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QUEST MEANS BUSINESS
U.S. Hiring Beats Expectations; Unemployment Rate Edges up to 9 Percent; Greece Denies Plans to Leave Euro Zone
Aired May 6, 2011 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN DEFTERIOS, HOST, QUEST MEANS BUSINESS: A welcome break for the U.S. jobs market as hiring beats expectations.
Greece categorically denies reports it is leaving the Euro Zone as the single currency takes a dive.
And on a commodity roller coaster, oil prices bounce back after big losses.
I'm John Defterios in for Richard Quest. This, of course, is QUEST MEANS BUSINESS.
Tonight the U.S. economy is working its way back to health slowly but surely. American companies are creating jobs and more people are out there looking for them. The economy added 244,000 jobs in April. More than the number created in March. All the growth is coming from the private sector right now, as the public sector is still shrinking. April was the strongest month for business hiring in more than five years. The jobless rate is up, now at 9 percent of the workforce. But that is actually not all bad news. It shows more people are putting themselves out there looking for a job; 13.7 million people in America say they are unemployed. That number is pretty much the same as last month.
Overall, the jobs numbers are better than many investors were hoping for. Let's turn over to the New York Stock Exchange to get the latest read on the market. We had a spike up when we saw the jobs report. Let's see what is happening right now.
Alison Kosik is at the wall-Alison.
ALISON KOSIK, CNN FINANCIAL CORRESPONDENT: Hi, John. Yes, we did see a spike right from the opening bell. Stocks have backed off those highs. It looks like maybe investors are taking profits off the table. But no doubt investors are really happy about this report, especially since they really had low expectations going into this report after getting several downbeat employment reports all week. So, needless to say, investors were pleasantly surprised.
Now at the same time they do realize that one stellar jobs report, a recovery does not make. But that 244,000 number beat expectations. And the good thing about this report is that you look deeper into it you see broad based gains in all areas of the labor force and the number of long- term unemployed. That fell below the 6 million mark. That is more good news. This report also showed that wages grew as well. So all around it is a strong report and one that Wall Street is definitely hanging its hat on today, John.
DEFTERIOS: Alison, some whiplash here. Investors were looking very, very dour at the beginning of the week with all this volatility. This time, last year, $860 billion lost in 20 minutes of trading, the flash crash. Have we learned anything in the last year to repair that potential again?
KOSIK: We have no doubt learned a lot since last year. That May 6th flash crash. You know with so many regulations in place, you know, there aren't really necessarily worries of a repeat but investors, you know, they haven't forgotten that day. I mean, the flash crash had a huge impact on volume. We can see it in the volume levels everyday. You know, after that an almost 1,000 point drop in a matter of minutes. You know, a lot of investors just lost confidence in the stock market and they just haven't gone back. They are remaining on the sidelines. There is also been a decline in electronic trading.
Regulators have made it more difficult for another flash crash to happen because the fixes put in place by regulators are actually working. In fact, we saw it happen just earlier this week. A 30 percent drop in a basket of health care stock tripped up the circuit breakers, the trades were cancelled and a repeat of the flash crash was averted. Still electronic trading is still a big part of the everyday session here on Wall Street. You know electronic trades are really what helped to accelerate the declines in commodities that we saw Thursday, John.
DEFTERIOS: Very quickly, in about 15 seconds, but I understand the work is not done in solving the problem? That's correct?
KOSIK: No, I mean, the work is not done. It is really a-it's one of those things were you sort of, you try it out, you see if it works, and right now it does seem to be working.
DEFTERIOS: OK, thanks very much, Alison Kosik at the New York Stock Exchange.
Well, this is the first positive sign of what has been a dismal week for the U.S. economy. Of course, I am speaking of the jobs report. Let's take a look back at the week that was. And you had the bears dominating and then the bulls get to charge out through the weekend.
Maggie Lake is giving us an update on that-Maggie.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Yes, that is right, John. This was much needed. You know, after two some years, trillions of dollars in stimulus, the U.S. economy was looking pretty wobbly. Well, a lot of those fears that Alison mentioned were alleviated with that jobs number. And you can believe that President Obama, who was speaking to workers at a factory, in Indiana, was quick to point that out.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Now we made this progress at a time when our economy has been facing some serious headwinds. And I don't need to tell you about that.
