The American auto companies have to present their industrial reorganization plans to the US Congress on the 2nd of December 2008 to then discuss the issues on Friday the 5th. The Government’s assistance will depend on the persuasiveness of these plans and how far these display the automaker’s ability to set real targets in terms of efficiency and sales support. The main challenge is to be able to demonstrate the company’s ability in reaching the breakeven cash flow level at such low levels of demand (seasonally adjusted and annualized rate –SAAR: 13-14mln) with stable market shares.

The market believes that both GM & Ford can satisfy such requirements by employing significant restructuring measures. GM would need a $20billion cut in fixed costs in Northern America to reach the breakeven point at 13.5 million US SAAR. Its programwill address the following issues: focus on 4 brands (17-18% market share), limit employment costs in line with changes adopted by foreign peers, restructuring of it’s debts and pension funds.
Ford’s situation is slightly less serious as it will require $15billion (breakeven at SAAR 14million) in cost cuts. Some analysts predict that the company has enough liquidity to reorganize its operations without any public injection.
On the other side of the ocean the European Commission has come up with an intervention plan for the auto sector worth €5 billion (vs the 40 billion figure requested by the ’European Automobile Manufacturers Association, ACEA).
An additional cut on VAT is foreseen for all labour intensive sectors with a direct result for the end consumer. A 2/3% VAT cut could help to sustain demand volumes by 5/10%.
The agreement on a postponement of the entry into force of new Co2 emission limits on vehicles is about to occur, the date will be pushed back from 2012 to 2015.

Russia will increase taxes on imports for the auto sector from 25% to 30%, with an impact on net car prices (including second-hand) by +10%. The news comforted Renault which produces about 70% of its total Russian turnover locally(besides controlling 25% of Avtovaz -Lada), while all the other European carmakers will be affected.

The trend of the Chinese car market, solid up till the 1H 2008, is expected to slow down by the 1H of 2009. However, eventual government intervention (reduction of petrol prices, tax reliefs and increase in public spending for cars) could help consumption starting from the 2H of 2009 /2010 ( with double digit growth). A 5.6% growth in car sales is expected for the 2009 financial year (leading to sale of about 7.3 million cars) along with a 6.9% drop in sales of commercial vehicles. Global growth for 2009 is of 2.1%.

A 0.3% drop in volumes is expected in 2008 for Michelin, 2% for 2009 with a 2% recovery rate in 2010. Global demand for replacement tyres is expected to recover in 2009 after the 5/6% drop recorded in 2008 Across mature markets, but for the latter one cannot talk about growth. However, margins for Michelin are expected to grow in 2009, the only company in the sector, which will enjoy an improvement thanks to the mix and the linking of prices to the performance of raw materials (Merrill Lynch forecasts). Moreover, the French company has announced the suspension of production at its Romanian units for an unmentioned period due to a reduction of demand related to the international crisis.

Schaeffler has confirmed that it is negotiating with various parties regarding the transfer of a part of its stake in Continental.There are no negotiations for the sale of its Rubber business.

Hankook & Kumho are cutting production respectively by 300.000 and 100.000 units in November and December. Production will stop during Christmas also in many European automobile companies (Fiat, Peugeot,Bmw, Mercedes, Volkswagen, Audi).

Performance of the week
Best: Goodyear +53.8%, monthly performance -25.2%
Worst:Bridgestone -1.3%

PRE touched upon its new minimum at €3.60 in a week that saw the rise in all sector related indices. The crisis in the real-estate sector is widespread and many companies in the sector are
sliding by 80-90% of their historically maximum levels. The PRE is affected by the news related to the revision of rules that regulate the access to special SIIQ tax regimes that instead
have assisted the rise of real estate and IGD.

The Italian sector is worried about Aedes . The ViBA Group has asked for a postponement of its bid with a view to execute further due diligence.
In Spain the real-estate sector is seriously affected by the crisis. TheHabitat Group(5th major operator in Spain) has asked for insolvency procedure cause it is crushed by debts worth
€2.3 bn. The group has filed for bankruptcy. Habitat’s bankruptcy has been caused by its insolvency towards credit institutions that had financed the acquisition of Ferrovial’s realestate
division, a services and construction company.

Colonial could also fail, following in the ranks Habitat and Martinsa-Fadesa. A fall in prices of real estate and a decrease in the number of purchase and sale transactions: these are the main characteristics identified in the third Nomisma report of the Italian real estate market for the first semester of 2008. Buying and selling fell by 14% and by the end of the year the sector will lose business worth€24 billion, equal to 160 thousand unsold houses (-20%). Instead, prices fell for the first time in 11 years, although the percentage drop was limited (-1%) compared to the rest of the world(-16% in the United states, -15% inEngalnd).

The net capital of Italian real-estate funds is growing, although yields are slightly lower. In 2008, net capital will grow by 17% to €28 billion. Instead the performance measured
through Roe dropped slightly to 7.05% -16pp yoy. In 2008 the number of funds rose to 218, including retail and closed, compared to 186 that were present in 2007. The real-estate capital
held by these instruments has reached €35.6 billion (€38billion in 2009).

Performance of the week
Best: Colonia RE +29.6%
Worst: Immofinanz -32.1%

Since December Paul Tufano is the new CFO of Alcatel-Lucent, he replaced Hubert de Pesquidoux who decided to leave the French-American Tlc group. Two weeks ago Alcatel-Lucent announced the company’s rationalization plan, which calls for the appointment of new operational management by the first of January.

Tlc operators, united under the Etno, European Telecommunications Network Operators Association, have written a letter requesting the competent ministers, at the upcoming Eu Council on telecommunications to accelerate the development of broad band networks. The association specifically requested for norms that would encourage all the operators to make the investments needed to construct the high capacity network.

Furthermore, the Etno underlined its opposition towards functional separation as an additional amendment in the telecommunication sector as it would act as a deterrent for investments
The Australian Government has asked the main tlc operators to present a project to construct a National network providing fast access to internet (NBN). This would mean 6 billion dollars
worth of investment. Six companies are involved, including Telstra, the biggest national tlc group and Optus, a Singapore Telecommunications subsidiary and assisted by the Terria
consortium. The Canadian company Aaxia NetMedia is also involved, it declared that it wished to involve other sector operators. Other three bidders have not been publicly declared.

Performance of the week
Best: Zyxel Comms +2.2%
Worst: Avanex -38%