Endless summer

Apr 26th 2007 | LOS ANGELES
From The Economist print edition

Sony Pictures

How the business of making blockbusters has changed

FOR connoisseurs of derivative film-making, the next few months will be a joy. Between early May and mid-August Hollywood will unveil sequels to “Spider-Man”, “Shrek”, “Harry Potter”, “Rush Hour”, “The Bourne Identity”, “Pirates of the Caribbean”, “Fantastic Four”, “Ocean's Eleven”, “Die Hard” and “Bruce Almighty”. Admittedly, not all of this summer's big-budget films are based on other films. “The Simpsons” and “Transformers” are based on television programmes.

It is safe to predict that none of these films will be artistically adventurous. Reviewers will dislike them, as they have disliked crowd-pleasing films since 1914, when a critic bemoaned “the terrible sense of rush and hurry and flying about” in contemporary cinema. But none of this concerns the people who produce such films. They know that blockbusters draw punters to cinemas and DVD racks more reliably than any other kind of film.

Since 1975, when “Jaws” chewed up the competition, Hollywood has increasingly relied on summer and Christmas blockbusters to tide it through leaner months. The summer season, which used to begin in June, has crept forward to early May. Production and marketing budgets have mushroomed. “Spider-Man 3” is said to have cost more than $300m, or half as much again as “Titanic”, the price of which terrified Fox executives in 1997. If few are so alarmed these days, it is because the economics of blockbusters have changed.

To see how, compare the performance of two films, both released in late May. “Indiana Jones and the Last Crusade”, which appeared in 1989, and “X-Men: the Last Stand”, released last year, appealed to the same broad audience of children, teenagers and indulgent parents. Each was the third instalment of a three-part series. They were both successful, earning almost exactly the same in real terms during their first two months in American cinemas.

But their lives at the box office were dramatically different (see chart). “Last Crusade” had a healthy opening weekend and a slow decline. “X-Men”, by contrast, came and went in a flash. It earned $123m in just four days, more than in the remaining four months of its run.

Both films are typical of their time. The first modern blockbusters, such as “Jaws” and “Star Wars”, were released on a few screens and grew slowly (ticket sales for “Star Wars” peaked in the 11th week). Over the years the hillock of box-office revenues became a downward slope, then a cliff face. Given this year's crowded schedule, the drop-offs will be vertiginous.

One reason is growing capacity. The number of cinema screens in America rose from 29,700 in 1996 to 39,700 last year. Because the supply of seats is greater than the potential weekend audience for almost any film, marketing campaigns aim to lure customers en masse before the next big film appears. These days blockbusters form an orderly queue, rarely competing on the same weekend.

Another reason is the growing importance of the small screen. American cinema-goers account for no more than a quarter of a film's total revenues. Foreign audiences supply another quarter, with the remaining half coming from television, product licensing and—the biggest single contributor by far—sales of DVDs. Last year a silver disc appeared, on average, just four months and eight days after the same film opened in cinemas, according to the National Association of Theatre Owners—five weeks sooner than in 2002.

Oddly, this has made the opening weekend's box-office sales more important. As Jim Gianopulos, the co-chairman of Fox, puts it, the theatrical release of a film now represents the launch of a product that will be consumed in a variety of forms. The first few days' tally is not just a reliable predictor of later DVD and television sales; it is, in effect, an advertisement for them. Lest anybody fail to notice, studios place advertisements in newspapers and trade magazines pointing out how well their films are doing.

The clearest sign that big-budget sequels are dependable is that the studios risk their own money on them. Hedge funds are encouraged to invest in most films, but not big franchises such as “Harry Potter” or “Pirates of the Caribbean”. And blockbusters have other advantages. Cinemas are so desperate for them that they can often be persuaded to show less promising fare as well. Trailers that run before big movies reach huge audiences. A hit also gives studios licence to swagger.

A few clouds have begun to drift over the summer skies, however. One problem is that DVD sales, which boosted profits for a decade, are slowing. Between 1997 and 2002 sales of DVDs in America grew by 50% or more each year, according to the Digital Entertainment Group. But they were flat in America last year and revenues fell in Britain and Germany. New formats such as Blu-ray, HD-DVD and online downloads have not enticed many buyers.

Another headache is that the studios' partners are driving harder bargains. Having worked out that DVDs are profitable, stars are demanding—although not always getting—a larger share of “back-end” sales. Cinemas, which used to be paid using complex formulae that entitled them to a greater share of box-office receipts the longer a film stayed open (an arrangement that suited the studios just fine, given the short lives of many films), are now more likely to receive a fixed share of the total sum. Consolidation in recent years has made them tougher.

The biggest problem, though, is the growing sums being wagered each weekend. Blockbusters have always been global products, but the threat of piracy and the rapid spread of opinion on the internet, which can quickly inform cinema-goers around the world if a film is a turkey, means they are now likely to be released almost simultaneously everywhere. “Spider-Man 3”, for example, will open in China, France, Germany and Japan on May 1st, then migrate to America and Britain three days later. Stars, who can be in only one place at once, cannot provide much publicity, and marketing campaigns have to get it right first time. The potential for catastrophic error has never been greater. If this summer's big gambles fail, expect a lot of hand-wringing and a retreat—though probably only a temporary one—from the blockbuster model.

