Monday, June 9, 2008

Top Car Dealer Says High Gas Prices

Detroit's big auto makers are slashing jobs, closing factories and undertaking costly revamps of their product strategies to cope with $4 a gallon gas. What's the worst thing that could happen now? Gas could get cheap again, says the man who runs America's biggest auto retailer.

"For once we actually have viable alternatives and exciting technology that are really game changers" in the effort to wean transportation from petroleum, says Mike Jackson, chairman and chief executive officer of AutoNation Inc. "However, if the price of petroleum goes down … it undercuts the viability of new technology."

[Michael Jackson of Autonation]
Associated Press
Mike Jackson, chairman and CEO of AutoNation, poses at Mercedes-Benz of Fort Lauderdale, Fla.

"You have to tell the American people the truth," he says. "Energy costs will be higher."

It might seem odd that America's leading car salesman would want gasoline prices to stay high, given how much damage the recent surge in pump prices has done to demand for the big sport-utility vehicles and pickups that once powered sales at many AutoNation stores.

But Mr. Jackson's point of view about energy policy and the auto industry isn't based on concerns about this month's sales. What has him worried, he says, is that in the future he -- and by extension the whole auto industry -- will be stuck trying to make sense of a fundamentally incoherent national energy strategy, which was mirrored by the seemingly incoherent product strategies that the big U.S. auto makers were pursuing until $130 a barrel oil blew them up.

Mr. Jackson confronts a daunting challenge trying to read American culture and make intelligent bets about what consumers will want to drive.

If he looks in one direction, he sees a widespread consensus that, for a combination of environmental and national security reasons, Americans should consume less oil. To that end, Americans want the auto industry to speed production of electric vehicles and high-mileage, gasoline-electric hybrids, while substantially improving the mileage of conventional oil-powered cars.

Here's the big news: The auto industry finally appears willing and eager to respond.

It's entirely possible that a decade from now, we'll realize that this was a pivotal moment in the auto industry's history. This could be the moment when a century of relying almost exclusively on petroleum to power personal mobility gives way to a new model, in which electricity powers our transportation.

Indeed, there's a case that consumers who want to buy into the next generation of transportation technology shouldn't buy a new car until 2010 or 2011. By then, General Motors Corp. has promised to deliver its hybrid-electric Chevrolet Volt; Nissan Motor Corp. has said it will begin offering electric cars; Honda Motor Co. and several European manufacturers have promised to launch in the U.S. new, advanced, high-mileage clean diesel cars; and Toyota Motor Corp. might have a whole family of hybrid vehicles based on the next generation Toyota Prius.

A gaggle of small companies such as Norway's Think Global AS and Silicon Valley's Tesla Motors Inc. are all gearing up to expand the electric vehicle market if the big guys won't. But the excitement over projects like the Tesla Roadster can't compare to the significance of the shift in mindset among the people who run the world's biggest auto companies. This isn't a crowd given to green idealism, but they have come to the conclusion that remaining totally shackled to petroleum is bad for business and are re-gearing their future vehicle plans accordingly.

[Buy electrics - Is this the future]
Associated Press
An electric car dealership in Portland, Ore.

But when Mr. Jackson looks in the other direction he sees a widespread consensus that Americans shouldn't have to pay $4 a gallon or more for gasoline, and a Congress that in an election year has put driving down gas prices at the top of its agenda.

Further, he confronts the inertia of more than half a century of automotive marketing investment in teaching consumers that size and power are what make a vehicle desirable, and worth more money.

Mr. Jackson, like others of his baby boom generation, remembers well what happened in the 1980s, after the last big oil price shock. Through a combination of conservation and new production, the U.S. turned the tables on the oil producers. Gas prices plunged, sales of gas guzzlers took off and the table was set for the crisis the U.S. auto industry faces today.

"We are highly skilled at selling size, horsepower and speed at a premium price, and giving away fuel efficiency," Mr. Jackson says. "Now, going forward over the next 10 years we are going to have to convince consumers why they should pay more for a smaller engine…or some new technology that is going to give them a tremendous benefit on fuel efficiency. That's a completely new world for us."

