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QUEST MEANS BUSINESS
Debt Crisis, High Bond Rates Continue To Threaten Portugal, But One Economist Predicts The Debt Dominoes Of Europe Will End By Mid-2011
Aired January 10, 2011 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN ANCHOR: Portugal's pressure. How much pain can the country take?
First snow chaos, now the cold shoulder; Virgin Atlantic says it won't pay the operator of Heathrow Airport.
And getting the Golden State out of the red. California's new governor presents his budget.
I'm Richard Quest. It is 2011 and all year, I mean business.
It is crunch time and it's coming for Portugal. Tonight the country struggles on alone, faced with borrowing costs at some of the highest level seen since the Euro came into use. And in two-day's time Portugal is actually going to have to borrow a lot of money on the markets.
If the situation reaches critical, as seems likely then it is possible other members of the euro zone will have to step in. It's a familiar story. You'll be familiar, Ireland, and Greece. Is it now time that Portugal follows alongside?
Join me in the library and you'll see, this really tells the tale of what happened. All the good gains of the end of last year are evaporating away as once again, the markets are seriously worried. Yields, borrowing costs, rose at the weekend on the news that perhaps Germany and France are pressuring Portugal to accept a bailout. The banks were lower on Monday, especially Soc Gen, down nearly 4 percent in the Paris market. BNP Paribas, Credit Agrico, were all down sharply as well. And bear in mind that if there is a bailout on the cards, it will be Germany and France that will bear the brunt of having to pay the money. Of course, the largest, the U.K. may join in, of course, on a bilateral basis.
The euro against the dollar, $1.29 and change. It is almost to a four- month low. The euro perhaps is not the big story on this, just at the second. Because it has risen slightly as the bond yields dip from record levels. But over all investors are still-you know, you've got two weak men pushing against each other with the euro and the dollar. And that is the dynamic that is taking place here.
But look at this. Borrowing rate for Spain, it is at 4.52 percent for the Spanish 10-year bond and if we look at the Portuguese bond, the 10-year bond, at 6.92 percent. This is what they could be forced as they attempt a 1.3 billion refinancing, $1.3 billion refinancing.
Now, at these levels and we'll talk about this in a moment with my guest. The question is whether 6.9 percent is bearable, or even perhaps, sustainable for Portugal.
But there was an even more telling reminder of the sort of misery that is in the markets at the moment. The crisis is spreading rapidly and countries away from the periphery are now being affected. In Belgium a political crisis has paralyzed the machinery of government. It means no one will deal with Belgium's growing debt mountain, which is close to 100 percent of GDP. And that is pushing up borrowing costs. Now, the king of Belgium has intervened, without an effective government. Albert II is ordering the country's caretaker government to cut the budget deficit. He wants it to be better than what has been agreed with European institutions. The deficit is forecast at 4.1 percent, if the lawmakers do what the King is asking; an intervention by the monarch, an extremely rare event.
I'm joined now by the Guillaume Menuet, the senior European economist at Bank of America, Merrill Lynch.
Well, let's get the quick and easy stuff out of the way. Do you believe Portugal will have to take a bailout?
GUILLAUME MENUET, SR. EUROPEAN ECONOMIST, BANK OF AMERICA, MERRILL LYNCH: Portugal will need financial assistance. It is likely that before the end of the month they will raise the white flag and therefore Germany and France will come riding in, offering a package for about two years (ph).
QUEST: OK, now. At 6.9 percent, say 7 percent, 7.25 percent, is that sustainable. What is the plain threshold, do you believe, for Portugal?
MENUET: You've got to think that countries and fiscal adjustments will have to run what we call primary surpluses, i.e., have more government revenues than is spent on state expenditure. So these countries within two or three years will have to be running surpluses of about 3 percent of GDP. To add to this, you have nominal GDP of about 3, 3.5 percent. So 6.5 percent is border line and sustainable, 7 percent is not sustainable.
QUEST: 7 percent-but in terms of what they have to pay on that bond, if that bond rate stays at 7 percent they can't afford to borrow at that rate.
MENUET: Not in the long-run, absolutely not.
QUEST: So if you can see this, and everything I'm reading on line can see it, and why is it taking so long for the Portuguese to come to the table?
MENUET: Because it would mean relinquishing fiscal sovereignty to Brussels and Washington. And this is always very difficult, especially when you have minority governments.
QUEST: But have they learnt nothing from the fiascos of Greece and Ireland. We don't need a bailout, we don't need a bailout-Oh! We need a bailout.
MENUET: They cannot operate otherwise. This is the way Europeans institutions work. You cannot force a country to take financial assistance. It has to a sovereign decision.
QUEST: OK, so Portugal may need a bailout, or will need a bailout. Does Spain need a bailout? Are we just going to have an entire year of one bailout after another? They can't get ahead of the curve.