Apr 28th 2007 | TORONTO

From Economist.com

A cautious government plan to clean up the environment

WHEN the Conservatives formed a minority government a little over a year ago, green issues were not a priority. But, ever since, as voters have grown increasingly keen on doing something about the environment, the Tories have been scrambling for a compelling policy. It is a difficult trick to pull off. Their core supporters, and industry in the energy-rich western provinces, are the least convinced of the need for immediate steps to tackle climate change.

The Tories’ first effort, which set modest and distant targets, was shelved after criticism from opposition politicians and environmentalists. But a new plan, announced this week, may have legs. It sets a goal of cutting emissions of greenhouse gases by 20%, by 2020, and air pollutants from industry by half, by 2015. It also lays the groundwork for emissions trading in Canada, and seeks to reverse—within three years—the steady upward climb of gases linked to global warming.

John Baird, the environment minister, reckons the new Canadian policy is “one of the most aggressive...in the world.” That is hyperbole. Last year Canada produced an estimated 781 megatonnes of greenhouse gases, and it is certain to miss its Kyoto target of cutting them to 563 megatonnes by 2012. Even if the new plan manages to hit its own targets, Canada will be emitting 630 megatonnes a year by 2020. Even that may be too optimistic.

The new limits for industry are based on the intensity of emissions per unit of production, rather than a hard cap on total emissions. That leaves open the possibility, if production grows enough, that total emissions could yet go up. There are a lot of blanks in the policy, and more than a whiff of wishful thinking, for example on what other, local, programmes may achieve. Stéphane Dion, leader of the opposition Liberals, calls the government plan “a scam.”

Yet the Liberals themselves are in a shaky position on this issue. They ruled for nearly 13 years, signed the Kyoto protocol, but did almost nothing to meet its requirements. Mr Baird is venturing where the previous government dared not: setting mandatory, rather than voluntary, targets and warning voters they could pay as much as C$8 billion ($7.2billion, or 0.5% of GDP) a year, for example for pricier electricity and home appliances. A technology fund, to which companies can contribute in lieu of cutting emissions, has the virtue of creating a pool of money to encourage greener processes. It and a plan to provide credits to early movers, who have already cleaned up their act, should help keep industry sweet. Initial corporate grumbles rather than outrage suggests this is the case.

The three federal opposition parties—the Liberals, Bloc Québécois and New Democratic Party—may yet try to scupper the government’s plan. Sensing a chance to put the Conservatives, at best reluctant greens, on the spot, all three opposition leaders are vigorously waving eco-banners. A fourth—the leader of the Green Party—is sniping from the wings. The opposition parties are backing rival legislation that calls for meeting the Kyoto commitments, something Mr Baird says would throw the economy into deep recession, not least because there is little time remaining. His plan, he says, won’t have such dire consequences.

This posturing will continue as long as voters keep telling pollsters that tackling climate change is now an urgent matter. However, public opinion is fickle. The last time Canadians were this concerned about the environment was in the late 1980s following disasters at Bhopal in India, Chernobyl in Ukraine, and the oil slick from the Exxon Valdez in Prince William Sound, in Alaska. That concern was short-lived, says Stephen Hazell of the Sierra Club of Canada, a green group. Others contend that the issue is here to stay, pointing to the growing chorus of scientists, economists, and even corporate leaders who demand action. One pollster, Frank Graves, suggests that Canadians now connect the environment to a broader “security ethic” that includes terrorism, global pandemics and organised crime—threats which resonate all too strongly with ageing, fearful baby boomers.

Apr 26th 2007 | BERLIN

From The Economist print edition

How not to do a boardroom coup

Reuters

JUST days after the resignation of Heinrich von Pierer as head of the supervisory board of Siemens, the leadership crisis at Europe’s biggest engineering group claimed a new victim. On Wednesday April 25th Klaus Kleinfeld, the chief executive, said he would no longer be available to extend his contract, which finishes at the end of September. “In times like these, the company needs clarity about its leadership,” he said at the meeting of the company’s supervisory board in Munich.

The board’s Machiavellian manoeuvres had given him little choice but to quit. In the six days between Mr von Pierer’s announced resignation and the board meeting, board members circulated rumours about their desire for a successor to Mr Kleinfeld to help the firm make a fresh start as it grapples with three separate criminal investigations into alleged bribery.

One director, Josef Ackermann, the boss of Deutsche Bank, is keen to repair his reputation after a scandal over bonuses awarded to former executives at Mannesmann, a mobile operator that was taken over by Vodafone. And Gerhard Cromme, who replaced Mr von Pierer as head of Siemens’ supervisory board, wants to reinforce his image as the pioneer of corporate-governance reform in Germany.

Faced with persistent speculation about his future as boss of Siemens, Mr Kleinfeld told the 20-strong board before their gathering that he would leave the company if they did not make a firm commitment to renew his contract. When he did not get the two-thirds majority he needed he announced his departure, even before the meeting had ended.

