Detroit Spinning Out
Sunday, April 24, 2005; Page F02
Detroit Spinning OutMotown is singing the blues.
Tata Consultancy Services, India's largest outsourcing company, reported disappointing earnings, reflecting a falling dollar and higher costs for employee bonuses. Tata stock fell more than 8 percent, as investors began to question whether the $17 billion outsourcing industry could continue to grow 25 percent a year as companies bid up wages and IT centers quickly outgrow local infrastructure. A Deloitte study, meanwhile, found that a quarter of firms have brought outsourced functions back in house.
America West confirmed it was in merger talks with bankrupt US Airways. If completed, the deal could bring about exactly the consolidation analysts say the industry needs to return to profitability. The merger's path has been smoothed by US Airways employees' acceptance of wage and benefit cuts modeled on America West's contracts. With America West refusing to put up any cash, the deal may need as much as $500 million in additional investment. Another hurdle: finding a way to merge the pilot seniority lists.
Economic growth is above 4 percent, profits are strong, but pay is not keeping up with inflation. The government reported that hourly wages were up 2.4 percent in the year ended in March, below the 3.1 percent increase in consumer prices. One reason: Workers prefer to take more of their compensation in tax-free benefits, particularly health insurance. With benefits included, inflation-adjusted compensation was up about 0.5 percent, raising the question of who benefited from those 4 percent annual productivity gains.
Who's that riding behind the Clydesdales? It's billionaire investor Warren Buffett, whose Berkshire Hathaway purchased a "significant" stake in Anheuser-Busch, the nation's largest brewer disclosed. The move is in line with Buffett's philosophy of investing in dominant but unflashy, family-run firms in mature, consumer industries at times when their stock has fallen out of favor (The Washington Post was another). "BUD" shares jumped on the news, but several analysts downgraded the stock.