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Eyes on Fiat Chrysler's Canadian plants as company merges with Peugeot to create $47-billion auto giant – Financial Post

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PSA Group and Fiat Chrysler Automobiles NV will combine to create the world’s fourth-biggest carmaker, as the manufacturers prepare to shoulder the costly investments in new technologies transforming the industry such as automation and electrification.

In the biggest auto tie-up since Daimler’s ill-fated purchase of Chrysler in 1998, the French and Italo-American carmakers will each own half of the enlarged business with combined annual sales of 8.7 million vehicles.

The all-stock transaction brings together two carmaking dynasties — the billionaire Agnelli clan of Italy and the Peugeots of France — and will forge a regional powerhouse to rival Germany’s Volkswagen AG with a market value of about US$47 billion, surpassing Ford Motor Co.

Executives promised not to close any plants in the merger even though the new company aims to extract 3.7 billion euros in annual synergies related to platform and purchasing efficiencies. FCA currently operates two assembly plants in Ontario where it manufactures nearly one quarter of all vehicles made in Canada.

“In the merger there will be no affect on production in Ontario,” FCA chief executive Mike Manley said on a call with reporters Wednesday.

Earlier this year, FCA announced plans to eliminate a third shift and 1,500 jobs at its Windsor, Ont., plant where 6,000 employees build the Chrysler Pacifica, Chrysler Pacifica Hybrid, Chrysler Voyager and Dodge Grand Caravan.

It has since extended the shift until the end of the first quarter in 2020, and will continue to review the feasibility of maintaining the shift, a spokesperson said in an email. It’s too early to comment on whether that extra capacity — if it opens up — could be used to build PSA vehicles in North America, the spokesperson said.

No cuts have been proposed at FCA’s Brampton, Ont., plant where 3,400 workers build the Chrysler 300, Dodge Charger and Dodge Challenger.

While the combined company said its manufacturing footprint will remain stable for now, the executives touted the synergies from sharing technologies and platforms across brands.

The new company will be run by PSA Chief Executive Officer Carlos Tavares, with Fiat Chairman John Elkann holding the same role.

The transaction will take as long as 15 months to complete, pending approvals by shareholders of both companies and by regulators, the carmakers estimated.

Like executives across the industry, Tavares and Elkann are responding to growing pressure to pool resources for product development, manufacturing and purchasing in the face of trade wars and an expensive shift toward electric and self-driving technology.

“The challenges of our industry are really, really significant,” Tavares, 61, said on the call with reporters. “The green deal, autonomous vehicles, connectivity and all those topics need significant resources, strengths, skills and expertise.”

“The technological revolution we are embracing requires a more innovative response than anything we have done before,” Elkann, 43, said in a letter to staff.

In an era when size is becoming ever more important, the deal will turn the two mid-sized carmakers into a global heavyweight, with a stable of popular brands and annual vehicle sales surpassing General Motors Co. The combination will give Peugeot-maker PSA a long-sought presence in North America and should help Fiat gain ground in developing low-emission technology, where it’s lagged rivals.

Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, said the deal reflects where the auto industry is going and where it needs to go given how expensive it is to develop new technologies.

“That is so capital intensive and there’s only so much money to go around,” Nantais said. “They have to look for partners, they have to look for synergies in order to basically be prepared for the future.”

As for future manufacturing decisions, Nantais expects the companies to choose markets where it can produce more profitably. While Canada has a skilled labour force, infrastructure and the benefit of the new Nafta deal, it also has higher costs for inputs such as electricity, Nantais said.

“We’re still one of the highest cost jurisdictions to produce,” he said.

When it comes to where to locate production and management, Tavares indicted the company will stick to where the brands have roots and manage through regional headquarters.

“The brands carry the passion, the brands carry the history, the brands carry the emotions. This is why we considered that the brands will stay in their countries of origin,” he said. “Italian brands will stay in Italy, French brands will stay in France, American brands will stay in the U.S., and German brands will stay in Germany.”

Yet the new company will face many challenges. It will still be heavily reliant on Europe’s sluggish and saturated auto market, and poorly positioned in China, the world’s largest country for car sales.