Siemens is losing a capable leader. The group is in much better shape today than it was in January 2005 when Mr Kleinfeld took over. On April 24th Siemens reported a 10% increase in revenue, to €20.63 billion ($27 billion) and operating profits up by 36% for the three months to the end of March. So far Mr Kleinfeld’s integrity is unblemished. Investigations by Debevoise & Plimpton, a law firm, have found no indications of any misconduct by him.

Mr Kleinfeld’s main problem was his lack of allies in Germany’s chummy corporate elite. His American management methods seemed brash to industrialists and union representatives on Siemens’s board, who were more used to Germany’s consensual style of corporate leadership. The 49-year-old Mr Kleinfeld will have no difficulty finding a new high-profile job in America. He rose to become the heir apparent at Siemens while running its American operations for three years, during which he oversaw its listing on the New York Stock Exchange. As a board member at both Citigroup, a big American bank, and Alcoa, an American aluminium firm, he is well connected.

Who will take his place? Mr Ackermann and Mr Cromme are in touch with Wolfgang Reitzle, the boss of Linde, an industrial-gases group, whom they would like to make boss of Siemens. Mr Reitzle says he wants to stay at Linde. Very few top managers have intimate knowledge of Siemens’s sprawling businesses, ranging from medical equipment to trains. Messrs Ackermann and Cromme may come to regret their attempt to appear as the enforcers of their firm’s “clean hands” policy.

DEARBORN, Mich., April 26 — The Ford Motor Company narrowed its first-quarter loss after eliminating thousands of jobs and cutting millions of dollars in spending, but the company’s chief executive acknowledged today that “we still have a long way to go to turn around this business.”

It was the seventh consecutive quarterly loss for Ford, which continues to grapple with a vehicle lineup dominated by slower-selling trucks. And the company’s losses increased in North America, where it has steadily lost market share.

But the loss of $282 million, or 15 cents a share, was a significant improvement from 2006, and it was considerably better than the loss of 60 cents a share that analysts had expected. Ford lost $1.4 billion, or 76 cents a share, in the period a year earlier on its way to a record loss of $12.7 billion for the full year. Revenue in the quarter was $43 billion, up from $40.8 billion a year ago.

Himanshu Patel, an analyst with JPMorgan Chase in New York, described the results as “quite impressive.”

Shares of Ford were up more than 4 percent, to $8.21 in midday trading on the New York Stock Exchange.

“This has been an encouraging quarter for the company,” said Alan R. Mulally, the chief executive, “but turning around the business will not be a quick or easy process.”

Ford said one-time costs like expenses related to its restructuring effort, known as the “Way Forward,” accounted for $113 million of the first-quarter loss. About 33,300 hourly and salaried workers in North America have left their jobs at Ford since the beginning of 2006 after accepting a buyout or early retirement offer. The departures leave Ford with more workers in Europe than in North America for the first time in its history.

About 2,000 hourly workers who initially agreed to take a buyout changed their minds and have stayed at Ford, said the chief financial officer, Don R. Leclair, although he added that there were no plans to compensate with further cuts.

In North America, the focus of the restructuring plan, Ford lost $614 million from automotive operations, $172 million more than a year ago, because of lower sales of its most profitable vehicles. Ford and other automakers make the most money on sport utility vehicles and pickup trucks, which have fallen out of favor for many consumers amid high gas prices. Revenue from North America was $18.2 billion, down from $19.8 billion.

Ford has said it does not expect to be profitable in North America until 2009, a year later than it initially projected in the Way Forward 15 months ago.

“North America continues along the path toward profitability,” Mr. Mulally said today. “We still have a lot of difficult work ahead, but we are on plan.”

On a conference call with reporters and analysts, Mr. Mulally and Mr. Leclair seemed to vacillate between characterizing the results as better than expected and in line with internal expectations. An analyst, Brian Johnson of Lehman Brothers in New York, noted that Ford has a penchant for posting surprisingly strong results in the first three months of a year, having beaten Wall Street’s estimates in 8 of the last 10 first quarters.

“While Mulally’s game plan may or may not be sufficient for a longer-term turnaround, we do not believe investors should look for quick results,” Mr. Johnson wrote in a note to clients this week before Ford reported its results. “Many elements of classic ‘crisis management’ turnaround appear to be missing from the Ford picture — and may leave openings for later criticism.”

The company was profitable in Europe and South America, and it reported a record profit of $402 million from its Premier Automotive Group, up from $152 million a year ago. Premier Automotive includes Aston Martin, which Ford recently agreed to sell to a group of investors led by the British racing mogul David Richards, as well as the Volvo, Jaguar and Land Rover brands.

The automaker’s finance arm, Ford Motor Credit, earned $193 million, $55 million less than a year ago because of higher borrowing costs and depreciation expenses for leased vehicles. For all of 2007, Mr. Leclair said Ford Motor Credit, which has been one of the few consistent sources of profits for Ford, is expected to earn about $1.2 billion before taxes, down from $3.1 billion last year.

