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Nokia Unveils Smart Phone; Intel's CEO Criticizes Obama's Economic Plan

Aired September 14, 2010 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: It's a battle of the smart phones. And Nokia comes out fighting.

Intel's chief executive tells this program President Obama doesn't get it when it comes to handling the economy.

And being a busy bee, an urban beekeeper shares with us his "World At Work".

I'm Richard Quest. We have an hour together and I mean business.

Good evening.

Just days after firing its chief executive and a day after its mobile head resigned. At the Nokia World Conference in London, the company tried to send a message, "We're back." Nokia was unveiling its latest weapons in the fight for the smart phone market share. And the company says it is now outselling Apple and Android phones combined.

There is much we need to get to grips with, with all this phone talk. If you join me in the library you'll see what I mean.

Nokia isn't putting all its eggs in one basket. A variety of phones have been released. Three new Symbian 3 handsets; you've to the-this one, the big screen E7. Now the delight of this, of course, for many people will be the real keyboard. Which, of course, is of great appeal to business users in particular. For those who like their phones more for social networking there is the C7, that is a social networkers dream, we're told. And there was an update on a phone, of its existing C6 phone, at the lower end of the range.

Later Nokia also intends to bring out more phones. The N8 will be out later this month. This will be the one, the first one, use the Symbian No. 3 model. Nokia basically said to the market today that despite all the rumors and the stories about how the company was in trouble Nokia is actually selling more phones than Apple and Android combined. The phones were revealed at the London conference, from where Ayesha Durgahee now reports.


AYESHA DURGAHEE, CNN CORRESPONDENT (voice over): Touch screen technology, quality keyboards, and USB ports, Nokia is selling hard, rallying investors to spend money, showcasing its new family of smart phones.

Amid turmoil at the top, with both Nokia's CEO and the head of its mobile business stepping down, this is the man who has stepped in to brave the crowds at Nokia World.

NIKLAS SAVANDER, EXECUTIVE V.P. FOR MARKETING, NOKIA: Change is part of every company, also us. Some of these changes accelerate the change, but in the end it is about consumers changing their tastes, it is about us responding to that, another day in business.

DURGAHEE: Nokia admits it has lost market share. One research firm estimates 40 percent in the last year. But the company claims it still has 40 percent of the global smart phone market. High end product, though, is just one area.

SAVANDER: If you look at the overall market, you know, there are some very exciting things also going on, kind of behind the radar, or below the radar, in places like Indonesia and India. And so we, of course, with 40 percent market share, do not have the luxury of focusing on one segment only. And so we have been doing a lot of work in making sure we are very competitive when it comes also to the low end. And to attract new consumers into the smart phone segment, granted, we have our work cut out in the high end. And we will solve that.

DURGAHEE: The latest Symbian software has enabled more than 250 new features, including large touch screens on all new models.

BEN WOOD, INDUSTRY ANALYST, CCS INSIGHT: People forget that Nokia is still a powerhouse in the mobile phone industry. If you talk about kind of the volumes that they do, you know, it is a lean mean, phone-making machine, knocking out about half a billion phones a year. So they have market share, but where they are struggling is mind share and margin share. And that is in this smart phone space. So, like other mobile phone manufacturers, all the established players, they were wrong footed by Apple, and more recently by Google, and this is where Nokia needs to respond.

DURGAHEE: And there seems to be interest, at least.

I think Nokia is coming back in a big way. Very exciting product, I am particularly impressed with the NE (ph) product.

DURGAHEE: Nokia is showing a brave face as it takes on a growing challenge from the likes of BlackBerry, Google, and Apple.

SAVANDER: Well, today, for 14th of September, mark that date in your calendar, is the beginning of the fight back in our smart phone market.

Ayesha Durgahee, CNN, at the Excel Center, in London.


QUEST: Now when it comes to actually looking at the phones, whether it is the iPhone or the Android system, or the Symbian, or indeed, Windows Mobile, it is often quite difficult to recognize the phone or what operating system it is using, just from the machine itself, perhaps, with the exception of Apple's iPhone.

But investors made it clear they are not too impressed by Nokia's new line up. Its shares fell more than 3 percent in Helsinki today. Phones using Google's Android software seem to be Nokia's biggest threat. You will bear in mind that Nokia's share price actually rose last week when the new chief executive announced. So this pretty much reverses those gains.

Is Nokia in trouble? And does it need to do more than it already has? Shelly Palmer is the host of the U.S. cable TV show, "Digital Life with Shelly Palmer", and he joins me now live from New York.

Shelly, first of all, the Android and the Nokia systems, how has Android managed to make up the ground so fast against Nokia's Symbian?

