Lenon’s main business news

OTTAWA–Canadian businesses reported near record optimism about their future sales and say they are stepping up plans to hire more workers and invest, the Bank of Canada said Monday.

Seventy per cent of executives said sales growth will quicken over the next year, while another 21 per cent expect it to slow, the bank said in a quarterly Business Outlook Survey. The gap of 49 percentage points is close to 53 in the last survey, the biggest since the question was first asked in 1998.

Executives on balance said for the second quarter since mid-2007 that credit conditions had eased. Twenty-six per cent of executives said loans were easier to get, compared with 13 per cent who said they were harder. In the last report, the gap was four percentage points.

The survey indicated that terms have improved more for large companies, with some small firms still facing tighter lending terms.

Executives also predict slower inflation over the next two years, and on balance plan to buy equipment and hire workers.

On hiring intentions, 54 per cent of the 100 firms surveyed by the bank said they planned to add employees in the next year, as opposed to only 14 per cent that said they expected to reduce staff.

The balance of opinion on adding to payrolls in the next year was 40 percentage points, the highest since the first quarter of 2007. For investment in machinery and equipment, the balance of opinion was 17 percentage points, the highest since the third quarter of 2008.

In a news conference in St. Boniface, Man., Finance Minister Jim Flaherty said he was encouraged that both consumer and business confidence were improving but added that dangers remained.

"The economy is still recovering … (but) has not recovered," he said.

From the Star’s wire services

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A unit of Smith International Inc. has taken over a three-year contract with Petróleo Brasileiro, Brazil’s state-owned energy giant.

Houston-based Smith (NYSE: SII) will operate the Petrobras contract through its PathFinder Energy Services unit at its new facility in Macae, Brazil.

The deal represents possible revenue of between $80 million and $100 million business card design. PathFinder will also acquire all related directional drilling assets from San Antonio International do Brasil.

San Antonio International had previously been the lead contractor through which PathFinder had taken on contracts in that country, Smith officials said in a statement.

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China’s government-funded economic growth faces an “inevitable” slump because the nation’s export-led strategy isn’t sustainable, said Yu Yongding, a former adviser to the Chinese central bank.

“The investment rate cannot increase forever,” Yu, a member of the Chinese Academy of Social Sciences, said in a speech in Melbourne last night. “The growth rate of China’s exports cannot remain persistently higher than that of the global economy. Overcapacity will surface and correction is inevitable.”

China’s economy grew 8.9 percent in the third quarter, the fastest expansion in a year, spurred by an unprecedented $1.3 trillion of loans this year and a $586 billion stimulus package running through 2010. China’s leaders may highlight inflation concerns at a meeting this month to set economic priorities for 2010 without changing existing fiscal and monetary policies, economists said yesterday.

“Expansionary fiscal and monetary policies have succeeded in arresting a fall in growth,” Yu said. “However, the medium and long-term impacts of the expansionary policies are worrying.”

Those effects include overcapacity, a decline in investment efficiency that will weigh on long-term growth, poor infrastructure efficiency, an increase in non-performing loans, and loose monetary policy, he said.

“There is no need for China to drop the benchmark interest rate to such a low level,” he said. “If commercial banks had been allowed to make decisions based purely on economic considerations, growth of credit and money supply would not have been so fast. There would have been less need to worry about the possibility of a rising non-performing loan ratio, a worsening economic structure and resurgent asset bubbles.”

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Human Genome Sciences Inc. announced today it’s submitted its second application so far this year to federal regulators to sell a drug on the market, this most recent being for its hepatitis C treatment called Zalbin.

With these applications, including a third that the Rockville biotech plans to submit in the first half of next year for a lupus treatment, Human Genome Sciences hopes to sell its first drugs on the commercial market by the end of next year — a major milestone for the 17-year-old company.

In May, Human Genome Sciences applied to the Food and Drug Administration for approval to sell its anthrax treatment, though that submission hit a stumbling block earlier this month when regulators said they still needed further information before they could sign off on it. The company has already sold several lots of that drug to the federal government for its national stockpile.