Filed at 6:02 a.m. ET

MOSCOW (AP) -- President Vladimir Putin on Thursday made his clearest rejection yet of speculation that he would try to seek a third term, but gave no hint in his state of the nation address as to whom he sees as his preferred successor.

Putin's second term in office ends in 2008, and he is constitutionally barred from running for a third. While many observers have suggested he would try to stay in office, Putin has consistently dismissed the idea and did so again Thursday.

"The next state of the nation address will be given by another head of state," he said.

He then acknowledged that many had expected this speech would be his opportunity to openly state which person he wants to follow him, but instead he drew a laugh by saying "it is premature for me to declare a political will."

Russia enters a high-stakes political season this year with parliamentary elections in December, followed by presidential elections in March. Russian officials in recent months have complained that Western countries are trying to meddle in the political process by funding pro-democracy organizations, and Putin echoed those allegations.

"There is a growth in the flow of money from abroad for direct interference in our internal affairs," Putin said in his address, delivered to the Federation Council, the upper house of parliament.

"There are those who, skillfully using pseudo-democratic rhetoric, would like to return to the recent past -- some to loot the country's national riches, to rob the people and the state; others to strip us of economic and political independence," Putin said.

Putin did not cite specific countries as sources of the funding. The Russian foreign ministry this month complained extensively about U.S. funding of democracy-promoting organizations in Russia.

Officials contend that such funding aims to provoke mass opposition protests such as those that helped propel pro-Western leaders into power in neighboring Georgia and Ukraine in recent years.

Police harshly cracked down on a series of opposition protest marches this year, beating some demonstrators and detaining hundreds.

Opposition forces charge Putin is strangling democracy through an array of measures to centralize power and increase the influence of large political parties such as his allied United Russia party, which dominates the Russian parliament.

This year's parliamentary elections will see seats distributed entirely on a party-list basis, eliminating the opportunity for small parties to win seats through strong local support in particular district -- a change that critics say is among the measures to smother opposition.

But Putin, in his speech, said it was part of "a revolutionary step modernizing the elections system ... (it will) help the opposition widen its representation."

The death Monday of Putin's predecessor, Boris Yeltsin, drew new attention to complaints that Putin is heading the country away from democracy. Yeltsin, as Russia's first post-Soviet leader, worked changes that encouraged pluralism and nudged the country toward democracy.

But Putin in his speech clearly aimed to portray himself as the curator of Yeltsin's legacy. He began the speech by calling for deputies to stand in silence in memory of Yeltsin and later called for a national library to be established in his name.

ANOTHER month, another string of victories for Google, the internet's emerging superpower. With the most popular search engine and the most efficient system for placing text advertisements alongside the results, Google already dominates the lucrative market for “paid search” advertising (where advertisers pay only for mouse clicks). On April 13th Google announced that it would pay $3.1 billion—making this its biggest acquisition ever—for DoubleClick, the web's largest independent broker between online publishers and advertisers in the market for “branded” or “display” advertisements (where advertisers pay each time the ad is displayed). According to some estimates, this market segment, although smaller, is now growing faster than paid search.

Before the weekend was over, Google had also struck a deal with Clear Channel Radio, America's largest radio broadcaster, in which Google will sell—online, of course—some of the airtime on 675 radio stations to advertisers in Google's network. This follows the announcement at the beginning of the month that Google will place advertisements on the 125 television channels of EchoStar, an American satellite-TV operator, and Google's separate push to put advertisements into traditional newspapers. Google is thus mapping out plans to dominate not just the internet, but the advertising market too.


In the process, it is rudely taking the wind out of the sails of Yahoo!, which had rather been hoping that this would be its month to impress. Terry Semel, its boss, emphasised this week that Yahoo! remains the clear leader in display advertising. Even so, Yahoo! must now feel threatened. Mr Semel says Google's purchase of DoubleClick “validates” his own strategy in display advertising; but Yahoo!, along with Microsoft and Time Warner, had also been bidding for DoubleClick. For Mr Semel, having been outbid by Google for a stake in AOL, an internet portal, and for YouTube, the leader in online video, this is the latest in a series of strategic defeats.

All this is unpleasant because Mr Semel has recently been trying to engineer just the opposite outcome. Rather than defending against Google in display advertising, he had been hoping to attack it in paid search. Yahoo! has in the past placed text advertisements on its search pages based only on how much an advertiser bids for a given search term, such as “mountain bikes”; Google, by contrast, takes other variables (such as the number of click-throughs) into account and so makes its advertisements more relevant to web searchers, thus earning more revenue. In February Yahoo! launched a new placement system, called Panama, that is meant to close this technical gap.

So far, however, Panama has not helped Yahoo! match Google's financial success. This week Yahoo! reported that profit in the first quarter fell by 11% compared with a year earlier, which was below Wall Street's expectations. The boost from Panama will show up only in this quarter, says Susan Decker, Yahoo!'s second-in-command. Others are sceptical about how much of a difference Panama can make, since advertising systems depend not just on fancy software but also on signing up advertisers and publishers, as Google has done. Panama may only prevent Yahoo! from falling further behind.


