What's Important in the Financial World (8/2/2012)

The European Central Bank’s members will meet against the backdrop of a pledge by President Mario Draghi to help the finances of the region through the purchase of the sovereign debt of the eurozone’s most troubled nations. In theory, this should bring down their borrowing costs, especially if global capital markets investors slow or stop the rate at which they have abandoned the paper. But Draghi’s plan may never see the light of day, which would deepen the debt crisis and trigger more calls for additional austerity or worry about defaults. Bundesbank President Jens Weidmann says he objects to the plan. Germany’s powerful position in Europe’s finances could upset Draghi’s program.

Toyota Recalls RAV 4s

It seems like years since Toyota Motor Corp. (NYSE: TM) had a series of recalls of millions of cars, which forced CEO Akia Toyoda to appear before Congress to defend the safety standards of the company founded by his grandfather. Actually, it was three years ago. And Toyota’s reputation has been undermined again. The world’s second-largest auto manufacturer announced it would recall 760,000 RAV4 SUVs. The problem with the vehicle could be severe. The company said in a press release:

Toyota has determined that if the nuts on the rear suspension arm are not tightened following the proper procedure and torque specification during a rear wheel alignment service, excessive play may occur at the threaded portion of the arm, followed by rust formation. If this were to occur, the threaded portion of the rear suspension arm may wear and cause the arm to separate.

Toyota is currently developing a remedy. Once the remedy is available, we will send a notification letter by first class mail advising owners to make an appointment with an authorized Toyota or Lexus dealer to have the remedy performed at no charge.

In other words, the suspension could collapse and cause the SUV to crash.

More Layoffs in Europe Coming

Bloomberg reports that a car industry expert in Europe claims sales trouble due to the slow economy and vicious competition could cost 500,000 jobs within the sector. According to Bloomberg:

The dismissals would follow about 800,000 job losses in the industry since 2007 and add to a record unemployment rate of 11.2 percent in the 17-nation euro area.

The forecast is another in a series of descriptions of the vicious circles of unemployment in Europe. Companies, industries and countries cut jobs to lower deficits and prevent the increase in debt. As people lose work, they have no discretionary income. That creates an erosion of consumer spending. Additionally, it pressures national governments to provide more support to the unemployed.

Douglas A. McIntyre