The Wall Street Journal Weekly Quiz
Covering front-page articles from June 13 – 17, 2005
Professor Guide with Summaries
Issue #3 Summer 2005
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
With Italy in the Doldrums, Many Point Fingers at the Euro
By GABRIEL KAHN and MARCUS WALKER
June 13, 2005; Page A1
http://online.wsj.com/article/0,,SB111861330098357388,00.html
CAPOLONA, Italy – Rossano Soldini, the 60-year-old head of a family-owned shoe
factory in this tiny Tuscan town, is getting creamed by Chinese imports. But Mr. Soldini
isn't only blaming China. He also wants to give Europe's common currency the boot. Like
other shoe manufacturers across Italy, Mr. Soldini says the euro's sharp rise against the
dollar inflated the price of the shoes he ships to the U.S. and left him defenseless against
Asian rivals. Italian shoe production dropped almost 8% last year, the fourth straight year
of declines. In 2004, Italy imported more shoes than it exported for the first time. In the
past, Italy would devalue its old currency, the lira, to help businesspeople claw back to
competitiveness against other countries. But since Rome gave up control of currency
policy to join the euro in 1999, Mr. Soldini, who also heads the National Association of
Italian Shoe Manufacturers, has watched his fortunes slide. Having the euro has been like
"wearing handcuffs," he says, adding: "Without a doubt, I'm nostalgic for the lira. Europe
is not listening to us." Six years ago, 11 European nations made a bold bet that a common
currency would unify and fortify the continent from Sicily to Helsinki. Now, as many of
the nations in what is known as the euro zone slog through an economic funk, the
experiment is helping to drive countries further apart -- and fueling a growing resentment
of the wider European Union. In Italy, an anti-euro backlash is ricocheting up and down
the peninsula as the country sinks deeper into a recession. Consumers, businesspeople
and some politicians now bemoan a currency they claim has left them poorer and less
competitive. Earlier this month, the welfare minister, Roberto Maroni, called for a
referendum to bring back the lira. The daily newspaper of his party, the Northern League,
has just begun rendering prices in euros and lira in its news columns, even though the lira
no longer exists. The euro-bashing isn't confined to Italy. A poll for Stern magazine this
month found that 56% of Germans want the mark back. The mounting dissatisfaction is
another blow to the authority of the EU. The 25-member union was pitched into
confusion two weeks ago by the rejection by French and Dutch voters of a proposed new
constitution for the union. Underpinning those votes and the grousing over the euro are
deep anxieties about slow growth, high unemployment and the future of Europe's
generous welfare states. The anti-euro feeling also underscores just how hard it is to forge
a common currency. It took the U.S. nearly a century to create a truly national currency.
Before the Civil War, thousands of American banks issued notes that in effect worked
like independent currencies, varying widely in value from state to state. Only in the midst
of war was the Union finally able to impose a uniform greenback. The euro has faced
different but daunting challenges since the experiment was launched in 1999. The U.S.
has one national government that can direct aid to depressed corners of the country; the
euro zone has 12, each with its own fiscal policy. Workers in the U.S. can freely move
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WSJ Professor Guide: Page 1 of 25
from a slumping area to seek jobs in a prosperous one. Europeans, tied down by different
languages, pension plans and legal systems, are far less mobile. Still, the euro is in many
ways a triumph. It is so sound that it has quickly emerged as the world's second-mostwidely-held currency by central banks after the dollar. The euro has brought big benefits
for companies trading across European borders by eliminating currency swings and
foreign-exchange fees. It created huge, unified capital markets akin to the U.S.'s, which
have helped many European companies raise capital. Returning to a weaker currency
would mean returning to higher interest rates. Thus no one is expecting Italy or any of the
other 11 euro members to bolt any time soon. And many analysts say Italy's problem
doesn't lie with the euro, but with Rome, which has failed to slim down the country's vast
bureaucracy or break down the barriers to competition in big parts of the economy. "The
remedy is not to leave the euro, but to correct the structural issues," says Patrick Artus, an
economist at French bank Groupe Caisse d'Epargne. But the chafing of Italians and
Germans at the euro, coupled with the anti-EU feeling exposed by the French and Dutch
"no" votes, have raised questions about long-term political support for the currency. All
four countries are euro members. "Breakup is back on the radar screen as a theoretically
possible option" for the monetary union, says Holger Fahrinkrug, an economist at Swiss
bank UBS in Frankfurt. When the new currency was launched on Jan. 1, 1999, it was
greeted with champagne toasts in Rome, Paris and Frankfurt. Economists and politicians
predicted the euro would one day rival the dollar as a benchmark currency and,
consequently, Europe would one day rival the U.S. as a superpower. The euro was all
things to all nations. Italians thought the euro would let them trade their feckless
politicians in Rome for technocrats in Brussels. The French gambled that monetary union
would enhance their own power. Newly reunified Germany, haunted by Europe's history
of wars, thought giving up the mark was a necessary sacrifice for durable peace and
acceptance by its neighbors. Euro advocates vowed Italy would emerge as a big winner
from the new money. Ceding monetary policy to the European Central Bank and joining
the euro would usher in stable interest rates, which in turn would help Italy pay down its
crushing public debt, the third largest by value after Japan and the U.S., and larger than
Italy's entire gross domestic product.
1. Six years ago, how many European nations made a bold bet that a common
currency would unify and fortify the continent from Sicily to Helsinki?
a. 5
b. 8
c. 11 Correct
d. all of them
2. What was Italy’s former currency called?
a. mark
b. euro
c. lira Correct
d. mina
AdIcon P&G Cuts Commitment To TV Commercials
By JOE FLINT and BRIAN STEINBERG
June 13, 2005; Page A1
http://online.wsj.com/article/0,,SB111861590160357458,00.html
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 2 of 25
Procter & Gamble Co., the consumer-goods giant and marketing icon, is sharply cutting
how much it commits in advance to buying television commercials next season,
according to people familiar with the situation. The move by P&G, the maker of wellknown brand items such as Tide, Crest and Pampers, is the latest sign of rapid changes in
how companies reach consumers and TV networks and cable channels draw revenue. In
recent years, many big companies have expressed doubts about the effectiveness of
traditional TV advertising. Digital video recorders such as those made by TiVo Inc.,
which make it easier for TV viewers to skip commercials, are growing in popularity,
while leisure activities like the Internet and videogames are competing for consumers'
time. But big-spending P&G, with roots in the medium's earliest days, exerts wide
influence on how other companies make their marketing and advertising decisions. In
2004, the Cincinnati-based company was the No. 1 U.S. advertiser, spending roughly
$2.5 billion on TV -- more than 80% of its estimated $3 billion ad budget. People familiar
with the situation said P&G's decision to scale back spending on commercials has been
disclosed to TV executives in recent weeks during "upfront" negotiations, the annual
round of talks in which advertisers commit to spending for the coming TV season. Its
commitments to cable channels will fall by as much as 25%, according to several cable
industry and advertising executives, while its spending on broadcast networks will be cut
around 5%. It also is expected to reduce spending on syndicated daytime talk shows such
as "The Oprah Winfrey Show" and "Ellen." While cutting back spending on TV
commercials, P&G is looking to shift money into several different forms of TV
marketing. Among them is increased activity in the fast-growing area of product
placement -- use of its products on TV shows -- said people familiar with the situation. A
P&G spokesman said the company continues to negotiate with media outlets and declined
further comment. A spokeswoman for Publicis Groupe SA's Starcom MediaVest Group,
which is P&G's media buyer, referred a call to P&G. P&G's plans were reported last
week by the Myers Report, an advertising industry newsletter. Some industry executives
see P&G's cutback in upfront commitments as little more than a ploy to delay buying ad
time until later in the year when prices may be lower. But P&G's decision already has
contributed to what has been a difficult year in the upfront market, which comes at the
end of spring after broadcast and cable networks have detailed their fall-programming
plans. Broadcasters typically sell between 75% and 85% of their commercial inventory in
the upfront market. Cable networks can sell equally as much, but many sell only between
50% and 60% of their inventory in the upfront.
