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SECTION B WEDNESDAY, NOVEMBER 11, 2009
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AUTO MAKING
ECONOMY
$8,500,000,000
THE COST OF SAVING OPEL
A new
leadership,
but old
problems
for Japan
General Motors faces a multibillion-dollar price tag to restructure its ailing European division;
Germany warns the U.S. car maker that the burden of restructuring will not be borne by its taxpayers
General Motors Co. faces as
much as $8.5-billion (U.S.) in
costs to restructure and revive
its troubled Adam Opel
GmbH unit, and the German
government warned GM it will
have to bear most of that burden itself.
The staring contest between
GM and Germany over Opel
deepened as German Chancellor Angela Merkel issued the
warning even as GM began to
repay a bridge loan it received
from Germany in May that
has kept Opel afloat.
The furor over the future of
Opel and who will pay to fix it
erupted in the wake of GM’s
reversal of a previous decision
to sell majority control of the
MEDIA
RESTAURANTS
BY GREG KEENAN
AUTO INDUSTRY REPORTER
company to Magna International Inc. and Sberbank of
Russia. GM’s unexpected move
to hang on to Opel angered
Germany, Russia and Opel’s
unions and raised the spectre
of GM scrambling to scrape together at least ¤3-billion ($4.5billion U.S.) of its own money
to finance the repair job.
“This solution can only work
if GM takes over the lion’s
share of the restructuring
costs, which also means that it
has to pay back the bridging
loan,” Ms. Merkel said. About
25,000 of Opel’s 50,000 employees are based in Germany,
where it has its headquarters
and three assembly plants.
Moody’s Investor Service
Inc. calculated that GM will
have to raise $8.5-billion to restructure and continue oper-
ating Opel. Even though the
Germany-based auto maker is
vital to GM’s future, Moody’s
said the “rehabilitation price
tag could severely stress GM’s
liquidity.”
Letting Opel disappear altogether, however, would address a key problem hanging
over the entire European auto
industry – overcapacity.
77 SEE ’OPEL’ PAGE 6
Murdoch
bets on
survival
without
Google
BY GRANT ROBERTSON
MEDIA REPORTER
Rupert Murdoch has long
complained that Google Inc.
is getting a free ride off his
newspapers, comparing the Internet search giant to a common criminal and a
“plagiarist” when it links his
publications such as The Wall
Street Journal to Google News.
The media mogul in charge
of News Corp. Ltd. is now escalating his war against the Internet monolith in a way that
no other executive has – by
preparing to pull papers such
as the Journal, the New York
Post and The Times of London
off the search engine.
While Mr. Murdoch wants
his content to command a premium online, it is a move analysts say is fraught with
financial risk. The question
may not be whether Google
can live without Mr. Murdoch,
but whether he can live without Google.
By his own estimation, some
of the most successful news
websites in the world only
make a few million dollars by
selling ads. Tired of allowing
his headlines to be spread
about the Internet by others,
Mr. Murdoch’s goal is to block
out the likes of Google and Microsoft Inc. and charge users
for exclusive content.
“The fact is there’s not
enough advertising in the
world to go around to make all
the websites profitable. We’d
rather have fewer people coming to our website – but paying,” Mr. Murdoch said.
THE FIGHTING FULLERS GO EAST
GLOBE INVESTOR
The Fuller clan dominates in Western Canada with their Earls and Joeys dining
chains. Now there’s a new target. Will Toronto patrons eat up their distinct format?
BEAR STEARNS
GORDON
PITTS
....................................................
[email protected]
I
Verdict shows difficulty of assigning liability on Wall Street.
PAGE 10 0
It swept into power with a Barack Obama-like call for
change less than two months
ago, but Japan’s new government has already run headlong into a wall of economic
reality.
Prime Minister Yukio Hatoyama’s Democratic Party
campaigned on a pledge to
stimulate economic growth
and consumer spending by investing in health care, education and social programs. Now,
Japan’s ballooning debt is
threatening the government’s
plan.
Fitch Ratings warned Japan
yesterday to rein in borrowing
or risk a credit rating downgrade that could deal another
setback to the country’s perpetually troubled economy.
According to the International
Monetary Fund, Japan’s debt
to GDP ratio will rise to more
than 225 per cent by 2012.
Investors are now worried
that Japan won’t be able to
service its massive debt load,
and a ratings downgrade
would only increase those borrowing costs. The spreads on
Japanese credit default swaps –
a form of insurance against Japan defaulting on its debt –
have nearly doubled in a week.
What happens in Japan is
closely watched by economists, not only because it is
still the world’s second-largest
economy but because it has
been grappling for two decades with two key problems –
a bust in asset prices and a
rapidly aging population –
now plaguing other industrialized nations.