SHELLY PALMER, HOST, "DIGITAL LIFE WITH SHELLY PALMER": I mean, Richard, this is a very interesting business issue. First of all, Nokia has a 1,000, 10,000, a million engineers, it doesn't matter how many they have, they employ their engineers and they are using a set system. Apple, let's say they have 10,000 engineers, and that it is a level playing field, Nokia has 10,000, Apple has 10,000.

Apple has 40,000 additional engineers in an army that it has enlisted through its open system. You have all of these people whose economic interests are exactly in line with Apple's helping Apple add value. Apple makes money on every single app that get sold. They get mind share on every app that gets downloaded for free.

And Nokia is trying to compete against that kind of system. And when you add what Google is doing, which is the same kind of open system, this becomes a game over for Nokia, unless they open up their platform and become the kind of-of the literally business model that Apple and Google have adopted. They have no chance of taking over, or even holding on to their market share.

QUEST: OK, all right, but Nokia still sells more phones than all the others. It still has the largest part of the market, which begs the question, how are they managing to do that? Is it happening more by default?

PALMER: Well, look, there are a lot of things that go into selling a piece of hardware. Distribution is important. Price point is important. Also understand, Richard, we are in a transition now when you say smart phone, app phone, and cell phone, you are talking about three different devices. The trend in the industry is for people to hold a small computer in their hands, right? So, as that trend continues, Nokia, if they stay a phone company, are going to have a lot of trouble competing. If they-there is not going to be a bigger market for cell phones as time goes on. The market for a pure phone is going to get smaller, and smaller, and smaller, and phones with more computer-like features are going to dominate the market place.

QUEST: So when we were talking about this in our meeting today the one question came up again, and again, what is the difference between them all in terms of from the users point of view? Does the user really care that much, Shelly, whether-I mean, with the exception of iPhones, which seem to be one on their own, but whether it is Android or Windows mobile, or PALM's Web OS, or Symbian?

PALMER: OK, so let's take Apple out. Apple is a fashion accessory. They bring out one phone a year. You know, it is a fashion accessory that you carry. They bring out one phone a year that is already behind the curve when they bring it out, but they have such incredible share of mind that they get a share of wallet. Their system, Steve Jobs has reinvented the phone business. He's got what I call the Tom Sawyer paint-the-fence paradigm. Other people are helping him make his phone more valuable.

Google is a slightly different system.


PALMER: It is exactly the same, enlist an army of-well, let me finish-they are enlisting an army of developers. But what they are also doing is they are taking every ounce of data you can give them, and you are adding to the Google empire. So if that is what you like to do, that is a free of charge environment.

Windows Mobile 7 is going to be a great system. It is going to integrate exactly with your Microsoft Office. And if you are a business person and an enterprise person, that is going to work for you there.

So they are very different. They are aimed at different customers. And they completely have different silos of market share.

QUEST: Ultimately, and this is perhaps your Fifth Amendment question, that you can take a pass on: Who wins?

PALMER: I think Google wins without question and here's why. Google is licensing their system, for free, to anybody who wants it. You can only buy and Apple phone from Apple and they are unlikely to license IOS outside. So Windows and Google are going to battle it out and when that battle happens Google is going to win because they have a huge opportunity to do so. So I'm betting on Google. If I am a betting man, I say, more Google phones than anything else, followed by Apple, followed by Windows, followed by BlackBerry, followed by Nokia, followed by those poor people at PALM.

QUEST: Quick question. You don't have any shares in Google in that we just need to know about before we go any further?



PALMER: No, Richard, but thank you for asking. I don't as a matter of fact.

QUEST: Well, we just have to be clear on those matters. Shelly Palmer, in New York, many thanks indeed.

We'll be delving into the technology world again in just a few moments. The chief executive of Intel talks about Obama's stimulus problems, and the administration's economic plan.



QUEST: Intel's chief executive doesn't think much of President Obama's efforts to fix the U.S. economy. And an exclusive interview Paul Otellini tells CNN Money's Poppy Harlow that the U.S. administration hasn't increased confidence or created enough jobs. Poppy Harlow joins me now from New York.

Extraordinarily for any CEO to come out with such politically fast comments at this time.

POPPY HARLOW, CNN MONEY, FINANCIAL CORRESPONDENT: That is exactly right. I would say, Richard, this is probably the most candid I have seen in an executive, especially an executive of Paul Otellini's status, at this company, speaking about politics in terms of at least, at least in terms of a business leader that isn't running for political office.

He was very outspoken. He did say that the administration is not anti-business. We have heard a lot of complaints about that. But he does not agree with their policies whatsoever when it comes to job creation. And also, namely what it takes to keep big business operating in America. Here is part of our discussion.