"I'm a good car salesman," Mr. Jackson says. "If I have high gas prices and an open-minded consumer, it's very doable. There is a connection between their needs and what we have to offer them. If we have cheap gasoline, it's mission impossible."

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You're a Sneaky One, Lehman Brothers

"I will hurt the shorts, and that is my goal."

Those were the words of Lehman Brothers (NYSE: LEH) CEO Richard Fuld back in April, referring to short-sellers who remain bent on driving the company's stock into the ground. Shares remain below where they rebounded to after March's Bear Stearns saga, but Fuld wasn't messing around.

It's one of the most bizarre twists of the financial mess of the past year. On the day when market rumors surfaced that it would raise more capital, Lehman did practically the exact opposite: It bought back its own shares.

Show 'em who's the boss, Fuld!
Shares had tumbled by nearly 15% at one point Tuesday amid the capital-raising news, which, if true, could have been a dilutive nightmare for investors dealing with a stock that's been cut in half this year. Swooping in on the pessimism, and perhaps curtailing what could have been an even bloodier day, Lehman purchased an undisclosed number of shares.

Personal vendettas against short-sellers aside, was Lehman's move justified? It's hard to argue that the shares weren't cheap, trading around 22% below the most recent book value. Then again, holes have been poked in the way Lehman values assets, so our debate over book value might get as philosophical as questioning what the definition of "is" is. But as a public company looking out for its shareholders, Lehman has every right to purchase shares it deems cheap. And with around $40 billion in liquid assets, it has the ammo to do it.

But ...
What seems a little odd is that in recent months, Lehman -- along with fellow brokers like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) -- tested the Fed's discount lending window, which was opened earlier this year to investment banks in a move to prevent another Bear Stearns-style implosion. While part of Tuesday's rumors was based around making another trip to the discount window, Lehman vehemently denied this.

Lehman has held firm that its capital levels remain adequate, which may very well be the case. Unfortunately, Bear Stearns thought the same thing just days before it fell apart. Knowing full well the consequences of being caught off guard, and having borrowed money from the Fed in recent months, what was Lehman doing buying back shares? Perhaps the battle with short-sellers has turned personal, perhaps the company truly feels it's overcapitalized, perhaps the share price was just too good to pass up. But as the old saying goes, "Fool me once, shame on you; Fool me twice, shame on me." Let's hope Bear taught Lehman a thing or two.

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Beating $4 Gas with a $1 Bus

More people are riding buses, thanks to $1 rides between major cities that are being offered by new services like BoltBus.

Alonzo Parks is the last person to hop on the shiny black and orange bus parked across the street from Madison Square Garden in New York City. A recent graduate of Howard University, he's still looking for a full-time job, so saving money is important to him. But a comfortable ride matters too. That's why Parks, 27, says he recently switched from taking the Washington-bound Chinatown bus to the new BoltBus, a joint venture between industry leaders Greyhound and Peter Pan that began operations in March. "It's brand-new, there's a lot more room between the seats and they have wireless Internet access," he says.

Spurred partly by the soaring cost of taking the car on that weekend road trip, bus ridership is up across the country for the first time in 50 years — a 13% increase this year compared with 2006, according to a DePaul University study. Now major operators are vying for a slice of the growing market for non-stop service between major cities — previously the purview of niche operators catering primarily to immigrants and low-income populations. Both BoltBus and Megabus, which is owned by the Scotland-based Stagecoach Group, are winning over new customers with sleek coaches touting $1 fares from New York to D.C., Chicago to Cleveland and Kansas City to St. Louis. More than a cheap ride, the vehicles feature amenities unheard of on traditional bus lines — including real flush toilets, wider seats and power outlets for all.