For Zalbin, Human Genome Sciences (NASDAQ:HGSI) is relying on results from two late-stage human clinical studies that enrolled a total 2,255 patients. The data showed that Zalbin performed comparably to its competitor, F. Hoffmann-La Roche Ltd.’s Pegasys, with half the number of injections — every two weeks instead of every week.

But those results, while meeting federally set endpoints, failed to excite Wall Street, which drove down the company’s stock price by 55 percent in one day to new lows below $1. Analysts said at the time that the study data didn’t differentiate Zalbin enough from the pharmacy’s current offerings and expressed skepticism that the fewer dosages alone could attract enough physicians and patients to result in healthy market share fast cash advance loan.

Instead, investors are more anxiously awaiting Human Genome Sciences’ third offering to the commercial market: what could be the first federally approved lupus treatment in decades. The local company’s drug, called Benlysta, exceeded expectations in two late-stage studies announced in July and November, sending the company’s market cap and stock soaring to new 52-week highs.

Under a partnership agreement signed in 2006 with Novartis AG for Zalbin, Human Genome Sciences will sell the drug jointly and share equally in costs and profits for U.S. sales if it gets approved. Novartis will apply by year’s end for approval to sell the drug in other countries, starting with Europe, under the brand name Joulferon.

The partnership will yield Human Genome Sciences royalties, and as much as $300 million more in payments from Novartis for meeting certain regulatory and commercial milestones.

The Centers for Disease Control and Prevention estimate that about 3.2 million Americans have chronic hepatitis C, a viral infection that kills 8,000 to 10,000 people each year.

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It helped Elizabeth Poelker buy her house.

It probably helped Paul Medler sell his.

But is the $8,000 tax credit for first-time homebuyers really helping the economy all that much? Enough to warrant extending it for another year, at an estimated cost of $15 billion? Enough to maybe even expand it to $15,000 apiece, for everyone?

That’s a question Congress is wrestling with these days, as the program starts to near its Nov. 30 closing date, and the real estate industry ramps up a full-throated campaign to keep the credits flowing. It’s unclear at this point what will be decided.

Nearly everyone agrees that the credits have helped keep the housing market afloat during a tough time. After they were enacted as part of the $787 billion federal stimulus Congress passed in February, existing home sales rose for four straight months, before dipping in August. The rate of sales is up 12 percent since March, according to the National Association of Realtors.

About 1.4 million people have already claimed the credit on their taxes, according to the IRS, with probably more awaiting paperwork or delaying until they file in the spring.

And, along with low prices and historically low interest rates, real estate agents say the credits are sparking interest in home-buying.

"There’s no question it’s had a positive impact on our business," said Jim Dohr, president of Coldwell Banker Gundaker, which has 25 offices in the St. Louis region. That’s especially true at lower price points. Coldwell’s business is up 23 percent from last year on homes sold for less than $100,000 and 16 percent for homes sold for $150,000 or less.

"Much of the action in our business is at the lower end, and it’s really being fueled by the first-time tax credit," Dohr said.

What is less clear is how many of those sales would have happened anyway.

Prices and interest rates are low, after all. And people still need a place to live.

Out of a projected 1.8 million sales that will use the tax credit this year, economists estimate that between 350,000 and 400,000 would not have happened without it. And a recent survey commissioned by real estate tracking firm Zillow found that, if the credit is extended another year, it would be a major deciding factor for 18 percent of first-time homebuyers — spurring an additional 334,000 sales in all.

That’s nothing to sneeze at, said Zillow chief economist Stan Humphries. But at $15 billion, it works out to almost $45,000 for every sale generated.

"It’s an expensive program," he said. "For every five homes, four were going to get purchased anyway."

But there’s still that other one — people such as Poelker.

She’s 25 and works at an accounting firm. Her lease in Maryland Heights was coming up this summer, and she had grown tired of renting but didn’t think she could afford a down payment. When the tax credit passed, she started looking.

Soon, she found a nice townhouse in Manchester, put in an offer, and closed in June.

"It really helped me make it work," said Poelker, who noted that her brother and a friend had also used the tax credit to buy houses. "I probably would have purchased in the next couple of years, but it helped me do it sooner."