HARLOW (on camera): Is there an incentive for U.S. businesses to grow here, because every single day we hear the administration talk about job creation in the United States. And you have said, and I'll quote, "I think this group does not understand what it takes to create jobs," speaking about Congress and the administration. They don't get it?

PAUL OTELLINI, CEO, INTEL: I don't think they do. At least they have not demonstrated it to date. And the evidence certainly doesn't show that. It needs credit, it needs small business investment. It needs stability. It needs vulnerability (ph) being reduced. It needs to decide that the industries of the future are the ones that we want and that we should incentize those. And-

HARLOW: That is exactly what we hear the president say, though?

OTELLINI: Well, it doesn't. We still subsidize trains and agriculture. I mean, industries of the 19th century. We should decide what is important to us going forward and make sure that we have the education system in place, and the capital incentive system in place to do the investment here. You know it still costs a lot more to operate in the United States. There are benefits for that, but as a global businessman, particularly if you are not based in the U.S., why would you come here? The most important thing we can start doing is figuring out what does it take for foreign companies to increase their investments in the United States; get the flow of capital coming back in.

HARLOW: What does Washington need to do? $787 billion stimulus? Another $350 billion proposed by the Obama administration?

OTELLINI: Well, I wouldn't do the second one, for sure.

HARLOW: You wouldn't?

OTELLINI: And half of the first one isn't spent yet. If I were king I would consider not spending the second half of the first one.

HARLOW: Really?

OTELLINI: It is not-

HARLOW: Just say forget it, it didn't work?

OTELLINI: It doesn't seem to be working the way it is. You know, swimming pools in Mississippi are not going to create lasting jobs.

HARLOW: The president, part of that $350 billion proposal that came out last week was $200 billion in tax credits that most experts say would help big businesses. You would think Intel would like that? You don't?

OTELLINI: The portion of it that I saw and talked about was the R&D tax credit. Which has been a fixture of life in the U.S. for 20 years, but it renews itself every year. You have to go to Washington every year. Now when you start and R&D project you don't do R^ D for a year. You need to know that this credit is going to be there if you are going to make the incremental investment, what are the ground rules? So giving some certainty, which I think the administration proposed some five or six permanence. That is great. We love that. It allows us to make our decisions about investing here.

HARLOW: You've met with members of the Obama administration, you said more times in the last year then you met with anyone from the Bush administration over that eight-year period. What did those discussions entail? Have you made any progress? Do they seem to be open to big American businesses, or is there this anti-business sentiment that we are hearing more and more talk about.

OTELLINI: I don't think they're anti-business. I really think they're trying. They are real people, their Americans, just like all of us are. And I haven't seen that anti-business sentiment. I think they listened in those meetings. And then, you know, through whatever process they make their decisions. The decisions so far have not resulted in either job or increased confidence. So to me that says, you know, when what you are doing, you rethink it. And I think we need to rethink some parts of the plans.

HARLOW: I know you've talked about that, the administration is good a listening to Silicon Valley, but not great at responding. What kind of response do you want?

OTELLINI: Well, just some action. I mean, I think the one I talked about earlier, the R&D tax credit. The fact that that our corporate taxes are twice what they are in the rest of the world. You know, you want corporations to invest here, not to disinvest here. So the next job, the next factory, you want to do on a global basis. And it is no longer a local economy. Everyone, certainly in tech, and in most large businesses, builds for a global scale. You build factories that ship products all over the world. Markets are global. So to attract a global scale set of investments you need to have globally competitive infrastructure and tax rates.


HARLOW: And, Richard, just to give you and example of what that means for Intel. Paul Otellini told me if Intel is to build a $4 billion plant anywhere in the world, it will cost that company $1 billion more just to build that in the United States, rather than say, France or China. And guess what? Intel's next plant is opening in China, in October, Richard.

QUEST: Poppy Harlow joining us from New York. Poppy, many thanks, indeed.

Now to find out what Intel's chief thinks is the most critical thing we can do to change the education system, more details on that interview, read an article I've posted, with more from Paul Otellini. You can look at it at And while you are there, become a friend of the program.

The markets opened and doing business. It is very hard to get excited about the Dow Jones industrials this afternoon, whatever the reason why. Alison Kosik is in New York.

Alison, your market is doing just about nothing.

ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Very true. But you know, at least we're not in the red. You know what, Richard, I just got off the phone with a trader who said, you know, it could be a heck of a lot worse. You know, we saw stocks take nice bounce at the opening, when we got that retail sales report, finding out that retail sales were up 0.4 percent in August. It was better than expected. You know Americans bought more food clothing and gasoline. And this kind of thing is encouraging for investors because it shows that consumers are spending money. And as we know, Richard, as you know, consumer spending here in the U.S. accounts for two- thirds of all economic activity, but what we're seeing is just not a lot of volume at this point. Just a lot of people sitting on the sidelines not feeling the push to invest in this market at this point, Richard.