MENUET: I think it is unlikely that we have a year of continued turmoil. I think we'll have another six months, but before the end of the first half of 2011 I think we'll have clarity. Either Spain will have resisted successfully or Spain will see the need, also, for a shorter financial assistance program designed to help its banks. The sovereign doesn't need the money.
QUEST: So what does it take to resist the bond market vigilantes? And are they just basically troublemakers?
MENUET: They are not troublemakers, because these are investors, people that invest your pension. So these guys can stop buying. It is not the selling which matters, it is the buying, the lack of (UNINTELLIGIBLE) and purchases which is creating the yield drift. And so Spain has to continue what it is doing; clear, transparent, credible adjustment measures.
QUEST: When we see Belgium and the king of Belgium saying what he said today, what do you make of that? That's pretty unusual.
MENUET: It is not unusual in the sense that Belgium, the last time they elected a parliament, it took them seven months to agree on a new government coalition. We are still within that seven months period.
QUEST: But is there any risk that that periphery becomes the core? That countries like Belgium do end up succumbing. I mean, let's-so-
MENUET: Countries like Italy and Belgium have been used to servicing very high debt to GDP ratios. They have shown over the decades credible adjustment programs. It is not an issue.
QUEST: Excellent. Many thanks indeed. Thank you for helping us understand that.
MENUET: You're welcome.
QUEST: Now, another huge world economy with a huge deficit problem. It is often compared, of course, the state of California, with maybe some of the periphery states in Europe. The new governor is preparing to make deep budget cuts. We'll bring you the story from the Golden State, which is looking a bit tarnished, in about 20 minutes.
And the storm over the snow, Virgin tells Heathrow, we're not paying the bills. Well, not for now, anyway.
(DESK BELL CHIMES)
QUEST: When the snow hit Heathrow Airport last month, the fall out was huge. Thousands of holiday plans were ruined, hundreds of flights grounded, it cost the airlines millions of dollars. Now, Virgin Atlantic is issuing threats to Heathrow owners, BAA. Virgin says it won't pay the company its landing fees until it hears answers from BAA inquiry into the mess. The airport's second runway was shut for four days because BA couldn't cope, one week before Christmas.
The report isn't out until March, meaning Virgin will hold back less than $15.5 million in fees, about the same amount of money it lost during the disruption. BAA says that there is no justification for Virgin to hold back the fees. I asked Virgin Atlantic's chief financial officer why the airline was going down this route.
(BEGIN VIDEO CLIP)
JULIE SOUTHERN, CFO, VIRGIN ATLANTIC: We know that the disruption that happened before Christmas due to the prolonged closure of Heathrow caused enormous distress to thousands of passengers. And we know that Virgin Atlantic fully stepped up to its responsibilities and made sure that all passengers got to their final destination as early as they possibly could. And we simply don't feel that the airport operated, BAA and Heathrow Airports, Limited, showed the same level of accountability. So this is really about making sure that we keep a focus on the inquiry that the BA have announced. That it is done as quickly as possible. It is done as thoroughly as possible and it is done in a really transparent way.
QUEST: It is your own, if you like, a bit of civil unrest, civil disobedience, a bit of airline disobedience.
SOUTHERN: You can put it like that. I wouldn't use those words, but I think it is about keeping some focus on an inquiry and actually making sure that passengers are at the heart of the service providers responsibility, which is where they should be.
QUEST: I mean, is Heathrow, as the world premiere, international airport, is it finished? Do you think, in that role? And I'll tell you why I ask that, because there is investment going into Frankfurt. There are new runways at Charles de Gaulle. You have the huge airports of-the new airports of Dubai, Doha, and Abu Dhabi. Where does Heathrow fit into all of this, when you can't even handle a snow?
SOUTHERN: Well, I think that is why we are pleased that there is an inquiry. I think other airports around the world proved that they can handle very significant weather events, including very large dumps of snow. So there is no reason to believe that Heathrow should be in a different category. Heathrow ought to be able to handle the snow, as indeed, this time around Gatwick proved that they were able to do.
I think Heathrow has a bright future. It remains an airport that people want to travel to directly when they are coming to the U.K. and also connect through, so I wouldn't extend this to saying that Heathrow is finished. It is about learning some lessons in terms of snow and weather disruptions.
(END VIDEO CLIP)
QUEST: Chief financial officer Virgin Atlantic. Who, probably before long will eventually have to pay the bill.
There is nothing more important than the air that we breathe. So what can the world's busiest cities do to keep it clean. "Future Cities" takes us to Mexico City, in a moment.
QUEST: So to "Future Cities" and we consider the ways the urban environments are changing and the millions of us who live within towns and cities. One of the first things people notice about life in the city is the quality of air.