We've got high gas prices, that have been eating away at your paychecks. And that is a headwind that we've got to confront. You've got the earthquake in Japan that has had an effect on manufacturing here. So there are always going to be some ups and downs like these, as we come out of a recession. And there will undoubtedly be some more challenges ahead. But the fact is that we are still making progress.
(END VIDEO CLIP)
LAKE: Making progress, that is the key phrase. Now, in addition to that payroll number, the other thing helping this week was a drop in oil prices. Bad news if you are an investor that was long oil, but if you are consumer getting really hit with those gas prices, oil down some 10 percent this week, gas falling for the first time in 44 straight days. So that is a real positive as well.
However, this comes against a backdrop, we had a very bad reading on weekly jobless claims. So those labor numbers are still confusing for people. And we also had a very bad service sector reading. You can see that in the negative side of the scale, the ISM. Especially new orders, dropped 17 percent. That really spooked a lot of people. The service part of the U.S. economy, very large, that sector, big contributor to the economy, so it is still mixed, John. And you just don't have that catalyst, that total confidence there yet. But a lot of people hoping President Obama is right and the momentum is starting to move in that direction.
DEFTERIOS: Yes, a huge question. Can he get momentum in Washington, to cut down the deficit? And cut into entitlements? Because it is the long-term debt that is eroding the dollar right now.
LAKE: That is right. And, John, you just hit on what is maybe the biggest headwind, the biggest wild card for the health of the U.S. economy, is the political leaders' ability to get something done on the deficit. Short term we have that debt ceiling, which if they play chicken with it, and play politics with it, it is really going to start to spook the markets. And then, longer term, this issue of reducing the debt. A lot of people saying if the president can capitalize on some of the political clout he has now, and get some kind of an agreement, that would be a huge positive for the U.S. economy. But given the politics in Washington, right now, that looks like a long shot.
DEFTERIOS: And he's had a pretty busy week, as we can say, going from last Sunday to the visit, all the way up to ground zero.
LAKE: That's right.
DEFTERIOS: Maggie Lake, in New York, with that analysis, on the week that was.
Diane Swonk is the chief economist at the money manager and broker, Mesirow Financial. She is also one of the top forecaster in the U.S., according to the jury that is out for "The Wall Street Journal" each year. And she joins me now from Chicago.
Diane, it has been a long time. Nice to see you.
I wanted to get your analysis, if we can.
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Good to see you.
DEFTERIOS: On the biggest increase that we have seen in the better part of a year, on the jobs front; a revision for the month before. Can we really say that we are-that convincing evidence is on the table now, or is it too much of a mixed picture going back to what Maggie was talking about in the past week?
SWONK: Well, the recovery remains extremely uneven. And I think it is worth pointing out as good as this number was, and I was excited about it, with the broad based gains, there is a couple of caveats. The survey was taken before we saw much of the deterioration in unemployment claims that occurred later in the month. Everything from disruptions in production from Japan, that are more transitory, to what looked like some layoffs maybe in the service sector that didn't get captured in the survey given the timing of it. It also included an extra week, which gave it an extra little boost from that.
And so, although it is a good number, you know, that with a higher unemployment rate, not because people are so excited about throwing their hat back in the ring, but actually the unemployment rate went higher because, on the household survey more people are unemployed. These two surveys really giving mixed messages, trying to converge now, I think, after the household survey had shown some very strong gains, earlier in the year. Now that they are converging on the two surveys, but at the end of the day, one month does not make a trend. The momentum was better than it was. Of course, it wasn't great.
DEFTERIOS: Let's try to go back in time, with the recession. Lost nearly 9 million jobs. We have recovered nearly, just about 2.2 million jobs since the start of this recovery. Is there gas in the engine to create jobs in the second half of 2011, if we pull out the quantitative easing?
SWONK: Yes, we'll make it through the quantitative easing. I think the economy has enough momentum to overcome the headwinds of higher energy prices. Hopefully, they actually stay a little lower. But even if they were to creep a little higher, again, we could over come that. Because we had that 2 percent payroll tax cut, which is essentially paying for people's gas right now. It is almost the equivalent of what the higher gas prices are costing consumers. So that acted as an offset with increased employment. You can get where you need to go, in terms of creating jobs, question is how much? By the end of the year we'll be more than 4 million still in the hole from the recession. Maybe even 5 million, and that is not exactly anything to pop champagne corks over.