QUEST: Alison Kosik, in New York. We'll talk more about economic numbers as the week moves on. There is one number I need to bring to your attention, though. Gold is having a record-setting day. The precious metal surged above $1,275, that is $1,275 an ounce. The highest point on record for gold. It is still trading at a little over 1,270 an once. The gains come as investors continue to seek out safe havens from the jittery global economy. All that glitters, it seems today, is gold.

Regular viewers like you will know that there is always a buzz about this program.


But now this is ridiculous. With the bee population under threat all over the world, urban beekeeping has become not just a hobby but something vital. The "World at Work" in a moment.


QUEST: At this time of the year the beekeepers are extremely busy. They are harvesting the honey that their busy bees have made throughout the course of the year. And if you think that bees work too hard, look at these numbers. They are natural workaholics. And at this time of the year they are at full strength as the honey is harvested. Bees fly 90,000 miles, that is 145,000 kilometers, roughly three times around the world. And they create for that, just one pound of honey.

But it is a big industry. Sweet indeed. Pollination delivers up to $18 billion to the European economy. That is not just, of course, from basic honey. That is from all sorts of pollination activities that are vital for various different industries. And honey bees are vital to the world's agricultural economy. It is estimated that a third of the food that we eat is pollinated by bees; which, of course, gives the recent unexplained decline in the bee population, makes it all the more worrying. The tide could be turning for beekeeping, particularly when it comes to urban beekeeping. Imagine keeping bees in the heart of London and then harvesting the honey. That is certainly a "World At Work".


STEVE BENBOW, THE LONDON HONEY COMPANY: I've been a beekeeper about 15 years in London, as an urban beekeeper, but I've been keeping bees since I was a small child.

Urban beekeeping requires a lot of sort of good dedication and you have to be very, very considerate and very, very professional in the way that you are going to (INAUDIBLE).

We only harvest the honey here at Fortnam's (ph) once a year. And it is incredibly hard work. Each box weighs up to 25 kilos, and is incredibly valuable, of course, and we have to take great care over that. And the flavor can taste differently from year to year and from borough to borough. It depends on what the bees have been foraging on. They really love sort of the trees in London. Lime trees, Sycamore trees, Hawthorne, Blackthorn, they love it all. And predominantly this year it has been lime that they have been foraging on in June.

I think urban beekeeping has become very popular because I think people are wanting to know where their food source is coming from. Urban honey is fantastic. It really differs from borough to borough, street to street. It is really quite amazing. So this year we have had a fantastic summer and the honey here on the roof at Fortnam's (ph) is a lime honey. It is very sort of delicate, at first, and then it has a really lovely aftertaste.

This time of year we look at taking the honey off and then the colony starts to slow down for the winter. The queen isn't laying as many eggs a day. And she starts to slow down for the winter. And then I probably only come out once a month.

I'm not frightened of my bees. They don't really trouble me. I think they can sense when you get frightened or when you are nervous sometimes. You try and control your bees as much as possible. It is called manipulation. You try and manipulate your bees to do certain things. So sometimes Mother Nature takes over. And you can't always prevent your bees from swarming.

It is a little bit stressful today because we are getting honey off and it requires, you know, a lot of speed of the work, really, so the bees don't start robbing honey. You can see here they are starting to get on it already. So, I've got to get this box off.

Sometimes I don't bother wearing a suit. I always wear a veil. I think that is really important. And I often don't wear gloves. It is really important to feel the bees. They are very sort of tactile. Be very gentle with them so you don't squash any. You have to be incredibly considerate and you have to work really long hours. You have to work when the bees tell you, or else they'll abscond, or they'll just die. You have to be-you have to put in a lot of dedication into this job to get it really to sort of work.

I absolutely love my job. It is just something that I've created and I've-and I've built up myself. I love being on rooftops in London. I would love to be in the countryside, so I bring the countryside to London. And I bring all these bees into this urban environment.


QUEST: I once actually go to do that and scrapped the honey off. I was absolutely terrified wearing the beekeeper's outfit. Nice work if you can get it, some say.

The U.S. government says small businesses create two out of three new private sector jobs. That is the incentive for a new proposal to help out smaller companies and stimulate hiring. That is an industry we'll look at after the break.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And here, the news always comes first.

