I’ve been speaking and traveling a little more of late and the economic discussions continue monopolize discussions. Been busy on a bunch of things, but a common theme of the discussions I’m having is “what worked 90 days ago doesn’t work today” or “Differentiation today is different than last year – the market have moved to X in the last year”.
While the system outlined below is little overly diagrammed, the 10 steps are spot on. Thanks oukearts!
Not sure why, but I’m very intrigued by the auto bailout. Potentially the state of this industry could be seen as a forecast of what’s coming, more so than what we need to do specifically for Detroit. Pending systemic failure?
It clearly feels like nothing is immune from the current state of the economy and we may actually hit 10% unemployment before it is done. In that context, the auto bailout is just the next one, not the last one if we don’t do something. Every industry is contracting and the Auto bailout needs to happen to avoid a further melt down. This is where trickle down economics has easily visible/verifiable relationships – in a contraction. .
I’m not a give free money to everyone kinda person, especially large corporations that refuse to make tough decisions which will take them, the industry and the market forward, but sometimes ya gotta give a little to get a little. If the auto industry goes others are soon to follow, here’s some other industries which could trickled down….:
I’m sure there are lots of options – mergers and bankruptcy are definitely options, but there may be some other ones. So how could the big three get out of this relatively intact?
Break Up the Unions
I’m a Michigan native, so I love unions – sorta. I’ve seen how unions have delivered disproportional benefits for the labor/effort/value provided which in some circles is something to be loved. Union scale is good stuff if you can get it, as I have many a friend who went into a factory made gobs of cash since 18 and now have vacation homes, jet skis and generally a good life, possibly leverage life, but with no real skills or alternatives if things go wrong way. I see this as being mainly due to the unions. Good job team – an unskilled workforce and debt!
For the corporation the benefits are even more wonderful – bloated cost structures and throttled productivity. Unions fight for platinum coated health plans, retirement plans and more raises than most folks in the private sector get based on merit and corporate performance.
Simple Math: If the benefits weren’t so steep, they may actually be able to hire more people, rather than giving folks $30,000 a year in overtime. It’s cheaper to pay overtime than it is to support hiring a new person. Unions may have served their usefulness. Today’s transparency in the world today makes it a little had for corporations to put folks at risk and generally not do good.
Consumer Incentives
I’m certainly not buying a new car right now, not because I don’t want to, I just don’t need to. I might however buy a car if the government gave me a tax credit equal to the profit the dealer and car maker would get. Give a 1 to 1 credit and generate some transaction in the market and improve cash flow.
So why is this any different than a full on bailout? Well it allows the consumer to invest where THEY want to. This incentive shouldn’t be limited to the big three, but should be constrained to cars manufactured in the US, so that means that potentially some Big Three vehicles wouldn’t make the list. After the dust settles there may only be 2 of the big three left, but it would be driven by market/consumer decisions and not due to a knee jerk crisis response. Folks would buy cars that met quality requirements and other decision criteria.
Logo Reduction
These car manufacturers like their logos and brands. GM has 12 different active brands, Ford has five brands on their website and Chrysler has three, so why so many? Does GM really need Buick still? Can’t HUMMER role into GMC or vice-versa? As for Ford, not sure you still need Lincoln, you keep the town car and roll it under Ford. Does Ford also need Mercury? Isn’t the Mercury model just the same as the ford with better trim and lower gas mileage? Chrysler is probably the best positioned with just three main brands, but I would think they still want to focus on reducing models, since the town and Country and the Caravan a like the same thing. Couldn’t Jeep become a brand extension of Dodge?
So what would logo reduction get the industry? Consumer incentives will help identify what logos to move out of the mix and help with a market driven SKU reduction. There are a bunch of SKU’s to choose from and most could easily be displaced by the other logo alternative. Less SKU’s means less complexity and the ability to scale production more efficiently/profitably and allow them focus thier innovation efforts. It would allow them to reduce their marketing costs from labor perspective and ultimately build STRONGER brands. If these companies could consolidate their design and centers for innovation that would have to have some positive bottom line impact.
Give Them the Money!
What is the danger in giving them the money? Not much, the downside is much bigger. The issue is cash and the ability to make it through the recession. These companies are doing them most they can and bankruptcy just would help. I would actually up the ante to $25B per car maker – that’s effectively what we gave the banks, but it should have some strings to ensure it stimulates other sectors:
This is Just a Cycle
I’m not an economist, but I do like me some history and this looks familiar. The economy is at a tipping point, not unlike the one that fostered the great depression. The distribution of skills, the demand for skill types and available capital make for a sustainability issue.