DEFTERIOS: Certainly not. I got fairly concerned when I saw one of the Chinese central bank officials say we are watching the debt talks and the budget talks in Washington, very carefully. That was a very careful message for Washington to get it together or we don't buy Treasury bonds. What do you think of that?
SWONK: Well, it is interesting. Because they have to unpeg their currency to the dollar a little more than they have to make good on that promise. And what has also been fascinating is how many people are on the sidelines waiting for the Fed to be done buying Treasury bonds, so that they can then buy Treasury bonds. So, we have been really not penalized a lot by the rebalancing and the saber rattling by the China. I think has really got more of its own problems right now in terms of overheating. We in this dysfunctional dance together; we are exporting more now, that is great, a lot to China, actually, and picking up some of that slack from Japan. On the other side of it though, we have to be less of a consumer economy, which doesn't go into China's advantage. China really depends on the U.S. as being its consumer of last resort.
DEFTERIOS: Yes, saying the U.S. is dependent on China buying those Treasury bonds, so we have a symbiotic relationship there.
DEFTERIOS: For sure. Diane Swonk, nice to see you.
SWONK: A very dysfunctional one.
DEFTERIOS: Yes, dysfunctional, right now, that is for sure.
SWONK: Thank you. You, too.
DEFTERIOS: Diane Swonk from Mesirow Financial joining me from Chicago.
Well, across the Atlantic, European ears are rattled by more Greek rumors. The single currency slides as Greece denies that it is on its way out of the Euro Zone. We'll separate the fact from the fiction this evening when we come back.
DEFTERIOS: In Europe, Greece is emphatically denying rumors that it is planning to leave the Euro Zone. And article in Germany's "Der Spiegel" Web site said European finance ministers were discussing a possible Greek exit from the euro, at a meeting tonight. That is causing the single currency to slide more than 1 percent against the dollar. The international spokesman for Greece's Prime Minister George Papandreou categorically denied to me, earlier, that Greece was planning to exit. He said that articles like the one published by "Der Spiegel" were driven by speculators.
The Greek deputy finance minister has also denied an exit is being negotiated. He said the report about Greece leaving the Euro Zone is untrue, such reports are provocative and they undermine "Greece and the euro and serve market speculation gains." Euro group chairman Jean-Claude Juncker has also denied any meeting between finance ministers was taking place. That meeting was supposedly taking place in Luxembourg this evening.
A few minutes before the show, I spoke on the phone to Miranda Xafa in Athens. She's a senior investment strategist at IJ Partners and formerly worked as an economist for the International Monetary Fund in Washington. I asked her about the validity of the "Der Spiegel" report that's causing all this controversy on a Friday.
MIRANDA XAFA, SENIOR INVESTMENT STRATEGIST, IJ PARTNERS: I think it's complete nonsense, because Greece has two problems. It has heavy debt burden. And it has a competitiveness problem. So exiting the euro area and devaluing would not solve either of these problems.
DEFTERIOS: Is it even legal to exit the euro? Can this be challenged in court as a concept even?
XAFA: Well, I think every member can voluntarily leave, if they want. But first of all, even upon announcing it, it would be political and economic suicide for Greece. Bank deposits would leave the country overnight, and the debt problem would become worse because the debt is denominated in euros, not in drachmas. So if Greece devalues, that would just raise the debt -- the burden of the debt.
DEFTERIOS: You've been in this market now for a better part of two decades and a senior person following Greece. What's the motivation of this article, in your view? Where do you think this is coming from, as you see it?
XAFA: I have no idea. But it has been denied both by the Greek government and by Berlin and Paris. So I am at a loss for an explanation of this outlandish report.
DEFTERIOS: Scare tactics by the European Commission trying to keep the euro together, that could be the conspiracy theory. Look what would happen if one member came out, so let's put this article out there. There's even saying there's a meeting this evening in Luxembourg.