Japan has tried to stimulate
its economy with low interest
rates and infrastructure spending, not unlike the response of
many Western governments to
the current economic downturn. Yet economic output is
contracting, consumer and
wholesale prices are falling
and government revenues are
on the decline.
77 SEE ’JAPAN’ PAGE 5
77 SEE ’MURDOCH’ PAGE 6
Execs found not guilty
BY ANDY HOFFMAN
n the heart of downtown
Vancouver, there is a nineblock battleground of Caesar salads and ciabatta sandwiches. It is, quite possibly,
the most competitive restaurant market in Canada.
Stan Fuller runs two Earls
restaurants in this “Burrard
Corridor,” so named for the
area’s major thoroughfare.
Both are successful, riding on
the Earls formula of upscalecasual dining, lively bar action and some of the shortest
skirts in the waitress trade.
But in this culinary combat
zone, he faces intense rivalry
from some familiar sources.
The corridor also contains
two Joeys restaurants, run by
brother Jeff. There is a Saltlik
Steakhouse, operated by
brother Stewart. And there
are two Cactus Club restaurants, in which the Fuller
family owns a 65 per cent
stake. It adds up to seven restaurants in nine blocks,
where the Vancouver-based
Fullers are eating their own
lunch.
And that’s just the way
grizzled patriarch Leroy (Bus)
Fuller, 80, likes it. He enjoys
seeing his boys duke it out,
which toughens them for battles against archrivals, such as
Moxie’s Classic Grill, another
ambitious West Coast chain.
“They’d be just as competitive with each other as they
would be with Moxie’s –
maybe more so,” says Mr.
Fuller, who has structured
Earls Restaurants Ltd. so
that each of his sons (including the fourth, Clay) can focus on running his own shop.
The Fuller family: Leroy (in
the middle) and his four sons
(clockwise from top left):
Clay, Stewart, Stan and Jeff.
Together they own a largely
Western Canadian group of
100 restaurants with annual
revenue of $450-million and
13,000 full-time and casual
workers. CHRIS BOLIN
Do it the Buffett way
Do you want to invest like Warren
Buffett? John Heinzl gives tips on
how to follow the sagest advice
from the Oracle of Omaha.
PAGE 12 0
FOR THE GLOBE AND MAIL
Essential minds for
your essential business.
77 SEE ’EARLS’ PAGE 4
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G
B4
G The Globe and Mail, Wednesday, Nov. 11, 2009
Report on Business
........................................................................................................................................................................................................................................
EMPLOYMENT FIGURES
FROM PAGE 1 8 EARLS
Recession makes
prime locations
more available
9
Employment seekers at a job fair yesterday in Los Angeles, Calif. The U.S. unemployment rate surged to 10.2 per cent in October, hitting
double digits for the first time in 26 years. KEVORK DJANSEZIAN/GETTY IMAGES
Unofficial U.S. jobless rate could be
as high as 20%, Reich says
BY TAVIA GRANT TORONTO
A 10.2-per-cent U.S. jobless rate
sounds terrible. The reality
may be even bleaker.
The real jobless rate, which
officially hit a 26-year high last
month, is nearly double that if
discouraged and underemployed workers are counted, a
level that will hamper any recovery, former U.S. labour secretary Robert Reich said
yesterday.
He pegs the unofficial rate at
about 20 per cent, and believes
that joblessness is likely to persist throughout next year. That
is why Mr. Reich, who has
served in three U.S. administrations and is now a professor at
University of California, Berkeley, and economic adviser to
President Barack Obama, isn’t
counting on any “great and vigorous” recovery for the world’s
largest economy.
“Technically, we are probably
already in a recovery in the
United States … but tell that to
most citizens of the United
States, and they will laugh at
you,” he said at a Toronto forum on global cities.
The problem with such high
unemployment and underemployment isn’t just economic
hardship for those individuals,
he added. It’s one of demand:
Consumers drive 70 per cent of
the U.S. economy and dwindling earnings combined with
huge debt loads mean “many
people are not likely to go to
the malls for many years.”
The official unemployment
rate doesn’t include several
parts of the labour force: discouraged people who have given up looking for work;
part-time workers who would
rather be full-time; and those
whose full-time jobs have been
cut to part-time. Nor does it
factor in people who have
found a new job at a much lower salary than their old one.
When those people are included, the real picture may be
even worse than the Labour
Department’s “under-employment” rate of 17.5 per cent – or
more than one in six workers.
Mr. Reich sees the jobless rate
staying high because, as demand grows, companies will
first increase their employees’
hours before they hire new
people. There’s plenty of scope
to do that: The official work
week in the U.S. has sunk to a
record low of 33 hours.
He believes the official jobless rate will remain above 10
per cent throughout next year
before easing in 2011. At least
seven million jobs have been
lost through this downturn,
and he doesn’t expect the
economy to replace them for at
least three or four years.