And the headline tonight, the American hiker, Sarah Shourd, has thanked Iranian authorities, including President Mahmoud Ahmadinejad, for releasing her earlier today. Shourd is shown here leaving Teheran after $500,000 bail was paid. She's now arrived in Oman. Her two fellow hikers remain behind bars in Iran. In a statement to Iranian TV, Shourd said she was grateful and humbled and called her release a humanitarian gesture.

Israeli and Palestinian leaders sat down for peace talks in Egypt today, along with a U.S. delegation. Well, they talked almost two hours. Then they held another unscheduled trilateral meeting. All parties involved have been tight-lipped about the specifics of the meetings, but the U.S. special envoy, George Mitchell, says a serious discussion on core issues has begun. The talks continue in Jerusalem on Wednesday.

A little over an hour ago, the French Senate gave the go-ahead to a proposed ban on wearing any veils that cover the face in public, and that includes the burka. The legislation soared through the lower house of parliament in July and the bill is supported by a majority of people in France and will kick in about six months from now.

Strong words from the European Union's top justice official over France's deportation of thousands of ethnic Roma, commonly known as gypsies. Viviane Redding says the deportations are, in her words, a disgrace that could trigger legal action and she says discrimination on the basis of ethnic origin or race has no place in Europe. The French government responded, saying it's astonished by Redding's words.

The Japanese prime minister, Naoto Kan, is keeping his job. He won enough support in a party leadership vote to stay on while defeating a powerful political rival. If party insider, Ichiro Ozawa had taken over, he would have become the third prime minister so far this year. Kan now faces the challenge of boosting growth in the world's third largest economy, which is facing inflation.

A multi-billion dollar piece of legislation aimed at helping U.S. small businesses create jobs may soon land on President Obama's desk. The Senate broke a logjam over the measure a few hours ago.

But will it do anything to help boost U.S. economic growth?

Maggie Lake is in New York -- Maggie, whenever we talk about anything to do with small businesses, the eyes roll over and we glaze over, because, frankly, how much economic activity can realistically be involved?

MAGGIE LAKE, CNN CORRESPONDENT: Well, you know, Richard, you -- you gave that stat before and it's what -- certainly what politicians here always point to -- two out of three jobs created by small businesses here in the U.S. They're not household names, but they are an economic force and on that many feel has sort of gotten the short-shrift here.

And, listen, this is an environment where American voters are clearly extremely angry at lawmakers for not doing enough, at least in their perception, to fix the U.S. economy. So politicians are on the defensive. They're scrambling try to rectify that and, therefore, you have what appears to be a small victory for the Democrats, this small business bill that looks like it's headed for the Senate for approval, then will make its way through the House.

What is it?

It's got $12 billion in new tax breaks targeted at small businesses, $30 billion to fund -- into a fund that's going to encourage banks to lend. Democrats say it is time that small businesses got the attention, the help that they deserve.


MARIA CANTWELL, U.S. SENATE DEMOCRAT: I can tell you, this is not about the November election. This is about righting a wrong that was done to small business when Wall Street took Main Street down and cut off access to capital. This is about restoring what we believe in America is what makes our economy great -- entrepreneurs and entrepreneurs who can get access to capital. That's what this legislation is about.


LAKE: Well, that's certainly the hope.

But here's the problem, Richard. When you talk to small businesses, they're not convinced this is going to help. In fact, in a survey out today by the National Federation of Independent Businesses, about 91 percent of them said that -- their credit needs are being met, that they don't want loans, they don't need them. They're fine in that department. What they say is the problem is a lack of demand, is the weak economy, number one; and, secondly, it is the political environment in Washington. They do not like what is being done down there. A lot of frustration. Bill Dunkelberg, the chief economist of that group, said, quote: "Washington just doesn't get it." They don't need the credit, they need the economy back on track. They need people out spending again.

QUEST: Maggie Lake in New York.

Many thanks.

We will put those points and hear, indeed, the views of small business -- the people who might benefit from this new measure.

Joining me now is Geoff Pohanka, the president of the Pohanka Automotive Group.

He's now with me live in Washington.

Geoff, do you need a small business bill?

And if you don't, what do you need?

GEOFF POHANKA, PRESIDENT, POHANKA AUTOMOTIVE GROUP: Well, we need consumer demand. I wish the government would separate politics from economics. And we're faced with the threat of taxes being -- rising substantially at the end of the year, as the Bush tax -- tax reductions go away automatically. They expire. And that's the real debate.

And I think there are people in government that think somehow jobs come before consumer demand. No, consumer demand comes first. And if we raise business taxes or business...

QUEST: Right.

POHANKA: -- consumers come in -- if we raise taxes, this can only be -- in a re -- in a dep -- a recession, there can only be one result, and that's lower economic activity.

QUEST: Right. But...

POHANKA: And I equate...

QUEST: Sorry. Sorry to interrupt you, but...