Boohoo, Yahoo!
Mr Semel's other defence is to use the growing fear of Google among “old media” firms to engineer alliances designed to contain the enemy. In March Yahoo!, along with AOL and Microsoft's MSN, signed up to a new partnership with NBC and Rupert Murdoch's News Corporation, which intend to form a joint venture in online video to counter Google's YouTube. Last week Yahoo! expanded an advertising alliance with Viacom, which is suing YouTube. And this week Yahoo! announced a deal with a group of newspaper publishers—including McClatchy, America's third-largest—to run their content on Yahoo!'s websites and place advertisements on the papers' websites.

For MSN the picture is even bleaker. Its parent, Microsoft, is in a different position from Yahoo!, since online advertising is still minuscule next to its revenues from software, expected to be over $45 billion this year. Yet online advertising is crucial to Microsoft's growth, says Sarah Friar, an analyst at Goldman Sachs, since it is perhaps the only new market large enough to be “needle-moving” for such a big firm. But so far Microsoft is failing. By Ms Friar's estimates, Google will make operating profits of over $5 billion this year, growing at a rate of 36% for the next three years; Yahoo! will make $3 billion in operating profit, growing by 20% a year; and Microsoft's online businesses will lose $2 billion this year and even more in the next two years.

Microsoft's nightmare is that Google will at some point disrupt its main business of selling software such as Microsoft Office, which most cubicle denizens use for word-processing, spreadsheets and presentations. Google is already offering word processing and spreadsheets as free online services, and this week announced it would soon add presentation software as well, to rival Microsoft's PowerPoint.

Yet Google's latest deals contain a hint of weakness. Henry Blodget of Cherry Hill Research, a consultancy, notes that in its original business of placing text advertisements on its own search pages, Google makes profit margins of about 60%. In its more recent business of placing advertisements on web pages belonging to other people, such as bloggers, its profit margins are 10-20%, because it is harder to make the advertisements as relevant to the audience and it must share the resulting revenues. Display advertising also offers lower returns. Even if Google successfully expands into new fields such as television and radio advertising, its profit margins are likely to keep declining, especially since its partners will probably give Google only “left-over” advertising slots.

For the moment Microsoft is being a sore loser. Along with AT&T, it was quick to cry antitrust wolf upon hearing that Google had won the bidding for DoubleClick—sweet irony, given that Microsoft and AT&T have both fallen foul of antitrust regulators in the past for abusing their monopolies. “Advertisers don't want a Wal-Mart-isation of digital advertising,” where one firm (like Wal-Mart in retailing) becomes so big that it can dictate prices, says Tom Chavez, the boss of Rapt, a firm that analyses online-advertising data on behalf of publishers and advertisers.

That said, Mr Chavez adds, Google is still far from becoming a Wal-Mart—and even Wal-Mart is not facing an antitrust investigation. Unlike AT&T and Microsoft, both of which exerted a strong technological “lock in” over their customers, Google operates in a more open market that is easier for competitors to contest. Regulators will scrutinise the Google-DoubleClick deal, as they should. But Google is not a monopolist—just a company that is, for the moment at least, ahead of its peers.

DETROIT, April 24 — A quarter century ago, people in this city not only bashed the surging Japanese car companies with words, they also vented their frustration by swinging sledgehammers at Japanese cars, a way for some to raise money for charity (three swings for $1 at one event).

But on Tuesday, when the Toyota Motor Company officially took over bragging rights from General Motors as the world’s largest automaker, the sledgehammers were replaced by finger pointing — at Detroit itself, as well as Japan.

The prospect that Toyota might beat G.M. this year in global sales had been looming for some time, though the prospect still seemed very much in Detroit’s rearview mirror.

G.M., after all, dominates the city — from the G.M. logo atop its offices in the imposing Renaissance Center downtown, to the gift shops selling T-shirts reading “G.M. World Headquarters” and belts made from seat-belt fabric with the G.M. logo on the buckle.

Then Tuesday’s numbers came out. In the most recent quarter, Toyota sold 2.35 million cars and trucks, about 109,000 more than G.M. Save for two periods when G.M. production faltered because of strikes in the 1970s and 1980s, the automaker had been on top since 1931.

As the reality of the historic shift settled in, a sense of resignation was mixed with rhetoric about Japan’s trade policies on newspaper and Internet message boards, at automobile plants and on the radio here. The effect was an extended town hall meeting about what went wrong, and what G.M. should do to regain its global leadership (though it remains the biggest seller in the American market).

“I guess nobody can stay on top forever,” said Walt Novak, 52, who has worked for General Motors for 31 years. “I feel fortunate that I got to be a part of it for a while,” he added, as he stood outside a G.M. engine factory in suburban Romulus, Mich.

Like just about everybody else in this city, Mr. Novak, whose wife, Penny, also works at the factory, had a theory of what had gone wrong. He said Toyota was better at marketing its vehicles to American consumers than was G.M.

That does not ease the pain, however. “There’s something wrong in this country,” he said. “It is pretty demoralizing to us, because we come in every day and work hard.”

That kind of a reaction “tells you how much things have changed,” said Kevin Boyle, a Detroit native and professor of history at Ohio State University who has written about the industry. “Even the real die-hards in Detroit can no longer cling to the idea” that their companies reign supreme.

