Coordinated Global Efforts
"The [United States] Federal Reserve and other major central banks moved in concert Wednesday to slash key interest rates as part of an ongoing effort to quell the financial turmoil that has threatened to flatten the international economy," MarketWatch reports.

The Fed cut its key lending rate by half a percentage point, to 1.5 percent, while the European Central Bank "trimmed its key rate" by 0.5 percent, the Bank of England "cut its benchmark rate" by 0.5 percent and the Bank of Japan "sat out the move but issued a statement backing the action." Meanwhile, "the Bank of Canada, the Swiss National Bank and the Swedish Riksbank cut rates as well," reports MarketWatch.

"The move was hailed by economists but did little to provide lasting support for tumbling equity markets," MarketWatch notes.

On Friday, the U.S. and the other six G7 nations agreed to a coordinated multi-point plan to rescue the financial industry, but "fell short of offering concrete steps to backstop bank lending on a day when fear tightened its grip on investors from Wall Street to Hong Kong," according to the New York Times. The Group of 7 countries did broadly endorse "the idea of taking ownership positions in banks — a strategy first adopted by Britain and now emerging as a major part of the rescue effort in the U.S."

Despite the absence of a collective course of action to avert a deep global recession, the G7 vow to take all markets and ensure banks can raise money was endorsed by finance leaders from the International Monetary Fund's 185-member countries on Saturday. (Source: Reuters)

Yesterday, European leaders from the 15 countries in the eurozone agreed on a three-part plan for preventing "vitally important banks from failing" and for "unfreez[ing] credit markets," Reuters reports. The leaders "laid out a range of options for countries to keep cash flowing through the financial system, recapitalize their banks and restart lending to businesses. It was modeled on a UK plan."

Iceland Melts at Breakneck Speed
In a front-page story last week, the Wall Street Journal (subscription required) reported on economic conditions in Iceland, whose "swollen banks are ruined. In the space of a few days, practically the entire banking system has been seized by the government." At the same time, "inflation and debt payments are soaring, and trade has been crippled in a country heavily dependent on imports."

Late last week, Iceland's financial unraveling, which has included the government's takeover of the country's three biggest banks and the temporary shutdown of its stock exchange, boiled over into a diplomatic spat with Britain.

Until the crisis, Iceland's banks were relatively healthy, with more capitalization and less toxic assets than at U.S. and British banks. "The banks, while avoiding the toxic mortgage securities that have humbled Wall Street, expanded aggressively at home and abroad," the International Herald Tribune notes. "When credit tightened and the krona [Icelandic currency] fell this year, they were unable to finance their debts."

According to the Journal, the situation in Iceland "is the most dramatic washout from the global credit crunch."

Vehicle Sales Slump in China
Sales of passenger vehicles in China fell 1.4 percent year-on-year in September, marking the second straight month of declines, the Wall Street Journal has reported. A total of 552,800 vehicles were sold, according to the China Association of Automobile Manufacturers.

Although, taken together, sales in the January-September period rose 11.4 percent year-on-year (to 5.1 million units), sales had fallen 6.3 percent in August, marking the first decline in more than three years.

"As demand in the fast-growing market was hit by global economic weakness, China's passenger vehicle sales shrank for the second consecutive month in September," Agence France-Presse (AFP) says.

Global Vehicle Sales Battered Still
"A dire new forecast for global vehicle sales battered the shares of auto companies on Thursday, particularly General Motors, whose stock plunged more than 31 percent and was the hardest hit of the 30 companies in the Dow Jones Industrial Average," the New York Times reports. Ford stock dropped 21.8 percent. "The quickening decline in recent days and weeks" of automakers' share prices "drove the market capitalizations of both automakers down to surprising lows," reducing GM to "just $2.69 billion and Ford $4.7 billion," says the Times.

"The automakers' losses were aggravated by new worries that slumping auto sales around the world and reduced access to credit may put cash reserves at dangerous levels within a year," the Wall Street Journal (sub. req'd) notes.