POHANKA: I equate the government...

QUEST: If we look at your company, for example, the -- and the automobile industry, you benefited hugely during the Great Recession from the Cash for Clunkers program. You've obviously had the down side of that, because, basically, the automobile sales have -- have slowed considerably.

POHANKA: Well, I think that car sales are -- are much lower than they were three or four years ago. They're tracking around 11.5 million sales. And they were up 16 to 17 million. And, you know, some -- Cash for Clunkers was a very successful stimulus program. Now, some may not understand it or agree with it, but we found that it was very successful to our business.

And some stimulus has not had any effect at all. And I equate the government with a gardener and the economy a plant. A gardener is mad that the plant is not responding to the water and fertilizing the gardener is providing. But now the gardener is mad at the plant for not responding. But it's not the plant's fault. The gardener must find what the plant will respond to and act accordingly. And they just are not doing that.

QUEST: Ex -- well, you -- you raised the tax break question and the expiration of the Bush tax cuts. I mean that is a political football that is going to be fought out between now and the mid-term elections on November the 2nd. But, Geoff, politics and economics are now so closely entwined, that which is harming which?

POHANKA: Well, the real problem is, I think, that in -- in this administration, the White House administration, the top officials, only 8 percent of those individuals have any experience in the private sector. Ninety-two percent are only from the -- have only worked for government or in academia. So they don't really have any real world experience.

Us in small business, you know, I think consumers want to spend. I think Americans are pretty optimistic. I think we want to grow. But we've been...

QUEST: Right.

POHANKA: -- suppressed because of the fear of higher taxes, higher health care costs, recession and basically it's a question of confidence. And if the government could act in a consistent way to give us the confidence that our taxes won't be raised, that things will be OK, we'll do the work. We can get this economy back on its feet if the government will get out of the way.

QUEST: Fine -- finally, Geoff, just tell me, how much discounting are you having to do -- I know this sort of a -- a delicate subject. But let's say I pop into your -- your automobile group and I want to buy a vehicle, a nice new vehicle.

How much discount will you give me?



Twenty-five percent?

POHANKA: Well, not that much. There's not much margin in cars. People think that there's that -- a huge margin. And, you know, consumers can go and research what our margins are. And they -- they're generally surprised how -- how small they are. We're in a very competitive marketplace. There are lots of auto dealers, lots of choices. People like to buy cars. And I think cars, you know, the auto industry is a primary industry in terms of consuming of steel, glass, aluminum and other important materials. One out of nine people working either directly or indirectly with the auto industry. So it's a good barometer of eco -- you know, economic, you know, an important part of the economy.

QUEST: Right.

POHANKA: And, you know, credit is pretty good. But people aren't buying because they're fearful of the future. And if you take that fear away, they'll start buying again and, you know, we can get this economy going.

QUEST: Right.

POHANKA: And -- but they can't -- it will not work due to uncertainty. I'm afraid for the future. I'm afraid of more regulation. I'm afraid of higher taxes.

QUEST: Geoff...

POHANKA: Now, you mentioned during this program, small business. Small business in America is responsible for 50 percent of private sector employment. And 75 percent of the small businesses pay their business taxes at their individual level. So in terms of taxes going up, which takes money out of our hands, money that we need to reinvest in our businesses...

QUEST: Right.

POHANKA: And it's not easy to get loans today. It's -- it's going to be a problem.

QUEST: Geoff...

POHANKA: And we...

QUEST: Geoff, we'll -- we'll have to leave it there, unfortunately.

But we do thank you for coming in.

And, hopefully, in the future, you will come back and talk more about this and help us understand what's happening in the economy.

POHANKA: Thanks for having me.

QUEST: Geoff Pohanka joining me from Washington.

We have words of warning -- the United Nations cautions against the premature withdrawal of stimulus measures. The consequences of ignoring their advice -- we'll have that when we return.


QUEST: Deflation, declining economic growth, yet more lost jobs -- in a report released under three hours ago, the United Nations Conference on Trade and Development, known as UNCTAD, warns that winding down stimulus measures too fast could fracture the world's fragile economic recovery and also warns against a resumed reliance on exports to boost growth and employment, saying that countries should focus on strengthening domestic demand.

Now, before we hear from the chief author of that report, let me remind you of some of the key trade gap figures we've seen worldwide recently.

The U.S. trade deficit dropped to $42.8 billion in July. It's a decline of 14 percent from previous months. Exports are at their highest level in two years.

Germany, on the other side of the argument, recorded a trade surplus of $17.5 billion in June. Now, Germany becomes the number two exporter behind China. And talking of China, the trade surplus there dropped to $20.03 billion in August. And that was high enough to keep U.S. pressure on Beijing about exchange rate policy.