3. P&G the Cincinnati-based company is the No. 1 U.S. advertiser, spending
roughly __________ on TV advertising.
a. $1.5 million
b. $2.0 million
c. $1.5 billion
d. $2.5 billion Correct
4. Broadcasters typically sell between ________ of their commercial inventory in
the upfront market.
a. 15% and 20%
b. 25% and 35%
c. 40% and 65%
d. 75% and 85% Correct
Digging In Exxon Chief Makes A Cold Calculation On Global Warming
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 3 of 25
By JEFFREY BALL
June 14, 2005; Page A1
http://online.wsj.com/article/0,,SB111870440192558569,00.html
ANNANDALE, N.J. -- At Exxon Mobil Corp.'s laboratories here, there isn't a solar panel
or windmill in sight. About the closest Exxon's scientists get to "renewable" energy is
perfecting an oil that Exxon could sell to companies operating wind turbines. Oil giants
such as BP PLC and Royal Dutch/Shell Group are trumpeting a better-safe-than-sorry
approach to global warming. They accept a growing scientific consensus that fossil fuels
are a main contributor to the problem and endorse the 1997 Kyoto Protocol, which caps
emissions from developed nations that have ratified it. BP and Shell also have begun to
invest in alternatives to fossil fuels. Not Exxon. Openly and unapologetically, the world's
No. 1 oil company disputes the notion that fossil fuels are the main cause of global
warming. Along with the Bush administration, Exxon opposes the Kyoto accord and the
very idea of capping global-warming emissions. Congress is debating an energy bill that
may be amended to include a cap, but the administration and Exxon say the costs would
be huge and the benefits uncertain. Exxon also contributes money to think tanks and
other groups that agree with its stance. Exxon publicly predicts that solar and wind
energy will continue to provide less than 1% of the world's energy supply in 2025, a
subject that others shy away from. Even if fossil fuels are the chief global-warming
culprit, Exxon argues, the sensible response is to figure out how to burn them more
efficiently. "We're not playing the issue. I'm not sure I can say that about others," Lee
Raymond, Exxon's chairman and chief executive, said in a recent interview at Exxon
headquarters in Irving, Texas. "I get this question a lot of times: 'Why don't you just go
spend $50 million on solar cells? Charge it off to the public-affairs budget and just say
it's like another dry hole?' The answer is: That's not the way we do things." The 66-yearold Mr. Raymond has emerged as the tallest lightning rod in the debate over global
warming. At a London oil-industry dinner in February where he was the guest of honor,
Greenpeace protesters poured red wine onto tables and called Mr. Raymond the "No. 1
climate criminal." Mr. Raymond, speaking on the same day the Kyoto treaty took effect,
stuck by his prepared speech and called for a "reality check" on the treaty. Exxon's
approach to global warming typifies the bottom-line focus of its entire business. It is
slogging away to improve the energy efficiency of its refineries -- primarily to cut costs,
although this is also shaving global-warming emissions. But it says the business case for
making more sweeping changes is still weak. It's a conservative, hard-nosed approach
that has helped make Exxon the most profitable oil company in the world, with 2004 net
income of $25 billion. Even at its Annandale research lab, Exxon's focus is on adapting
and improving fossil fuels -- not replacing them. Its researchers are trying to make cars
burn fuel more efficiently and reduce emissions. Some futurists, and the Bush
administration, think cars could run on hydrogen some day. Exxon is looking into the
idea but puts its research dollars into extracting hydrogen from petroleum, not from
water.
5. The most profitable oil company in 2004 was ______.
a. BP
b. Royal Dutch
c. Exxon Correct
d. Shell
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 4 of 25
6. Exxon publicly predicts that solar and wind energy will continue to provide less
than ______ of the world's energy supply in 2025.
a. 1% Correct
b. 5%
c. 11%
d. 41%
Fast-Aging Japan Keeps Its Elders On the Job Longer
By SEBASTIAN MOFFETT
June 15, 2005; Page A1
http://online.wsj.com/article/0,,SB111878290178859505,00.html
NAKATSUGAWA, Japan -- Four years ago, Kato Manufacturing Co. faced a problem
that much of Japanese industry soon will come up against: a dearth of working-age
people for its factories. With Japan's birth rate declining fast for decades, the pool of
young workers was shrinking. And those who grew up in this small town in central Japan
were fleeing to look for jobs in the cities. So, the small metal-parts maker tried out a
source of labor it had never considered before: the elderly. They came running. When
Kato placed inserts in the local paper inviting "keen people over 60" to apply, the
company was flooded with 100 candidates, even though the jobs were for weekends.
"There were many more applicants than I thought," says Keiji Kato, the company's
president. What's more, he got away with paying them only half as much as regular
employees. Kato is dealing with a problem that's just starting to sweep the world -- an
aging population combined with a shrinking work force. The problem is unprecedented in
modern times, and its most predictable effect would be to sap economic growth: If a
country's work force declines and higher production per worker doesn't make up for this,
its economy will shrink. Though Japan will run into this quagmire first, other nations are
going to have to deal with it soon as well. In Japan, the proportion of people who are over
65 years old will reach 20% in 2006, up from 10% just 20 years ago. Italy, too, will be in
the same position in 2006, and Germany in 2009. The U.S. is better off -- not slated to
reach that proportion until 2036 -- because of a higher birthrate and immigration, but it
still is struggling to figure out how to finance Social Security in a grayer future. Unlike
the U.S., Japan is reluctant to rely on large-scale immigration to bolster the work force.
Instead, it is trying another strategy: enticing the elderly to work longer before receiving
retirement benefits, effectively dealing with old age by making it start later. That might
sound like a move that goes against recent world-wide trends. Western Europeans, for
example, have been retiring earlier over the past quarter century, encouraged by
governments that thought this would ease chronic unemployment. But if Japan succeeds
in using the elderly to solve its looming labor shortage, it could provide a new policy tool
for other nations. There are some hopeful signs. Many Japanese workers are enthusiastic
about working longer, even though the official retirement age remains a relatively young
60. The International Labor Organization says 71% of Japanese men ages 60 to 64 work,
mostly in postretirement jobs. That compares with 57% of American men and just 17%
of Frenchmen in the same age group. Asked their ideal retirement age, 72% of Japanese
said either "about 65" or "about 70," according to a 2001 Japanese government report.
Americans, Germans and Swedes mainly chose "about 60" or "about 65." I want to work
as long as I'm healthy," says Sachiko Ichioka, a 67-year-old widow who prepares
ventilation-equipment parts for shipment at Kato Manufacturing. "The extra money
means I can go on trips, and I'm not a burden on my children." Japan's declining work
force comes from two trends linked with economic development. Better diet and health
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 5 of 25
care have helped raise Japan's average life expectancy at birth to 82, the highest in the
world. Meanwhile, women in Japan are having fewer and fewer children -- an average of
1.28 each, compared with 2.04 in the U.S. -- so there are fewer people available to join
the work force. These trends are also rippling elsewhere in the world. Italy and Spain, for
example, have fertility rates roughly the same as Japan's. South Korea's recently plunged
even lower, to 1.19. At the other end of life, the Chinese are living to an average of 71
years old, while Americans and most Western Europeans on average make it to their late
70s. Younger populations in developing countries like Brazil and India give their
economies a demographic advantage -- but only a temporary one, as the same birthrate
and life-expectancy trends are taking hold there amid growing prosperity. Keeping the
elderly at work could help to roughly maintain the size of Japan's work force. According
to calculations by Atsushi Seike, an economist at Tokyo's Keio University, the country's
lower birth rate means the number of Japanese in their 20s will decline by 3.2 million
over the next decade. But extending everyone's working life until 65 would keep two
million more in the work force, which currently totals about 66 million. A further million
or so workers could be women, who traditionally have stayed at home in Japan but
increasingly are choosing to work. "Together, these two would make up for the loss of
people in their 20s," says Mr. Seike. He says Japan has a good chance to keep people in
the work force and stop the decline, because until a few decades ago, people worked until
they died. "Lots of adults now have parents like this, so they don't have the idea of retired
life," he says. Japan's government hopes that people working longer will help save its
increasingly burdened pension system from going bust, and it is making benefits
available later and later. In 2000, Japanese could draw a full state pension at 60. But by
2025, after a gradual phase-in of later retirement ages, they won't get any until they are
65. What's more, premiums paid by workers are set to rise while payouts fall. To help
workers to cope with this, Japan passed a law last year that requires companies by 2013
to raise their retirement age to 65 from 60 or rehire their retiring workers. The new
measures could be a strain for employers. In a country where forced layoffs are a last
resort, large companies traditionally have relied on retirement to reduce payrolls. They
were just about to enjoy a big cut in personnel costs because of the mass retirement of
Japan's baby boomers, who were born between 1947 and 1949 and account for 5.2
million members of the work force. Early signs suggest large corporations will drag their
feet in raising their retirement ages, hurting the effectiveness of the policies. Violators of
the new law would face only "administrative guidance," not penalties. And, unlike the
U.S., Japan has no law against discrimination based on age. "There was much opposition
from corporations" to the new retirement law, says university professor Mr. Seike.
7. In Japan, the proportion of people who are over 65 years old will reach _____
in 2006.
a. 10%
b. 20% Correct
c. 30%
d. 80%
8. According to calculations by Atsushi Seike, an economist at Tokyo's Keio
University, a low birth rate means the number of Japanese in their 20s will decline
by _______________over the next decade.
a. 1.2 million
b. 3.2 million Correct
c. 4.2 million
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 6 of 25
d. 33.2 million
Some College Jocks Find Their Pro Careers Are in the Nascar Pits
By NEAL E. BOUDETTE
June 16, 2005; Page A1
http://online.wsj.com/article/0,,SB111888681761561169,00.html
CHARLOTTE, N.C. -- After Bob Dowens finished playing college football, he turned
pro. But not in the NFL -- in the National Association for Stock Car Auto Racing. Once a
defensive back at Fairleigh Dickinson University, the 28-year-old Mr. Dowens is now a
professional tire carrier in a Nascar pit crew. At Evernham Motorsports, the stock-car
racing team for which Mr. Dowens works, pit-crew members practice five days a week.
A pit coach studies videos to hone their footwork and hand speed. A trainer has them lift
weights and run sprints. "This is a professional sport as far as I'm concerned," Mr.