XAFA: I don't want to speculate on the causes of this report. All I want to point out is that Greece's competitiveness problem does not stem from high wages, but from regulatory barriers to competition and restrictive labor practices, that would not be addressed by devaluing the currency.
DEFTERIOS: What sort of impact is this going to have on the euro? As you know, it's been climbing against the U.S. dollar because of the U.S. debt problems. Will this continue to undermine the euro just articles like this speculation?
XAFA: I think it would undermine the euro because it's fuels speculation that the euro area will break up. But that view underestimates the effort and the political capital that has been put into building the euro area over several decades. So I don't think they will throw the towel at the first difficulty.
DEFTERIOS: OK, final thing I want to talk to you about, what is the reality, though, Miranda? Eventually, does Greece need to restructure and stretch out the payments? I spoke to you about this earlier in the week, when we were on the road together. What happens now?
XAFA: Well, I do believe that Greece has a solvency problem and it will need to restructure debt eventually. But I don't believe that European banks are ready for this, are ready to take the hit.
And I don't also think that they Greek adjustment program is sufficiently advanced in order to contemplate such an eventuality.
DEFTERIOS: Once again, Miranda Xafa joining me on the phone about 30 minutes ago from Athens.
In these uncertain times traders are getting trigger happy when it comes to buying and selling oil and other commodities. What is going on in the wild world of the commodity markets? In just a moment.
DEFTERIOS: Crude oil is having another volatile day. It follows thumping great losses on Thursday. Right now NYMEX is hovering just below the $100 a barrel mark. Down just a few cents it has been swinging between gains and losses all day long. Brent crude is down about a half a dollar, above $111. Thursday saw some of the biggest drops in a single day since the financial crisis with both Brent and NYMEX slightly nearly $10 a barrel.
So what is driving oil prices today? Let's take a look. Let's go back to 2008. Number one, we have this huge rise up from January of 2008, peaking up in July of 2008. Seems like it was just yesterday. We peaked on Brent at least, $146 a barrel. And then the ECB completed its last interest rate hike. Remember we had that growth and oil climbing and that big oil meeting in June, happening in Jetta (ph).
Then, look what happens from July 2008. What the slide does from there? Oil peaks at-and then we go down from that peak all the way down to December 2009, from $146 a barrel. All the way down on Brent to $38.45. Now it is interesting to note, if we close the little window here, in September 2008 we saw the aggressive cuts by the European Central Bank on interest rates, and then we saw the Federal Reserve cut interest rates.
And then in that span between September 2008 and December 2008, we had record cuts in oil, 4.2 million barrels a day between September and December. And that came into the market. You can remember the early part of 2009 interest rates kick in. And then we enter this period that I like to call the Goldilocks scenario. Where we go from mid-2009 all the way through to the end of 2010, in a band here, you can see it, $65 a barrel. At the top end, $92 a barrel. And we stay in this Goldilocks scenario, not too hot, not too cold, for a long period of time, for a year and a half. And then we get to the start of 2011. We have the Arab uprising kick in. We took the price here, $99.30, when Egypt came into play. And it only got worse from there.
Let's take a look if we close the box here. And the spike up from that period in January 2011, going up to where we saw this week, as a matter of fact. Peaking at a level of $122 a barrel. And then, let's take a look at the week ahead and what happened. Between Tuesday and Friday of this week, all the volatility that took place; so you have the level at Tuesday, Wednesday and Thursday and-let's see if we can get the graphic coming in. And the huge swing that took place. We had drops of $10 and $12. And the wildest swing, $22 between Wednesday and Friday. Then we had the jobs report come in and we had the spike down, on Thursday, that $474,000 jobless claims that took place, brining it back down again, with the weakness in the dollar. And then the dollar recovers on the jobs report and we spike back up. And we are in that range of about $100 to $110 a barrel. That is the new kind of trading range.
Let's see if we can get the benefit coming into the U.S. economy. You can prices below $100 a barrel and this breaking point of $4 a gallon for petro in the United States. So all of this volatility taking place in the span of a week and you saw the picture going from $146 to 38.
Are we seeing a bubble again in the commodity market? This is a question I posed to Mehdi Varzi, he is a veteran energy market consultant. I asked him, what made all the volatility take place this week in particular?