Federal Reserve officials echoed those concerns yesterday.
In the first public comments
since last Friday’s labour report, regional Fed banks in San
Francisco and Atlanta said joblessness will remain high for
several years amid tepid hiring.
“With such a slow rebound,
unemployment could well stay
high for several years to come,”
said Janet Yellen, president of
the Federal Reserve Bank of
San Francisco. “In other words,
our recovery is likely to feel like
something well short of good
times.”
Mr. Reich wasn’t all doom
and gloom, urging businesses
to keep investing in training,
research and staff development
to better compete in a global
economy. Companies
shouldn’t ignore opportunities,
including the chance to innovate, he said.
With files from AP
ECONOMY
Tepid
growth
predicted
BY JULIAN BELTRAME OTTAWA
In 2009, three international reviews recognized the world-class thinking
of our faculty, staff and students. The University of Toronto placed:
• 9th in the world for academic reputation, the only Canadian university in
the top 10. (Times Higher Education – QS World University Rankings)
• 11th for research output and impact, the only Canadian university in the
top 30. (Higher Education Evaluation and Accreditation Council of Taiwan)
• 13th worldwide for research citations, the only Canadian university in the
top 20. (Sciencewatch.com)
CANADA’S ANSWERS TO THE WORLD’S QUESTIONS.
w w w. u t o r o n t o. c a
It may one day be remembered as the lost decade, in
economic terms.
A new report published by
Toronto-Dominion Bank says
Canada is headed for a decade
of stagnant growth that will
test the budgets of Canadian
households and governments
alike.
The bank says a combination
of post-recession adjustments,
the aging population and low
productivity will limit Canada’s potential growth to about
2 per cent a year over the next
10 years.
That is two-thirds the level
of growth experienced the previous two decades, the report
says.
And it could be even more
muted than that. The bank
said the “other elephant in the
room” that could further depress economic growth is the
measures governments may
adopt to control climate
change.
“It is critical to recognize
that things will not simply return to how they were,” economists Derek Burleton and
Grant Bishop wrote. “This
(muted growth) represents a
new normal for the budgets of
households and governments,
as well as the returns on domestic capital investment.”
There is not much that
anyone can do about it, the
economists said. Structural adjustments brought out by the
recession will keep potential
growth – broadly defined as
sustainable growth when an
economy is at full capacity – at
about 1.6 per cent a year for
the next three years.
Actual growth will likely
edge higher during this period
until the economy shakes off
the rust from the recession
and returns to full capacity.
Then Canada will be hit by a
work force time bomb as the
baby-boom generation moves
into retirement, restricting
growth to about 2.1 per cent
from 2013 to the end of the
century’s second decade.
The Bank of Canada’s latest
monetary report estimates
output of 1.2 per cent this year,
rising to 1.9 per cent in 2011.
66 The Canadian Press
The blanketing of
the Burrard Corridor
reflects the Fullers’
domination of the West’s top
locations – from downtown
Fort McMurray, to Calgary’s
Bankers Hall to Winnipeg’s
Polo Park shopping centre.
The fraternal fracas over the
best sites and most imaginative menus worked handsomely through the energy boom,
propelling the largely Western
Canadian group to 100 restaurants, annual revenue of
$450-million and 13,000 fulltime and casual workers each
year.
But with recession setting
in, the easy money is gone
(although Western Canada remains a relative sanctuary).
What’s more, the fighting Fullers are pushing east, making
their first foray into downtown Toronto, where Earls
will occupy a location in the
financial district by next summer and Joeys is going into
the Eaton Centre.
As they plot a central Toronto invasion, the brothers
realize they have to temper
the creative tension.
“We really want to strategize about how we go into
that city. We don’t want to be
in a Vancouver situation
where it’s a donnybrook
downtown,” Stewart Fuller
says.
As usual, the Toronto invasion is led by Earls, the family’s flagship concept. Why the
Earls name? In each Fuller
generation, there is someone
who can truthfully say, “My
name is Earl.”
Bus (short for Buster) is actually Leroy Earl. Oldest son
Stan is Stanley Earl. Bus’s father was Cecil Earl, and his
grandfather was John Earl.
And one of Stan’s four young
sons is Marshal Dillon Earl.
The complex family dynamics was showcased recently in
Calgary and Edmonton, where
Bus and the boys, in rare appearances together, bared
their souls at events sponsored by the Alberta Business
Family Institute of the University of Alberta.
With this blend of candour
and testosterone, it was clear
that Stan, 56, and Jeff, 43, are
the most competitive with
their respective chains, Earls
(61 restaurants) and Joeys (19
restaurants).
Stewart, 46, does his own
thing with three steakhouses.
And the 20-unit Cactus Club
chain is managed by a partner, Richard Jaffray.