Dowens said recently, drenched in sweat after a morning workout. "It's 95 degrees out,
and today we were running an obstacle course. Last week, I was so drained, I almost
couldn't eat lunch afterwards. This is as tough as any football practice." Years ago,
mechanics who worked on race cars during the week simply did double duty on Sundays
in the pits. Nobody thought about athletic fitness and beer bellies were OK. The crew was
too busy during the week welding and machining to practice pit stops. Today, teams like
Evernham look increasingly for college jocks whose strength and speed can save precious
tenths of a second in a race. One of Mr. Dowens's teammates, jack-man Ed Watkins, was
a 300-pound offensive lineman at East Carolina University. The Chip Ganassi Racing
team's pit crew includes baseball players from Wake Forest University; football players
from Wake, the University of Kentucky and the University of North Carolina; and a
hockey player from Dartmouth. Top tire-changers -- the guys who air-wrench lug nuts off
and on -- can make $100,000 a year. The average at Evernham is about $60,000. Mr.
Dowens figures he'll be a bit over that, with bonuses, this year.Big money is what drives
the demand for world-class tire-changers. In the 1990s, Nascar's popularity exploded,
bringing hundreds of millions of dollars in television and sponsorship revenue into the
sport. With more money at stake, competition intensified, and pit stops often affected the
outcome of a race. Twenty years ago, pit crews were doing pretty well to change four
tires in less than 30 seconds. Today, taking more than 16 seconds can be disastrous.
"These guys are serious athletes," says Evernham's pit coach, Greg Miller, 33. A car
going 200 miles per hour covers nearly 300 feet in a second, so a half-second advantage
in the pit can put a driver ahead two or three spots. "In our world, two seconds is a
lifetime." A pit crew consists of seven men: A front-tire changer, another for the rear;
front- and rear-tire carriers; a man who jacks the car up, and two gas men with an 11gallon can. Every sport has key metrics -- the speed of a pitcher's fastball, a running
back's time in the 40-yard dash. At Evernham, Mr. Miller expects tire changers to get five
lug nuts off in 1.2 seconds. The jack man should haul his 25-pound aluminum jack from
the car's right side to the left in 3.8 seconds. For tire carriers like Mr. Dowens, the key is
the time it takes to "index" a 60-pound tire, or get it from resting on the ground to
mounted on the car. Seven-tenths of a second is acceptable. Growing up in Holmdel, N.J.,
Mr. Dowens had only a passing interest in auto racing. After getting a degree in
sociology at Fairleigh Dickinson, in Madison, N.J., in 2001, he thought his playing days
were over, and started looking for a real job. But his gridiron abilities caught the eye of
Ray Evernham, a rising star among Nascar executives who had just started his own team.
He is related to Mr. Dowens by marriage and had seen him in action. "Bob was the kind
of guy we look for -- strong, fast, mentally tough," Mr. Evernham says. That brought Mr.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 7 of 25
Dowens under the tutelage of Evernham's coach, Mr. Miller. A former fitness trainer with
a master's degree in physiology, he thought he could combine his profession with his love
of Nascar and joined a team in 1998. At Evernham, Mr. Miller keeps a thick binder with
details of every practice and race-day pit stop of the three crews he coaches, with times of
each man's tasks, the car's position entering and leaving the pit. Last year, Mr. Miller got
approval to add a full-time strength coach. It started badly: The first running drill left the
former East Carolina lineman, Mr. Watkins, with torn tendons in both knees. Now it's
paying off. At 5 feet 10 inches, Mr. Dowens weighs 190 pounds, 20 pounds less than in
his football days. The 6-foot-3-inch Mr. Watkins is a buff 230. In May, an Evernham
crew came in second in a Nascar pit competition. Two weeks later, a different Evernham
pit crew took the title and shared $75,000 in bonus money. One Thursday, in the tan
metal building near Charlotte where Evernham is based, sparks flew from screeching
grinders and welding torches as mechanics prepped a dozen Dodge Chargers for Sunday.
Four large windows revealed an adjacent room where Mr. Dowens and his teammates
were also doing their own body work, pumping dumbbells, riding exercise bikes,
stretching. Later, they met at the practice pit outside. A few yards away, on a stretch of
grass, stood four orange cones left out from running drills. A red Charger roared into the
pit. In a flash, Mr. Watkins had the car's right wheels off the ground. Air wrenches
whined as tires rolled away. The crew shifted to the left side and suddenly it was over.
The seven team members then gathered around Mr. Miller and a video screen. The time,
14.30 seconds, was OK. Mr. Miller watched the video frame by frame and then spotted
something: One tire carrier had his feet too far apart, which left him using only his arms,
not his legs, to index the tire. The next two attempts were better. The fourth was clocked
at 13.57 seconds. "We're still leaving a little on the table," Mr. Miller said. On Sunday at
the race, the Coca-Cola 600 in Charlotte, fans strolled the pit area seeking autographs and
souvenir lug nuts. A young woman with blond curls and a tight T-shirt put her arm
around Mr. Dowens while her mother snapped a picture. On this day Mr. Dowens was
carrying for the No. 19 car driven by Jeremy Mayfield. Early in the 600-mile race, Mr.
Mayfield's Charger screamed into the pit; 14.32 seconds later, it was gone. On the next
stop, a tire changer slipped on an air hose. The time: 15.39. Mr. Miller grimaced. As the
600-mile race wore on, the pit times edged below 14 seconds. Mr. Dowens was doing
well, indexing tires at under seven-tenths of a second. With their car hanging on in a
crash-filled race, Mr. Miller shouted, "Need a good one, boys." With 59 laps to go, the
car pulled in for four tires and two cans of gas. It was out in 13.95 seconds, a time that
helped Mr. Mayfield leap from 14th to ninth. With that momentum, he finished the race
in fourth place, tying his best finish this year. The pit crew did well, too. "We can do
better, but no major problems," Mr. Miller said. "All it takes is one to screw up the race."
9. A National Association for Stock Car Auto Racing pit crew consists of
_________ people.
a. 3
b. 5
c. 7 Correct
d. 10
10. National Association for Stock Car Auto Racing top tire-changers -- the guys
who air-wrench lug nuts off and on -- can make ___________ a year.
a. $35,000
b. $65,000
c. $100,000 Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 8 of 25
d. $220,000
Chrysler's Storied Hemi Motor Helps It Escape Detroit's Gloom
By NEAL E. BOUDETTE
June 17, 2005; Page A1
http://online.wsj.com/article/0,,SB111897512529462338,00.html
Last month, Jason Kanakis went into National Dodge in Jacksonville, N.C., to buy the car
of his dreams, the 2005 Dodge Magnum R/T. Hours of haggling later, he roared the sleek
station wagon off the lot for $31,000, the "absolute limit" he could afford. "The power
and mystique of the Hemi made me more willing to go up," says the 34-year-old Marine.
That's the name for the car's powerful V8 engine, which added $5,000 to the price. "I said
to myself, 'that's 345 horsepower, my friend.' " The Hemi engine, made famous by
muscle cars of the 1960s and 1970s, is now helping make DaimlerChrysler AG a notable
exception to the gloom that has descended on Detroit. Amid the U.S. auto industry's most
severe crisis in a decade, the Hemi is revving up profits and market share. In particular,
it's reviving sales of passenger cars, a stark change from Detroit's recent reliance on
sport-utility vehicles and pickups. The story of the Hemi is part luck -- Chrysler started
tinkering with the engine almost a decade ago -- and part clever marketing. To escape
from a slump five years ago, Chrysler's managers placed a premium on making cars that
stand out, which it can sell for full price. As part of that thinking, it took the unusual step
of making the Hemi engine the star of an advertising blitz. Soon TV viewers were
intoning its tagline: "That thing got a Hemi?" As a result, Chrysler was able to take
advantage of a shift among car buyers: a nostalgic return to the souped-up muscle car.
About half the Magnums, Dodge RAM trucks and Durango SUVs sold by Chrysler are
fitted with Hemis, significantly more than the 30% to 35% the company expected. Its
Hemi plant in Mexico is working around the clock and has increased output three times
since production started three years ago.