Now 20 years ago, Mexico City had the worst air quality in the world. That much everybody knows about. Look at the situation today. This is Mexico City's ambient air quality monitoring system. OK, of the nine days, so far, of 2011, so far only seven of them have been rated as clean. At the moment, in Mexico City, the northeast of the city is 83, which is moderate; the northwest, downtown, 53. Only the southwest of Mexico City currently has good air quality. So with a recommendation a few usually sensitive or ill people may experience difficulties. What has Mexico City been doing in recent months and years to ensure that overall, the rest of the city stays green and healthy.
QUEST (voice over): Clean air, it is something many of us take for granted. Not so here, in the congested streets of Mexico City, where the air quality is a daily concern. In the 1990s the United Nations said Mexico City had the worst air quality in the world.
MAYOR MARCELO EBRARD, MEXICO CITY: We had a crisis, an environmental crisis, in the latest '80s. Really an emergency in the city because the city was so polluted at that time, that we have the bird started to die, in the city. Really.
QUEST: Mexico City is 2,200 meters above sea level. The air is thin. There is less oxygen at this altitude. At the heart of the combustion process of fuels, is oxygen. When fuels are burned they release energy, poor combustion creates soot and more pollution.
ASTRID PUENTES, INTER-AMERICAN ASSN., FOR ENVIRONMENTAL DEFENSE: Combustion, if it is not well enough, done, then the contaminants are up in the air and then we basically breathe that all the time.
DR. VICTOR HUGO PARAMO, AIR QUALITY CONTROL, MEXICO CITY: A few years ago very important measures were taken. They began by changing the fuels that were used in the city. They switched it from heavy fuel oil to natural gas for the power plants in the big industries.
QUEST: The city had to clean up its act for the sake of the 20 million people who live work and breathe here.
ARMANDO RETAMA HERNANDEZ, ENVIRONMENT SECRETARIAT, MEXICO CITY: We have 54 monitoring stations around the city. So we are measuring particle matter, ozone, carbon dioxide, sulfur dioxide, carbon monoxide, nitrogen oxide, so we can figure out how the pollution is in Mexico City with these instruments.
QUEST: Hourly measurements are taken and posted onto a Web site, warning people which areas of the city are worst affected. Green means good, red obviously bad. The National Institute of Public Health, here in the city says breathing polluted air does more damage to children than cigarette smoke. It can harm lung growth.
DR. HORACIO RIOJAS RODRIGUEZ, NATIONAL INST. OF PUBLIC HEALTH: There is inadequate lung growth in the children that are living in the more polluted areas, compared to others that are living outside these areas.
QUEST: This is one of the biggest problems, traffic. In the quest to improve pollution levels most of these drivers are now restricted from using their cars one day a week. "Don't Drive Day" is one of the initiatives in Plan Verde, a green framework to improve the quality of life for citizens.
MARTHA DELGADO, ENVIRONMENTAL SECRETARY, MEXICO CITY: We need to move on- out the traffic, for example, which is characteristic of Mexico City. Traffic, and slow cars, lines-we need to move on, on that.
QUEST: Rooftops are being transformed into gardens. Adding more oxygen to the atmosphere, keeping the buildings cool. A new metro line is being built, and other initiatives, including the first bike hire scheme in Latin America. They are all contributing to the cleaner air.
We are creating this good will about bikes in Mexico City. Even in Copenhagen, in Rotterdam, Amsterdam, they spent decades to be bike friendly.
QUEST: And scenes like this are thriving, Cycle Sundays, where up to 80,000 people make the most of the main avenues of Mexico City, which are closed to cars. Areli Carreon is a keen cyclist.
ARELI CARREON, PRESIDENT, BICITEKAS: From a car, you tend to see the city as a very, very difficult one. But from a bicycle it is a completely different picture. It is faster, it is nice.
QUEST: Every day she bikes through the congested streets.
CARREON: I'm concerned about the pollution, of course. As everybody in the city should, but not-I don't I need to be more scared, or use it as an excuse not to bike.
QUEST: In 1990 there were 333 days when the amount of ozone in the air reached dangerous levels. By 2009 that had fallen to 180 days. Doctor Horacio Riojas praises the improvements the city has made to its air quality. But still, he warns that when levels of pollution are high, cycling and other outdoor activities might not be safe.
RODRIGUEZ: That is not safe if the pollution is high. Because you know, you breathe more and the exposure is higher and impact could be higher also. The recommendation is not to exercise during these kinds of days. You can loose months of life due to air pollution.
QUEST: Whether it is driving, walking or cycling the streets of Mexico City, improving pollution levels for those who live here is a true investment in their future.
