WASHINGTON -- Consumer spending dropped in September by the largest amount in four years, while incomes suffered because of Hurricane Ike.

The White House is working to enact a wide array of federal regulations, many of which would weaken government rules aimed at protecting consumers and the environment, before President Bush leaves office in January.

NEW YORK

Motorola Inc. posted a hefty loss in the third quarter Thursday, citing the continued troubles of its cell phone division. Motorola said it will postpone the planned spin-off of the unit, originally planned for the third quarter of next year.

The maker of communications gear lost $397 million, or 18 cents per share, in the July-September period. It had earned $60 million, or 3 cents per share, in the same period a year ago.

Sales fell 15 percent to $7.48 billion.

The loss included 23 cents of charges, mostly for restructuring costs. Without the charges, Motorola would have earned 5 cents a share, reflecting unexpectedly strong results in its non-cell phone operations. Analysts polled by Thomson Reuters had on average expected the company to earn 2 cents per share on revenue of $7.82 billion.

For the fourth quarter, Motorola said it expects to earn 2 cents to 4 cents per share. Analysts polled by Thomson Reuters had expected the company to earn 7 cents per share in the quarter, excluding items.

Shares of Motorola fell 30 cents, or 5.5 percent, to $5.16 in early trading, even as the broader market rallied.

Chief executive Greg Brown said the company was extending its cost cuts across its operations, which should lead to savings of $800 million next year. The company has cut thousands of jobs this year, but it didn't announce any specific new cuts on Thursday.

Motorola sold 25.4 million cell phones in the third quarter, down from the 28.1 million it sold in the second quarter. The company had said it expected a slight decline. With an 8.5 percent market share, it lost the spot as No. 3 cell phone maker worldwide to Sony Ericsson in the quarter, according to research firm IDC. Nokia Corp. and Samsung Electronics Co. are No. 1 and No. 2, respectively.

The cell phone unit lost $840 million, including a $370 million write-down of inventory. Revenue was $3.1 billion.

Sanjay Jha, who was appointed in August to lead the handset division, said the weak economy and stresses in the financial market were main reasons for the postponed spin-off. He said the unit would slim down its product portfolio and become a leaner organization.

Jha said the company had 20 major platforms for cell phones, making development unwieldy yet leaving Motorola with few products in the two categories that have been in demand this year: "smart" phones and very cheap phones.

He is pruning the portfolio to focus on three software systems: Windows Mobile, which Motorola already uses on a few smart phones; P2K, its own system, used on the Razr phone; and Android, a free operating system from Google Inc. Competitor HTC Corp. recently launched the first Android phone. Jha said Motorola will have one by the 2009 holiday season.

Designers at Motorola have been too focused on making "bright shiny objects," Jha said. In the future, he wants them to focus more on making phones easy to use.

The troubles of the cell phone division stem from its inability to produce a follow-up to a phone that was, for a while, the "bright shiny object" everyone had to have: the Razr phone.

Jha also said Motorola will pull back from the cell phone markets of Europe and parts of Asia, though Jha said China will remain a focus for the company, along with the Americas.

Motorola is not alone in seeing a decline in cell phone sales. IDC said Thursday that global handset shipments declined 0.4 percent from the second quarter to the third, even though the quarter normally sees a pre-holiday ramp-up.

Sales at Motorola's healthier units were essentially flat, and they boosted profits.

Home and Networks Mobility, which makes cable-TV set-top boxes, modems and related gear, saw its operating earnings increase 65 percent to $263 million, on $2.4 billion in sales.

Enterprise Mobility, which makes police radios and other communications equipment for organizations, posted operating earnings of $403 million, up 23 percent, on sales of $2 billion

Exxon Mobil Corp. smashed its own record for quarterly profits today, ringing up $14.8 billion in net income in the third quarter powered by soaring summertime crude oil prices.