(BEGIN VIDEO CLIP)
MEHDI VARZI, VARZI ENERGY LTD.: The trouble is there is no direction. You see, in 2008, or before that, the one fundamental thing was the rise in Asia-Pacific demand, which led to a five-year rise in the oil price, in effect. What we are seeing now is we have had a rebound in the oil price, because of supply concerns, and demand concerns. We have had the worries about the Arab spring, but now people are saying, what's next? And so, I think, in a sense in the moment the oil price lacks real direction.
DEFTERIOS: It is amazing that $22 swing within three days for North Sea Brent. That shows a nervousness. Is this the hedge funds and pension funds who are getting a little bit too nervous and they are starting to pull out and run for other sectors of the market?
VARZI: I wouldn't be at all surprised at some profit taking. Remember the oil crisis come from (ph) it went down to $30 a barrel, when the oil price collapsed just a few-
DEFTERIOS: At the end of 2008.
VARZI: Exactly. And it has gone from $30 to $120. That is a heck of a rise.
DEFTERIOS: We see India and China raising interest rates. Will it really dampen demand in these two, giant growing economies, if they are still going to grow at 8 and 9 percent?
DEFTERIOS: Will it really undermine oil demand?
VARZI: Well, Chinese demand last year was up in, you know, double digit figures. I'd be surprised if they are up in double digits again, but even 6, 7 , 8 percent is an extremely healthy rise for China. And possibly something along the same lines for India.
DEFTERIOS: So this scare mongering in the oil market because of what we have seen after Osama bin Laden and the security rise here, we didn't know how to read that. Then we see the U.S. economy start to falter and then we see jobs being created and the market rallying. Very, very confusing. Can we average $100 a barrel for North Sea Brent this year?
VARZI: I think that is possible, $100 a barrel is possible. But I think at the same time we are going to get a lot of volatility. Because of the very short-term factors you mentioned.
DEFTERIOS: How much is built into this price with regards to the Arab uprisings. We still have a mess in Syria. We don't know where we are going with Libya. I kind of factored in a 10 to 15 percent-factoring in of the price that we see today because of the Arab unrest. Do you see it the same way?
VARZI: That is probably true. But I think the market has taken in Libya and it has take in Syria, which is not really a big oil producer. For things to get worse, in other words, the oil price to rise further, we would have to have something quite fundamental, you know, in and around the Persian Gulf. And I really mean, Saudi Arabia, Iraq, and Iran. But we haven't seen that yet.
DEFTERIOS: Now the ECB raised interest rates once and there are concerns about growth in the Continental Europe, the United States, we don't know what the Federal Reserve is going to do after the QE2 supplies here that we've seen, being withdrawn from the market in June. What do you see for U.S. demand going forward, for oil and other commodities?
VARZI: What really worries me is that I think almost every bank was too positive on the dollar. You know, when you have this kind of extraordinary budget deficit, federal budget deficit, deficit on the balance of trade and payments. And many banks are still forecasting a rising dollar until very, very recently. That just is amazing. I have a feeling that, you know, the falling dollar is really telling the American administration, you have got to do something about this deficit. People are getting worried. Now if they start attacking the deficit that is going to be negative for oil prices over the short term. Because it does mean they are trying to constrain demand.
DEFTERIOS: Once again Mehdi Varzi providing his analysis on the commodity markets, specifically, on the oil market.
Well, traders are seeing volatility all over the market tonight. There is plenty to get nervous about. From the U.S. economy from Europe and the Middle East, but these sorts of wild swings in themselves add to the mood of uncertainty right now. And it raises questions about the volatility and whether we have a bubble forming or not.
Let's look what happened to gold today after that very sharp drop off of $42 an ounce yesterday. We climbed another $20 on the other side, today. Finishing below $1,500, as you can see, $1,493. But a drop down of $42 and then a rise back up of again of $20 on the day, looking at the jobs report. That certainly helped.
Let's take a look at silver. The silver market continues to sink. It suffered its biggest one-day drop since 1980 on Thursday. It was an extraordinary year. It is still up 107 percent on 12 months ago. Today it was down almost $1 finishing at $35.23 an ounce. Again, some of the jobs numbers help turn things around and stop that sinking price that we saw yesterday.