Deep cutbacks across G.M., the Ford Motor Company and the Chrysler Group mean that Detroit residents “are literally no longer as vested as they were in the industry,” Professor Boyle added.

G.M. officials appear to have mixed views on the importance of losing the “world’s largest” title.

“We’re focused on providing the best cars and trucks for our customers all around the world,” John M. McDonald, a G.M. spokesman in Detroit, said Tuesday. “We’re not focused on a race.”

Yet in January, the company’s chief executive, Rick Wagoner, said he would be disappointed if G.M. lost its leadership position.

“‘I like being No. 1,” Mr. Wagoner said. “And I think our people take pride in that, so it’s not something that we’re going to sit back and let somebody else pass us by.”

In a sense, however, G.M. has done that. One reason Toyota was able to squeeze by G.M. is that the Detroit company, like Ford, is deliberately cutting back on its unprofitable bulk sales to rental car companies, which have helped push down the prices of its cars and hurt their resale value.

As soon as G.M. made clear that it was taking that step, “we knew it was coming,” Paul W. Smith, host of a popular show on WJR-AM in Detroit, said of Toyota’s ascension.

Mr. Smith, whose show has featured interviews with Mr. Wagoner, as well as officials from Toyota and the U.A.W.’s president, Ron Gettelfinger, added: “I think people are getting a sense for how bad it is.”

But Detroiters, he added, often are not aware of how little Americans care about the plight of their city, something he has learned on his regular stints filling in for Rush Limbaugh on his national radio show.

“The rest of the country doesn’t much give a damn about G.M. leading or not leading, the city of Detroit leading or not leading and the state of Michigan leading or not leading,” Mr. Smith said.

Senior Toyota officials have said that they do not believe the company is in danger of a political backlash like the kind that erupted a quarter-century ago.

Though its exports from Japan to the United States have risen for the last three years, the company has emphasized its growing production in America, where it recently broke ground on a new plant in Mississippi and began building Camrys at Subaru’s factory in Indiana last week.

With the latest plant, Toyota will have eight assembly plants in North America. Last year, it built about 1.2 million car and trucks in the United States, or about 54 percent of the vehicles it sold here.

“We have been searching for other ways to produce more cars locally,” Toyota’s chief executive, Katsuaki Watanabe, said recently.

Toyota officials have also stressed the millions in contributions they have made to charities in cities where they have built plants, as well as in Detroit, where Toyota awarded a $186,469 grant to Wayne State University last summer so that 200 high school students could take part in a six-week mathematics camp.

Toyota’s reaction to grabbing the best-seller title? “We look at the results as simply a reflection of how our products are viewed favorably around the world,” said Paul Nolasco, a company spokesman in Tokyo. “We don’t just make them and push them out the door — we have a ‘pull’ system and we build them when they are ordered.”

Toyota’s lead over G.M. comes 50 years after it began selling cars in the United States, starting with the same small cars and pickups it sold in Japan. Toyota then made an important shift in the 1980s when it began developing vehicles for American consumers, like its Lexus luxury cars and an American version of its Camry sedan.

While its growth stalled briefly in the 1990s, when Detroit companies focused on building S.U.V.’s, Toyota surged this decade, with its Lexus lineup and its hybrid-electric Prius.

G.M.’s market share has steadily declined, even though it expanded its brands and its lineup. It had a difficult time in the late 1980s, when it lost five points of market share in a single year when buyers turned away from its lineup of look-alike cars.

G.M., which trailed its competitors in offering S.U.V.’s during the 1990s, caught up early this decade, but gasoline prices began rising. Though it briefly halted its market-share slide, in part because of incentives offered after the September 2001 attacks, G.M’.s sales decline has continued in recent years, despite efforts to remake its lineup.

On message boards, some voiced support for Detroit by criticizing Toyota.

“Toyota takes their profits and invests it in their country, not ours,” a post on the Detroit Free Press Web site said. The author, who used the screen name Americanmade, added, “Wake Up America and Buy American!”

Others showed their support for the Japanese company. “Nice Job Toyota! Your cars are great! Too bad we can’t say that about the Big 3,” said one reader in a posting on the Detroit News Web site Tuesday, signed by R.C. of Kalamazoo, Mich.

Some residents seemed to take a longer view. Richard Graham, 32, whose father works for Chrysler and whose mother used to work for G.M., said the city’s ego should not be bruised by G.M.’s slip to No. 2.

“They’ve been No. 1 for so long — one year out of a century isn’t bad,” he said while strolling along the Detroit River in front of G.M.’s headquarters Tuesday afternoon. “They’re going to do better.”

Yet a G.M. employee, Marvin Wilson, 47, said he and his colleagues were not concerned with being the biggest automaker; they would rather work for a profitable one, he said, even if it means being smaller.

“Don’t get me wrong, I’d love to be No. 1,” Mr. Wilson said. “But it doesn’t affect me that somebody else comes along and takes over that spot. We’ve just got to buckle up and work harder.”

Boris Yeltsin has died. A hero or not?