By comparison, General Motors Corp. and Ford Motor Co. are reeling. Their bonds are
rated junk by Standard & Poor's and several of their big suppliers are bankrupt or
struggling. For the first quarter, GM posted a $1.1 billion loss and recently said it plans to
cut 25,000 jobs and close a number of factories. GM and Ford trace their troubles to a
sharp decline in sales of large SUVs, which, along with pickup trucks, generate nearly all
of their automotive profits. As far as cars are concerned, both manufacturers, after years
of losing money, have skimped on design and innovation, compounding their poor
performance. Few models are compelling enough for consumers to pay full price, let
alone trade up to feature-packed versions where the big profits lie. Now Chrysler's
success with the Hemi is spurring countermoves by both competitors to make their
vehicles appear more distinctive. Earlier this year, GM started a national advertising
campaign with the tagline "Only GM," to highlight innovations such as its OnStar invehicle communications system. GM's engineers have urged their marketers to focus
more on the company's engines. Over at Ford, where some engineering staffers refer to
the Hemi as the "Hemorrhoid" because of the pain it's inflicting on them, executives are
also taking note. The company is already redesigning its brand new Five Hundred sedan
after its slow start to make it more distinctive. The new Hemi engine, which debuted in
2002, takes its name from rounded, or hemispherical, tops of its cylinders, and gives an
exhilarating boost to a car's acceleration. The name and design are based on a legendary
engine Chrysler produced in the muscle-car era. After Nascar's Richard Petty won 27
races in 1964 driving a 426-horsepower Hemi-powered Charger, the racing circuit
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 9 of 25
banned the engine, thinking it gave drivers too much of an edge. After it was allowed
back, with some restrictions, the Hemi enabled drivers to hit speeds of over 200 miles per
hour. Every customer who opts for a Hemi adds thousands of dollars to Chrysler's bottom
line. That's because the Hemi's simple design makes it no more expensive to build than a
smaller, standard V6 engine. A basic Chrysler 300 -- the broad-shouldered sedan that has
wowed customers from rappers to retirees -- lists for $23,370. The Hemi version, called
the 300C, sells for almost $10,000 more. While that model includes leather seats and
other expensive features, analysts believe most of the difference is pure profit. Ron
Harbour, president of Harbour Consulting, an influential auto-industry research firm, says
the Hemi is driving Chrysler's recent success. "They've created an image in the market
that pulls people up to a richer [price level]," he says. "That's how you make money in
this business."
In an interview, Chrysler's chief, Dieter Zetsche, wouldn't specifically discuss the
company's margins, but acknowledges the Hemi's role as "one of the building blocks of
the turnaround of this company." The company's continued success isn't guaranteed.
Chrysler has made comebacks before only to fall back into crisis. Consumer tastes are
fickle and there's no guarantee that these large, powerful cars will maintain their
popularity. Meanwhile, Chrysler's lineup still includes several vehicles, such as the
Sebring sedan, that sell only with big discounts, and a few, including the Dodge Neon,
that lose money. Yet last year, Chrysler sold 296,182 Hemi-powered vehicles, compared
with 172,186 in 2003. For 2004, it reported operating profit of $1.9 billion, compared
with a loss of $685 million the year earlier. This year, it's launching another Hemipowered car, the Dodge Charger, a roomy, sporty four-door. So far, the signs are good:
Of the Chargers ordered by dealers, 72% are Hemi models. The engine that became the
Hemi actually got its start in 1996, two years before the merger of Chrysler Corp. and
Daimler-Benz AG, and was initially envisioned mostly for use in pickups. At the time,
Chrysler was a distant third behind GM and Ford in that market because its trucks lacked
what buyers love most: raw power. The job of finding a solution went to an engineering
team headed by Robert E. Lee. Growing up in Mansfield, Ohio, Mr. Lee tinkered with
minibikes to make them faster. At Chrysler, he couldn't simply build a bigger engine. The
company needed to meet fuel-efficiency and emissions standards. It also had some vague
ideas about using the engine in passenger cars. His group made some early decisions that
had a big impact years later. First, the team chose a decades-old design that was
inexpensive to build. Second, they borrowed an idea from auto racing and gave each
cylinder two spark plugs instead of one. They rounded the cylinders' tops to crowd fuel
and air into the center where the mixture burned quickly and cleanly. That boosted power
and reduced emissions. To help with fuel consumption -- just in case the V8 engine was
ever put in a passenger car -- they also developed a system for automatically shutting off
four of the eight cylinders while cruising on the highway. By 2000, Chrysler was part of
DaimlerChrysler and was losing billions. But under the tutelage of Mr. Zetsche, who had
parachuted in from the company's Mercedes division, Chrysler was abandoning Detroit's
unimaginative way of building and selling cars. Mr. Zetsche pushed engineers working
on new cars to give each model features customers can't get elsewhere, additions for
which they might pay extra. During a meeting to review Mr. Lee's work, the engineer had
some good news. He told his bosses the engine was smaller than GM's equivalent but at
the same time more powerful and better on gas. Asked to explain how that was possible,
Mr. Lee recalls saying: "Well, it's a Hemi." He pulled out a slide showing an engine with
hemispherical cylinder heads similar to those Chrysler had in the 1960s. Chrysler hadn't
planned to revive the Hemi name, which is a Chrysler trademark, but Mr. Lee's comment
sent its marketing department hurtling down that path. Focus groups and other research
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 10 of 25
suggested the name meant nothing to younger car buyers. But interviews with people
who owned the older Hemi-powered Dodge Chargers and Plymouth Barracudas showed
the name had a positive image. It stood for power and reminded consumers of an era
when American cars were the coolest things on wheels. Chrysler's older Hemi-powered
muscle cars weren't big sellers. Only 11,000 were built in that era. But for fans of racing
and big American cars, that only added to the mystique. George Murphy, a marketing
specialist hired from Ford in 2001, was charged with making the Hemi engine as familiar
to drivers as Intel Corp.'s chips are to PC users. In the 1990, Intel had pioneered the idea
of turning a computer part into a consumer brand name with its "Intel Inside" ad
campaign. Before working at Ford, Mr. Murphy had spent years at General Electric Co.
and Coca-Cola Co. His approach marked a departure from standard automotive
marketing, which focuses on the car and its name, not the engine. A typical pickup ad, for
example, would show the vehicle hauling a big boat or bouncing up rugged terrain. In its
marketing for the redesigned RAM pickup, which debuted the new Hemi in 2002,
Chrysler depicted the engine as powerful but also as something people dream of owning.
TV commercials showed two stereotyped hicks -- Mr. Zetsche refers to them as "Dumb
and Dumber" -- ogling a RAM truck and asking, "That thing got a Hemi?" They were a
hit. The RAM pickup delivered more horsepower than the competing 6-liter V8 offered
by GM at the time. In the truck's first year, sales jumped 13%. Chrysler tried the Hemi in
a big SUV, the Dodge Durango, and its sales rose, too. More importantly, to Chrysler's
surprise, the brand took on a life of its own. "That thing got a Hemi?" became a popular
catchphrase. Prices soared for restored original Hemi cars, such as the Plymouth 'Cuda,
as the Barracuda came to be known. In May a lime green 1971 model sold for $735,000,
almost twice the price of a few years ago, according to the seller, Mecum Auctioneers of
Marengo, Ill. When Chrysler launched a redesigned Jeep Grand Cherokee last summer, it
offered the Hemi as an option but didn't put a badge on the outside, thinking Jeep owners
wouldn't care. But customers began calling Chrysler's parts division to buy Hemi badges.
In response, Chrysler started putting them on at the factory and recently increased badge
sizes for all Hemi vehicles. Joel Storm, a 57-year-old orthodontist from Freehold, N.J.,
says neighbors, friends and sometimes strangers have asked him to start his new Magnum
R/T and pop the hood. "The draw is to look at the Hemi," he laughs.The Hemi started to
boost Chrysler's bottom line last year with the launch of its 300 sedan, a car that stands
out for its sleek windows, bold grille and rear-wheel drive. What puts the car in a class by
itself is the Hemi. American car makers stopped putting powerful V8 engines in most
non-luxury sedans years ago. Japanese manufacturers also stick to smaller V6 engines for
models such as the Toyota Camry. The 300 arrived just as some consumers were tiring of
SUVs. The Hemi-powered version offered an alternative. Thanks to Mr. Lee's cylinderdeactivation system, the car does 25 miles per gallon on the highway compared with 19
for a big SUV like Chevrolet's Suburban, according to the Environmental Protection
Agency. Hemi-powered models are now attracting the kind of big-spending customers
who previously wouldn't have considered Chrysler. Art Strahan, a former National
Football League defensive end, bought a Hemi-powered 300 for his wife in January and
loaded it with options including videogame consoles for his grandchildren. The total
price: more than $40,000. An equivalent Cadillac STS sedan, made by GM, with a 320horsepower V8 engine, has a sticker price as high as $60,000. Chrysler is now shipping
the new Dodge Charger to dealerships. One in Pinckney, Mich., has two models on its
lot. Woody Henrikson, a salesman, says when it comes to prices, there's not much room
for negotiation. "It's pretty cut and dry," he says. "Chrysler's not discounting them."