Not all seats cost $1, of course. Megabus, which launched in the U.S. in 2006 and has carried more than one million passengers since then, guarantees just two seats on each bus for a dollar. Then prices inch up to $7, $10, $15 and $20, before topping out at $25 on the longest routes. (BoltBus guarantees just one $1 seat per bus. "It's our marketing gimmick," admits Peter Picknelly, president of Peter Pan, which co-owns Bolt. Still, even the top prices are a bargain compared to Greyhound's standard $43 fare between Minneapolis and Chicago or $40 fare from Washington to New York City. The rides are also quicker than Greyhound because there are no stops along the way. And though cheap bus lines that run from New York City's Chinatown can compete in price, they don't have the same amenities or offer a guaranteed, reserved seat.

The new lines can pair skimpy fares with plush seating because they keep their overhead to a minimum. BoltBus does curbside pickup (instead of paying to park at a mass transit station) and books most of its tickets online (which eliminates accounting costs). Since it's a joint partnership between existing bus companies, it needed only to invest in new buses and drivers to start up. There are no print or billboard ads; marketing is largely word-of-mouth — Parks learned about it from his girlfriend in New York, whom he takes the bus to visit from D.C. twice a month.

Bus travel has not been an easy sell everywhere. Megabus recently announced that it was ceasing its Los Angeles–based West Coast operations due to lack of riders. "It was more of a challenge to get people out of their automobile than it was in other regions of the country," says Dale Moser, Megabus's president and chief operating officer, who notes that his Midwest routes are solidly profitable and have doubled its customers over the past 12 months. This spring, Megabus began serving Boston, Buffalo, Philadelphia, New York, Washington and Toronto. BoltBus had 70,000 riders in its first two months of operation in the Northeast and is 30% ahead of its internal projections for its business. "We view our competitor as the passenger automobile," says Picknelly. "For a lot of people, the last time they took a bus was in grammar school."

The jump in gas prices has increased the cost of doing business for these bus companies. But that has been largely offset by the boost in ridership — so even though fuel is the second highest cost after salaries, the high cost of gas has not hit the bus companies as severely as it has the airlines.

To get the best deals, riders should book as far in advance as possible. Parks wound up spending $25 for his BoltBus trip, because he paid the driver in cash as he boarded — more than the $20 he normally pays for the Lucky Star bus from Chinatown. But as the 6-foot-tall political science grad stretched out in his seat and caught up on election news on his laptop, he didn't seem to mind . "I would definitely take it again," he said.

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Gasoline thieves adopt a new drill

Heidi Perkins filled up her truck with gas for $90, then a thief used a drill to drive off with everything in her tank.
Heidi Perkins filled up her truck with gas for $90, then a thief used a drill to drive off with everything in her tank.

Star-Telegram staff writer

Heidi Perkins spent $90 filling up her 2002 Dodge pickup the Friday before Mother's Day and used a quarter of the tank over the weekend. So she was mystified Monday morning when the gas gauge was below "E" as she drove her daughter to school.

She pulled into the closest gas station and began to refill.

"The gas was pouring out of the gas tank almost as fast as it was going in," said Perkins, who lives in Waxahachie. "There was a hole in it. And I started to wonder if my gas was stolen."

She was right: Someone drilled a hole in the truck's plastic gas tank and drained it.

With gas prices at record highs and service stations thwarting drive-offs with pay-before-you-pump policies, gas thieves are becoming more creative.

Police and Tarrant County auto-shop owners have reported gas tanks being punctured or fuel lines being cut on parked cars, trucks and SUVs. While most mechanics say they've seen only a couple of victims each, they fear the crime will grow with gas prices.

"I have a customer whose van was hit," said Jonathan Lane, a service manager at J&B Auto Service in Crowley. "Those vans can easily hold more than $100 worth of gas. With prices so high, it becomes valuable stuff."

Cutting and drilling

Gas theft isn't a new crime. Drive-offs were common at gas stations and thieves have long siphoned gas by inserting a tube into the fuel tank and sucking on it until the gas flows.

But today, most gas stations won't turn on the pumps unless customers pre-pay or pay at the pump, and fuel tanks are now built with rollover valves -- small balls in the tanks' necks designed to keep fuel from leaking in rollover accidents. The balls block siphoning tubes from entering the tank.