Economy Shrinks in Third Quarter; Markets Start Off Strong

The U.S. economy shrank by .3 percent in the third quarter, government data released this morning shows, confirming an economic slowdown that was already showing itself through steady job losss and declining consumer sales.

Raquel Garcia is serious about avoiding debt. The 18-year-old customer-service representative for U-Haul (UHAL) recently canceled her credit card. Now she gets her entire paycheck deposited onto a prepaid debit card, which she uses for all her purchases. Since she can access only what's in the account, Garcia no longer worries about breaking her budget: "I'm spending just what I need."

For consumers reeling from a series of economic body blows, debit cards are increasingly becoming the plastic of choice. Some use the cards, which pull money directly from a bank or other account, as a budgeting tool to limit spending. Others are embracing them out of necessity as banks clamp down on credit. All told, debit purchases are expected to climb 13% in 2008, to $1.2 trillion, according to The Nilson Report, an industry newsletter—compared with a 3% rise, to $1.9 trillion, for credit-card transactions. At Visa (V), the No. 1 card company, debit spending could surpass credit this year.

For the banks issuing the debit cards, the trend seems bittersweet. On the plus side, debit cards don't pose a threat to the banks' books like credit-card accounts; losses are mounting as borrowers fall behind on their payments. But the profits on debit cards aren't as plump since banks don't collect interest on them. Issuers largely make money from fees, which pale next to those on credit cards. Retailers, for instance, fork over 1.6% of credit purchases to banks, three times the amount on debit transactions.

But don't shed a tear for the banks just yet. Time and again they've shown an uncanny ability to adapt to a new profit landscape, and the debit-card business appears no different. Consider the evolution of overdraft fees. It used to be that banks denied debit purchases when consumers didn't have enough money in their accounts. Now 14 of the 15 largest banks approve transactions but hit customers with a fee if they exceed the funds. It's not unlike getting charged for bouncing a check. A recent study by Web site Bankrate.com (RATE) found that overdraft fees now approach $29, up 3% in the past year.

Those penalties are easier to trigger, too. In the past customers had up to a couple of days—the time it takes for some debit transactions to clear—to deposit cash. But now many banks hit them with fees as soon as purchases are made. "Banks have turned to this as a major source of revenue," says Jean Ann Fox, director of financial services at the advocacy group Consumer Federation of America.

The practices have become so prevalent that the Federal Reserve has proposed rules that would rein in perceived abuses. The banks argue that they provide a necessary service to consumers. "There's a balancing act to ensure folks who do need to occasionally go over the limit have [the protection] while having a deterrent in place for people who abuse it," says Doug Johnson, a policy adviser at the trade group American Bankers Assn.

The Next Frontier

Regulatory headwinds haven't deterred the banks from ramping up their debit-card businesses. Among the groups that offer the biggest potential for banks: people who earn more than $75,000 a year. According to MasterCard (MA), they're the least active debit users, usually turning instead to credit cards that offer frequent-flier miles and other rewards.

To attract that crowd, financial firms are ramping up their loyalty programs. MasterCard's Savings program, launched in October, offers debit users discounts on luxury brands like Armani and 7 For All Mankind as well as at retailers such as Home Depot (HD) and Target (TGT). San Antonio's Frost Bank (CFR) recently released its Momentum card, which is connected to customers' checking or savings accounts. The bank pays customers a higher interest rate on the accounts—up to 3.5%—when they make more debit purchases.

There's also a land grab for the so-called underbanked, the roughly 80 million people who don't have a bank or credit-card account. Dallas' Comerica Bank (CMA) won the right this year to issue debit cards to the estimated 4 million Social Security recipients who don't have bank accounts. The government deposits the money onto a prepaid card. (Comerica doesn't charge overdraft fees on them.) Visa and MasterCard offer prepaid debit cards that companies use to pay employees.

The aggressive push is paying off. These days, debit cards are as widespread as credit cards. At the upscale suburban Atlanta restaurant Aqua Blue, waitresses now bring diners a device that lets them swipe their debit card and enter their password to pay for meals. "Debit is becoming the payment card of choice for the American public," says Red Gillen of consultancy Celent.