The great depression could be considered a function of the transition from a fully agrarian economy (majority of skills and spending habits) to an industrial economic model (the majority of demand). So just like the move from a primary sector to secondary, we are transitioning from a secondary economic system to a tertiary sector. Some might even argue Quaternary or Quinary, but these are more tertiary overlays which are “thought/theory” gap coverage to help understand different modes of market engagement which exists today.
There are all kinds of theory gaps which make for interesting dynamics which need coverage. The current economic norms for participation are changing – work from home, small business vs. large business, expertise over scale and information over goods are in growth mode. The challenge is we don’t have the necessary infrastructure, pervasive skills availability and incentives for business to move forward quickly. Government needs to invest in building mass transit, bandwidth and wireless upgrades and provide manufacturing/other industries incentives to modernize – buy more software, improve your plants, adopt alternative energy options and help the transitioning the population with educational subsidies.
I’m not sure we can buy our way out of this, but we just might want to give a big ole American try.
I got bored halfway through this post and started working on something else, but decided to push publish anyhow. The blogger equivelant of SKU proliferation.
Not really political these days, but I find myself just a little more interested in politics than I have been for a while with the upcoming presidential election. I actually haven’t had a sticker on my car since the first Clinton election which surprises me now that I think about it. The key driver for my acute attention on this election is the economy. The current market status is just a fun little thing to watch – evaporating value and continuous corrections.
Every good election seems to have an economic issue, wars not so much – kinda odd. There have been two fairly interesting politically driven economies – Clinton’s internet stock bubble and Bush’s housing crisis. Both which have helped bring us to where we are, for good or ill. This $700B bailout has sparked more than a few interesting conversations in which I was a participant or witness over the last couple of weeks, so the economy is front and center for most of us. I was recently reminded that we already put like $250B into the mortgage market already this year, but with the passing of the most recent allotment, I’m just a little curious of what it means. A little positive motivation from President Bush to help me keep my head straight:
We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country…our economy continues to face serious challenges.
Effort Free Growth
Each of the previous market growth markets – Internet and Housing, had little true production of goods and no real multi-industry impact. Seemingly effortless growth, – stocks, real estate – passive financial growth. If you look at the current optics of the market, it has essentially removed all the intangible/labor free wealth from the system. The fiction and folklore around the current economy is fun to watch as well – everyone has ideas and suspicions. Take the debates – everyone had perfectly focused talking points to promote their platforms, as long as they ask the right questions.
Plenty of non-answers or message moves throughout both debate, but one particular question effectively helped both debates go a little off message. A single question from Jim Leherer on “what would the candidates change” based on the latest economic twist? This question was also echoed in the VP debate. You betcha – no one is giving up on anything for the United States voters. None of candidates answered the question really can’t really blame them though. That’s a tough thing to answer this close to the election date in such a competitive presidential race. Effectively the candidates were asked to publicly modify their platforms in real-time on national television. Nothing good comes from a direct answer, but Biden did admit a need to “slow things down”. But the other three had no real talking points on this, so they just stayed on message. Energy, Engine, Maverick, Big Business, tax cuts below $250,000…..
Neither of the candidate’s platforms really do much for the economy, they do each have a “gap patch”, which will fix it for a while and allow them to get on with their presidency, but no long term benefit for the country. The question I have is: “Why not go big and build a bunch of stuff too?”. If the last couple of hurricanes weren’t enough of a clue – we may need a little Civilian Conservation Corp revival, not just to improve for disasters, but to build an infrastructure for growth. You could give the initiative some cheesy name like Infrastructure 3.0, that way you can have a cool logo and t-shirts. Gotta give some money to the apparel industry along the way, a single industry growth model doesn’t work. Perhaps a plan which included the delivery of long term reusable/durable assets which make the nation’s infrastructure sounder and provides for the distribution of funds across economic strata and geographic boundaries. Cross-cutting economics might be one way to look at this.
From Productivity to Production
A geographic based development effort to optimize multi-industry growth and spawn regional economic growth through local/state projects. Burgeoning economies, sustaining economies – ultimately build things. Think the development of the TVA via the new deal. The previous investment in infrastructure post depression was focused to enable the US to fully transcend an agrarian economy and to bridge the economy. Perhaps the US now needs a new infrastructure that better supports the current information based economy which is in transition. Perhaps we could put some folks to work building roads and enhancing the current high tech infrastructure for the future growth of our tertiary economy.