So thieves are cutting in, leaving drivers not only paying for more gas but also repairs.

"I had a young lady who drives a little Cavalier, and someone had used a drill to make a hole in the tank," said Tommy Westerman, a mechanic at Westerly Automotive in west Fort Worth. "For a new tank and labor it was about $400. It does damage."

Not all thieves are puncturing the tanks; others are cutting into the fuel filler tube. On some cars, the plastic tubes, which carry gasoline into the tank, run on the underside of the vehicle, said Jack Johnson, owner of Jack's Auto Repair in Hurst.

Most of the vehicles targeted so far are trucks and SUVs because they sit higher off the ground, mechanics said.

Forced to act

The fuel filler lines on delivery vans at Holiday Liquor in south Fort Worth have been cut twice, most recently last month.

"One morning we go to drive away and gas starting pouring out the bottom," said Gary Gaze, a store manager. "The line had been cut clean, and they stuck a tube in and siphoned it out."

The store has since taken security measures and park the vans in a different place, he said.

Security is also elevated at the Petro truck stop on Interstate 20 in Parker County, where someone recently drained diesel fuel out of an 18-wheeler while the driver dozed inside the cab. He didn't realize it until he started up his rig.

Diesel fuel is currently going for around $4.75 a gallon. Big rigs usually have two fuel tanks, with each tank holding 120 to 150 gallons. At $4.75 a gallon, it would cost $1,425 to fill up two 150-gallon tanks.

"We've warned everyone to watch out, and we've got security out there," said Rita Spencer, a fuel desk cashier. "When there is so much money involved, you've got to be vigilant."

Keeping your gas

Authorities say the best thing motorists can do to prevent gas theft is basic vehicle safety: Park in garages or driveways instead of the street. Install motion-activity security lights. Report suspicious people in parking lots.

"If it keeps happening, some person with ingenuity will come along and develop some kind of metal shield or plate to build around your tank for protection," said Terry Coote, owner of ATW Repair in Fort Worth. "Until then, hope it doesn't happen to you."

Man stabs shoppers in Tokyo street, killing seven

TOKYO (Reuters) - A man who said he was tired of life went on a stabbing rampage on Sunday in a crowded Tokyo shopping street, killing seven people and wounding a dozen others.

The man drove a rental truck into a crowd of pedestrians at lunchtime and then walked down the street knifing passers-by in Akihabara district, known for its discount electronics and maid cafes.

"I came to Akihabara to kill people," Kyodo news agency quoted the attacker as telling police. "I am tired of the world. Anyone was OK. I came alone."

A Tokyo police spokesman said at least seven people had been killed and 12 wounded.

"The man jumped on top of a man he had hit with his vehicle and stabbed him with a knife many times," Kyodo quoted a 19-year-old witness as saying. "Walking toward Akihabara Station, he slashed nearby people at random."

The dead were six men aged 19 to 74 and a 21-year-old woman, the news agency said.

The police said a man had been arrested, and television stations showed a slight, blood-splattered 25-year-old being herded into a police car.

Witnesses said the rampage was stopped when a policeman armed with a gun confronted the man, who NHK television said was shouting as he cut down his victims.

The street, usually crowded with tourists and locals seeking cheap gadgets, was cleared by police, who searched for evidence amid pools of blood.

"It's pretty shocking, considering that I come here all the time," a man told NHK.

The rampage came on the seventh anniversary of a massacre at a Japanese primary school, when a knife-wielding janitor and former mental patient killed eight schoolchildren. He was later executed for the killings.

Although Japan has relatively little violent crime, such high-profile cases have raised public concern about violence.

Shooting deaths remain rare in Japan, although there have been some recent cases involving "yakuza" criminal gangs.

As well as electronics, Akihabara has become known in recent years as a centre for Japan's expansive "nerd" culture of video games, comic books and outlandish fashion -- including street performers and cafes with waitresses dressed as French maids.

(Editing by David Fogarty)

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37 missing in Ukraine mine explosion

THIRTY-SEVEN people were missing today after an explosion ripped through a coal mine in eastern Ukraine, an emergency official said.

