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Fed up U.S. Senator Christopher Dodd seeks creation of single super banking regulator PAGE 9 0 SECTION B WEDNESDAY, NOVEMBER 11, 2009 4 S&P/TSX 11,426.74 -60.14 2 Dow 10,246.97 +20.03 4 Nasdaq 2,151.08 -2.98 2 REPORTONBUSINESS.COM Dollar 95.23 +0.66 2 Gold 1,102.50 +1.10 4 Oil 79.05 -0.38 www.kjharrison.com 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 Save 50% on Your Next Night Let a better you run free at Westin. For every night you pay our regular rate, you’ll get the next night at 50% off. Visit westin.com/tomorrow or call 866.802.4245 and mention code ZBT. ©2009 Starwood Hotels & Resorts Worldwide, Inc. All Rights Reserved. Westin is the registered trademark of Starwood Hotels & Resorts Worldwide, Inc., or its affiliates. At participating properties only. For complete terms and conditions associated with this offer, please visit westin.com/tomorrow. 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.”