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 11 of 25
11. The new Hemi engine, which debuted in 2002, takes its name from rounded,
or hemispherical, _______, and gives an exhilarating boost to a car's acceleration.
a. spark plugs
b. cylinder tops Correct
c. exhaust ports
d. intake ports
12. Last month, Jason Kanakis went into National Dodge in Jacksonville, N.C., to
buy the car of his dreams, the 2005 Dodge Magnum R/T. The car had a Hemi
engine which added approximately ________ to the price.
a. $500
b. $5,000 Correct
c. $15,000
d. $50,000
Questions 13 – 17 from Marketplace, Section B
To Pitch New Soda, Coke Wants to Teach The World to Sing -- Again
By CHAD TERHUNE
June 13, 2005; Page B1
http://online.wsj.com/article/0,,SB111861718852057484,00.html
A famous beverage giant wants to teach the world to sing -- again. Coca-Cola Co. is
reprising its best-known TV commercial to market its latest new product hope, CocaCola Zero. The zero-calorie cola is designed to win back young consumers, particularly
men, who have ditched regular sodas in favor of bottled water and trendier drinks.The
original 1971 ad, known as the "Hilltop" commercial for its Italian backdrop, featured a
large international cast of young people singing "I'd like to teach the world to sing in
perfect harmony / I'd like to buy the world a Coke and keep it company." The commercial
became an instant classic and the song was a Billboard Top 10 hit. This time, the ad
strikes some distinctly different chords. The campaign is aimed at the "go-go lifestyle" of
18- to 24-year-olds, and is meant to convey how Coke Zero is the "perfect beverage to
take a moment and recenter yourself," says Katie Bayne, senior vice president for CocaCola brands in North America. To that end, Coke recently shot its new version, called
"Chilltop," on the roof of a Philadelphia building. Hip-hop artist G. Love (Garrett Dutton)
and a cast of young people gathered on the rooftop at sunset to sing a new set of lyrics to
the familiar Coke tune. The new song draws on the tagline for the Coke Zero campaign:
"Everybody Chill." The updated lyrics are: "I'd like to teach the world to chill, take time
to stop and smile / I'd like to buy the world a Coke and chill with it awhile." The new
commercial, plus other ads on radio, outdoor and online, will break later this month as
Coke Zero arrives in stores. Whether it plays well with consumers is a big deal: Coke
hasn't had a hit advertising campaign since "Always Coca-Cola" ended in 1999. Ms.
Bayne says that going back to the memorable "Hilltop" scene was "a major decision for
us." Ad agency Crispin Porter + Bogusky in Miami is handling the Coke Zero campaign.
But reviving a classic ad and trying to make it relevant to today's audience can be a
formula for disaster. Most of the target consumers for Coke Zero weren't even born when
the original "Hilltop" ad first aired. And some fans of the original might object to Coke
fiddling with the well-known lyrics from their youth.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 12 of 25
13. Coca-Cola Co. is reprising its best-known TV commercial to market its latest
new product hope called __________.
a. Coca-Cola Zero Correct
b. Coca-Cola One
c. Coca-Cola Super Size
d. Coca-Cola Chill
Women Often Discover Their Business Talent After Kids Are Raised
By Carol Hymowitz
June 14, 2005;
http://online.wsj.com/article/0,,SB111870963411258724,00.html
The last thing Shari Redstone envisioned herself doing 11 years ago was heading a giant,
global media company. "I really wanted to be a stay-at-home mother who baked
cookies," said Ms. Redstone last year at a luncheon for women executives. But today, the
51-year-old Ms. Redstone is expected to be named vice chairman of Viacom, the media
conglomerate controlled by her father, Sumner Redstone, who recently turned 82. She is
already on Viacom's board, and her new post signals her growing power at the
conglomerate, which many believe she will eventually head. Yet until she was close to
40, Ms. Redstone wasn't aware of her business acumen. In her 20s, she worked briefly as
a lawyer, but found the work dull and quit when she married and had three children. It
wasn't until she divorced that her father persuaded her to drop her plans to become a
social worker and go to work for the family's theater-chain company, National
Amusements, which her ex-husband had run. Few women, of course, have titans for
fathers who are willing to give them a corner office. Most hold paying jobs from their 20s
until retirement because they need the money. But like Ms. Redstone, who has built a
reputation as a tough negotiator and shrewd strategist, many don't tap into their deepest
ambitions and leadership talents until midlife. That isn't all that surprising, given the
different life-experience trajectories of men and women. Men typically start their careers
in their 20s with a sprint and, if they aim for the top, never stop running fast. Many young
women, by contrast, must go at a slower pace because they're juggling careers and
childrearing. "Being a leader requires dedication and a single-minded focus, which
women often aren't able to have until later in life," says Laura Liswood, a senior adviser
to Goldman Sachs and the general secretary of the Council of Women World Leaders.
"They're still doing the disproportionate share of work at home plus their jobs, so in
effect they're subsidizing men's abilities" to advance and succeed, she adds. In addition, it
often takes women longer to believe in themselves enough to seek jobs in which they
wield power. "By their 40s and 50s, after observing a few male bosses, women finally
begin to say to themselves, 'These guys aren't any smarter than I am,' " says Ms. Liswood.
Yet few big corporations are flexible enough to take advantage of women's life cycles by,
for example, giving them flexible schedules when they are raising young children and
promotion opportunities when they are older. A lot of middle-age women have found
their own solution: launching their own businesses. There are 10.6 million women-owned
businesses in the U.S., employing 19.1 million people, and two out of three of the new
businesses being launched are women-owned. "A lot of these women have worked for
big corporations, but at 40 or so when a lot are still stuck in middle management they
start thinking, 'I can have more influence and a bigger piece of the pie doing it on my
own,' " says Marsha Firestone, founder of the Women Presidents' Organization. The
average age of the group's members is 49.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 13 of 25
14. There are _______ women-owned businesses in the U.S.
a. 1.6 million
b. 6 million
c. 10 million
d. 10.6 million Correct
The Show Before the Movie
By RYAN CHITTUM
June 15, 2005; Page B1
http://online.wsj.com/article/0,,SB111878501128559547,00.html
As shopping mall owners turn to increasingly lavish entertainment to attract the crowds
once drawn by department stores, an upstart movie chain with opulent theaters that
include valet parking, babysitting and restaurants is emerging as a big winner. Muvico
Theaters Inc., founded by an Iranian immigrant who fell in love with Hollywood as a boy
going to his local cinema, operates 12 theaters and says it will double that number over
the next few years. The company also plans to build what it expects will be the nation's
biggest theater by seats -- 6,500 on 26 screens. The Florida-based chain has found that
glitz can overcome, at least so far, declining movie ticket sales that have hurt other
chains. At the Muvico Egyptian 24 in Hanover, Md., outside Baltimore, moviegoers are
greeted by reproduction hieroglyphs and huge statues. Specific seats can be reserved
online and kids can be dropped off in a supervised playroom. At the Muvico Palace 20 in
Boca Raton, Fla., valet parking is offered and mint ahi tuna is on the menu at the fullservice restaurant. Customers can sink into six-foot-wide loveseats in the balcony to
watch the movie with a glass of wine from the bar. Mixing flash and service seem to
work -- attendance at the Egyptian 24 last year was 2.5 million, the company says.
Muvico expanded during the sharp downturn in the theater industry while other chains
suffered. Now, Hamid Hashemi's theaters are in demand by mall owners who are
becoming increasingly creative in finding tenants to replace department stores, which
have consolidated in recent years. One solution? Developers are building "lifestyle
centers," outdoor malls that try to emulate a neighborhood, complete with entertainment
and restaurants in addition to shopping.
15. Outdoor malls that try to emulate a neighborhood, complete with
entertainment and restaurants in addition to shopping are being called ____.
a. outlet centers
b. town centers
c. lifestyle centers Correct
d. super malls
Why Intrepid Mouse Looks to Asia for Growth
By MERISSA MARR and GEOFFREY A. FOWLER
June 16, 2005; Page B1
http://online.wsj.com/article/0,,SB111888093996961012,00.html
A decade ago, executives from Walt Disney Co. met with Chinese government officials
to discuss the company's expansion there. China already had an idea in mind: The
officials pointed to a plot on a map of Shanghai where they wanted a theme park. Unable
to pin down a deal, Disney opted for a park in Hong Kong first. But with that venue
gearing up for its opening in September, Disney executives are shifting their gaze back to
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 14 of 25
mainland China, negotiating with government officials for a park targeted for Shanghai.
So Hong Kong Disneyland will, in effect, be a warmup act for Shanghai -- and for what
the company hopes will be a bigger presence in China for its movies, television
programs, products and other assets. The hope is that by finally satisfying China's desire
for a Shanghai theme park, Disney will be able to broker broader entrée into the world's
most sizable consumer market. "A theme park acts as a fantastic brand magnet in any
country," says Andy Bird, president of Disney's international operations. "It creates a
brand halo in a far wider geographic area than just the theme park." Theme parks serve as
splashy introductions to new markets, which kick the door open to other ventures. In the
case of Shanghai, the Chinese government is looking to a second park to boost economic
growth and employment, and help promote Shanghai as an international city. The
financing terms for Hong Kong Disney underscore Disney's strategy: Disney put up only
$316 million for a minority 43% stake, with the government contributing $419 million
for its 57% equity stake and providing $780 million in debt financing. Hong Kong
authorities also agreed to develop the surrounding land and infrastructure. That is now the
template for other overseas deals Disney hopes to strike, beginning in Shanghai. On the
mainland, any deal would most likely be with the Shanghai municipal government,
although it would need approval from the central government as well. However, Disney
wants to give its soon-to-open Hong Kong venue time to take hold before announcing
any plans to build another and Disney theme-parks chief Jay Rasulo says a new park is
unlikely to materialize before the end of the decade. Since Walt Disney built his first park
in Anaheim, Calif., in 1955, the Disney company has expanded to 11 parks in five
destinations (Anaheim, Orlando, Paris, Tokyo and Hong Kong) and branched out into
new businesses like Disney Cruise Line. The parks now rank as Disney's second-biggest
division, as measured by operating income, after media networks. Disney laid the
groundwork for its latest drive into new destinations in the 1990s. Spurred by the huge
success of Tokyo Disneyland, the search focused on Asia, and executives held
negotiations in countries including Singapore, Thailand, South Korea and China,
according to people familiar with the discussions. In Shanghai, Disney was initially
competing with rival Universal Studios, which was also keen on the city. While Disney
developed the Hong Kong project, Universal announced a project in Shanghai with great
fanfare, but later folded it after failing to get central-government approval. Theme parks
are a cornerstone of Disney's international growth strategy, as they are coveted by local
officials around the world. And overseas markets are crucial to incoming Chief Executive
Bob Iger, as they offer one of the few clear growth opportunities for a company that still
derives more than 75% of its revenue from domestic sources. But while China is a
gigantic country -- one Disney thinks is easily capable of supporting two parks -- there is
some overlap in the two markets, with the Hong Kong venue expected to draw at least a
third of its visitors from the mainland. There are also big questions about the overall
affordability of the Disney vacation experience in a nation with low income levels.