Still, that raises another question about the tax credit. Is it just borrowing sales from the future?

Skeptics point to Cash for Clunkers, the government-funded program to help spur auto sales. After a surge of car-buying in July and August, September is expected to be car dealers’ worst month of the year, according to a recent report from JD Power. The same thing, critics say, could easily happen whenever the homebuyer credit expires.

But supporters say that’s all the more reason to prolong it, at least for a few months. The economy is still shaky. Any housing recovery is fragile at best. Winter is typically a slow season in real estate. The timing, said Scott Dettmer, general manager of Dettmer Homes in Cottleville, is bad all around.

"You’re taking the single biggest impetus for home sales in at least three years, and you’re going to expire it at what is normally a bad time anyway?" he said. "I’d like to see it extended at least through the spring, to give a bridge over what are normally a tough few months."

At least 20 bills have been proposed in Congress to extend the plan, including one co-sponsored by Sen. Majority Leader Harry Reid that would push it into June. Another bill — to extend the credit and make it $15,000 for all homebuyers — reportedly has 15 co-sponsors.

But that measure was stripped from the stimulus bill in February, and there seems to be a limited appetite for it now, as Congress wrestles with health care reform and other pricey legislation. Many observers don’t expect a resolution until the Nov. 30 deadline draws nearer.

And that will probably keep Paul Medler waiting.

He sold his home in Kirkwood in June to a first-time buyer who used the tax credit. It probably helped make the deal happen, Medler said. Now he’s renting, and waiting to find a good deal to buy, but prices in the neighborhoods where he’s looking still seem too high for this market.

Medler’s hoping the credit either gets extended to everybody — so he can use it — or ends in November as planned.

"After this stops I feel like we might have another dive in housing prices," he said.

And, at least in his case, that would be a good thing.

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Five U.S. states that were among the hardest hit by job losses and the construction slump also had declines in household incomes during the first year of the recession, according to a government report.

Arizona, California, Florida, Indiana and Michigan all saw median household incomes drop in 2008, the Census Bureau said yesterday in an annual report. Only one state had a decline the previous year.

The figures highlight concern that consumer spending may hamper a recovery from the worst recession since the 1930s. Falling home values and stock prices have fueled an $11.1 trillion loss in household wealth in the U.S. since the third quarter of 2007, before the recession began.

“Business profits are down considerably, so companies can’t pay the kind of wages that they did” earlier this decade, said Brad Kemp, director of regional economics at Beacon Economics in Los Angeles. “Incomes are going to continue to be affected and be a drag on consumer spending.”

The census report also showed the foreign-born population in the U.S. last year dropped for the first time since 1970, to 37.9 million from 38 million. That same group represented 12.5 percent of the overall population, down from 12.6 percent in 2007. The number of non-citizens also fell, to 21.6 million in 2008 from 21.9 million the previous year.

Nationally, median household income last year fell 3.6 percent to $50,303, snapping three years of increases, the Census Bureau said this month in a separate report.

Maryland had the highest median household income, at $70,545, for the third consecutive year, followed by New Jersey and Connecticut, yesterday’s report showed. Mississippi had the lowest, at $37,790.

Five States Gain

Kansas, Louisiana, New Jersey, New York and Texas had increases in median household income last year compared with 2007. In the previous year, 33 states saw an increase.

Real per capita income for the U.S. as a whole declined by 3.1 percent last year to $26,964, according to an earlier census report.

Workers from the financial services industry to home construction lost their jobs as the recession took a toll. Since the slump began in December 2007, the U.S. has lost 6.9 million jobs. Payroll cuts peaked at 741,000 in January and have since subsided, with 216,000 job losses in August, according to the Labor Department.

California lost 462,000 jobs last year, the most of any state, according to the Labor Department. Florida was next with 375,000 cuts from payrolls, followed by Michigan with 204,000.

Engine of Growth

“The recession hit Florida harder than most states,” said Stan Smith, director of the University of Florida’s Bureau of Economic and Business Research. “Housing was a major engine of growth. The decline in the housing market is a big reason incomes have dropped so much.”

Construction jobs accounted for 29 percent of all job losses in California and Florida, the Labor Department said.