But for consumers like Garcia who want to break free from the high fees and penalties of credit cards, debit cards may not be the panacea they expected. Says consumer advocate Fox: "As with credit cards, consumers can't keep up with what the rules are."

BP registered a monumental 148 per cent rise in quarterly profits yesterday that was only partly thanks to the recent high oil price.

As economies around the world shudder at the prospect of approaching recession, the oil giant said that pre-tax profits of $11.5bn (£7.4bn), up from $6.3bn, from the company's upstream operations, and growth of 70 per cent to $.13bn in its downstream activities, contributed to replacement cost profit of $10bn for the group as a whole. Operating cash flow in the third quarter also stood at its highest-ever value, up by 133 per cent to $14.9bn. BP will pay a dividend in December of 14 cents per share, up 30 per cent in dollar terms and 60 per cent in sterling.

Despite the disruption caused by hurricanes and interruptions to output from its Caspian fields, oil and gas production was up by around 5 per cent to just under 4 million barrels of oil equivalent, helped by particularly good performance at the Thunder Horse platform in the Gulf of Mexico.

Tony Hayward, BP's chief executive, was keen to stress the stellar performance is not only because of the ballooning oil price, which hit an unprecedented $147 per barrel in July before plummeting to below $65 this week.

"Although it has since fallen away sharply, the high price of the third quarter obviously helped our absolute result," Mr Hayward said. "But this should not obscure operational improvements in refining and rigorous cost control across the company that kept our cash costs essentially flat compared with last year, despite immense inflationary pressures in the sector."

Despite the expectation of a tough fourth quarter across the industry as oil prices continue to fall and recessionary pressures hamper demand, Mr Hayward remains bullish—even acquisitive—in the face of economic volatility. "We think the current turmoil may create opportunities for us and we will look at those very closely," he said. "Our balance sheet is strong and we have committed less of our portfolio to high-cost options like tar sands and gas conversion than peers."

But the squeeze is already being felt, and BP acknowledged that end user demand for oil products in the US and Europe is weak, with year-on-year demand down 5 per cent, not helped by a sharp cut in American driving habits.

BP's strong performance is acknowledged in the City, and the company's shares closed up 23.5p at 461.5p yesterday. "This is the third quarter in a row that BP has done better than expected, which tends to bear out the view that the Forward Agenda is being delivered," Colin Smith, an analyst at Dresdner Kleinwort, said.

"We would have expected that there would be a decline in comparison with the first or second quarters, partly because of the dropping oil price but also because the third quarter is seasonally weak. But sequentially the numbers are up, not just year on year, so there is pretty clear evidence that it is more than just the oil price."

But with oil down by more than half since the summer, the prognosis for the next three months is weaker. "There is no question that earnings will be down in the fourth quarter because of decline from the exceptional, unsustainably high oil price, but BP is outperforming its market, so we would expect it to suffer less than most," Mr Smith said.

Meanwhile, Paul Skinner, chairman of Rio Tinto, is being tipped to take over the chairmanship of BP when Peter Sutherland steps down in spring.

Oil price falls: Opec warns it may reduce supply for a third time

The oil price ticked up yesterday after oil-producing countries' cartel Opec warned it may cut supply even further to put a floor under the spiralling market. Abdullah el-Badri, Opec's secretary general, told reporters at a London conference yesterday that the continually-falling price may force another emergency summit before the next official meeting scheduled for 17 December in Algeria.

"We will have to wait and see how the market will react, but if this continues then we will have another cut," Mr Badri said. "If he situation deteriorated where we had to have another meeting before Algeria we will do that."

Oil has slumped by more than half since its $147 per barrel high in July. Production cuts from Opec in September and at the end of last week, have done nothing to stop the decline, and Monday saw yet another round of steep drops. The news that Opec might act again had an immediate impact, pushing New York crude for December delivery up nearly $2 to $65 and Brent North Sea for December up over $1 to $62.70 in afternoon trading.