"The fate of 37 people who were in the mine when the explosion took place at around 5am (1200 AEST) local time remains unknown," Andriy Bondarenko, the regional head of the Emergency Situations Ministry,s aid.

Three people on the surface were injured by the blast at the Karl Marx mine in the town of Yenakiyevo in the coal-rich Donetsk region, Mr Bondarenko said.

The mine was closed down yesterday due to safety violations and only a skeletal staff was working at the time of the blast, he said.

Work has been suspended at 20 mines in the region following an explosion on May 23 which killed 11 people, one of a series of disasters to strike the region's aging mines in recent years.

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Oil Prices Raise Cost of Making Range of Goods

G. Paul Burnett/The New York Times

A tire store in Englewood, N.J. Goodyear has raised prices by 15 percent in just four months.

Surging oil prices are beginning to cut into the profits of a wide range of American businesses, pushing many to raise prices and maneuver aggressively to offset the rising cost of merchandise made from petroleum.

Airlines, package shippers and car owners are no longer the only ones being squeezed by the ever-mounting price of oil, which shot up almost $11 a barrel on Friday alone, to $138.54, a record.

Companies that make hard goods using raw materials derived from oil, like tires, toiletries, plastic packaging and computer screens, are watching their costs skyrocket, and they find themselves forced into unpleasant choices: Should they raise prices, shift to less costly procedures, cut workers, or all three?

The Goodyear Tire and Rubber Company is trying to adapt. Its raw material of choice now is natural rubber rather than synthetic rubber, made from oil. To sustain profits, it is making more high-end tires for consumers willing to pay upwards of $100 to replace each tire on their cars.

These steps have not been enough, however, particularly now that the cost of natural rubber is also rising sharply, along with that of many other commodities. So Goodyear has raised the prices of its tires by 15 percent in just four months.

“Our strategy is to raise prices and improve the mix to offset the cost of raw materials,” said Keith Price, a Goodyear spokesman. “No one has predicted how long we can continue to do that.”

The sense that many companies may be hitting a wall is palpable. Corporate profits peaked last spring and have shrunk since then, Moody’s reports, drawing on Commerce Department data.

The housing crisis and the weakening economy are big reasons, but oil prices are adding greatly to the pressure on profits as retailers fail to pass along higher prices to consumers. That helps to explain why expensive oil has not yet pushed up the inflation rate.

So far this year, the nation’s employers have been cutting jobs at an accelerating pace, particularly last month, when the unemployment rate jumped to 5.5 percent from 5 percent. But with the vise on corporate profits tightening and the price of oil continuing to climb, more dire action, including job cuts and higher prices, may be in store, economists say, although there is still room to avoid such steps.

“Companies came into this period with extraordinarily high profit margins,” said Edward McKelvey, chief domestic economist at Goldman Sachs, “and some of the surge in raw material costs will be absorbed by lowering those profits.”

Still, the prevailing attitude that the economy could just keep absorbing higher oil prices is being tested — for the first time in nearly 30 years. Adjusted for inflation, a barrel of crude is now more expensive than it was in 1980, the previous peak.

“The conventional wisdom a couple of years ago was that oil did not have that much leverage over the economy,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “But now it plainly does. People are suddenly paying much more attention to their energy costs and trying to figure out how to manage them.”

Goodyear has kept its head above water in part by passing along some of the higher prices to dealers. The dealers, however, have not been able to pass along all of those increases to consumers and are absorbing the difference in lower profits.

Since last spring, the average profits of the nation’s corporations — from behemoths like Goodyear to small neighborhood retailers — have declined at an annual rate of nearly 6 percent, government data show.

Even companies that have been performing well in the economic downturn are sounding notes of caution. Take Costco, the discount retail chain, which offers a wide array of consumer goods, food, wine, furniture, appliances, beauty aids and much more.

Costco’s profit was up in the first quarter, but James D. Sinegal, the chief executive, says he is “starting to be confronted with unprecedented price increases” for the merchandise that Costco buys to stock its stores. His first response has been to buy in extra large quantities so that he has stock on hand to carry him through subsequent price increases.