“This has been a very difficult environment,” said Gary Aubuchon, president of Aubuchon Homes in Cape Coral, Florida. Home permits in the Fort Myers area were off as much as 98 percent last year from their peak, he said.

Aubuchon started selling a line of homes for under $200,000 on Labor Day, compared with its prior target of “primarily $400,000 and up,” he said.

In Michigan, declines in manufacturing payrolls contributed 31 percent of all job cuts. Manufacturing accounted for 57 percent of payroll declines in Indiana last year.

Whirlpool Cuts

Whirlpool Corp., the world’s largest appliance maker, is among those companies still eliminating positions. The Benton Harbor, Michigan-based company said Aug. 28 it will close its Evansville, Indiana, manufacturing plant, resulting in the elimination of 1,100 jobs.

Home prices declined 18 percent in 2008, according to the S&P/Case-Shiller home-price index. So far this year, property values have dropped only 4.7 percent.

President Barack Obama in February signed into law a $787 billion stimulus package aimed at stabilizing the economy and creating or saving about 3.5 million jobs. So far, the bill has created or saved as many as 1.1 million jobs, the White House said this month.

A new topic in the American Community Survey by the Census Bureau measured the percentage of state residents who lacked health insurance. In Texas, 24.1 percent went without health care in 2008, while only 4.1 percent in Massachusetts were uninsured, the report showed.

The number of people without health insurance coverage rose to 46.3 million last year from 45.7 million in 2007, the census said this month. The uninsured still accounted for 15.4 percent of the population, the same as in 2007, according to the Census figures.

Insurance Tax Proposal

In order to cut costs and make health care accessible to all Americans, Obama and Democratic lawmakers have proposed taxing private insurers, trimming spending in the federal Medicare program for the elderly and disabled and creating a more affordable public plan to expand coverage.

Data from the census report is used to help determine the annual distribution of more than $400 billion in federal and state funds, the Census Bureau said.

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Warren Buffett, the billionaire investor who last year called the financial crisis an “economic Pearl Harbor,” said the U.S. economy has “hit a plateau at bottom.”

“We have not bounced but we’ve quit going down,” Buffett, the 79-year-old chief executive officer of Berkshire Hathaway Inc., said today in an interview on CNBC.

Signs the worst recession since the 1930s is over have accumulated in the past two months, with U.S. manufacturing expanding for the first time in 19 months in August and home- sales rising. The Bloomberg Professional Global Confidence Index exceeded 50 in September for a second month, meaning optimists outnumbered pessimists. Federal Reserve Chairman Ben S. Bernanke said yesterday “the recession is very likely over.”

“We’re through the worst of it in residential real estate in all probability,” Buffett said today, adding that he doesn’t expect a “double-dip” recession.

The number of contracts to buy previously owned homes rose more than forecast in July and increased for a record sixth consecutive month, while mortgage buyer Freddie Mac said the average price rose 1.7 percent in the second quarter.

The remarks from Buffett and Bernanke helped push stock and commodities prices higher, with the Standard & Poor’s 500 Index climbing 1.5 percent. Lead rose for a third day and copper prices advanced.

Stocks climbed yesterday as Buffett, known as the “Oracle of Omaha,” told a conference in California that his company was buying equities because “I am getting a lot for my money.”

Kraft Foods

Buffett built an equity portfolio valued at more than $48 billion by betting on companies including soft-drink maker Coca- Cola Co. and Kraft Foods Inc. that he believes have competitive advantages and enduring brand popularity.

Buffett told CNBC that, while he’s not opposed to Kraft’s bid for Cadbury Plc, he thinks the offer is a “pretty full” price. Last week, Cadbury rejected a takeover proposal from Kraft, valued at about $16 billion, as too low. Buffett said he has confidence in Kraft’s management. Berkshire is Kraft’s biggest shareholder free credit report instantly.

Berkshire is also the top holder in Wells Fargo & Co., the nation’s biggest home lender, and Buffett has been adding to the stake this year and saying the bank’s ability to gather deposits at low costs will boost profits as the economy recovers.