I’m not talking about a bridge to nowhere, but maybe some new bridges. Infrastructure is on at least one candidates mind, Obama asserted that high speed internet infrastructure was important for the populous, but so are roads, rail and the environment. A set of initiatives which focus on in country investment, energy conservation and better access might be what we need.
A new growth grid which helps optimize transportation and encourages investment in new places, local places could provide a significant improvement to the economy overall. Basically if we could build an upgraded grid of interstate roads, rail, wireless, and internet bandwidth rural and urban areas alike would benefit. The system would have improved routing based on current population distributions, mass transit extensions would ultimately be funded by states/private sector would provide for basic sustainability. A more sustainable impact on the environment and a sustainable economy, for say 15-25 years. What the US needs now is a little eminent domain, steel production and construction.
I ain’t no Economist, but…
When you hear the word depression, crisis and meltdown – something’s just a little off with the current model. We might want to find a way to lessen the consumption, limit emissions and improve distribution. The current infrastructure and capacity was optimized for fulfilling demand as forecasted in let’s say the 50’s or 60’s and things have changed a little.
A Potential Opportunity
So there are probably 4 things which could be laid out by who ever wins which could significantly improve the economic balance of the our free market economy. Balance between the public and private sector is the key, so the government funds it, private sector builds, localities monitor and maintain, and everyone benefits.
Funding: The funding of the activity will need to come from something, so it’s imports and export taxes/tariffs, it’s ok America is on sale and if you really need a new coach bag, you will pay the additional 4-7%. The Euro and Pound have all kinds of room to absorb the price, as does nearly every other currency. Other trickle down funding opportunities:
Hopefully this redistribution of tax dollars into the economy will help Hockey mom’s and hard workin American’s everywhere. We can dream….
The Road System
We certainly do have enough roads, but most need a bunch of work and we might be able to improve commutes, increase safety and provide for an improved transportation systems for goods delivery and ultimately lessening the overall impact to local and national environs, plus you get some new bridges and new places for the tertiary economy to develop. Who knows, maybe the next generation of bridge graffiti will be cooler to look at while your taking the train in an hour from the city, rather than commuting 12 miles in an hour. But if you have to drive, maybe you can go 12 miles in say 20 minutes – that might be nice.
Rail
Well.. we certainly aren’t a compact set of nations like Europe which makes it a good deal easier to develop a strategic local and extended rail system, but the movement of goods, vacationers and business people via rail could accelerate extended industries like metals and aerospace while improving the environment. No really aerospace, Boeing makes train fuselages, so this isn’t just about construction workers, engineers make out too with this plan. Putting our money here is definitely a long strategy for the movement of people, but it would provide states the opportunity to build into a new modern infrastructure for the movement of goods. New distribution centers could develop and helping establish new growth areas economically, which don’t have the opportunity now. Along with roads, this could help move folks and industry to less dense areas, a non-obvious eco-friendly side effect of rail and new crossroads.
Internet and Wireless
So hows that new iPhone 3G working for you? Ok for some, not ok for others, we are a little light on coverage for the cool stuff. You could develop as part of the road and rail activities big crazy pipes which run parallel and an extend the next generation wireless network which could further distribute IP connectivity and support for the next wave in commerce. You could also run some new energy delivery through the same network while were at it, perhaps a wind farm or two along the way.
Dream big, don’t just fix it
Wow – that’s gonna cost a lot and take a bunch of time, more than most president’s got, but the results would be immediate as folks ramp up the staff to accommodate so it just might work. You probably also noticed that a couple of points of tax/tariff will work, but it could be enough of a hit to move some jobs back to the US, which based on fuel prices alone appears to be already happening. You betcha we gotta do something to make sure it’s funded appropriately. 😉
So what would a maverick do? Lease the rail? So you could subsidize the effort by letting folks bid on say the 6 new government internet backbones, which parallel to the new train and interstate road system. Heck – it’s all for rent! I have no idea if the strategic multipurpose development on single set of eminent domain swaths can re-distribute population, optimize distribution models, improve the environment and provide bottom up economic growth, but you have to dream big, which I hope the next president does when elected. It’s not like I’m a economist or even that political, but this seems like a big election for some reason. Make sure you vote.
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