Dolly Parton

Besides the Presidential election, there's another big political battle brewing in Washington on Nov. 4. This one is over the airwaves that are used to deliver communications signals to consumers across the country, and like the race for the White House, this contest has created a big divide.

The same day that the country is picking its next President, the Federal Communication Commission will decide whether to make available a large swath of airwaves for wireless high-speed Internet access. It would be the largest-ever contiguous chunk of frequencies, also known as spectrum, doled out by the U.S. government for free public use. Combatants on both sides are out swinging.

Proponents include FCC Chairman Kevin Martin and an odd conglomeration of tech heavyweights that includes Google (GOOG), Microsoft (MSFT), Dell (DELL), Motorola (MOT), and Philips Electronics North America. The companies hope the freed-up spectrum will spur demand for wireless access and the equipment and advertising that would support it.

Martin has already lined up the support he needs from two additional commissioners, according to a person familiar with the matter. Still, opposition has gathered steam in recent days, leaving some to speculate the vote on the issue may be delayed, if not ultimately defeated.

Broadcast Disruption?

The opposing faction comprises even stranger bedfellows—from the National Association of Broadcasters, an industry group that represents radio and TV stations, to electronics companies such as Qualcomm (QCOM) and LG Electronics. Even Saddleback Church pastor Rick Warren and performers Guns N' Roses and Dolly Parton have weighed in. "I don't know all the legalese concerning this issue, so I've had some very smart people inform me about the legalities here," Parton writes in an Oct. 24 letter that begins on a folksy note. "This industry relies on wireless technology and is in jeopardy of being irreversibly devastated by the Commission's pending decision."

Parton's concern, and that of other opponents, is that new technology would disrupt broadcasts and use of wireless microphones. Their first goal is to get the FCC to delay its Nov. 4 vote. Even former Presidential candidate Senator Hillary Clinton urged Martin in an Oct. 28 letter to give "all due consideration" to concerns raised by opponents of the move.

The FCC appears intent on holding to its Nov. 4 time frame. On Oct. 29 the commission issued a meeting agenda that includes plans to rule on the airwaves, also known as white spaces, that are located in between channels used for broadcasting TV signals. "The proposal on TV white spaces is scheduled for a vote Nov. 4," says an FCC spokesman. "We moved cautiously with this proposal, we've taken into consideration public comments that have been provided over the past several years." The FCC has received more than 33,600 comments and will continue to accept input through Oct. 31.

Given the imminent change in Presidential administrations and the likelihood of new leadership at the FCC, a lengthy delay could doom an initiative that's been in the works for more than four years, analysts say.

• View Slide Show

Far away from the complex merger negotiations and dicey political maneuvering (BusinessWeek.com, 10/28/08) that promise to reshape America's largest automaker, General Motors (GM), design director Bob Boniface is coolly contemplating the company's future. Sitting in front of him, bathed in the soft, yellow light of a Manhattan showroom, is the production Chevrolet Volt.

The Volt is probably GM's last, best hope for the future and certainly its most significant upcoming vehicle. Saddled with dwindling market share, credit-strapped consumers, and a lingering reputation as a purveyor of gas-thirsty vehicles, GM executives need the Volt to become an iconic product, like Apple's (AAPL) 1998 iMac or even Chrysler's 1980s K-car before. The Volt has to affirm the company's ability to innovate and, eventually, create a financial foothold from which the battered automaker can begin to turn itself around.

The car is also GM's gambit to outpace foreign competitors like Toyota (TM) and Honda (HMC). Unlike conventional hybrids—including the best-selling Prius—the Volt is essentially a plug-in electric car with an onboard gas-burning engine that can recharge the vehicle's batteries. This enables the Volt to travel some 40 miles before the driver turns on the gas. Because most daily commuters in the U.S. don't travel that far, GM says many drivers will not have to use any fuel at all, simply recharging the vehicle via a regular outlet at home overnight. GM is still wrangling with the Environmental Protection Agency over the vehicle's efficiency, but executives say the final number should be north of 100 mpg for both types of power.