(MARIACHI BAND PLAYS)
QUEST: Now, Mexico City isn't the only Latin American capital to try out new environmental initiatives. Imagine a city completely free of cars during the rush hour. That is what the Colombian City of Bogota has voted for, thanks largely to the former mayor to the city, Enrique Penalosa, who has become one of the most influential voices in urban planning. Other plans that he put in place included a sprawling bus network, and miles and miles of new sidewalks and bicycle paths. That is what he did in Bogota.
He is with me now, as you can tell, to talk more about it.
And he's getting-look, Mexico City, Bogota, you are all facing the same urban sprawl environment, environmental air pollution problem. So, is it inevitable battle that you are destined to lose?
ENRIQUE PENALOSA, FMR. MAYOR, BOGOTA: Yes, even if cars were completely clean, pollution free, they would be very bad for the urban quality of life. So, because there is a conflict for road space, between space for people, for pedestrians, for bicycles and for cars. And in a developing country city, the majority of people do not have cars. So, I think the-
QUEST: But you call it a democracy, don't you? You have sort of taken the challenge, and said this is about democracy of people's access and right to use the highways, and the footpaths and the pavements.
PENALOSA: Yes, I think the main cause of the problem is inequality. Because average income people, they just want more and more space for roads, they don't care about sidewalks. They don't want to leave space for public transport, so-the busses that we implemented, copied from Curitiba, which has also been implemented in Mexico City.
QUEST: Which we have featured on this program, Curitiba.
PENALOSA: Yes. It is moving our city more passengers than all subways in the world, except six or seven. But the principle is that if all citizens are equal before the law, a bus with 100 passengers has the right to 100 times more road space-
QUEST: No, you know as well as I do, Mr. Former Mayor. You know as well as I do that that is until you get aspirations of those passengers on the bus that want to have their own car.
PENALOSA: I think it is wonderful that people have cars. But cars should be used for going out at night, for going to the countryside. It is completely impossible that a city can solve its problems if want to use cars to go to work. A 20-million inhabitant city like Mexico, or a 7- million inhabitant city like Bogota, it is very clear now that more road space, more roads, or bigger roads will never solve traffic jams. Because what creates traffic jams is not the number of cars, it is the length of trips and the number of trips. So nobody has ever solved traffic jams making more roads.
QUEST: So what is your-as any city looks at these problems, what is your over riding philosophy for a city's development. Because you are now an international expert on this.
PENALOSA: Basically I think if we learn from a city like London, for example, that an advanced city is not one where more and more people have cars. A truly advanced city is one where even average income people use public transport. An advanced city is one where we have great sidewalks. I would say sidewalks are the most important infrastructure piece of a city.
And what really makes a difference between advanced and backwards cities is not highways, or even subways, but quality sidewalks.
QUEST: Even in a place where people might not actually walk on them, like Los Angeles?
PENALOSA: Well, actually we have to create cities where it is fun and easy to walk. But in developing countries, developing country's cities, by definition most people don't have cars and most people walk a lot.
QUEST: Finally, isn't one of the really big problems is that in the battle to make sustainability, good governance also has to be there. The lack of corruption, the lack of bribery, the ability to have proper tendering, all of these (INAUDIBLE).
PENALOSA: Exactly, you have to have extremely efficient government. No cheap politicking. You have to appoint the best people. Not those who are recommended by the city council or things like that. You have to have only the best people.
QUEST: So, when you were mayor did you ever say no, I'm not appointing that person.
PENALOSA: Of course, we only appointed, and the people with whom we created the Green Party in Colombia, we only appointed the best people, regardless of the party, many from the private sector, and that of course, is what made it possible to make an amazing transformation.
QUEST: Of course, you lost the election.
PENALOSA: Well, but now-
QUEST: You lost the election.
PENALOSA: But that was many years after.
QUEST: Congratulations and many thanks for coming in.
PENALOSA: Thank you, very much, Richard.
QUEST: Thanks, indeed.
Now, interesting stuff, "Future Cities" always on a Monday, right here on QUEST MEANS BUSINESS.
Coming up in a moment. Great expectations the Detroit Auto Show opens its doors. We'll be asking if the car industry is on a road to recover or heading down a new path of pain.
(DESK BELL CHIMES)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS. and here, the news always comes first.
President Obama led a U.S. nationwide moment of silence to honor the 21 people who were shot on Saturday in Tucson, Arizona. The suspect, Jared Loughner, is scheduled to appear in a Phoenix federal court in about an hour-and-a-half on murder and attempted murder charges. The main target, the Democratic Congresswoman, Gabrielle Giffords, is still in a critical condition. Doctors say she has stabilized.
In Sudan, they're casting their ballots in the vote to decide whether the South should be independent from the North. The seven day election has seen deadly violence in a border region where the secession vote has been delayed. Some in the South say it's a vote for freedom. Some in North fear it will tear apart their country.