Let's finish off taking a look at the dollar right now. Now, the dollar moves, not surprising, because of the strength of the jobs report; the creation of all those jobs in the last month and the revision for the month before. And then at about an hour and a half ago we saw that report cross from "Der Spiegel", saying that Greece was going to exit the euro. That had a dramatic affect on the euro, initially. After we got on the phone with the Greek government and other journalists did the same, and they categorically denied it. The gains were capped. And we saw the gains at the end of the day. The dollar strengthening, 1.24 percent, for the dollar rise against the euro.
Well, demand for broadband is soaring right now. And that reality is fueling a big turn around at one company that has been hemorrhaging of late. We'll look at its much improved numbers and talk with its chief executive from Paris, when QMB continues.
DEFTERIOS: Welcome back. I'm John Defterios. And here are the headlines.
DEFTERIOS: Telecom equipment maker Alcatel-Lucent is seeing a big improvement in its bottom line. The company still posted a next loss in the first quarter. But at $14.4 million it is much smaller than the $746 million Alcatel-Lucent loss in the same period last year. The company credits strong sales in the North American region for the turn around. It competes with brands such as Erickson, Nokia and Wawa (ph) in the mobile networking infrastructure business.
Right now we are joined by the chief executive of Alcatel-Lucent, from Paris. Let's welcome back to QMB, Ben Verwaayen.
Ben, it is nice to have you on QMB. Welcome back.
BEN VERWAAYEN, CEO, ALCATEL-LUCENT: Hi. Thank you for having me.
DEFTERIOS: You promised-yeah-you promised three years ago to get the company into that phase of consistent profits going forward. It looks like you are almost there. What flips the switch to make it permanent?
VERWAAYEN: Well, we had a great momentum going out of 2010 and we maintained that in the first quarter of 2011. We made a small profit at an adjustable level, compared with almost $200 million lost last year. We grew our business 15 percent. And it is all due to three major factors.
The first is the world has chosen to communicate with data and video. The second is that national broadband networks are deployed around the world. And the third one is we are going all rural (ph), which means we have to go greener. And those elements are right in the heart of what we do as a company.
DEFTERIOS: You have been rewarded in the stock market for all the cost cutting and looking for the new growth, with your stock doubling, so far in 2011, which is phenomenal in itself. But there is an over dependency, some would say, in the U.S. market. Where you saw the sales jump up 40 percent in a fairly weak economy. What do you say to that premise?
VERWAAYEN: Well, first of all, I take it. In the sense that there is 40 percent growth in one of the most important markets in the world, it is a great number. And I think that there is a clear build out going on now in the U.S. They have taken the lead in 4G. And it will continue, I think, for quite some time to come, because that is the nature of a build out.
At the same time other markets are looking to what happened in the U.S. and following suit in a very different manner but, I think that you will see what is happening in the U.S. also, in other parts of the world going forward.
DEFTERIOS: Very quickly, Ben, I see that Erickson climbed 74 percent in China, better than 30 percent in India. Can you kind of match these numbers? Are you tilting east as well?
VERWAAYEN: So, in China we are doing extremely well. We had last year, a difficult year in China, like everybody else, because they hold back. There is no holding back now in 2011 and 2012. So, I think you will see great numbers coming out of China.
DEFTERIOS: OK, we'll leave it there. Nice to see you again. Ben Verwaayen joining us, the chief executive of Alcatel-Lucent from our Paris bureau.
Well, time for a check of how markets around the world ended the week. It was a very volatile week to say the least. The main indices in Europe were boosted by the encouraging U.S. jobs report. The CAC currant in Paris and the Xetra DAX in Frankfurt both closed substantially higher as you can see. The London FTSE was up nearly 1 percent as well.
Different story in Asia, however, concerns about falling commodity prices took a toll on the region's major indices. The Tokyo Nikkei lost nearly 1.5 percent after a three-day closure for the Golden Week holidays. Hong Kong, Shanghai and Sydney were also lower. It is worth saying that these-the jobs report came out, of course, after the Asian markets were closed.
Well, Jaguar is coming roaring back into the luxury car sector. The chief executive of its parent company tells us about its new super car. You see the pictures, right there. We'll have the story after the break.