Windswept Shape

Boniface runs his hand along the Volt's metal grille, which does not sport the little holes that aerate the engine. Instead, the embossed plate of armor is intended to reduce drag as air hits the car's front bumper. Indeed, the vehicle's detailing is a study in aerodynamic design, from the windswept shape of the rearview mirror to the subtly integrated spoiler on the rear hatchback. "We spent over 700 hours in the wind tunnel with this thing," recalls Boniface.

The vehicle's interior (BusinessWeek.com, 1/28/08) also distinguishes itself from other cars. The front dash is swathed in shiny white plastics, reminiscent of the iPod. Sporting two customizable LCD screens, it could be one of the sleekest in the industry. Controls for the audio and climate systems, meanwhile, are touch-sensitive, more like an iPhone than the chunky knobs of other vehicles. The company is also toying with the idea of customizable interior door panels featuring interchangeable graphics.

Since it was announced at the North American International Auto Show in Detroit last January, the Volt's expected retail price has steadily crept upward and is now expected to cost between $30,000 and $40,000, a hefty sum for a Chevrolet. (The Volt will qualify for a $7,500 tax credit recently added to the energy bill.) But in some instances, Boniface says, the higher price helped the design team get what it wanted. "This isn't going to be a budget vehicle, and this helped us win some important arguments," he says. "Take a look at your iPhone," he instructs me, pointing to the metal bezel around the phone's edge.

The Federal Deposit Insurance Corp. and the Treasury Dept. are working on a major program to prevent widespread foreclosures that would include government guarantees of home mortgages.

The plan would use $50 billion from the recently passed bailout package to provide as much as $500 billion to $600 billion in government guarantees on up to 3 million at-risk mortgages. It might require banks and savings and loans to offer loans with lower interest rates for a five-year period, while shifting to the government any risk if the home doesn't recover its full mortgage value within that time.

Without giving details, FDIC Chairman Sheila Bair discussed the program on Oct. 29 at an international deposit insurers' conference in Arlington, Va. She said the agency has developed "a federal program to help more borrowers avoid foreclosure.…Such a framework is needed to modify loans on a scale large enough to have a major impact."

Bair said discussions are ongoing with the Treasury Dept., according to wire reports. The proposal could be out as soon as Oct. 30, says a lobbyist familiar with both elements of the plan and negotiations. However, a Treasury Dept. spokeswoman denied that a proposal is ready. "That is simply inaccurate," said Treasury spokeswoman Jennifer Zuccarelli. "We are looking at a number of proposals on foreclosure prevention, but no one proposal has been decided upon." Details of the plan the FDIC is pushing could change as Treasury—which has authority to administer most facets of the banking bailout—evaluates it. The lobbyist said there may yet prove to be friction with the White House over the plan, as well.

Not Enough?

A mandatory mortgage-relief program would be the government's boldest move on behalf of homeowners since the subprime crisis began picking up steam last year. Bair made a similar proposal six months ago, but it was dismissed without much discussion. Until now, a Bush Administration plan that was voluntary for banks has failed to spur enough loan modifications and prevent foreclosures.

Still, critics say that the five-year loan modification program could be putting off the inevitable for borrowers, and that the $50 billion committed to backing it up may not be enough to put a serious dent in the wave of foreclosures.

According to the lobbyist, the program would require banks, savings and loans, investment funds, hedge funds, and other holders of mortgages to restructure the loans based on a homeowner's ability to pay lower monthly mortgage payments. The government would guarantee a second loan on the home, so banks and other lenders would not lose any money in a mortgage modification. The homeowner would get lower payments for the five years. And if the homeowner defaulted and went into foreclosure anyway, the government would have to make good to whoever had issued the loan.