Ziegler Supersystems, Inc. April 2003  Dealer Mag Article

Staying Ahead of the Bear

It’s an old joke and I apologize if you’ve heard it before…

Seems there were these two campers hiking through the Rockies. As the sun came up one morning one of the men whispered to his partner, “Don’t make any sudden moves.”

The other man woke up to see a 900-pound Grizzly bear about 50 feet away at the edge of the clearing. The bear was sniffing at the air and making low growling sounds. Now fully awake, the man very slowly unzipped his sleeping bag, slowly reaching for his running shoes. In slow motion with extremely deliberate movements he sat up and began to lace up his running shoes as the bear watched, now grunting, snorting and growling increasingly louder, becoming visibly agitated. Now the bear threw his massive head back, tilted high into the air, roaring loudly as he approached the men. Standing on two legs the bear was more than eight feet tall. The man feverishly finished tying the laces. The other man whispered, “You don’t really think you’re going to outrun that bear do you?”

“No,” said the other camper just before he began to run. ‘I don’t need to outrun the bear. I only need to be able to outrun you.”

As I have warned repeatedly in articles, newsletters and speeches, the days of reckoning are upon us right now. You've run out of time.  

Call out: We all want our share of the pie, but it’s a shrinking target

…so I want your share too.

In recent history, extremely incompetent dealerships, run by incompetent management, with incompetent sales forces, owned by incompetent dealers, have made incredible profits in spite of themselves. In other words, you didn't have to be good to sell cars...you just had to be open with the lights on. Well, those days are over. As I have warned repeatedly, today’s market is unpredictable, a roller-coaster ride of changing paradigms. What you used to think is the way it is doesn't even remotely resemble what's happening now.

This pre-wartime paranoia (written March 15) has your customers preoccupied with duct-taping the seams of shelters in their basements while being bombarded with a steady barrage of negative news 24 hours a day. The rebates and low rates have lost their effectiveness. It’s a survival game now for both the dealers and manufacturers. The winners are going to be the best marketers with the most efficient sales processes. The object of the game is to sell more cars with greater profitability than your competitors. We all want our share of the pie, but it’s a shrinking target…so I want your share too.

I have repeatedly predicted we are entering an era of extreme winners and severe losers. Well, you can stop wondering when it’s going to happen…the reckoning has arrived. If you’ve been procrastinating, waiting to see what’s going to happen...well guess what...it just rolled over your sorry butt while you were standing around scratching it. So many people in our industry have been wandering around in a walking coma getting ready to get ready!

I have often said if you intend to do business in this dog-eat-dog environment, you'd better be prepared to take the business away from a competitor who already has that customer. In the short-term near future you only have two options…grow or die. There’s no way you’re just going to tread water and comfortably stay where you’ve always been.

Call out: Maybe the all-new Tundra F150 isn't so far fetched as it sounds.

There are two schools of thought here. Some dealers and factories are going to get very small. They are going to do small things like small people always do. Small people, who are naturally small thinkers, are going to concentrate on becoming smaller. They look at a downturn as a period when you need to lay low, cover up and hunker down shivering uncontrollably until it all passes. They have small cost-cutting strategies like cutting back on their advertising, laying off employees, and stocking less inventory. Small people look at becoming smaller as cutting their inevitable losses.

Call out: This is the time to get your act together while weaklings cower in the shadows. Get rid of bad people and replace them with great people.

On the other hand, my school of thought is to aggressively attack the market. I am prepared to work harder, longer, smarter and more efficiently than the competition. I am doubling my advertising budget and I am training my employees continually. My plan is not only to outsell the competition, but I intend to bury them while they are in hiding with their heads stuck up in warm dark moist places. Somebody once said, "What doesn't kill you only makes you stronger."

This is the time to get your act together while weaklings cower in the shadows. Get rid of bad people and replace them with great people. My theory of explosive management when we are growing dealerships to the big numbers has always been to go after the very best people you can find and then overpay them!

I told ya that wasn’t gonna happen!

Rolling on the carpet laughing uncontrollably…pounding the floor with my fists…cracking up till tears ran down both sides of my face. February 17…I was reading Automotive Snooze and the headline jumped off of the page. An article written by my friend, Donna Harris, read, Asbury's Wal-Mart pilot sputters – Attempt to sell used cars hits road block. According to the article, it seems Asbury’s used car lots on Wal-Mart parking lots are sort of biting the big one. Allegedly getting less than half the traffic it predicted, it appears Asbury is only selling somewhere around 30 used cars a month per location. The article stated that Asbury must determine why the traffic is low and if the problem can be fixed before it decides to expand or kill the project. One theory Asbury is playing with is that Houston might be a poor test market. Who coulda predicted that one, huh? (read below).

Another one-liner in the article caught my eye: “Executives lowered the price of the average car in stock after finding that at least half the customers required higher risk sub prime financing. The average vehicle price is now in the $10,000 to $12,000 range, instead of the $14,000 to $15,000 bracket.” Maybe they should have built these lots on the parking lot of Saks Fifth Avenue. It’s a Wal-Mart parking lot, for God’s sake; what class of clientele were they expecting?