AFP

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BORIS NIKOLAYEVICH YELTSIN helped to destroy the Soviet Union and did much to bring Russia’s democracy into existence. The former construction engineer was not a great builder of institutions; the democracy was flawed. But he had the right instincts. For liberating Russians from the yoke of the one-party state and the planned economy, he deserves immense gratitude. Yet his nepotistic and capricious rule spawned colossal lawlessness and corruption, paving the way for his authoritarian successor, Vladimir Putin.

Born in 1931, Mr Yeltsin was a loyal provincial Communist, bulldozing the Ipatiev house in Sverdlovsk (now, again, Yekaterinburg) where the last tsar’s family was murdered. Promoted to Moscow party chief under Mikhail Gorbachev, he showed a revolutionary popular touch. Communist chieftains shunned the people. Mr Yeltsin mixed with them, sharing their fury about the shortages and indignities of daily life.

In 1987 Mr Gorbachev fired him, after an outburst that included direct criticism of the Soviet leader’s wife, Raisa: even in the burgeoning atmosphere of glasnost [openness], that was still taboo. Mr Yeltsin retreated to the shadows, only to return in 1990 as president of the Russian Federation. Russia’s statehood had been as nominal as those of other Soviet Socialist Republics such as Ukraine or Kazakhstan. But as the Baltic republics started galloping towards freedom, with Mr Yeltsin’s enthusiastic support, that changed. Could the Russian Federation too one day become a proper country?

It soon did. When bumbling Communist party hardliners mounted a coup against the Soviet leadership in 1991, it was Mr Yeltsin, denouncing the putschists while perched on a tank, who symbolised the successful democratic resistance. When Mr Gorbachev returned to Moscow from his seaside captivity, he found Mr Yeltsin in charge. The Russian leader humiliatingly gave his former boss a decree to read out acknowledging the new order.

As the other 14 Soviet republics digested their independence, Mr Yeltsin appointed a short-lived government of young reformers, led by Yegor Gaidar, who unleashed breakneck economic reform on the ruined country. It was deeply unpopular: price liberalisation made evident the destruction of savings under Soviet inflation. Privatisation meant a field day for robber barons. The institutions needed for a properly functioning market economy were pitifully lacking. It was in the Yeltsin era that the world learnt the term “oligarch”, to describe the overmighty tycoons who fused political and economic power.

Yet those reforms worked. Russia has a booming consumer-goods market. The robber barons were a lot better than the “red directors” they replaced, whose thinking and loyalties were still rooted in the Communist-run planned economy.

If the economic reforms now look better than they seemed at the time, his political failures look worse. Shelling Russia’s parliament in 1993, supposedly to dislodge Communist and other hardline deputies who had seized control there, reintroduced the virus of violence into Russian political life. So did the shameful Chechen war of 1994-96, which unleashed the might of the Russian war machine on the small breakaway republic. His rigged victory over the Communist Gennady Zyuganov in the 1996 presidential election spawned a habit of official vote-rigging that has largely destroyed the credibility of Russian elections.

His mistakes were greatest when prompted by his family and their cronies. While keeping the old man topped up with vodka, they hijacked Russia’s political and economic destiny, enriching themselves and discrediting both democracy and capitalism in the eyes of millions of outraged and contemptuous citizens.

All the same, Mr Yeltsin stood for three fundamental principles. He believed in freedom of speech, including freedom of the press, no matter what. He wanted Russia to be friends with the west. And he despised the Communist party and everything it stood for—particularly the KGB. It was a tragedy that he did not dissolve it fully in 1991, when he had the chance. It was an irony that the candidate his family chose as a safe successor, the cautious, little-known ex-KGB man, Mr Putin, should have done so much to reverse his legacy, blaming so many of Russia’s ills on what he calls the “chaos” of the 1990s.

NYC Pledges 1 Million New Trees by 2017

NAGASAKI, Japan, April 20 — The shooting death this week of this city’s popular mayor has left people puzzling over the shooter’s motive and has set off a national outcry about a less savory aspect of Japanese society: its teeming criminal underworld.

On Friday, passers-by left flowers on the sidewalk where Mayor Kazunaga Ito, who went by the name Itcho Ito in public life, was killed Tuesday evening by a member of an organized crime group. Citizens also lined up to write their condolences at Nagasaki’s City Hall, where employees were wearing black dresses and neckties.

The brazenness of the slaying, in front of crowds of commuters at the city’s main train station, shocked this nation, which takes pride in its normally safe streets. It has brought growing calls in national newspapers and among ordinary citizens for Japan’s central government to take tougher steps to crack down on criminal groups.

“We can no longer let organized crime run rampant in Japan,” said Toru Shioyama, 36, who visited the site of Mr. Ito’s killing during his lunch break. “I’m outraged.”

Japan has some of the lowest crime rates in the world, yet it is not uncommon, especially in regional cities like this one, to see dark-suited gangsters openly swaggering down streets. Some gangs even announce their presence by hanging signboards outside their headquarters and carrying business cards.

In all Japan, there were some 84,700 known members of organized criminal groups as of March, according to the National Police Agency. By contrast, the Federal Bureau of Investigation estimates that there are only 1,000 “made” members of the Mafia, America’s best-known organized crime group.