Finally, to deflationary Japan, where the trade surplus was at $9.5 billion in July, more than double the year earlier. It's up 119 percent.

Is there a rebalancing going on between the world's deficit and surplus country?

UNCTAD's latest trade report was written chiefly by Heiner Flassbeck, the director of the division on globalization and development.

When I spoke to him earlier today, he explained why it's simply unsustainable for the present situation to continue.


HEINER FLASSBECK, UNCTAD: Well, the problem is that countries are losing competitiveness. If the whole country loses competitiveness, if you have all the companies in the country sort of say being over valued by 20 percent and therefore it's reflected -- it's reflected, then, in the trade flows and the current account deficits, then the country is in trouble -- in deep, deep trouble.

QUEST: Right. But let's name and shame.

Which countries are we talking about here?

FLASSBECK: Well, we're talking about the United States, on the one hand, that is still in deficit and has not found a strategy to get out of it. On the other hand, we have the big surplus country, Japan, that is in a different kind of trouble for a long time. China, that is doing much to reduce its current account surplus and Germany, mainly, which is favored, again, by the weak euro.

QUEST: But the United States has managed to be the world's importer of consumer goods for many a decade.

So what's changed?

FLASSBECK: Yes, what's changed is the income situation in the United States. Very much of the income expectations in the United States was based on an illusion -- on the illusion that some bubbles would inflate forever. But they didn't.

QUEST: But if the United States merely stops importing as much, then surely that naturally balances itself out with the surplus countries. They simply don't sell as much.

FLASSBECK: Yes, that's right. But the question is whether we get, then, a world recovery or not or the world will fall into -- and this is the big danger now -- into a kind of Japanese deflation, stagnation scenario -- the last decade or two last decades in Japan. That is the dangerous scenario for the United States as well as for the other countries.

QUEST: Are you saying now that there is a risk of deflation stagnation in major economies?

FLASSBECK: That's right. Absolutely. In the United States, the risk is there. And I think the United States policymakers are so aggressive because they fear that this risk is coming. If you look at, for example, the most important variable, disposable income of private households, you find that, for the first time since 1950, they're falling in absolute terms in the United States. And this was the beginning of the Japanese trouble, when disposable income started not rising any -- anymore.

QUEST: But the growth numbers for this year will be 3, 3.5 percent, in the United States. The E.U. will grow by nearly up to 2 percent this year. So growth is returning.

FLASSBECK: You know, that dead -- dead cats are bouncing, too. And...


FLASSBECK: And it has very much to do with the -- the reflex of after the recession and to the big stimulus programs, but the stimulus programs are fading out.

And then comes the question, who is replacing the stimulus programs?

This is not yet settled.

QUEST: There's...


QUEST: There's one big problem with your warning, though, isn't there?

And it's this -- rebalancing global capital accounts is a long-term, nitty-gritty, tedious project that never gets done.

FLASSBECK: Yes, it can be -- they can get done. You see, we once had a monetary system which was called Bretton-Woods...

QUEST: Oh...

FLASSBECK: -- that did...

QUEST: You're not advocating Bretton-Woods again?

FLASSBECK: No, not Bretton-Woods but a better system, but something like that, because this is the only way out. And only blaming China for its undervalued currency is no solution, in the long-term. You're right, it takes a long time, but we have to start right now. If we don't, the recovery will be over very soon.


QUEST: The UNCTAD report.

Now let's turn to Hurricane Igor, which is aiming for Bermuda at the moment.

Guillermo Arduino is at the CNN World Weather Center -- and if I'm not mistaken, Igor is not the only thing that's out there at the moment.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes. We have two more and one in Asia. So we have four in total. One is here in the Caribbean. It's very near the Yucatan Peninsula. It may become a cyclone. It's not yet.

Igor very significant here in the central parts of the Atlantic. And Julia taking almost the same path that Igor did. But Igor is going to influence it. So we think that Julia is not going to go to Bermuda. Igor, in the meantime, will.

So I'll show you the statistics coming from the National Hurricane Center. It weakened a little bit. It's coming back up to life very soon. It's going to remain, probably, on a category four status. And as you see, everything indicates that Bermuda is going to be on its path and it's going to be direct.

It may change a little bit, but all these systems that we have here in the Northeast are indicating that this system is going to turn now, Igor is going to turn more in a northward direction. So it's going to go, inevitably, into Bermuda.

That means that they have to be ready. I know the construction code in Bermuda -- in Bermuda is very strict and they have very thick walls. So property will be OK, because we're going to be talking about 210 kilometers per hour, maybe. And the water there is a little bit cooler when you get to the islands. So maybe it's a little -- it's going to be a little bit weaker. But, nevertheless, it will be a very significant storm.