Germany has lifted a quarantine on some 3,000 poultry and hog farms. The release comes after negative tests cleared the farms of further dioxin contamination. Officials say animal feed contaminated with dioxin may have been given to hens in Denmark. Dioxins are a family of toxic chemicals believed to cause cancer in humans.
A huge honor for the football superstar Lionel Messi. The Argentinean forward has won the FIFA Ballon d'Or Award. He beat out two heavily favored Barcelona teammates. It's the first year for the award, which merged France's football magazine's European Footballer of the Year prize with the FIFA World Player of the Year Award.
The new governor of California, Jerry Brown, is laying out his plan to fix the Golden State's finances. These are live pictures coming to us from Sacramento, where the governor is telling state lawmakers where he'll make sweeping cuts. Part of the hit list, his own office, where spending will fall by a quarter or half -- one $.5 million. It's a trifle compared to what Brown needs to save. The governor must fill a $25 billion black hole in the books to restore the Golden Gate -- the Golden State -- to glowing financial health.
Now, if you join me in the library, you will see the sort of things that he has had to do.
This is the big number that's come out today -- spending cuts of $12.5 billion. Now, a lot of -- then there will be $12 billion from extending taxes due to expire. California has endured a decade of cuts and it has some of the highest taxes in the United States.
But as the red arrow shows, this is only going to be solved with spending cuts and tax hikes. And this is where a lot of the brunt will -- Medicaid, California's own version of Medical, welfare programs -- they will all bear the brunt. Non-union public employees will lose between 8 and 10 percent of their take home pay. The major funds will also use -- lose vast parts of financing.
The governor is calling it an honest budget, as he promised last week when he was inaugurated. And, crucially, he said that today's cuts -- the object was to get over 10 years of budget gimmicks and tricks that have pushed the state into debt.
The responsibility is now.
So let's talk about this with John Ellwood, who is the public professor -- policy professor and policy analyst at the University of California in Berkeley.
We can see there, he's just -- he's just having his earpiece rectified, one -- one hopes.
John Ellwood, can you hear me?
Mr. Ellwood, can you hear me?
JOHN ELLWOOD, POLICY ANALYST: Yes, I can.
QUEST: Ah, hello.
We're live now on air.
QUEST: Let's just talk about this in -- in some blunt terms, John.
How -- I mean if this is going only going to be solved with tax rises and spending cuts.
But is California prepared to accept that pain?
ELLWOOD: That's the great question. And -- and we will only find that out over time. For the last 10 years, the state has avoided these tough decision. California does not require that there be a balanced budget. What it requires, instead, is that the legislature pass and the governor sign a balanced budget.
So, over time, what governors have done is -- and the legislature have signed budgets that are full of gimmicks --
ELLWOOD: -- and false assumptions --
QUEST: But the --
ELLWOOD: -- and so --
QUEST: -- but --
ELLWOOD: -- for example, the death --
QUEST: But there are systemic problems --
ELLWOOD: Go ahead.
QUEST: There are systemic problems, aren't there, not only with the nature of California's tax system -- heavily based on income rather than property, very susceptible to recessions, all these sort of housing bubbles.
So until they are addressed, you're basically twiddling your thumbs.
ELLWOOD: Yes, we have two different types of problems. One is the structure of the tax system, which you've just laid out, is that because of Proposition 13, a famous initiative that limits the growth of the property tax, California relies much more than the average state on income taxes. And, moreover, it relies on a very progressive income tax, which means that when the economy goes down, state revenues collapse faster than they would in other states. And so that's a policy structure that has to be fixed.
California also, however, has process problems, which is that it takes a two thirds vote of both the upper and lower houses in the California legislature to raise taxes. It's one of only three states that has that, which means that, for example, in the Jerry Brown proposal of today, he's not telling the legislature to raise taxes. He's telling the legislature to pass a law --
QUEST: OK --
ELLWOOD: -- that will then have to go to the people. And the people will have to essentially approve that, sort of in direct democracy.
QUEST: Right. Right. But --
ELLWOOD: Up to this point --
QUEST: But let me --
ELLWOOD: -- the people --
QUEST: Let me just interrupt you, in a way, because --
ELLWOOD: Go ahead.
QUEST: -- the -- the core question I know a lot of our viewers elsewhere in the world will be wanting to know, is there any real -- and I use that word real risk that California could go bankrupt, could not pay its debts or could ultimately default on its bonds?
ELLWOOD: Very, very small. There's always a risk, obviously, but it's tiny. Let me give you an example. The American state that is in the worst trouble right now is the state of Illinois, where Barack Obama came from. And it is -- it really has budget problems that are worse than California as a percentage of its economy. And they are now finally facing reality and they are talking about a 75 percent increase in their personal income tax.
So when things get really bad enough and when citizens really believe it, they will go out and do something about it.