On Thursday, J.D. Power & Associates cut its forecast for U.S. sales this year to 13.6 million vehicles, a 16 percent decline from last year's total, and it said 2009 sales could fall as low as 13.2 million. The research firm previously estimated sales of 14.2 million this year and 14 million in 2009.

"The current turmoil and financial crisis adds risk to the 2008 forecast of up to 200,000 units, as it is unclear how consumers will respond in the fourth quarter," J.D. Power said in a statement.

"A realignment is looming in the global automotive industry as troubled carmakers and their parts suppliers seek stronger partners and buyers," according to the Financial Times (sub. req'd). "Much of the maneuvering revolves around the three Detroit-based carmakers...whose survival is threatened by dwindling liquidity over the next 12 months as car sales wilt."

"While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, executive director of automotive forecasting for J.D. Power and Associates. "While mature markets are being impacted more severely than emerging markets, no country or region is completely immune to the turmoil."

GM and Chrysler Explore Merger
General Motors has been in preliminary talks about a possible merger with Chrysler, a deal that could remake the landscape of the auto industry. "The Motor City spent the weekend considering the once-unthinkable prospect that its traditional Big Three automakers might shrink to the Big Two," the New York Times reports.

Officials from both GM and Chrysler confirmed the two companies had been holding talks

AFP reports:

Chrysler considered several new partnership options on Oct. 12, including mergers with Renault-Nissan and General Motors, industry and union officials said. Two sources, one an executive at a rival company and another a key official from the United Auto Workers, said talk of merger of Chrysler with Renault-Nissan had been alive for a week.

According to the New York Times, the talks between GM and Cerberus Capital Management, the private equity firm that owns Chrysler, "began more than a month ago, and the negotiations are not certain to produce a deal." The Times continues, "Two people close to the process said the chances of a merger were '50-50' as of Friday and would most likely still take weeks to work out."

Is Ford Considering a Mazda Stake Sale?
The Wall Street Journal today reports that "Ford Motor Co. is exploring the sale of its controlling stake in Japan's Mazda Motor Corp. as part of an effort to bolster its finances amid a downturn in global auto sales and investor questions about the U.S. auto maker's cash reserves, according to a person familiar with the matter."

It remains "unclear how much of Ford's 33.4 percent interest in Mazda" may be for sale, but sources say that "Ford is looking at a broad range of asset sales in advance of a substantial third-quarter loss expected to be announced later this month."

According to the Associated Press, "Japanese media reported Saturday that Ford was considering selling its one-third stake in Hiroshima-based Mazda Motor Corp."

AP reports the following statements:

"Nothing has been decided," Mazda said in a statement received Saturday. "Any important decision will be disclosed."

Dearborn, Michigan-based Ford said in a statement, "We do not want to comment on speculation."

"Our relationship with Mazda has not changed," Ford said.

"Ford is considering selling its 33 percent stake in Japan's Mazda, as well as Sweden's Volvo, which is wholly owned," says the Financial Times (sub. req'd). And "GM and Ford are reported to have held merger talks over the summer, although they broke them off last month."

U.S. Initial Jobless Claims Fall
Although the number of Americans joining the unemployment line has risen to levels we've not seen since the last time the U.S. was in recession, in 2001, new applications for unemployment benefits dropped in the latest week from a seven-year high, the Department of Labor reported on Thursday. Initial jobless claims declined by 20,000 to 478,000 in the week that ended Oct. 4, from a revised 498,000 the prior week, according to the Labor Department.

It is estimated that the effects of Hurricanes Gustav (in Louisiana) and Ike (in Texas) added approximately 17,000 claims to the total, down from approximately 45,000 the previous week.

The four-week moving average, which smoothes out fluctuations, rose to 482,000 — an increase of 8,250 from the previous week's revised average of 474,250 and the highest since October 2001.

Moreover, the number of Americans continuing to collect benefits also climbed by 56,000, to 3.56 million. The four-week average of continuing claims were at a five-year high.