“We just made a big purchase of Tumi luggage,” Mr. Sinegal said.

Procter & Gamble finds itself in a similar predicament. For its fiscal year beginning next month, it expects to spend an additional $2 billion on oil-based raw materials and commodities. That is double last year’s increase, and it is carved from total revenue of just under $80 billion.

Price increases have helped to offset this cost. They have averaged nearly 5 percent for paper towels, bath tissues and diapers, all made with chemicals derived from oil, said Paul Fox, a company spokesman.

Natural oils have been substituted for ingredients made from petroleum; for example, palm oil now goes into a variety of laundry soaps. But like rubber, the cost of palm oil and other natural commodities is rising.

Trying to hold down raw material costs, Procter & Gamble has resorted to “compacting” a few laundry products, Mr. Fox said, so that the same amount of detergent fits into smaller and less costly containers made of plastic, which is derived from oil.

Still, the company’s operating profit edged down to 20.1 percent of revenue in the first quarter, from 21.9 percent in each of the two previous quarters. “That 20.1 percent was down, but it was an improvement on the advance guidance we had given for that quarter,” Mr. Fox said.

No business in America produces more of the oil-based ingredients that go into the nation’s products than the Dow Chemical Company, based in Midland, Mich. From Dow’s petrochemical operations come the basic ingredients of a wide variety of plastic bottles and packaging, including numerous containers once made of glass or tin.

Indeed, paint, computer and television screens, mobile phones, light bulbs, cushions, paper, mattresses, car seats, carpets, steering wheels and polyesters are all made with ingredients that Dow and other chemical companies refine from oil and natural gas.

Dow normally raises prices piecemeal. Last month, though, the surge in the cost of oil and natural gas, the company’s principal raw materials, produced a rare across-the-board price increase of as much as 20 percent.

“We have taken out head count, automated, been very diligent on cost control,” said Andrew Liveris, Dow’s chairman and chief executive, “but these surges in energy prices are just one surge too many.”

Dow’s sweeping price increases will probably have a domino effect, resulting in higher prices or, more likely, shrinking profits, analysts say. Constrained by the weak economy and fewer wage earners among their customers, the nation’s retailers have so far not been able to pass on to consumers much of the rising cost of products that depend on oil. The Consumer Price Index, minus food and energy, is barely rising.

“One of the surprises,” said Patrick Jackman, a senior economist in the consumer price division of the Bureau of Labor Statistics, “is that the oil price surges of the 1970s passed through fairly quickly into consumer prices, and this time that is not happening.”

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Transportation Bill Gives $45 Million To Maglev Project, Sets It Up For Fail

A new transportation bill signed by Bush on Friday would free up $45 million to build the U.S.'s first maglev train. The train will travel between Disneyland and Las Vegas at up to 300 mph and is meant to help ease traffic on the 250+ mile ride on Interstate 15. While I'm all for high-speed trains and efficient public transportation, isn't the Bush administration forgetting something?

Maglev trains are hella expensive. Sure, the $45 million is only supposed to pay for “environmental studies” in the first phase of the project, but the government can probably expect to spend a hundred times that amount before this thing is over.

Japan's Linimo maglev train, located near Nagoya, cost a cool $380 million to build and it's only 5.5 miles long. China's Shanghai Maglev Train, finished in 2004 in a country where labor's cheap and private land ownership is a pretty new concept, cost $1.3 billion for 19 miles of track—roughly $68.4 million per mile. What will $45 million buy in the States? 10 feet?

I love the concept of mass transit and one of my biggest gripes with the U.S. is how they let their train infrastructure shrivel and rot, but the paltry amount dedicated to such a pricey technology makes me wonder if this isn't just another attempt for Bush to greenwash his last few months in office. [Slashdot]

P.S. The picture is of the Shanghai Maglev Train, which has been criticized by locals for being showy, wasteful and impractical.

