AUTOMOTIVE

Smart car sets record for demand

Germany's Daimler AG said Wednesday that its Mercedes-Benz Cars division sold 105,100 vehicles globally last month, a 1 percent increase from a year earlier, with demand for its fuel-efficient two-seat Smart setting a record. Daimler said Mercedes-Benz Cars, whose brands include Mercedes-Benz, Smart, AMG and Maybach, saw sales from January to July rise 7 percent, with 773,200 cars sold. Daimler said Smart, builder of the ultra-compact Smart, saw its sales increase 27 percent worldwide in July, with 12,400 cars sold.

Ford invests in new engines

Ford Motor Co. is making "unprecedented" investments in new engines, the head of its North American operations said Wednesday. "We're investing more than we ever have," Executive Vice President Mark Fields told reporters at a test track in Dearborn, Mich., without giving a figure. "We're seeing a move from big engines to small ones," he said. Last month, Ford said it was bringing six small-car models to North America from its European unit and planning to double its output of gasoline-electric hybrid vehicles to 50,000 annually. Meanwhile, a top Ford executive said the company met its goal of cutting 15 percent of its North American salaried costs by Aug. 1. Fields, Ford's president of the Americas, wouldn't say how many salaried workers will leave the company, but he confirmed that the company met its goal.

DEALS

Publicis Groupe to buy Google unit

Publicis Groupe SA, owner of the Saatchi & Saatchi and Leo Burnett advertising agencies, has agreed to buy the Performics search marketing business from Google Inc. for an undisclosed amount. Performics, founded in 1998, employs 200 people, Paris-based Publicis said in an e-mailed statement Wednesday. The Chicago-based company helps advertisers place and analyze the effectiveness of search-engine ads. Publicis Chief Executive Maurice Levy said the company has been expanding in Web advertising, where growth is faster than in other media, and it aims to get 25 percent of revenue from digital ads by 2010. Performics was part of DoubleClick Inc., the online advertising company Google bought in March for $2.4 billion.

TransAlta rejects buyout proposal

Power producer TransAlta Corp. rejected LS Power Equity Partners and Global Infrastructure Partners' $7.8 billion bid Wednesday, saying it undervalues the company. The nearly 100-year-old Canadian business serves utilities and corporations in Canada, the United States and Australia. "We respect both LS Power and GIP, but their highly conditional approach fails to recognize TransAlta's fundamental value and growth potential," Donna Soble Kaufman, chairwoman of the board of directors, said in a statement. TransAlta is Canada's largest generator of wind power.

HEALTH CARE

Eli Lilly to sell research center

Indianapolis —- Drug development services company Covance Inc. will buy a research center from Eli Lilly and Co. and enter a 10-year service deal with the drug maker worth $1.6 billion. New Jersey-based Covance will pay $50 million for Lilly's 450-acre drug development campus in Greenfield, Ind., while offering employment to about 260 Lilly employees. Lilly is headquartered in Indianapolis. Covance will use the site to provide mostly early-stage clinical trial work to Lilly as part of the 10-year contract. Covance also will do mid- and late-stage work and use the site to help other biotech and pharmaceutical firms.

LEGAL

Connecticut sues Countrywide

Hartford, Conn. —- Connecticut Attorney General Richard Blumenthal said Wednesday that the state is suing Countrywide Financial Corp., alleging it misled borrowers into taking on risky home loans they could not afford. Blumenthal claims the mortgage giant violated state consumer protection laws and charged unjustified fees to homeowners who defaulted. The company said in a statement that it cannot comment on pending litigation but noted it has previously announced its commitment to responsible lending practices. California, Illinois and Florida have filed similar lawsuits against California-based Countrywide, whose shareholders recently approved a takeover by Bank of America.

Hospital's CEO arrested in L.A.

Los Angeles —- The top executive of a hospital was arrested Wednesday as federal agents raided three medical centers while investigating an alleged scheme to recruit homeless people as phony patients and bill government programs for millions of dollars in unnecessary health services. A lawsuit filed Wednesday by the city said the hospitals used homeless people as "human pawns." The investigation was sparked in 2006 by a Los Angeles police investigation of reports that hospitals were dumping homeless patients on the streets. Search warrants were served at City of Angels Medical Center, Los Angeles Metropolitan Medical Center and Tustin Hospital and Medical Center, the FBI said. Agents arrested Rudra Sabaratnam, the CEO of City of Angels hospital, and Estill Mitts, operator of a Skid Row health assessment center, FBI spokeswoman Laura Eimiller said.

National Century execs sentenced

National Century Financial Enterprises Inc. co-founder Donald Ayers and former executive Randolph Speer were sentenced to 15 years and 12 years in prison, respectively, for their roles in bilking investors out of $2.9 billion before the health care financing company's bankruptcy in 2002. U.S. District Judge Algenon Marbley in Columbus, Ohio, imposed the sentence Wednesday. Ayers, 72, Speer, 57, and three other executives were convicted in March of securities fraud, conspiracy and money laundering.

MANUFACTURING

Air Force opens tanker bidding

Washington —- The Pentagon has opened a second round of bidding between Northrop Grumman Corp. and Boeing Co. for a disputed $35 billion Air Force contract. A revised request for proposals has been issued for a new aerial refueling tanker meant to replace the Air Force's current fleet that date to the 1950s. The team of Northrop and Airbus parent European Aeronautic Defence and Space Co. won the original deal, but Boeing protested and won. A new decision is expected by the end of the year.

