress had been unable to reach an agreement after weeks of negotiations, Reuters reports. Bush said he decided to make the loans available to prevent the automakers’ collapse and avoid further economic damage.

“Chrysler can tap $4 billion this month,” according to Automotive News. “GM would get $4 billion initially and $5.4 billion more on Jan. 16. Another $4 billion would be available to GM on Feb. 17, subject to additional congressional action.” All of the funds will come from the $700 billion Troubled Asset Relief Program.

GM Chairman Rick Wagoner told reporters that the loans will allow GM and Chrysler to pay their bills and prevent a financial crisis from spreading through the industry’s suppliers and dealers.

Administration officials noted that the automakers have tough loan conditions to meet by March 31, otherwise, the loans would be called back. The three-year loans require the two automakers to 1) prove they can restructure for long-term viability, 2) have limits on executive compensation, 3) pay back all their loans to the government and 4) show that their firms can earn a profit and achieve a positive net worth, Reuters says.

These requirements are non-binding, meaning that negotiations can deviate from the “targets” if the firms provide substantial reasons for the deviations. “This restructuring will require meaningful concessions from all involved in the auto industry — management, labor unions, creditors, bondholders, dealers, and suppliers,” Bush said.

Mirroring the terms and conditions established by the U.S. Treasury Dept., the targets include a push for the United Automobile Workers (UAW) union to accept work rules and wages competitive with those of transplant auto manufacturers, which was a sticking point during the Senate negotiations earlier this month.

Already, the New York Times notes UAW president Ron Gettelfinger as saying he was “pleased that the administration acted on the loan requests, but said the president added ‘unfair conditions’ that singled out blue-collar workers. Gettelfinger “said the union expected to appeal” to Obama to “alter the expectations for wage and benefit cuts.”

The newly announced bailout is missing one major element from the legislation defeated in the Senate earlier this month: a “car czar” to administer the program. Until the end of Bush’s presidency, Treasury Secretary Henry Paulson will play that role. “But it is unclear what will happen after Obama is sworn in,” the New York Times notes.

Fed Sets Record Rate Cut
In a move to save the U.S. economy, the Federal Reserve dropped interest rates close to zero on Tuesday. The central bank lowered its target to a range of 0 to 0.25 percent, mirroring Japan’s six-year-zero-rate policy in its fight against deflation. The current federal funds rate is the lowest on record since 1954. After the record rate cut, assets across emerging markets rallied on Wednesday, though analysts expect them to be short-lived.

The Fed also promised to try new economic measures to stimulate spending including printing “as much money as necessary to revive the frozen credit markets,” “buying large quantities of mortgage-related bonds, longer-term Treasury bonds, corporate debt and even consumer loans,” the New York Times reports.

Drop in Newly Jobless Claims
For the week ended Dec. 6, the Labor Department reported that initial applications for jobless benefits rose to 573,000. That has since come down to 554,000 for the week ended Dec. 13, according to the Labor Department.

Nonetheless, the four-week average of those claims (adjusted for fluctuations) rose 2,750 to 543,750 — the highest level since December 1982. Initial claims are not expected to drop again until mid-January.

The incoming administration is working on plans to create at least 2.5 million jobs and to spend hundreds of billions of dollars on infrastructure projects and other stimuli.

Tougher Trade Barriers
“Only a few weeks after world leaders vowed at a Washington summit to reject trade protectionism and adhere to free-market principles as they combat the global financial crisis, a host of nations are already breaking that promise,” the Washington Post reports.

Indonesia is applying restrictions such as special licenses and new fees on at least 500 products this month, Russia is increasing tariffs on imported cars, poultry and pork, and Argentina and Brazil are looking to raise taxes on products from imported wine and textiles to leather goods and peaches, according to the World Trade Organization (via the Washington Post).

Says the Post, “most of the measures taken to date appear to be within the limits of current international trade treaties, which grant countries some room to raise tariffs and contain loopholes that can be exploited to protect domestic industries. But the general trend toward protectionism could undermine what has been the steady march of free trade during the era of globalization, with export-dependent countries such as China standing to lose the most.”

Airbus and Boeing to Help Aviation Market Fly
In an effort to offset what is expected to be a “a very, very tough” year for aircraft manufacturers, Airbus and Boeing are preparing to provide billions of dollars worth of loans to carriers that are struggling with capacity cuts and withdrawal of funding lines.

Giovanni Bisignani, the head of the International Air Transport Association (IATA), tells the UK Times that “aircraft manufacturers are already trying to set up financial packages in anticipation of a forecast slump in aircraft orders and deliveries.”

Industry sources have also confirmed that the big two manufacturers are braced to try to buoy their customers to avoid taking the brunt of a collapse in orders, saying that they are well-covered in case of a serious economic decline because they have a backlog of orders for the next five years. Aviation experts, however, are skeptical.

Along with potential loans from Boeing and Airbus, there are merger talks in the U.S. airline industry for 2009 as a way to increase cash flow.