The challenges will be manifold, from improving Fiat’s struggling European operations to meeting tough rules on emissions that kick in next year in the region as well as an unprecedented policy known as the green deal demanding an even tougher clampdown on carbon. Tavares, known as a hard-nosed cost-cutter, will also have to navigate the political crosscurrents in France, Italy and the U.S., where the automakers have deep national roots.

He has tackled tough jobs before, leading the French carmaker back from the brink after taking over in 2014, and reviving the loss-making Opel brand after acquiring it from GM two years ago.

“We believe further synergies above the modest 3.7 billion euros announced will be required to justify the combination going forward, which Tavares’ track record makes likely,” Bloomberg Intelligence analyst Michael Dean said in a note.

The deal with Fiat Chrysler marks a reversal of fortune for the 61-year-old executive, who was forced into a bystander role earlier this year when Elkann approached Renault SA, PSA’s French rival. That merger fell apart in early June after Renault’s Japanese partner, Nissan Motor Co., declined to back it.

China’s Dongfeng Motor Corp., which owns 12 per cent of PSA, will see its stake in the combined company decline to 4.5 per cent as a result of the deal and the sale of a portion of its holding to the French carmaker.

Dongfeng’s stake in PSA has attracted attention because of the possibility it could interfere with U.S. regulatory approval. U.S. economic adviser Larry Kudlow said last month the Trump administration would review the proposed merger because the deal would give the Chinese carmaker a stake in the combined company.

Tavares, on the call, said the companies don’t expect any significant issues from the antitrust regulators.

Fiat CEO Manley dismissed concerns over legal and tax issues that arose in recent weeks. GM in November accused Fiat Chrysler of bribing a union in the U.S. for more favourable terms. Manley, speaking with reporters, called the allegation meritless.

Separately, Italian tax authorities have claimed that Fiat owes the government a hefty sum after underestimating Chrysler’s value following its purchase several years ago. Manley reiterated that the case would have no material impact, and said both issues were reviewed during due diligence with PSA.

Manley, 55, who took over at Fiat last year after the sudden death of industry legend Sergio Marchionne, “will be there alongside” Tavares at the combined group, Elkann said in a letter to employees. He didn’t specify what Manley’s role would be.

Before the closing, Fiat will distribute to its shareholders a special dividend of 5.5 billion euros while PSA will distribute its 46 per cent stake in car-parts maker Faurecia SE to its own investors.

The spinoff or sale of Fiat’s robotics arm Comau slated for the benefit of the Italian company’s shareholders has been modified since October. Now, the planned separation will occur after the closing, and shareholders of the combined company will benefit.

Bloomberg.com

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Is global inflation nearing a peak? – Al Jazeera English

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Calling the top of the current wave of inflation has been a painful exercise for economists and central bankers, who have been proven wrong time and again during the past year.

But data on Wednesday, which showed that some measures of inflation had cooled in the world’s two largest economies, was likely to rekindle a debate about whether the worst might be over after a year of torrid price growth.

United States consumer prices did not rise in July compared with June due to a sharp drop in the cost of petrol, delivering much-needed relief to American consumers on edge after steady prices climbs during the past two years.

And China’s factory-gate inflation slowed to a 17-month low on an annual basis while consumer prices rose less than expected.

After wrongly predicting last year that high inflation would be transitory, most central bankers, including the US Federal Reserve, have stopped trying to put an exact date on when they expect current price growth to peak.

US central bank officials see inflation decelerating through the second half of the year, the European Central Bank puts the peak in the third quarter and the Bank of England sees it in October.

Here are some of the key data shaping the inflation debate:

Raw materials are getting cheaper…

The main culprit for the surge in consumer prices last winter – energy and other raw materials – may be the harbinger of lower inflation this time around.

Prices of critical commodities such as oil, wheat and copper have fallen in recent months after spiking earlier this year. Oil and food items soared after Russia invaded Ukraine.

Shoppers inside a grocery store in San Francisco, California, U.S
Shoppers inside a grocery store in San Francisco, California, United States [File: Bloomberg]

The fall in prices came amid weaker global demand and economic slowdowns in China, the US and Europe, where consumers are dealing with high prices.