QUEST: John Ellwood --
ELLWOOD: California's problem is -- yes?
QUEST: No, sorry. I -- I beg your pardon.
ELLWOOD: It's --
QUEST: California's problem?
ELLWOOD: It's the citizens have avoided and have been allowed to avoided facing choices. And you set out those choices before. If you have a budget difficult, there are only two ways to close that budget deficit and both involve a lot of pain.
Pain number one is to increase taxes. Pain number two is to cut services.
And this is what you people are doing now in the U.K., right?
And the problem in California is we have walled off --
ELLWOOD: -- increasing the taxes part. And so we have to face that.
QUEST: Many thanks, indeed --
ELLWOOD: And so far, Brown --
QUEST: We'll -- we'll have to leave it there --
ELLWOOD: -- Brown claims he's going to face that.
QUEST: Many thanks, indeed.
QUEST: And I apologize for appearing to interrupt John there.
We do, of course, have problems -- the delay from me to California was causing, of course, difficulties there.
But fascinating, the problems of California.
We will continue to follow closely. Depending on your definition, it's either the sixth, the seventh or the eighth largest economy -- or it would be -- on -- in its own right. You'll have some thoughts on that.
The annual Detroit Auto Show has revved into action with newfound optimism. Sales figures for 2010 suggest U.S. car companies are bouncing back. But in a climate of rising oil prices and high unemployment rates, perhaps overheating.
CNNMoney's Poppy Harlow is in Detroit.
And I think, again, we'll probably have a slight delay problem talking to you -- Poppy.
I see the Volt was voted Car of the Year. So there will be a lot of celebrations on -- on that score.
Are they optimistic in Detroit?
POPPY HARLOW, ANCHOR, CNNMONEY.COM: Richard, I cannot emphasize enough what a difference a year makes. We were here a year ago. The mood was incredibly somber. GM and Chrysler were still in the midst of bankruptcy, really fighting for their own survival, two companies on their knees, now standing relatively tall, still in debt to the U.S. government, but two companies that have seen quite a turnaround this year.
As you mentioned, let's show some video of GM's Volt getting the highly coveted North America Car of the Year Award this morning. That is the first electric vehicle ever here in Detroit to get that award.
And then Ford, another American automaker, winning U -- winning the Truck of the Year Award here with its new Ford Explorer.
And beyond the U.S. market, which has seen a huge pickup this year in auto sales, the global market is clearly very, very important to all of these automakers, especially the big three now.
So we had a chance to sit down, Richard, with both Alan Mulally, the CEO of Ford, and also the head of General Motors North America to talk about how important major emerging economies are for their companies right now, in particular, China and India.
Take a listen.
HARLOW: Sales in China up 30 percent this year, 2.4 million GM vehicles sold there versus 2.2 million here in the United States.
Does the momentum just keep going?
Will you continue to sell more cars in China?
MARK REUSS, PRESIDENT, GM NORTH AMERICA: Well, I think so. If you look at what Tim Lee and the team have done over there in -- and particular in Asia-Pacific, is, you know, an unbelievable pace and agility relative to how the market is changing. And the market changes there almost every month. And so that sales leadership is a reflection of their ability to change to that, you know, the different market conditions that -- that are happening so fast so.
HARLOW: What about the Indian market?
That -- that's a place where Ford has done exceptionally well. They don't as well as you guys in China, though.
HARLOW: So what's your game plan for India?
REUSS: Well, India -- if you look at India and -- and Carl Slim and what he's doing over there and the team, you know, Chevrolet in India is -- has had tremendous growth. So, you know, I think -- I just look for that to continue.
We've got, you know, some of the cars like Cruise and Spark, you know, for Chevrolet in India are just tremendously huge opportunities for us.
HARLOW: That -- what about globally?
India has been a very big market where you've concentrated.
What promise do you think India holds?
And it almost seems like you're focusing more on India than China.
Is that the case or is there equal attention on both?
ALAN MULALLY, CEO, FORD: Well, we're focused on both of them and all of Asia-Pacific, because right now, Asia-Pacific has moved up to be the largest market in the world. Now, the United States and Europe are very, very important to us. They always will be. But the tremendous growth that we see in Asia-Pacific has us focusing all of our global products now there. And we're expanding as fast as we can.
China alone is the largest market in the world now. And we have a great partner there and we're bringing all of our fabulous vehicles to the customers.
(END VIDEO TAPE)
HARLOW: And, you know, Richard, after those interviews, I had a chance to talk to Jim Lentz, one of the heads of Toyota. And I said to him, just plainly put, what market is more important to you for Toyota, as it tries to come back from that record recall?
And he said, China, China, China. It's all about China right now -- Richard.
QUEST: You see that's really the problem, isn't it, Poppy?