DEFTERIOS: Tata Motors saw global sales rise 19 percent in April compared to the same time last year. Now it is pumping money into one of its most fabled assets to corner the high-end market. Tata is investing more than $8 billion in its Jaguar division over the next five years. It wants Jaguar to keep pace with its luxury competitors like BMW; $8 billion. Part of that five-year plan is a deal with the F1 Team Williams. Jaguar and Williams will be joining forces on engine projects. Tata Motors shares rose more than 5.5 percent on the Indian Sensex index, in Friday's trade to finish at 1,200.95.
One of Jaguar's projects with Williams won't be sitting in many garages, but it will raise plenty of eyebrows. Jim Boulden met the Tata Motors CEO to look at the company's new-get this-$1.2-million super car. Let's take a look.
CARL PETER-FORSTER, CEO, TATA MOTORS: So we came up with this super efficient internal combustion engine, a four-cylinder engine, a small one. I mean, think about future Formula One technology, in this car. It is a super efficient, very complex power pack, combined with two significant large electric motors. So the power of the combustion and the power of the electric motor power will be about the same.
JIM BOULDEN, CNN FINANCIAL CORRESPONDENT (on camera): So what will make this stand out, in your mind, is this super car is a hybrid. And that is how you are going to differentiate it from the other super cars?
PETER-FORSTER: There are lots of hybrids. But this car has more electric power than we know-we think we know, other super cars have. It is more an electric hybrid, than a hybrid.
PETER-FORSTER: So, in pure electric mode it already is a very, very fast sports car. And then if you add this combustion engine, that it is an outstanding, really breathtaking, super car beyond what is available.
BOULDEN: And obviously, for someone to spend several $100,000 to buy a super car, it is going to have to be just as fast as if it wasn't a hybrid. Is that the point?
PETER-FORSTER: Yes, absolutely. Now, number one, it accelerates zero to 100 below three seconds.
PETER-FORSTER: It does accelerate one to 100 miles under 60 kilometers below six seconds.
PETER-FORSTER: And it does more than 200 miles per hour. And it will have an emission of less than 99 grams.
BOULDEN: How many do you expect to sell and how many do you need to sell to be profitable with this car?
PETER-FORSTER: Our intention is to sell no more than 250. We want to keep it very exclusive. We don't need to sell more than 250.
BOULDEN: A year?
PETER-FORSTER: No, in total. It will be very exclusive limited run.
PETER-FORSTER: Some of which will be dedicated for track use. So it will never be registered. The others will go to collectors and enthusiasts.
BOULDEN: So how is Jaguar Land Rover performing for Tata? Obviously, you bought it from Ford, a lot of investment by Ford, now a lot of investment by you. How is it performing now as two very well-known brands, as part of Tata Motors global strategy?
PETER-FORSTER: Jaguar Land Rover has come out of the recession amazingly well. The last-the first three quarters of our financial year, which ended by December, we showed a significant profit of around about 800 million pounds, before tax. So that was really-it is a significant turn around, which I think nobody really expected.
Which gives us now, the financial strength and muscle to build the brand, both brands, beyond I think what was in any plan before the recession or during the recession. So we are coming out of the recession strong, stronger than ever, with a very good and ambitious plan, with great support from Ratan Tata personally, from Ravi Kant, our vice chairman, with plans to really developing both plans to where they need to be, and should be.
DEFTERIOS: Once again, Jim Boulden looking at the $1.2 million super car. I want to meet the family that can buy more than one of the super cars and have two in the garage, if not more.
Well, the waters continue to rise in the Midwest and that is wreaking havoc throughout that part of the United States. Let's check in with Pedram Javaheri, who has the latest from the International Weather Center.
DEFTERIOS: Well, by this point you have probably asked yourself where Richard is; he is on his way to South Africa as we speak. Speaking of which, Cape Town has been named the world's top travel destination by TripAdvisor. At Facebook.com/CNNQUEST, we have posted their top 10 destinations in the world, the U.S. and Europe. Some of you will be surprised. Have you ever been to Sedona, Arizona? If you haven't it is stunningly beautiful.
And that is QUEST MEANS BUSINESS for Friday. I'm John Defterios, in London, sitting in for Richard. "MARKETPLACE AFRICA" is next