Some indices of inflation are already being affected: fewer firms are reporting increased input costs, and wholesale price rise is decreasing in many parts of the world

…But European energy bills won’t

With winter approaching on the continent, European households are unlikely to see their energy bills come down anytime soon. Recently, there have been talks of rationing in eurozone countries, including in Germany.

This is because gas prices in Europe – which, for years, has relied on Russia for a large portion of its imports – are still four times higher now than a year ago and close to record highs. There has been much uncertainty surrounding gas flow via the Nord Stream pipeline.

Even in the United Kingdom, which has its own gas but very little storage capacity, consumers are set to see their power bills jump in October when the current price cap expires.

Increased petrol and diesel prices are seen on a display board at a filling station, in London, Britain
Increased petrol and diesel prices are seen on a display board at a filling station, in London, United Kingdom [File: Peter Nicholls/Reuters]

There is bad news for German drivers, too, who will see a subsidy at the petrol pump expire at the end of August.

Expectations are (mostly) under control

Some central bankers can take comfort in the fact that investors have not lost faith in them.

Market-based measures of inflation expectations in the US and the eurozone are only just above the central banks’ 2 percent target, while they remain uncomfortably high in the UK.

After the Federal Reserve’s meeting last month, the central bank’s Chair Jerome Powell stressed that the Fed is ready to use all of its tools “to bring demand into better balance with supply in order to bring inflation back down to our 2 percent goal”.

Consumers in the US, eurozone and UK, expect to see inflation stay above the 2 percent target for years to come.

According to a survey conducted by the Reuters news agency, a vast majority of the economists polled said that inflation would stay elevated for at least another year before receding significantly. About 39 percent of economists asked said that they expect inflation to stay high past 2023.

Core prices may be trending down…

Core inflation, the number that measures inflation while excluding the price of volatile components like food and fuel, has started to cool in the US and UK. Some economists predict Japan and the eurozone will follow suit.

Nevertheless, core inflation remains higher than most central banks’ comfort zone both in developed and developing economies. That means that central banks will continue to increase borrowing costs. The US Federal Reserve last month raised rates by 75 basis points for the second consecutive time. The bank meets again in September to consider further tightening.

A waiter walks holding a tray in a restaurant in Lisbon, Portugal
A waiter walks holding a tray in a restaurant in Lisbon, Portugal [File: Pedro Nunes/Reuters]

Wednesday’s US data hows recent interest rate hikes may already be having some effects.

And an artificial intelligence model used by Oxford Economics suggests core inflation will also peak in Japan and the eurozone in the second half of the year.

The Long Short-Term Memory network, originally developed to help machines learn human languages, parses detailed inflation data to spot patterns that helps it predict the Consumer Price Index in the future.

…But wages are pointing up

Workers’ wages have increased in the last year due to a tight labour market but not as fast as inflation.

The US Employment Cost Index also recently revealed that higher wages also resulted in a significant increase in US labour expenses in the second quarter of 2022.

According to figures released earlier this week, the cost of labour per unit of production increased by about 10 percent for non-farm firms in the US in the second quarter of this year.

One of the main factors influencing pricing over the long term is wages, and if they climb too quickly, a spiral of price rises may start.

“If that happens, we end up with an almost self-fulfilling type prophecy, where firms will start to push price increases onto their customers,” Brent Meyer, policy adviser and economist at Atlanta’s Federal Reserve, recently told Al Jazeera.

Outside of the US, the economic recovery has been more muted, and the impending recession may make it harder for labour to negotiate lower wages.

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Steep price drops will bring ‘sanity’ back to housing market in 2023: Desjardins – Global News

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Desjardins is forecasting the average home price in Canada will decline by nearly 25 per cent by the end of 2023 from the peak reached in February of this year.

In its latest residential real estate outlook published on Thursday, Desjardins says it’s expecting a sharp correction in the housing market, adjusting its previous forecast that predicted a 15-per-cent drop in the average home price over that same period.

Desjardins says the worsened outlook stems from both weaker housing data and more aggressive monetary policy than previously anticipated.

The Bank of Canada raised its key interest rate by a full percentage point in July, pushing up the borrowing rates linked to mortgages, and further increases are expected this year.