You know, there's only so long and so far that these U.S. automakers can run their U.S. operations, even though the recovery seems quite strong. They are de facto --
QUEST: -- turning into Asian and emerging market companies.
HARLOW: There is absolutely no question about that. I think Ford is the prime example. Ford, when Alan Mulally came into run it in 2006, revamped the company, as you know, Richard, and made one Ford, so that they were literally building different cars on the same base around the world. That is how you make more of a profit on every model you sell. That's is how you run -- run an automaker these days.
GM is doing a similar thing. They sold more cars in China in 2010 than they did in the United States for the first time ever. It is all about the global market right now.
The focus here, though, in Detroit, Richard, is small cars and electric cars. And I have to say, American buyers like their trucks, they like their SUVs. You're not seeing them inside here. It's all about the small trucks and all -- or all about the small cars and all about the electrics.
And, Richard, I want to wrap up by showing you something very, very cool. This was the highlight of the show this morning. Porsche is here for the first time in four years. They had an incredibly good year -- a 30 percent increase in sales in the U.S. And what you're seeing right now is the Porsche 918 Electric Roadster that -- that came with much fanfare this morning -- Richard.
And I asked if they'd hold one --
QUEST: All right.
HARLOW: -- especially aside for you -- Richard.
QUEST: Oh, hold on just a second, Harlow.
You don't escape that quickly.
A quick question.
I'm going to buy you --
QUEST: -- for your birthday, either a Chevy Volt or an electric --
QUEST: -- Porsche 918.
Which will you have?
HARLOW: I think I'll say the Porsche, only because I don't have expensive tastes --
HARLOW: -- but only because I've already driven the Volt. So I want -- I want the Porsche experience.
QUEST: All right.
HARLOW: Thank you so much, Richard.
QUEST: She even tried to say that with a straight face.
All right, many thanks, indeed, Poppy, who will be back in New York.
HARLOW: You've got it.
QUEST: And we'll make sure that we don't get the bill for the car on the way.
OK, when is a Tweet not a Tweet?
Hmmm, an interesting question. When it's a thinly veiled promotion by a celebrity who's been paid. We're going to take a look at the growing practice of celebs Tweeting products, in a moment.
QUEST: Welcome back.
Celebrities in Britain who promote products via social networking are now facing a clampdown. The government's consumer watchdog, Ovcom (ph), says online advertising that does not reveal the fact that it's actually a paid for advert is, in its words, deceptive. It's already very big business, particularly when you're talking about Tweeting -- paid Tweets. That's what it is. Let's call it for what it is -- paid Tweets.
The rapper, Snoop Dogg, earns a reported $3,000 for paid Tweeting. And the reality TV star, Kim Kardashian, can make up to -- Kardashian, I beg your pardon -- can make up to $10,000 simply by endorsing certain brands in fewer than 130 characters.
I'm not going to necessarily read them, because that just gives Ms. Kardashian even more brass for her buck, so to speak.
Elizabeth Hurley, if your skin is dry -- let's just cover up the advert, but you get the idea. She Tweets about it, as well, insisting on its Hydroponic (ph) Serum. I'm sure that does something for somebody somewhere, but they all got paid for actually doing it.
Let's talk more about this between these Tweets one way and another.
Joining me now is Sean Rad, who joins me from his office in Los Angeles.
Sean, you are responsible for many of these paid Tweets.
Why do they --
SEAN RAD, FOUNDER & PRESIDENT, AD.LY: Yes.
QUEST: Why do they work?
What's the rationale?
Surely nobody's fooled because Elizabeth Hurley talks about some cream and potion that they know she's being paid to promote?
RAD: So it works because celebrities represent the -- the larger portion of an online audience. If you look at social platforms like Twitter and Facebook, of the -- the majority of those audiences are opting in to hear from celebrities and marketers are looking to get -- to tape into the passions of those audiences.
So we match a celebrity with the correct brand, a brand that they actually do resonate with and they want to promote. And we have the celebrities send out a message to their audience.
Now, in our platform, it is 100 percent disclosed. So we -- we believe in disclosure. We follow frantic guidelines in the United States.
RAD: And we have since the inception of the company.
QUEST: So, right -- right. And that -- that means that you have to make it clear with -- that it's an ad, it's a paid Tweet.
QUEST: But I do --
QUEST: You know, there is a theory -- we've all talked about this today. There's something sleazy about it. It's the ad coming straight into your computer, your phone, your BlackBerry, whatever. And it's got an air of grubbiness about it.
RAD: Well, I think celebrity endorsements are nothing new. They've been happening since the beginning of, you know, the -- the term celebrity has been coined. What we're doing that's different is we're bringing what is predominantly an offline $50 billion business to the Internet. You turn on your TV, you see celebrities in actually about 30 percent of all television ads. But right now, with Ad.ly, we have the vision of bringing them into most often online ads. And that is a great user experience for that user, because you're opting in to get something from the celebrity and, you know, they're promoting a brand that actually is high quality and something that you might want to hear about.