Another challenge: China already has dozens of theme parks. But many of them have
been forced to close or are struggling financially, limited by poor planning and
accessibility. Disney maintains that its parks are very different from the more traditional
thrill-ride parks that currently are the Chinese standard. Apart from Shanghai, Disney
also still has its eye on South Korea. But it is headed to the region on the tail end of a
major push by other international media and consumer brands for growth in Asia. While
Disney has a growing consumer-products business in China, it is limited. And what it
really wants is a television channel. Despite Disney's desire to build parks, most of the
theme-park division's near-term growth is still expected to come from its domestic sites.
The company has set a target of returning to 20% margins in its parks division, hoping to
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 15 of 25
bounce back from years when it was hampered by higher employee costs and marketing
expenses.
16. The financing terms for Hong Kong Disney include the Chinese government
contributing $_______ for its 57% equity stake and providing $780 million in
debt financing.
a. $419 million Correct
b. $519 million
c. $619 million
d. $919 million
Marketers Seek To Make Cookies More Palatable
By DAVID KESMODEL
June 17, 2005; Page B1
http://online.wsj.com/article/0,,SB111896105917661957,00.html
Online marketers are scrambling to protect one of the key tools of their trade: the
cookie.Faced with reports showing that more and more computer users regularly delete
the tracking files automatically downloaded by Web browsers, marketers and Web site
publishers are launching a "cookies can be good for you" campaign. They argue that
cookies -- small files that Web sites use to identify users and to serve up targeted ads -don't deserve their bad reputation and shouldn't be lumped together with such Web
scourges as spyware and viruses."There is a culture of fear in the marketplace" when it
comes to consumer attitudes toward cookies, says Nick Nyhan, president of New Yorkbased Dynamic Logic Inc., which uses cookies to measure the impact of online ads for
companies such as General Motors Corp., PepsiCo Inc. and Yahoo Inc. "The industry
needs to respond to that fear."Mr. Nyhan recently co-founded www.safecount.org, an
organization aimed at putting a friendlier face on cookies. Microsoft Corp., a large Web
publisher in its own right, is on the group's advisory board. One key goal of the group is
to persuade companies that make antispyware programs to spare legitimate cookies when
scanning users' computers for lurking threats. Many of these programs remove cookies
when sweeping hard drives clean of unnecessary or harmful files.Other industry groups
have started task forces to address the cookie problem and have successfully lobbied
Congress to keep cookies out of antispyware legislation. Meanwhile, marketers aren't
betting the farm on being able to change attitudes toward cookies. Some companies are
experimenting with creative, and sometimes controversial, approaches that would let sites
serve up targeted ads even if a user has deleted his cookies. Cookies date to the early days
of the Web, and are important to helping Internet companies know who their users are.
But in recent years, the emergence of spyware and viruses has made consumers
increasingly suspicious about files that are automatically downloaded to their computers.
Cookies are by and large benign compared with spyware, which is malicious software
aimed at hijacking a user's computer or stealing personal data. Still, privacy advocates
say computer users generally dislike the notion of being tracked online, even if their
personal details aren't being used. Marketers, meanwhile, counter that cookies serve
plenty of useful features consumers may not realize -- such as automatically filling in a
username on a site that requires logging in, or helping a weather site remember a ZIP
Code so that it can show a local forecast on return visits. Some marketers are starting to
talk to Web publishers about the possibility of providing consumers more information
about cookies and how they're used. For example, visitors to a Web site might click on a
"more information" button next to an ad to find out about cookies. Such information
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 16 of 25
might be helpful, says Charlie Tillinghast, publisher of MSNBC.com, but not if the
notices only tell users they'll get more relevant ads if they allow cookies -- a common
argument used by marketers to justify cookies. He suggests publishers focus on using
cookies to provide personalized content and other information that gives "some real value
back to the user." Another possible strategy for online marketers: target makers of
antispyware software who may be misleading consumers about the dangers of cookies,
says Trevor Hughes, executive director of the Network Advertising Initiative, an industry
group. Mr. Hughes and others want software makers to draw a big distinction between
spyware and cookies. When antispyware programs scan computers, they often turn up
lists of hundreds or even thousands of unnecessary files. But the vast majority of those
files tend to be cookies that users accumulate from visiting legitimate Web sites, and pose
no security threat. Major Web browsers already include a way for users to manage
cookies, including whether to block them. As a default setting, Microsoft's Internet
Explorer blocks some "third-party" cookies, which can be used by advertising companies
to track users across multiple sites. (Some antispyware programs are more lenient to firstparty cookies, or those downloaded directly from the Web site being visited.) Microsoft's
free antispyware program, still in a "beta" test version, doesn't detect cookies. "Since they
are files, not programs, they do not pose a potential security threat like spyware and other
potentially unwanted software," says Brendan Foley, senior product manager for
Windows AntiSpyware. A spokeswoman for Microsoft says its role in Safecount, the procookie group, is not a factor in its decision to not flag cookies in its antispyware program.
She says the company continues to evaluate the antispyware program, and changes could
still be made. Safecount wants to create a "good list" of Internet companies that have
shown they meet certain standards in their use of cookies, such as not collecting personal
information like names, addresses and phone numbers of users. The group hopes to
persuade the software makers to ignore such cookies when cleaning users' computers. But
some makers of antispyware programs doubt consumers would go for such a plan. "Most
end users mistrust cookies," says Richard Stiennon, vice president of threat research at
Webroot Software Inc., which makes a popular antispyware program called Spy Sweeper.
He says many users of Spy Sweeper are as interested in removing unnecessary files that
may be clogging their hard drives as they are in protecting themselves from scams. Such
users aren't likely to distinguish between good and bad cookies.
17. Online marketers are scrambling to protect one of the key tools of their trade
called the _________.
a. pop-up
b. data key
c. cookie Correct
d. pop-under
Questions 18 – 22 from Money & Investing, Section C
Citigroup Accord To End Enron Suit May Pressure Others
By MITCHELL PACELLE and ROBIN SIDEL
June 13, 2005; Page C1
http://online.wsj.com/article/0,,SB111840393446256384,00.html
NEW YORK – Citigroup Inc. agreed to pay $2 billion to settle a class-action lawsuit
brought by investors in Enron Corp. who lost tens of billions of dollars when the Houston
energy company collapsed in a 2001 accounting scandal.The settlement, announced
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 17 of 25
Friday, was the second multibillion-dollar hit to Citigroup's balance sheet from the
banking company's campaign to mop up after commercial-banking scandals. The accord
could increase pressure on other defendants, including J.P. Morgan Chase & Co. and
Merrill Lynch & Co., to settle. The Citigroup settlement will take a bite out of $6.6
billion of reserves set aside for litigation, but it isn't expected to affect the firm's earnings.
Citigroup boosted litigation reserves in May 2004, when it agreed to pay $2.65 billion to
settle another suit by investors in the former WorldCom Inc. (now MCI Inc.). Other firms
accused of playing a role in Enron's collapse, including Lehman Brothers Holdings Inc.
and Bank of America Corp., already have settled for a combined $491.5 million. The
total payout by all defendants could eventually reach $10 billion, said one person familiar
with the case. "It is a key priority for Citigroup to resolve major cases like this one and to
put a difficult chapter in our history behind us," Citigroup Chief Executive Charles Prince
said of the Enron settlement, struck with the lead plaintiff, the Board of Regents of the
University of California. Under the settlement, Citigroup denied any violation of law.
