NEW YORK (Reuters) - Corporate results and outlooks darkened on Monday, and automotive companies from Japan to Italy to Detroit said October sales were the weakest in about 20 years as economies weakened and consumer credit dried up.
While government officials have gone out of their way to avoid the use of the much-dreaded “R” word (recession) in describing the current economic straits, a number of prominent officials acknowledged the severity of the crisis on Monday.
U.S. vehicle sales plunged in October, with General Motors Co down 45 percent, Ford Motor Co off 30 percent and Toyota Motor Co down 23 percent.
Mark LaNeve, GM’s North American sales chief, said the collapse in the U.S. market was linked to the “unprecedented credit crunch that is dramatically impacting the entire U.S. economy — from the housing market to big and small companies to banks to family run businesses.”
Adjusted for U.S. population changes, GM said, October’s sales figures made it the weakest month for the battered auto industry since the end of World War II.
New car sales also fell across Europe — down 40 percent in Spain and 19 percent in Italy.
The European Commission said the 15-nation euro zone was in a technical recession and economic growth would come to a virtual standstill next year, and called for coordinated action to prevent further collapse.
Also in Europe, more banks warned of more big writedowns and sharp profit falls, prompting lenders to tap government funds or seek state rescues.
And in the United States, factory activity contracted sharply in October, falling to its lowest point in 26 years, according one widely watched index.
“Pretty grim. It means we’re in a recession. It’s as simple as that ...a pretty solid manufacturing recession,” said Robert Macintosh, chief economist at Eaton Vance Corp. “The question is how long or deep is it going to be?”
More evidence of troubles in the U.S. came from consumer electronics retailer Circuit City Inc, which said it is closing 155 stores and cutting jobs as liquidity problems deepened and vendors tightened credit terms.
While the economic upheaval continued to be the focus of markets worldwide, U.S. investors on Monday were bracing for Tuesday’s U.S. presidential election.
Company results around the globe looked gloomy, in particular the finance sector.
French bank Societe Generale reported an 83.7 percent drop in third-quarter net profit.
Net profit fell to 183 million euros ($234 million) with losses from the collapse of U.S. bank Lehman Brothers and other writedowns costing it 1.208 billion euros in pretax income.
Germany’s No. 2 bank, Commerzbank, said it would take an 8.2 billion euro capital injection from the state and another 15 billion to secure refinancing. It posted a third quarter net loss of 285 million euros.
Britain’s top home lender, HBOS Plc, raised its hit from the value of risky assets and bad loans to more than 5 billion pounds ($8.14 billion) as takeover partner Lloyds TSB predicted a sharp profit fall.
Lloyds stepped in to buy HBOS in a government-brokered deal after HBOS was hit by the crisis and concerns about its exposure to Britain’s weakening housing market.
In the United States, Midwest Banc Holdings Inc posted a $159.7 million third-quarter loss, and said it obtained preliminary approval to sell preferred stock to the U.S. Treasury in return for $85.5 million of capital.
The credit crunch, which stemmed from a collapse in the U.S. housing market, has prompted banks to severely reduce lending to each other, businesses and households for more than a year now.
Interbank lending rates fell, extending last week’s decline, reflecting ongoing central bank efforts to add liquidity, rather than banks lending to each other.
While trillions of dollars in bailouts may have averted a banking collapse, the economic outlook has prompted governments to put together fiscal stimulus packages to ease a recession born of the worst financial crisis in 80 years.
In Jerusalem, Jeffrey Lacker, president of the Richmond Federal Reserve Bank, said the U.S. economy was contracting. Data last week showed it shrank at a 0.3 percent annual rate in the third quarter, its sharpest contraction in seven years.
“I think it’s definitely a recession at this point. How deep, how steep and long it’s going to be is uncertain,” said Lacker, who will become a voting member of the Fed’s interest rate-setting committee next year.
Another Fed official, Dallas Federal Reserve President Richard Fisher, in an interview with Bloomberg Television said inflation risks had emphatically diminished.
“I don’t see any economic growth through 2009 ... Inflationary forces have just subsided. In fact, they were vaporized,” he said.
“The horizon that this forecast offers is dark ... recession is a real risk,” EU Monetary Affairs Commissioner Joaquin Almunia said after the European Commission forecast euro zone growth of just 0.1 percent next year.
Official data supported Almunia’s prognosis.
Euro zone manufacturing activity sank in October to a record low. The Markit Eurozone Purchasing Managers Index slumped to 41.1 — the lowest in the survey’s 11-year history.
Berlin aims to safeguard 1 million jobs with pump-priming measures to be agreed in cabinet on Wednesday, by spending more than 30 billion euros.
South Korea announced plans to pump an extra $11 billion into its economy next year. Finance Minister Kang Man-soo said economic growth could fall to its lowest in more than a decade without the stimulus, which will need approval by parliament.
Policymakers will gather again to plot their next moves.
Euro zone finance ministers meet in Brussels to discuss reform of institutions that manage the global financial market and bodies such as credit rating agencies, accounting rules-setters, banks and their management.
And finance chiefs from the “Group of 20” nations gather in Brazil later this week to prepare for a U.S.-hosted November 15 summit of world leaders to chart a way out of the crisis.
French President Nicolas Sarkozy said he hoped that the summit would be productive. The aim of the gathering was to come up with “swift, concrete decisions and the definition of a road map for the coming weeks.”
But the White House cast some doubt on the chances that concrete decisions on reforms would emerge.
“We just need to get closer to the meeting to see what we’re going to be able to work out,” said White House spokeswoman Dana Perino. “I think it’s appropriate at the first meeting to set up the principles for reform, and then task those working groups to go back, (and) work with their financial experts in their countries ... to figure out a way that we can continue to move forward.”
Most U.S. and foreign banks have tightened lending standards across the board in the last three months, the U.S. Federal Reserve said.
Its October senior loan officers report, a closely watched survey of lending conditions that is conducted every three months, also noted many banks made it tougher to qualify for a prime residential mortgage or credit card account.
Banks are also growing more cautious about extending fresh credit due to the gloomy prospects for the economy.
“Almost all domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards,” it said.
Other central banks have also noted the weakness.
Following rate cuts from the Fed, China and Japan last week, the European Central Bank, Britain and Australia are expected to cut rates by at least 50 basis points this week.
The efforts to buoy the world economy encouraged some investors to shop for bargains after world stock markets fell 20 percent in October, their worst month ever.
On Monday, the MSCI index of stocks in the Asia-Pacific region outside Japan rose 5.9 percent, European shares were flat and U.S. stocks ended little changed and mixed.
Additional reporting by Mike Peacock; Editing by Steve Orlofsky, Brian Moss, Gary Hill