QUEST: But there does have to be a certain integrity level to it, doesn't there, because, you know, if you choose to follow Richard Quest or Elizabeth Hurley or whoever it might be, if you only get nonsense of adverts from that person, you are basically nothing more than a patsy.
RAD: Yes. And I think there is a balance. You don't want to have every message you sent your audience be an advertisement. Just like on television, you don't have a -- a 30 minute slot of commercials.
But for us, it's about one in every --
QUEST: All right --
RAD: -- 10 or 20 messages might be an ad. It's -- it's almost like a commercial break within the group of content that these celebrities are creating.
RAD: Because they are content producers when it comes to online.
QUEST: Now -- now, assuming I was to go over to my computer now and do a - - a paid Tweet, which I'm not going to do, dear viewer, do not fret.
How much will I get for it?
How much are you going to pay me to Tweet something --
RAD: It --
QUEST: -- nice about you?
RAD: It really depends on the size of your audience and the quality of your audience. You could have a million followers, but your actual influence with that audience and engagement with that audience could be low. So we have algorithms that help us to measure your value to a brand. And, really, you know, there's no -- there's no clear cut answer. It really depends on the size of your audience and the quality of that audience.
QUEST: I can assure you --
RAD: -- once you're on the Ad.ly platform, I could give you -- give you an answer.
QUEST: I can assure you, the quality of our audience is very high, very, very high.
RAD: I --
QUEST: All right, Sean --
RAD: -- I -- I agree. I can imagine.
QUEST: Sean, many thanks, indeed.
Thank you for coming on the program and talking to us. RAD: Thank you.
QUEST: We'll talk more about this --
RAD: My pleasure.
QUEST: And we very much appreciate it.
Well, there you are.
You see, who knows how much we could all raise with this?
A weather forecast comes up after the break.
QUEST: OK, literally thousands of flights are being canceled across the United States at the moment. In the Southern part of the U.S., the weather is dreadful. At CNN's headquarters in Atlanta, they're all of a tizzy because the snow has fallen and I think -- I think -- well, Guillermo, please tell me more than three snowflakes have fallen.
GUILLERMO ARDUINO, CNN METEOROLOGIST: Oh, a lot more. Yes. And also, the cold air is invading the Northeast, the mid -- Midwest and the mid- atlantics, as well. So big airports in Washington or Chicago is going to see more snow. So problems are coming up to those areas.
These are the accumulations.
How common is it to see 19 centimeters in Huntsville, Alabama?
Not very common. Tupelo, Mississippi, 18 centimeters; Atlanta, nine centimeters. That's a lot. We're not ready for that or not prepared for this. And this is what happens when we see snow then rain and then temperatures go down, we get ice. And with the ice, you have problems. Airports close down. We can't drive around. And when the temperatures go up, we get the flooding.
So it is going to be very complicated. This is how it started, in these areas. Charlotte is a big airport, as well, and they canceled a lot of flights and we see problems.
Then we are going to problems in the Northeast and the Mid-Atlantic states.
So if you're watching right now and are wondering what's going to happen, well, if you're coming through the South, if you're coming to Philadelphia, New York, Boston, Washington, Baltimore or Chicago, Minneapolis, you may encounter some problems because it's a major area of the country with incidents concerning this snow.
Atlanta is seeing the cancellations before the fact, before the snow. And then all those other airports are going to do it, too, in the Northeast and the Mid-Atlantic.
So it is a mess, Richard.
It is bad.
In the meantime, Europe is much better. Rainstorms in Britain and France, but nothing to do with ice and snow.
QUEST: Guillermo, many thanks, indeed.
ARDUINO: You're welcome.
QUEST: We will be back with a Profitable Moment after the break.
QUEST: Tonight's Profitable Moment.
Week two of the new year and the wheels are wobbling dangerously on the European debt wagon. Portugal is in the sights of the bond market vigilantes and the talk is when, not if, they'll need help. Certainly the rumors are that Germany and France are pushing hard for Portugal to jump into the bailout boat before they are pushed.
This morning, I got an e-mail from Paul Donovan of UBS. He says Portugal's problem is either the budget deficit has to fall, market interest rates have to fall or a non-market method must be sought.
We've already had the fiasco of Greece and Ireland claiming fiscal security to the last moment. Surely -- surely this can't happen a third time.
The markets fell today because of worries over what's happening. It's too serious for Portuguese pride alone.
And that tonight is QUEST MEANS BUSINESS.
I am Richard Quest in London, thanking you for your time and company.
Whatever you're up to in the hours ahead, I hope it's profitable.
"WORLD ONE" now.