Julia, on the other hand, doesn't have time to go toward Bermuda. It's going to be there, you know, getting our attention, speculating about it. And we will see what happens. We have a lot of time to track it down.

This is of concern, though, Richard, because this area is very wet now -- Belize, Guatemala, El Salvador, Honduras, Yucatan. So we will see impact of any kind of cyclone, maybe significant -- maybe a small cyclone or maybe just a storm in the area. We'll let you know.

QUEST: Guillermo, many thanks, indeed.

ARDUINO: Thank you.

QUEST: We'll watch this one closely and report back when we know more about the trajectory of those hurricanes.

In a moment, the recession caused the Dutch electronics giant Philips to scrap its 2010 strategy. But now it's back thinking more and more about 2015. It's a vision for the future and you'll hear from Philips' chief executive after the break.


QUEST: A vision for the future -- the electronics company, Philips, has set out its strategy for the next five years. The world's biggest lighting maker has some rather interesting ideas and very specific and all talking about simplicity. The company says it will grow 2 percent faster than GDP in its main global markets. And it wants 40 percent of the company in future to come from emerging markets. That's up by 8 percentage points from where it currently is. Very specific direction from Philips today to its investors.

These are the main areas -- the lighting, the health care and the consumer electronics. Individually, all three areas are trend growth sectors. But analysts question whether there's actually any synergies between them all. Philips says, for instance, it's definitely still staying in the television business for the time being.

So what did the market make of Philips' announcement, Vision 2015?

Oh, dear, down 3.8 in the Amsterdam market, at 2315.

Philips' vision follows fast on the heels of the last one, which they've just completed, Vision 2010.

With that in mind, I sat down with the chief executive, Gerard Kleisterlee.

And I began by asking him, Vision 2010 and now Vision 2015 -- how did the two visions differ?


GERARD KLEISTERLEE, CEO, PHILIPS: 2010 has -- has focused the company on the three areas. It has simplified the structure of the company for the simple purpose to we generate more energy to the outside rather than keep it inside. The more complex a company is, the more you keep each other busy.

Inside the company, wanted a company that is focused on markets, that's organized around customers. And that's what 2010 has achieved.

QUEST: But 2015 comes about as the company has missed growth targets, in some cases, missed revenue targets, in some cases. So coming out of the Great Recession, are you well positioned to actually be looking that far forward?

KLEISTERLEE: Even better than -- than we were probably before the Great Recession. Of course, the -- the recession has not allowed us to achieve our growth targets. The markets have declined to the extent that they have, you're not in a position to meet a 6 percent compounded annual growth target.

But we've taken the recession as a -- a good excuse to further strengthen our cost base. We've taken quite some fixed costs out. We've further sharpened our portfolio. We've focused the company very much on identifying the areas with the biggest growth potential. And we've clearly identified those in our management agenda. And that's what we're taking forward into 2015.

QUEST: The one thing that consistently worries me now when I meet chief executives like yourselves is this focus on emerging markets. Everybody is looking at emerging markets, because they are the fastest growing markets.


QUEST: But you can't make really serious long-term growth for the company if you don't continue to develop the developed markets.

KLEISTERLEE: That's absolutely correct. And if you take an -- an area like home health care, which is an area that has some -- it's -- it's a young industry. In its emerging phase, high growth potential, most developed today in the United States. A big part of our growth in the coming five years is going to come out of home health care. And a big part of that will be in the developed markets, because that's where the aging population with the increased chronic disease patterns is.

QUEST: Finally, as you worried austerity plans in the U.K., austerity plans in Europe and elsewhere in the world, of cutbacks in health care costs in the U.S., are they going to impact you?

And if so, how badly?

KLEISTERLEE: They will give us an incentive to clear -- more clearly pronounce our -- our value proposition, because we're not in the game to sell as much life points as we can, to sell as much imaging equipment as we can. In health care, we say we help doctors provide better care for their patients at lower cost. And we use technology to exactly achieve that.

In lighting, we say to communities, we help you to get more light on the state, more safety in your communities. And we do that at lower energy costs. So when public budgets are under pressure, using state-of-the-art technology, working with a company like Philips, is something that will help to make those savings on public energy spent, on public health care spent and leave some space for the consumer to spend our consumer life propositions.



QUEST: Finally, if you want to join us in the community of QUEST MEANS BUSINESS, where you're always most welcome, you can find us on Facebook, CNN/QMB, or e-mail me at And don't forget the Twitter. It's atrichardquest.

And that is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest.

Whatever you're up to in the hours ahead, I hope it's profitable.

"WORLD ONE" is next.