Shares of Citigroup edged down four cents to $47.64 each Friday in 4 p.m. New York
Stock Exchange composite trading. Citigroup still faces lawsuits by Enron creditors, by
buyers of complex securities created by Citigroup that were tied to Enron's debt and by
other lenders who participated in Enron financings. The lawsuit settled by Citigroup
Friday accuses a group of Wall Street banks and securities firms of misleading investors
by helping Enron engineer transactions that improperly removed billions of dollars of
debt from its balance sheet. Disclosures about the questionable accounting caused Enron
to spiral into Chapter 11 U.S. bankruptcy protection in late 2001. Investors lost more than
$40 billion, said William Lerach, lead lawyer for the University of California
18. Citigroup Inc. agreed to pay $______ to settle a class-action lawsuit brought
by investors in Enron Corp. who lost tens of billions of dollars when the Houston
energy company collapsed in a 2001 accounting scandal.
a. $2 billion Correct
b. $20 billion
c. $20 million
d. $200 million
Private-Equity Firms Run Into a Chinese Wall
By HENNY SENDER
June 14, 2005; Page C1
http://online.wsj.com/article/0,,SB111870844567258689,00.html
In the town of Haining, in China's rural Zhejiang province, a 90-minute drive from
Shanghai, agricultural fields are giving way to vast industrial estates. Among the largest
is the sprawling complex where Kasen Zhu takes cowhides imported from North America
and Australia, fits them onto wooden frames and turns them into leather sofas and chairs
that will be exported to the U.S. and Europe. In the past two years, Mr. Zhu has tripled
sales to $300 million, largely thanks to money and advice from investment firm Warburg
Pincus. If all goes well, at some point in coming months Mr. Zhu's company, Zhejiang
Kasen Industrial Co., will go public on the Hong Kong stock exchange, giving Warburg
Pincus a chance to cash in on its investment of $37 million. Rapidly growing small
companies, such as the one run by Mr. Zhu, are a big reason that private-equity
investment firms like New York-based Warburg Pincus are moving more aggressively
into China. Low-cost manufacturing operations have transformed China's economy and
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 18 of 25
have led to the highest sustained growth in the world. Yet what looks so seductive from
the outside is far less so when seen from the inside. China offers many more choices
today than it did a decade ago when private equity was just getting started. Indeed, 10
years ago an entrepreneur like Mr. Zhu didn't even exist. But private-equity firms have
struggled to penetrate China's vibrant market. Deals remain hard to snare and successful
exits have been few. Private-equity firms complain that China deals are more labor
intensive than elsewhere in the world. And, despite the hypergrowth enjoyed by China,
risks are large. Carlyle Group has learned hard lessons in China over the past few
months. A little more than a year ago, Carlyle founder David Rubenstein predicted that
his firm would have as much as $1 billion invested in China by the end of 2004. At the
time, Mr. Rubenstein expected that two deals, each valued at more than $200 million,
would shortly be completed. Well into 2005, neither deal is done and Washington, D.C.based Carlyle is far shy of its investing goals.
19. In the town of Haining, in China's rural Zhejiang province, agricultural fields
are giving way to vast industrial estates. Among the largest is the sprawling
complex where Kasen Zhu takes _____________ imported from North America
and Australia, and turns them into furniture that will be exported to the U.S. and
Europe.
a. cowhides Correct
b. spruce trees
c. used tires
d. steel plates
Nobody's Perfect
By CRAIG KARMIN
June 15, 2005; Page C1
http://online.wsj.com/article/0,,SB111879511505659796,00.html
Foreign-exchange traders are dumping euros with wild abandon. Yet only six months
ago, it was the dollar that they couldn't part with fast enough. Traders may soon want
neither currency, though giving up on the big dogs isn't so easy. With the dollar at a ninemonth high against the euro, it may seem hard to recall how reviled the U.S. currency
was late last year. Back then, the market was obsessed with imbalances in the U.S.
economy. As long as the trade deficit continued to grow at a record pace, analysts
reasoned, the dollar would have to weaken until American exports rose and U.S. imports
slowed. But in the first quarter, the market's focus turned to cyclical factors, which are
more dollar-friendly. In rising steadily, U.S. short-term interest rates have distanced
themselves from Europe's: The spread between U.S. two-year government notes and
German two-year securities is at a five-year high, making much U.S. debt more
attractive. While the Fed appears poised to raise rates further, economists expect the
European Central Bank to cut rates. The French and Dutch rejection of the European
constitution exacerbated the euro's woes, raising questions about Europe's commitment to
further economic integration and reform. Still, the U.S.'s structural problems haven't gone
away. Many economists expect the trade gap, already widening again, to widen further,
especially given the dollar's newfound strength. Once the Fed signals it is done raising
rates, a record trade deficit could haunt the greenback again, even as Europe tries to beat
back recession and political dissension. The euro or the dollar? It comes down to which is
the lesser evil, suggests Alan Ruskin, research director at economic consultants 4Cast in
New York. "They both have warts," he says.
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 19 of 25
20. The U.S. dollar is currently at a ____________ against the euro.
a. nine-month low
b. nine-month high Correct
c. six-month high
d. six-month low
Morgan Stanley Board May Supplant Purcell As Dissidents' Target
By ANN DAVIS
June 16, 2005; Page C1
http://online.wsj.com/article/0,,SB111888721676761179,00.html
Announcing his intention to retire took a lot of heat off Morgan Stanley Chief Executive
Philip Purcell, but the temperature may get even hotter in the firm's boardroom. Dissident
shareholders, who had fixated almost exclusively on removing Mr. Purcell from his
position at the Wall Street firm, are contemplating whether to wage a proxy battle against
individual board members as they come up for election at next year's annual meeting. The
eight Morgan Stanley alumni who declared war on Mr. Purcell in late March said
yesterday that despite his move to surrender power Monday, they haven't ruled out
putting forward a whole new slate of directors. In a statement Monday, they called the
CEO's future departure, once a successor is chosen, a "first step." Ironically, the board
made it easier for critics to unseat its members six weeks ago. On May 1 it announced a
series of corporate-governance changes, including accelerating the annual election of all
directors beginning at next spring's annual meeting. Previously, only some of its directors
would have been up for re-election to single-year terms. Others were to first serve out
their multiyear terms and only then face re-election annually, according to an earlier
change voted on by shareholders. Some corporate-governance experts and investors say
the longer the board takes to settle on a successor, the more shareholders may agitate for
a whole new guard. Patrick McGurn, special counsel to proxy-advisory firm Institutional
Shareholder Services, says the board should move quickly not only to settle on a
successor but also to better define the firm's strategy. Currently, he said, a debate about
Morgan Stanley's future is as distracting as a "three-ring circus." "You've got one group
of investors saying sell the whole company, another saying split it up and go back to its
roots, and the board saying we're going to integrate it. I think the strategy has to be clear
before you even think about naming a permanent successor," he says. Morgan Stanley
has hired executive-search firm Spencer Stuart to assist director Charles Knight,
chairman of the compensation, management-development and succession committee, in
the search. The board declined to comment further on the search process. The firm said
earlier this week that its nonexecutive board members are leading the search. Technically,
shareholders still must ratify the board's May 1 announcement to go immediately to
annual elections. Morgan Stanley hasn't said how it intends to implement the change but
says it does intend to put all directors up for election next spring. One way it could do so
is to first hold a shareholder vote on the change to annual elections and make the board
elections conditional on that vote. Dissident shareholders, led by the Morgan Stanley
alumni, have spent most of their fire going after Mr. Purcell over a controversial
management shake-up that he executed in late March, the firm's declining share price
relative to peers and lagging performance at its brokerage arm. But shareholders have
also repeatedly criticized the board's corporate governance. Recently, people familiar
with the matter say, shareholders retained New York proxy-advisory firm MacKenzie
Partners, which advised Walt Disney Co. dissidents last year in a successful effort to push
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 20 of 25
out longtime Chief Executive Michael Eisner as well as Walter Hewlett in his losing
battle to halt the Hewlett-Packard/Compaq merger. Because directors have a vested
interest in defending their decisions, says Richard Rogalski, finance professor at
Dartmouth College's Tuck School of Business, "the problem could be they'd appoint a
CEO that might be in favor of leaving them on the board." But Greg Taxin, chief
executive of Glass, Lewis & Co., a proxy-advisory firm, predicts a more independent
choice: "If this board had enough gumption to show their friend the door, I think they're
going to be pretty savvy about whom they put in his place. It will be hard for the group of
eight [dissidents] to gain much traction at that point." A variety of candidates' names have
been circulating, although it is unclear who is on the board's early short list. One scenario
the board is contemplating, say people familiar with the matter, is bringing in a respected
securities-industry statesman who can stabilize the firm in a time of transition. That
would include someone such as William Donaldson, the outgoing chairman of the
Securities and Exchange Commission. Mr. Donaldson was traveling outside the country
and couldn't be reached yesterday. But people familiar with the matter say he isn't likely
to entertain overtures for outside jobs while he's still serving out his final days as SEC
chairman.