Credit Cards

“We’re gonna have unusual losses in credit cards and in commercial real estate” in the economy, Buffett said today. “But we’re a lot better off than we were a year ago. I mean for one thing, some of the toxic assets have been flushed through. There’s been capital raised.”

JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., the biggest U.S. credit-card lenders, said yesterday that defaults climbed in August as the unemployment rate jumped and the impact of tax refunds waned.

JPMorgan said yesterday that construction and development loans remained the “greatest area of concern” for its commercial bank portfolio as net charge-offs will continue to rise.

Buffett reiterated his praise for Federal Reserve Chairman Ben S. Bernanke, Treasury Department Secretary Timothy Geithner and former Treasury Secretary Henry Paulson, calling them “heroes” for their management of the economy since last year.

“You can look back and say you could have done this a little differently or that a little differently, but at the time I called it an economic Pearl Harbor and in the end we got through Pearl Harbor,” Buffett said. “And it could have turned out a lot differently.”

Profit Gain

Berkshire posted net income of $3.3 billion for the three months ended June 30, an increase of 14 percent from the prior- year period. The results, released last month, halted six straight quarters of declining profit at Berkshire that included a first-quarter loss of $1.53 billion.

Buffett’s firm gained $3,000 to $103,000 at 4: 15 p.m. in New York Stock Exchange composite trading. The shares have dropped about 18 percent in the past 12 months.

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The Polish central bank’s new rate- setting council will need to raise borrowing costs, after it is selected in February, to curb inflation, said Jerzy Hausner, an informal adviser to the government.

“Monetary policy in Poland will have to be much tighter than it is now,” Hausner said in an interview in Warsaw on Sept. 2. “Inflation is definitely going to be one of Poland’s future problems.”

The European Union’s largest eastern member and the only one that emerged from the global crisis without falling into recession must balance the need to keep price growth under control and sustain growth as the economy recovers from near- stagnation in the first quarter.

Annual inflation has remained above the target limit of 3.5 percent for 15 of the past 18 months. The Finance Ministry on Sept. 1 said the rate probably rose to 3.7 percent in August. The benchmark interest rate is at a record-low 3.5 percent.

While other post-communist nations in the region suffered from contractions, Poland’s gross domestic product was buoyed by its large internal market, which shielded it from a drop in exports as demand from its rich western neighbors waned.

Even so, rising unemployment and the effect of higher rates on investments are risks to the economy, said Hausner, a former economy minister who heads the economics and public administration department at the Krakow University of Economics.

‘Hit That Hard’

“We’ll start having problems with private consumption soon as a result of the labor market situation, and I don’t believe that we’ll reach our export levels from before the crisis any time soon,” he said. “Investments will be far more important than before, and tighter monetary policy will hit that hard.”

The economy expanded an annual 1.1 percent in the second quarter. Hausner said the recovery will be tentative, without an acceleration in the last two quarters and may last longer than some economists predict. He sees GDP stagnating or rising 1 percent this year.

“It doesn’t make much difference where it is on that scale, growth will be far, far slower than last year,” he said. “We haven’t come out the other side of our difficulties yet.”

Prime Minister Donald Tusk said on Aug. 28 Poland would need “serious fiscal discipline” to rein in the deficit.

The European Commission, the EU’s regulatory arm, in May initiated a so-called excessive budget deficit procedure against Poland after its shortfall shot above the bloc’s limit last year. The Organization for Economic Cooperation and Development predicted the general government deficit to reach 6.3 percent of GDP this year.

‘Growing Problems’

“Next year’s budget will be extremely difficult, and slightly higher growth than was expected in the second quarter won’t put a stop to the growing problems,” Hausner said. He added Poland needs annual growth of “at least” 4 percent to “put us on the safe side with the budget and allow us to continue catching up with western Europe.”

Hausner said the new Monetary Policy Council will have to ignore pressures to keep rates low at the expense of boosting inflation.

“The current council is coming to the end of its term and is very likely to keep its stance neutral,” he said. “We need to have a balanced Monetary Policy Council that’s composed of people who think independently and don’t make decisions as a result of outside pressure.”