Read more:

Here’s how high interest rates are impacting Canada’s condo demand

The report also notes housing prices have dropped by more than four per cent in each of the three months that followed February, when the national average home price hit a record $816,720.

Despite the adjustment in the forecast, prices are still expected to be above the pre-pandemic level at the end of 2023.

Regionally, the report says the largest price corrections are most likely to occur in New Brunswick, Nova Scotia and Prince Edward Island, where prices skyrocketed during the pandemic.

“While we don’t want to diminish the difficulties some Canadians are facing, this adjustment is helping to bring some sanity back to Canadian real estate,” the report said.

The authors also note that the upcoming economic slowdown will ease inflationary pressures enough for the Bank of Canada to begin reversing interest rate hikes. Desjardins expects the Canadian housing market to stabilize late next year.


Click to play video: 'Bidding wars a thing of the past in Calgary’s once hot housing market'



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Bidding wars a thing of the past in Calgary’s once hot housing market


Bidding wars a thing of the past in Calgary’s once hot housing market – Jul 19, 2022

© 2022 The Canadian Press

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Canada Pension Plan reports $23-billion loss in June quarter as markets churn – The Globe and Mail

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The Canada Pension Plan Investment Board said it lost 4.2 per cent in its most recent quarter, subtracting $23-billion from the fund’s assets.

It could have been worse: The three months ended June 30 were awful for most investors. According to Royal Bank of Canada’s RBC I&TS All Plan Universe, defined benefit pension plan assets decreased by 8.6 per cent, tied with the third quarter of 2008 for the biggest decline in the 28 years RBC has been began tracking Canadian plan performance.

The S&P Global LargeMidCap Index, a measure of stocks CPPIB uses as 85 per cent of its benchmark reference portfolio, fell nearly 13.5 per cent in the quarter. The FTSE Canada Universe All Government Bond Index, the remaining 15 per cent of the benchmark, fell nearly 6 per cent. Blended, that means CPPIB beat a benchmark of negative 12.4 per cent by more than eight percentage points.

CPPIB closed the quarter with assets of $523-billion, compared to $539-billion at the end of the previous quarter. The investment losses were offset by $7-billion in contributions from the Canada pension Plan.

In the early days of the COVID-19 pandemic, when global markets tumbled, the CPPIB asset mix blunted the pain, and the pension fund manager lost much less money than an ordinary investor in the stock market. However, CPPIB often trails when public stock markets rise rapidly, as they did in several recent quarters when investors shook off their pandemic fears.

Now, we have returned to falling markets, and CPPIB is outperforming them.

“Financial markets experienced the most challenging first six months of the year in the last half century, and the fund’s first fiscal quarter was not immune to such widespread decline,” John Graham, CPPIB chief executive officer, said in a statement accompanying the returns. “The uncertain business and investment conditions we noted in the previous quarter continue, and we expect to see this turbulence persist throughout the fiscal year.”

CPPIB said its loss was driven by declines in public stock markets, but investments in private equity, credit and real estate also contributed “modestly.” CPPIB also lost money in fixed income investments, such as bonds, due to higher interest rates imposed by central banks to fight inflation.

Gains by external portfolio managers, quantitative trading strategies and investments in energy and infrastructure contributed positively. CPPIB also recorded foreign exchange gains of $3.1-billion as the Canadian dollar weakened against the U.S. dollar. (Most of CPPIB’s investments are held outside Canada, but it reports results in Loonies.)

The Canada Pension Plan, founded in 1966, is the primary national retirement program for working Canadians. The government created CPPIB in 1999 to professionally manage the plan’s money. Over time, CPPIB has embraced active management and its blend of stocks, bonds, real estate, infrastructure, private equity and other specialized investments has outperformed public markets and its reference portfolio.

While CPPIB reports quarterly, it points to its multigenerational mandate and likes to emphasize its long-term returns. The plan’s five-year net return, net of investment costs, was 8.7 per cent through June 30; the 10-year net return was 10.3 per cent.

CPPIB’s annualized return for the 10 years ended last Sept. 30 was, at 11.6 per cent, the highest 10-year performance figure in its history.

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