21. Dissident shareholders, led by the Morgan Stanley alumni, have spent most of
their fire going after _________ over a controversial management shake-up that
he executed in late March, the firm's declining share price relative to peers and
lagging performance at its brokerage arm.
a. Mr. Eisner
b. Mr. Hewlett
c. Mr. Purcell Correct
d. Mr. Donaldson
Keeping Current
June 17, 2005; Page C1
By JUSTIN LAHART
http://online.wsj.com/article/0,,SB111896213759361994,00.html
Many economists believe that the U.S.'s current-account deficit is the biggest issue facing
the foreign-exchange market today. Traders seem to have their own deficit disorder. "The
FX market is like a four-year-old kid that gets obsessed with a toy," says Lehman
Brothers economist Ethan Harris. "It plays with it for a while and then it tosses it away
and plays with another toy." Over the years the current account -- a broad measure of
trade in goods and services plus certain financial transfers -- has taken many turns at
being the currency market's favorite bauble. Whenever this happens, traders in other
markets tend to fret as well. The size of the U.S. current-account gap makes it easy to
construct scenarios where the dollar falls sharply, sending investors in the U.S. stock and
bond markets running for the exits. But the crisis predicted since the late 1990s hasn't
happened, and the current deficit keeps getting bigger: from 2.7% of gross domestic
product at the beginning of 1999 to 6.3% in the fourth quarter last year. Economists
estimate, on average, that today's first-quarter report from the Commerce Department will
show the gap at 6.3% of GDP. The current-account deficit was a big deal in 2004. It was
the first year that it pushed above 5% of GDP -- a level that, when breached in other
countries, often ended in tears. The dollar fell 7% against the euro and 5% against the yen
in 2004. This year the dollar has bounced back, as deficit worries were trumped by
lackluster growth in Japan and Europe, higher interest rates in the U.S. than in other
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 21 of 25
countries and the recent Dutch and French "no" votes on the European Union
constitution. But the current-account deficit may come back to the fore. Wednesday, the
Treasury Department reported that net foreign inflows into U.S. securities in April came
to $47.4 billion, not the $70 billion or so that market participants had reckoned on. A
healthy appetite for U.S. securities among overseas investors is seen as a necessary
ingredient for sustaining the current-account deficit. This sign that the appetite might be
waning sent the dollar lower. A Wednesday speech from Federal Reserve governor
Donald Kohn also put the current-account deficit back on the radar screen. Although the
big current-account gap and its counterpart -- a low savings rate as homeowners bank on
ever-rising house prices -- might last for some time longer, he doesn't believe they can
last forever.
22. A healthy appetite for _________ among overseas investors is seen as a
necessary ingredient for sustaining the current-account deficit.
a. tuna futures
b. corn futures
c. U.S. securities Correct
d. U.S. dollars
Questions 23 – 25 from Personal Journal, Section D
Entrepreneurs Offer Cheaper Printer Ink
By PUI-WING TAM
June 14, 2005; Page D1
http://online.wsj.com/article/0,,SB111871321693558814,00.html
Thanks to a fierce price war, consumers can score good deals on feature-laden new
printers these days. But when it comes to replacing the ink cartridge, they often face
sticker shock. Computer users world-wide spend $22 billion a year on ink cartridges. The
price of ink per milliliter from the big printer shops such as Hewlett-Packard Co. and
Lexmark International Inc. has been steadily rising, at about 1% a year, according to
research from Lyra Research. At the same time, the big companies are getting stingier
with the amount of ink they are putting into each cartridge. For example, when H-P
eliminated one cartridge that had 42 milliliters of ink and cost $29.99, it replaced it with
another that costs $19.99 but has only 19 milliliters of ink. During the past few years,
however, entrepreneurs and mom-and-pop manufacturers have started offering ink
cartridges compatible with the brand-name printers that cost 20% to 50% less than new
cartridges from H-P, Lexmark and others. The new options include everything from doit-yourself kits so consumers can refill empty cartridges themselves to used cartridges
from the big names that have been refurbished to work as though they are new. Also, new
retailers such as Cartridge World and Island Ink-Jet have unveiled stores where
consumers can get their empty cartridges refilled on the spot. Since it was launched in the
U.S. in late 2003, Cartridge World now has 200 locations nationwide. In the past three
years, Island Ink-Jet has opened 75 stores
23. Computer users world-wide spend _______ a year on ink cartridges.
a. $22 million
b. $220 million
c. $2 billion
d. $22 billion Correct
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 22 of 25
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 23 of 25
Another Price Increase For Your Summer Vacation
By AVERY JOHNSON and JENNIFER SARANOW
June 15, 2005; Page D1
http://online.wsj.com/article/0,,SB111879356976659751,00.html
The rental-car industry is going through a major change that in recent weeks has started
contributing to some aggressive price increases. Historically, rental companies have
maintained close ties with auto makers -- buying vehicles at a discount and always having
a supply readily available. Now, however, car makers are starting to pull back from these
relationships, in an effort to shed the "fleet-car" stigma that has tarnished some models
and hurt showroom sales. Partly as a result, rental-car rates are starting to climb as the
companies face the prospect of a dwindling supply of vehicles at the same time that travel
demand is rebounding. In recent weeks, Avis, Dollar, Hertz, National and others all have
boosted prices 5% to 15% or more, and consumers are starting to see the effects at rental
counters. According to one measure, the Abrams Travel Data Index, one-day rentals at
major airports are showing a 20% jump in price this week, compared with the week
before, with the average cost of a midsize car rising to $43. One of the first to make a
move was Ford Motor Co.'s Hertz Corp., which three weeks ago launched a 5% increase
for all airport rentals, as well as at some off-airport sites, starting July 1. Cendant Car
Rental Group's Avis Rent A Car System Inc. and Budget Rent A Car System Inc. brands
quickly matched a few days later, increasing their daily rates by $5 and weekly rates by
$20. Those increases also are slated to take effect July 1, but some already are showing
up in Northeastern markets. The increases are the latest bit of sticker shock facing
summer travelers already discovering that airfares, hotel rates and fuel prices are higher.
Rooms at major resorts this summer are expected to cost 8% more than last year, and
11% more than in 2000 -- the peak year for travel before the severe slump following the
2001 terror attacks -- according to one recent report from PricewaterhouseCoopers.
24. According to one measure, the Abrams Travel Data Index, one-day car rentals
at major airports are showing a _____ jump in price this week.
a. 10%
b. 20% Correct
c. 30%
d. 40%
Muscle Cars Make a Comeback
By NEAL E. BOUDETTE
June 16, 2005; Page D1
http://online.wsj.com/article/0,,SB111888029762560994,00.html
The American auto industry is trying to muscle its way out of the doldrums. Three
decades after the heyday of muscle cars -- raw, powerful vehicles such as the Ford
Mustang and Pontiac GTO that helped define freedom-of-the-road independence for a
generation -- some newly redesigned versions are emerging as strong sellers. Ford Motor
Co. is selling about 18,000 Mustangs a month, as many as its factory can produce, and
says demand is greater than expected. In coming weeks it will face a new challenger, the
Dodge Charger, from DaimlerChrysler AG's Chrysler Group, which is hitting showrooms
this month and is a remake of a vehicle that last rolled off assembly lines more than 25
years ago. The Mustang and GTO have both been on the market since last year. The
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 24 of 25
stakes are high for Detroit's Big Three auto makers, which are having trouble finding new
designs that connect with buyers. At Ford, the Mustang is one of its few big hits among
several new passenger cars that were supposed the help the company regain market share.
Despite a few successes like the Mustang and the top-selling new Chrysler 300 sedan,
Detroit's auto makers have mostly had trouble getting buyers interested in their new
designs. Ford already has started reworking the look of its Ford Five Hundred, a rival to
the Chrysler 300, less than a year after its launch in hopes of boosting sales. GM's Buick
division has piled up a big inventory of LaCrosse sedans, an all-new model that was
supposed to turn around the brand's dowdy image. In the first five months of this year,
Ford's market share has fallen one percentage point to 19.1%. GM's is down to 25.7%
from 27.2%. Even with the Mustang's strong sales, Ford's market share has continued to
slip, although profit from the car is one of the factors putting Ford in slightly better
financial condition than General Motors Corp. In the first quarter GM had a loss of $1.1
billion. To meet current demand, Ford considered investing in additional capacity to build
more Mustangs than the current maximum output of 192,000 a year. Executives decided
against it to avoid getting stuck with too much capacity should demand slack off after a
year or two, says Stephen G. Lyons, Ford North America group vice president for market,
sales and service. Part of the Mustang's appeal to buyers is its aggressive, retro look. As
part of the redesign for the 2005 model year, Ford reverted to styling that hews closely to
the look of the Mustangs of the mid-1960s. The most noticeable change is the car's front
end, which features a large grille slanted backward toward the engine, giving it sort of a
"shark nose" profile. Despite the redesign, don't expect the kind of refined interior found
in a BMW or Audi. There is plenty of hard plastic, and the rear seat is small: During a
recent test drive, a three-year-old complained about a lack of leg room. Entry-level
Mustangs go for $19,890, but the most powerful GT version starts at $25,815. The
remake of the GTO, which also started appearing in showrooms with the 2005 model
year, followed a different strategy. Instead of evoking the car's 1970s heyday, it adopted a
more modern, rounded look, which hasn't been a hit with buyers. As a result, GM is on
track to sell only about 13,000 this year: this year, they are averaging only about 1,000 a
month. Evan Sobran, a 43-year-old real-estate executive in Duxbury, Mass., who has testdriven the car, says it drives well but doesn't turn heads like the Mustang and Charger.
"It's $34,000 and looks like a Saturn, or some rounded bar of soap," he says.
25. To meet current demand, Ford considered investing in additional capacity to
build more Mustangs than the current maximum output of __________ a year.
a. 1920
b. 19,200
c. 192,000 Correct
d. 1,920,000
© Copyright 2005 Dow Jones & Company, Inc. All rights reserved.
WSJ Professor Guide: Page 25 of 25