REGULATORY

IRS offers deals on tax shelters

Washington —- The Internal Revenue Service said Wednesday that it is prepared to offer settlements to about 45 corporations if they agree to end questionable tax shelter practices. IRS Commissioner Doug Shulman said the agency aims to end transactions that have allowed corporations, including many of the nation's top banks, to gain billions in tax deferrals. He did not name the corporations. Letters were sent out Wednesday giving the corporations 30 days to make a decision on accepting the terms of the offer, which include best efforts to terminate the transactions by the end of this year. Shulman said the transactions, called lease-in/lease-out (LILO) and sale-in/lease-out (SILO), involve complex arrangements where large corporations lease or purchase large assets such as foreign rail systems or sewer systems and then lease them back to the original owner. "As a basic matter of fairness to all taxpayers, the IRS cannot allow LILO and SILO deals to stand," Shulman said.

Pension transfers to banks nixed

Washington —- The Bush administration dealt a blow to the already reeling financial services sector Wednesday, ruling that companies can't transfer their pension plans to large banks to be managed for a profit. The Treasury Department and the Internal Revenue Service said that current law doesn't allow such transfers unless they are part of a larger transaction that also includes "significant business assets." Despite the ruling, the Treasury Department indicated the Bush administration would support legislative changes to allow the transfers to occur. The notion of allowing banks and other companies to acquire pension plans and manage them for a profit has raised some concerns among Democrats in Congress and unions.

Report: Citigroup, could cut deal

Citigroup Inc. may be forced to buy back about $8 billion in auction-rate securities and fined as much as $100 million under a settlement with state and federal regulators over claims it improperly saddled customers with untradeable bonds, Bloomberg News reported Wednesday. Citigroup, the biggest underwriter of such debt, is in advanced talks with the Securities and Exchange Commission, New York state Attorney General Andrew Cuomo and a group of all the other states, led by Texas, Bloomberg said, citing people with knowledge of the situation. The settlement could set a precedent for negotiations with firms including UBS AG, which has already been named in civil complaints by Cuomo and authorities in Massachusetts. Other firms that sold the securities are also nearing the completion of talks to resolve regulatory probes, Bloomberg said. "What we're seeing here is just the tip of the iceberg," said Jill Fisch, a professor at the University of Pennsylvania. "From Citigroup's perspective, it's good to try to get this resolved instead of it being drawn out through litigation."

Insurer Prudential settles with SEC

Prudential Financial Inc., the No. 2 U.S. life insurer, has settled Securities and Exchange Commission claims that it improperly reported more than $200 million of sham contracts using an off-balance-sheet entity. New Jersey-based Prudential entered so-called finite reinsurance contracts from 1997 to 2002 with General Reinsurance Corp. "that had no economic substance and no purpose other than to build up and then draw down on an off-balance-sheet asset" held for former Prudential subsidiaries, the SEC said in a statement Wednesday. Prudential, without admitting or denying wrongdoing, agreed not to commit further violations and wasn't fined.

State Farm, Miss. end storm dispute

Mississippi Attorney General Jim Hood said Wednesday that his office has settled its dispute with State Farm Insurance Cos. over how the insurer handled Hurricane Katrina damage claims in Mississippi. State Farm has complied with a January 2007 agreement with the state by reopening some claims and agreeing to pay more than $74 million more to Gulf Coast policyholders whose homes were damaged or destroyed by Katrina's storm surge, Hood said in a news release. Hood said the insurer also has agreed to notify nearly 150 more State Farm policyholders who haven't sued or settled their claims that they can still have their cases re-evaluated.

Deficit projection hits $400 billion

Washington —- The Congressional Budget Office says the government will have generated about $400 billion worth of red ink when the 2008 budget year closes on Sept. 30. The budget office numbers confirm bleak estimates released by the White House last week that also said the new administration will inherit a record deficit for the upcoming 2009 budget year. Relative to the size of the economy, the deficits aren't as bad as those in the 1980s and early 1990s. Still, the new figures are so eye-popping in dollar terms that they may restrain the appetite of the next president to add expensive spending programs or new tax cuts.

TRANSPORTATION

Demand drops at Southwest

Southwest Airlines Co. posted its first drop in monthly passenger traffic since 2004 as near-record fuel costs drove up fares and eroded demand during the peak summer travel season. July traffic also decreased at American Airlines and United Airlines, the world's two biggest carriers, with miles flown by paying passengers down by 3.5 percent and 4 percent, respectively. Southwest fell by 2.3 percent. The results showed that Southwest, the largest discount airline, isn't immune from the pinch of a weakening economy and higher ticket prices. Dallas-based Southwest's planes flew 76 percent full, a drop of 5 percentage points from a year earlier. "The industrywide increase in fares does have something to do with the lower load factor," spokeswoman Whitney Eichinger said Wednesday. "Flying is more expensive this summer, as is all travel, due to high fuel costs. That's the largest indicator for us as to demand."

American's pilots propose a deal

Pilots at American Airlines, which is paring its work force, want to save jobs by capping their monthly flight hours and encouraging early retirement for older crew members. The Allied Pilots Association proposed a monthly maximum of 75 hours flown and asked for five years of credit to be added to older pilots' age and length of service to spur retirement, the union said late Tuesday in a message on its Web site. The pilots' move comes as American parent AMR Corp. tries to persuade 200 pilots to leave the world's largest carrier voluntarily by offering them up to 4 1/2 months of severance. AMR said last month that it will have to furlough 200 pilots if its plan is rejected.