For decades, Japan’s gangsters, known as yakuza, enjoyed a romanticized image here for their role in keeping crime under control. Historians say these groups often kept cozy relations with politicians and the police, and were a widely accepted part of the social fabric. But in recent years, public opinion has begun turning against them, as tougher economic times have driven the underworld to victimize regular Japanese more frequently, organized crime experts say.

According to the police, Mr. Ito, 61, was shot by a member of the Suishinkai, a local branch of the 39,700-member Yamaguchi-gumi, Japan’s largest organized crime group. The killer, Tetsuya Shiroo, 59, has confessed to shooting Mr. Ito twice from behind with an American-made revolver, the police said.

Mr. Shiroo’s motives are not clear. At first, many here thought the killing might have been politically motivated. Some speculated that Mr. Ito might have angered Japan’s murky far right with his opposition to nuclear weapons, a common stance in a city that was flattened by an American atomic bomb in World War II. In early 1990, another Nagasaki mayor was shot and wounded by a rightist after saying that the late Emperor Hirohito bore some responsibility for the war.

However, the police now appear to be investigating money-related disputes. The local news media have focused on a four-year-old clash between Mr. Shiroo and the city of Nagasaki over a car accident. In that dispute, Mr. Shiroo visited City Hall about 30 times from 2003 to 2005 to demand up to 2.7 million yen, or about $23,000, for damages to his car that he claimed were from an accident at a city construction site, city officials said.

Lawyers said such requests for reimbursement were a common form of extortion. However, the small amount of money involved, and the fact that Mr. Shiroo had not raised the matter with city officials for two years, made many wonder if there was not some larger, hidden issue. Adding to the mystery was the fact that Mr. Ito was in the final stretch of campaigning for re-election in Sunday’s mayoral election, which he was widely expected to win.

“We really have no idea what was the reason” for the slaying, said Yoshinobu Hashida, chief of the city’s personnel section, which advises city officials on how to deal with gangster threats. “There’s no clear-cut explanation.”

Another possibility is a dispute over public works projects, which lawyers and other organized crime experts call a common source of revenue for criminal groups. A letter signed by Mr. Shiroo and sent to a Tokyo-based broadcaster just before the shooting reportedly expressed anger at Nagasaki for denying a contract to a construction company with links to him. On Thursday, the broadcaster, TV Asahi, turned over the letter to the Nagasaki police.

It is also unclear why Mr. Shiroo chose the mayor as his target. Mr. Shiroo did not name the mayor during the traffic accident dispute, said city officials, and the TV Asahi letter reportedly mentioned him only briefly. Toshiaki Hayashida, the mayor’s chief secretary, said he believed that Mr. Ito had never met Mr. Shiroo.

Some experts said the killing might have been an act of desperation by gangsters, who have come under increasing pressure as Japanese companies and local governments have stepped up efforts to end dealings with organized crime. In recent years, Nagasaki has passed new regulations requiring companies to report all contact with organized criminal groups, or be barred from bidding on public works contracts.

Organized crime has also felt the pinch as Japan has reduced public works spending to rein in runaway budget deficits, say experts like Takashi Ozaki, a lawyer in Tokyo specializing in organized crime cases. Criminal groups have responded by increasingly turning to violence to intimidate local officials, Mr. Ozaki said.

“Incidents like the Nagasaki shooting show how tough it’s getting for these groups,” Mr. Ozaki said.

The National Police Agency said it was contacted 2,391 times last year in connection with violence against local government employees, an increase of 27 percent over the past six years. In Nagasaki, before this week’s shooting, city officials had been the victims of violence 13 times in the past four years, though not all of these involved members of organized criminal groups, said Mr. Hashida, the city personnel official.

In one case, a member of an organized criminal group was arrested after threatening a city official while demanding reimbursement for injuries he claimed he had suffered by stepping in a trap that the city had laid to control the local population of wild boars.

It is rare for a case to be as high profile, and as brutal, as Tuesday’s killing. After Mr. Shiroo’s arrest, the boss of the Suishinkai visited the Nagasaki police headquarters to report that the group was voluntarily disbanding, a possible sign that gangsters were bracing for a crackdown, the police said.

The police said the group had close to 100 members, making it the second-largest organized crime group in Nagasaki Prefecture, of which Nagasaki is the capital. Local police officials said that while they monitored the Suishinkai and other of the prefecture’s 555 known gangsters, they were powerless to arrest members until they actually broke a law.

“We can only act if they do something wrong,” said Yoshihiro Hara, a spokesman for the Nagasaki prefectural police. “We have to observe the rule of law.”

Meanwhile, at Mr. Ito’s former campaign headquarters, activity began picking up again. On Thursday, the campaign announced that Mr. Ito’s son-in-law, Makoto Yokoo, a 40-year-old reporter with no experience in politics, would run Sunday in Mr. Ito’s place.

“Sadly, some types of people resort to violence when they can’t get their way,” said Mr. Hayashida, the mayor’s secretary. “But we cannot let this stop us from pressing on.”