The fourth brother Clay, 54,
used to run bars in California.
In fact, the Fullers have a
number of western U.S. outlets.
But today Clay serves as intermediary among his three
brothers (there are no sisters)
and a fishing buddy for his
father, who lives much of the
year in Arizona.
Asked whether they fight,
Stan says, “We argue,” and
Jeff rolls his eyes as he adds:
“Just don’t order any red
wine.”
The family admits that the
new economic reality means
lower sales – the Earls chain,
for example, is off 10 per cent
from last year’s $250-million
in revenue. But the recession
has opened up prime locations – in downtown Toronto,
for example, where they had
been scouting for seven years
before Earls nailed down a location in the Sun Life Building at York and King streets.
The challenges have resulted in some very un-Fuller coordination. Bus and his sons
now meet as a board with
family advisers four times a
year. The chains have long
collaborated on purchasing
food, but they are moving to
common accounting platforms.
It will be tougher as they
start sharing best practice
ideas, Stan says. “Your competitive side wants to keep
secrets while your collaborative side wants to share successes.”
The Fullers have come a
long way from the mining
camps of the western U.S.,
where Bus’s father made his
living.
The clan ended up in Sunburst, Mont., where Bus graduated from high school to
work in a refinery. He and his
first wife opened a drive-in
restaurant, with Bus labouring in a refinery by day and
slinging burgers by night.
A brother-in-law had
bought one of the new A&W
fast-food franchises. Bus liked
the concept and when one
became available in Edmon-
The five Fullers
THE PATRIARCH
....................................................
LEROY EARL (BUS) FULLER
The 80-year-old chairman of the
board opened an A&W restaurant
in Edmonton in 1957, laying the
groundwork for a casual-dining
empire with 100 outlets and
$450-million in annual revenue.
THE SONS
....................................................
STANLEY EARL FULLER
Started out as a steakhouse dishwasher at age 12. Now 56, he is
president of the flagship Earls
chain with 61 restaurants and
close to $250-million in annual
revenue.
....................................................
JEFF FULLER
At 43, he runs his own chain, the
Joey Restaurant Group, with 19
casual-dining outlets in Canada
and the U.S. He recently opened
a Joeys in Toronto’s Don Mills,
and is targeting the Eaton Centre.
....................................................
STEWART FULLER
The 46-year-old has worked in
every aspect of the business,
once managing an A&W in Washington state. A trained chef, he
operates three Saltlik Steakhouses in Vancouver, Calgary
and Banff.
....................................................
CLAY FULLER
Now 54, he spent about 15 years
in the U.S., opening an Earls in
San Francisco in 1989 and launching a hot Bay-area bar known as
Johnny Loves. Back in Vancouver, he now keeps family members talking to each other.
66 Source: The Alberta Business
Family Institute
ton, he headed north.
He became Canada’s biggest
A&W franchisee, the cornerstone of a career that has
seen him launch a number of
concepts, including Fuller’s
family restaurants (now
gone) and, most successfully,
Earls.
In recent years, son Stan
has piloted Earls’ expansion,
and moved it east as far as
Mississauga. Now, the Earls
concept is returning to Toronto (a Joeys opened recently in
suburban Don Mills), its actual birthplace: Bus and Stan
started the original Earl’s Tin
Palace in the singles-heavy
Eglinton-Yonge area in the
1980s.
The burger-and-beer joint
was a hit, but Bus had earlier
folded his operations into a
public company, Controlled
Foods.
As he disengaged from Controlled Foods, he was forced
to surrender the site to another chain. He went back
west, and, working with Stan,
reshaped the Earls strategy.
While beers and burgers
worked like a charm in Toronto’s singles belt, it was too
simple, meaning there were
bound to be copy cats. So the
two men devised more interesting menus and put professional chefs in charge of
product development. Earls
embraced complexity in
formats and concepts as a
way to keep ahead of imitators.
The approach has worked,
says Doug Fisher, a Toronto
restaurant consultant, who
sees Earls, with its grand,
comfortable dining rooms, as
one of the best concepts to
come out of Western Canada.
Mr. Fisher says the Earls
group can succeed in the East
if the brothers are on the
ground, rather than trying to
do it all by remote control
from Vancouver.
Yet that is not the plan, the
Fullers say, although they will
have experienced company
hands running the Toronto
show.
And a show it is. Restaurants in the Earls group
might each look a tad different – more focus on bars
downtown, family-friendly in
the suburbs – but the common factor is the attractiveness of the wait staff.
When this is pointed out,
the Fullers engage in their
trademark banter.
“We have nothing against
good-looking women,” Bus
says with a devilish grin.
Then Stan, the older, more
serious brother, pronounces
that “we believe we are in
the entertainment business
and it is part of the show.”