The MPC will end its term early next year. The president and the two chambers of parliament can each recommend three members to the 10-seat body. Bank Governor Slawomir Skrzypek, who took office in January, 2007, is the 10th member, with the power to break potential ties.

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My recent column about Roth IRA conversions unleashed a flood of (so far) more than 100 reader e-mails illustrating widespread confusion and misconceptions.

I’ll try clearing them up with this primer:

Traditional and Roth IRAs are types of individual retirement accounts. Contributions to traditional IRAs may be tax deductible, but withdrawals are taxed. Roth IRA contributions are never deductible, but withdrawals can be tax-free. Converting a traditional IRA to a Roth offers the potential of future tax-free growth in exchange for being taxed on the conversion.

The conversion itself is merely a paperwork transaction. Your IRA custodian (basically, the institution where you have your account) can guide you through it. You may choose to convert all or part of the traditional IRA.
You don’t need "earned income," which is mostly income from work, to convert. You need earned income to make a direct contribution to any type of IRA, but conversions are not the same as direct contributions.

For 2009, you can convert unless your modified adjusted gross income is more than $100,000 or you are married and file separate tax returns. Beginning in 2010, anybody with a traditional IRA can convert.

To answer numerous questions, anybody means anybody, including you.

If your traditional IRA contains non-deductible contributions, they are not taxed on conversion. (If you convert a $100,000 IRA with $20,000 in non-deductible contributions, only $80,000 is taxable upon conversion.) But you cannot "cherry pick" and convert just the non-taxable amounts. Instead, you must pay your "pro-rata" share of taxes. If you convert only part of this IRA, for example, you would pay tax on 80 percent of the converted amount, the same ratio as in a full conversion.

Converted amounts can always be withdrawn from a Roth IRA without having to pay ordinary income tax (you already paid it when you converted) cash advance payday loan. But converted amounts withdrawn before five years are subject to a 10 percent penalty if you are under 59

In the largely unregulated world of extended auto-service contracts, there’s one bedrock consumer safeguard: Customers canceling those vehicle-protection plans are refunded for the coverage they don’t use.

In most states, including Missouri and Illinois, it’s the law.

Yet St. Louis area companies have found a way around this rule by selling a different type of vehicle protection — warranties tied to oil additives, transmission fluids and other products that promise to keep cars running longer.

Here’s how the product warranties work: Consumers are sold an automotive additive — a bottle of liquid, or some tablets. Companies selling the additive say that if the product fails to prevent a breakdown, the warranty on the additive will cover repair bills — or at least some portion of them.

With traditional auto service contracts, the consumer is purchasing a promise that the seller will cover repair bills. The difference? First, with the additive, the consumer is buying a product, not a contract. Second, the consumer is entitled to a refund if a service contract is canceled early. That’s not the case with a product warranty.

And many consumers don’t understand that difference.

"I didn’t know I was buying any $2,000 bottle of additive," said Jeanette Franklin, of Houston, Texas, who bought a product warranty from Wentzville-based US Fidelis in November. "If they told me that’s what it was, I never would have bought it."

Franklin’s complaint is consistent with many that the St. Louis Better Business Bureau has received. The BBB has shared more than 80 complaints involving additives with the Post-Dispatch.

But the companies say they’re helping consumers by offering vehicle-protection plans for older, high-mileage vehicles.

US Fidelis Chief Executive Chris Riley said in a statement that the product warranties help consumers keep their vehicles on the road longer: "Customers who have purchased this product have had more than $5 million in product warranty claims paid," he said.

The company would not answer questions about its product warranties that were

e-mailed to a spokesman.

An attorney for St. Louis-based National Dealers Warranty said the company trained sales agents to be honest about some drawbacks of product warranties, including the fact that they can’t be refunded. Other firms did not return calls seeking comment for this story.

Thousands of consumers have complained to the BBB about auto-protection plans sold by St. Louis companies. Its crusade against the service-contract industry has focused on allegations of telemarketing abuses, deceptive direct-mail literature and high-pressure sales tactics. BBB officials said they knew little about the product-warranty side of the industry until asked about it by a reporter.

As a result, the BBB hasn’t specifically tracked whether consumers’ complaints were over a service contract or product warranty.