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Father slays family as hunger returns to haunt North Korea

A starving North Korean child in 1997. A new crisis is growing

A starving North Korean child in 1997. A new crisis is growing

THE first case of murder and suicide caused by North Korea’s new food crisis has emerged with the account of a man who killed his hungry wife and children and then took his own life in despair.

The family’s precarious existence became desperate after officials forbade the wife and other vendors to sell noodles in a local market, their only source of income. Such arbitrary rulings are common.

This one led to a fight between the wife and her husband. Neighbours heard the sounds as he battered her to death, then strangled his three-year-old son and two-year-old daughter, but took it as one of their regular domestic disputes. The husband hanged himself from a beam.

The deaths caused widespread shock in a society where family bonds are revered. They set off a mobilisation of Korean Workers’ party cadres and collective farm managers to keep watch on households at risk of starvation.

The report was published on an exile website, Daily NK, and quoted North Korean witnesses contacted by telephone in Shin-yang county, a poor rural area. It was a rare piece of apparently credible evidence that North Korea - which lost about a million people to famine in the 1990s - is once again running out of food.

The United Nations World Food Programme (WFP) estimates that North Korea is facing the widest gap between demand and supply for seven years and needs 1.6m tons of commodities to feed its population.

Jean-Pierre de Margerie, the WFP country director for North Korea, fears that the nation “may suffer deeper and more widespread hunger this year”. Some 37% of children are already chronically malnourished and prone to disease.

A South Korean aid group has reported the outbreak of a mysterious illness resembling foot and mouth disease among young children in a particularly impoverished province on the border with China.

The immediate causes of the present crisis are floods that wrecked last year’s harvest, a cut in foreign aid and the doctrinaire economics of Kim Jong-il’s Stalinist system.

As in Burma, however, the plight of the ordinary people is being made worse by political conditions attached by the regime to foreign aid.

The United States is ready to ship 500,000 tons of food to North Korean ports - enough to avoid short-term starvation. This remedy, however, is being deliberately delayed.

A specialist US technical team spent three days locked in negotiations in Pyongyang, the capital, last weekend to try to get the North Koreans to agree on how the food could be distributed, according to sources familiar with the talks.

The issues under dispute included whether the United States could monitor the aid, whether American citizens could be on the team, and how much notice the monitors would give for any spot inspections, the sources said.

In the past, some international aid has been diverted by Kim’s regime to the army and the internal security forces, while priority is always given to privileged parts of the country such as Pyongyang.

“It’s meticulous stuff, just what Kim Jong-il loves,” said an official briefed on the issues. “The North Koreans were the tougher negotiators - even though they are the recipients.”

The technical team left Pyongyang last Tuesday after reaching an outline accord but veteran diplomatic observers of North Korea predicted there will be endless haggling ahead.

The reasons are connected to North Korea’s efforts to stall, until President George W Bush leaves office next January, an agreement on giving up its nuclear weapons.

Although the United States denies any linkage, the decision to assist the North Koreans followed progress in talks between Christopher Hill, the senior US nuclear negotiator, and his North Korean counterparts.

Conservative critics of Hill’s diplomacy say the process is a charade. They point to gestures such as North Korea’s promise to blow up a long-disused cooling tower at the Yongbyon nuclear reactor plant as evidence that it is meaningless.

However, Hill has convinced the White House and four other nations in the talks - China, Japan, South Korea and Russia– that they are worthwhile.

It seems that China, formally North Korea’s closest military and political ally, has decided to exert some rare pressure on the regime.

In the first quarter of this year, the Chinese are thought to have sent more than 70,000 tons of food across the border, but in April all exports were cut off.

The apparent reason is that China is putting its own interests first in the face of the global food price crisis and that Chinese leaders want to ensure price stability in the run-up to the Olympic Games.

In doing so, the Chinese ignored the requests for continued aid from a high-level North Korean delegation that visited Beijing last March.

South Korea has also tightened the screw on Kim since the election of a new conservative president and parliament in the face of vituperative abuse from the North. Much-needed supplies of fertiliser and food have been stopped.

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