Critics — including some inside the industry — say the marketing of these product warranties confuses many consumers, leaving them trapped in coverage they no longer want. The warranted additives also allow service-contract brokers to sell in California, where they’re otherwise prohibited from doing business.

Franklin said she believed the two bottles of AutoLifeXtend oil and transmission additive were product samples, or maybe a thank-you gift from US Fidelis for buying a service contract. She said the company told her to activate her coverage by using the products, which she did.

She discovered just how much her protection plan differed from a service contract when she called the company on Aug. 18 to cancel the $2,060 purchase, which was to be financed over 24 months.

Franklin said the company initially wouldn’t refund any of the $800 she had paid because she had used the product as instructed. In other words, US Fidelis couldn’t give her a refund because she couldn’t return the additives. Days later, the company refunded $375 after Franklin threatened to contact the Texas attorney general, she said.

With service contracts, cancellations are common. Sometimes customers are dissatisfied; often they cancel only because they’ve sold their vehicle or the cars have broken beyond repair new car loans. Depending on how much of the service contracts they’ve used, these consumers can qualify for refunds of several hundred dollars.

With the product warranties, they’re generally entitled to nothing.

Mary Lobdell, an assistant attorney general in Washington state, is spearheading a 43-state investigation into the service-contract industry. She wouldn’t say whether product warranties were part of that investigation, but she said many of those protection plans were "grossly misrepresented" to the point that "consumers truly don’t understand what they’re buying."

Larry Hecker heads the Vehicle Protection Association, a trade group for companies that sell auto-service contracts. He said the product warranties were sold primarily to avoid California regulations that allow only auto dealers to sell service contracts.

Hecker acknowledged that the widespread sale of no-refund warranties could be problematic for an industry struggling to get past allegations that it frequently takes advantage of consumers.

"We haven’t addressed (product warranties) yet, but I’m sure we will down the road," he said, adding that it will probably be discussed by industry leaders when they meet for an annual conference next month in Orlando, Fla.

One industry veteran who plans to attend that meeting is Bill Rosenbach, who once ran a subsidiary of Wentzville-based US Fidelis and now works as a consultant for companies that sell both service contracts and product warranties.

Rosenbach said the quality of the additives and the warranties tied to them varied considerably from company to company.

Some of the additives may be beneficial to vehicles, but most don’t have any significant impact on how a car runs, he said.

Michael Carter, the general counsel for St. Peters-based National Dealers Warranty, says the additive that company sells — dubbed "The Choice" — improves auto longevity by lowering vehicles’ operating temperature. Carter said consumers typically needed to use the product only once to be covered by the warranty.

Carter said product warranties could be a good buy for consumers who didn’t qualify for traditional service contracts because their vehicles were too old or their mileage was too high. He defended the non-refundable nature of the coverage, but he said the company could make exceptions. National Dealers Warranty, he said, will "err to the side of good faith and good will" in some cases.

For companies such as US Fidelis and National Dealers Warranty, product warranties offer at least one big advantage over traditional service contracts.

"There’s a lot more profit," said Rosenbach, of Lincoln, Neb. "But the worst part about product warranties is consumers think they’re getting a service contract."

Many consumers have complained to the BBB that they couldn’t get a refund because they used the product. But others complained about the reverse: They didn’t use the product — either because they believed it unnecessary and threw it away, or their mechanics advised against using it — and later found out this was grounds for denying any claims made on the warranties.

The 10 St. Louis area businesses named in those BBB complaints include some of the country’s biggest service-contract brokers, including US Fidelis; National Dealers Warranty; Dealers Warranty, of St. Charles, which does business as Mogi; Carhill Enterprises, of St. Louis, which does business as Consumer Protection Services; and TXEN Partners, of St. Louis, which does business as Protection Direct.

Several of those firms sell product warranties tied to additives made by Dura Lube, which also sells its additive products directly, through its website, for as little as $11.99.

In 2000, the company that made Dura Lube paid $2 million to settle a Federal Trade Commission lawsuit alleging that claims about the product’s effectiveness were misleading and unsubstantiated. Dura Lube did not return calls seeking comment.

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