The punch line to the joke was this one-liner in the article: “Gilman (Kenneth Gilman, CEO of Asbury) says customers seem to like the concept of a stand-alone used-car lot with no-haggle pricing.” To which Ziegler says, “Obviously dude!”

So Asbury has evidently blown $7.5 million to open four Price 1 Auto Stores on Wal-Mart parking lots, not to mention its operating losses for this allegedly absurd miscalculation and the high-priced retail consultants hired to coach it through this loss. Who could’ve predicted this? Well, allow me to resurrect a quote from my June 2002 article here, “Shifting Paradigm”:

“I really like those guys and gals at Asbury Automotive, but this time I think they’ve placed their heads in a warm dark moist place. I just read where they are planning to sell used (previously enjoyed) automobiles on Wal-Mart parking lots starting in Houston. Excuse me folks; I have done a lot of business in Houston. It is one of the most rock n’ roll car markets in the known universe. Forgive me if I predict you’re going to have your butt handed to you here. I have never said an unkind word or tried to second-guess those folks at Asbury. I have held them in high regard. (And I still do.) But, I have to ask respectfully... “Did you bump your head or what?”

Scheele-Gate

It was my honest and sincere intention not to write one word about Ford Motor Company in this month’s column, but…damn, these people just keep on keeping on. The magnitude of monumental ineptitude fueled by arrogance is just too much to ignore.

The management antics at the very top of this erstwhile magnificent corporation resemble the zany buffoonery of a classic Marx Brothers movie. What do you get when the president and chief operating officer of Ford Motor Company awards the world’s largest advertising agency a multi-million dollar plum-of-a-deal making that agency Ford’s exclusive provider for almost all of its marketing and advertising services? All of this in addition to $1.5 billion-plus the agency is already getting. After examining the facts, I detected a foul stench...a retched odor reeking of the appearance of corporate corruption.

My friend Mark Truby at the Detroit News broke the story, which was followed up by The New York Times, Wall Street Journal, Reuters, Advertising Age and Auto Snooze. I’ve read more than two dozen independently authored stories chronicling this pitiful soap opera. The ingredients in the mix are greed, nepotism, power-brokering, corporate feuding and infighting, corporate internal investigations and potential cover-ups. This story is just another in a series of damning indictments pointing to the decay of a once great dynasty.

Call out: Many industry analysts and Wall Street prognosticators

 are already writing Scheele’s corporate obituary.

Okay, here’s the situation and the cast of characters (suspects) as I understand it.

Sir Nick Scheele, president of Ford, and this guy, Sir Martin Sorrell, are both British Knights (sort of like Shriners without the Fez) who have this long-established mutual admiration thing and personal friendship. Sir Martin is also the chief executive with the London-based WPP Group, which already controls more than $1.75 billion annually (80 percent of total budget) of Ford’s (world’s second largest advertiser) advertising expenditure. Ford is already WPP Group’s largest account. The WPP Group is the corporate owner of the world's largest collection of advertising, marketing and public relations firms, including J. Walter Thompson, Young & Rubicam and Ogilvy and Mather. Regardless, sources say WPP suffered a 19 percent decline in profit last year with revenues off more than 3 percent.

So, in early February, shortly after returning from Switzerland where he had met with Sir Martin Sorrell, Sorrell’s good buddy, Sir Nick Scheele, sent a one-page letter to Ford executives awarding WPP a sweetheart deal virtually making WPP the exclusive agency for all Ford marketing and advertising. Of course, there’s dirtier dirt piling up here as the plot thickens. Ford executives apparently felt Sir Nick wasn’t allowing minor nuisances like company policy, ethical appearances and procedures for formal competitive bidding and price comparison processes get in the way of his deal with WPP. He evidently authorized the deal and was ramming it home with apparent total disregard for protocol or policy…or at least that’s how it appears on the surface.

In the blink of an eye there was Jim Bright, Ford spokesperson, out front saying, “The deal with WPP is off…We have rescinded the decision."

This is huge. When the corporation publicly and openly overrules a decision by the president of Ford, I get the impression you can stick a fork in Scheele...he’s done. Remember, I called the dastardly little Australian-Lebanese rascal’s exit to the exact day. Let’s see how my prediction track record holds up.

As I write these words, Ford is conducting an internal investigation into alleged ethical violations and conflict of interest issues surrounding the deal that are, on the surface, seemingly apparent. So far, Ford’s calling it a procedural faux pas, but I believe I can safely predict Sir Nicholas is on the near future endangered species list after the board meets later this week. Remember this: Scheele was William Clay Ford’s dad’s handpicked replacement for Nasser. At the very least demotion and exile would be a reprieve. He has embarrassed the company...again...at a very delicate time when they are under a microscope with Wall Street and the media.

Family ties?

As Paul Harvey would say, “And now, the rest of the story.”

You see folks, it seems like Scheele’s son, young James Scheele, received a prestigious paid fellowship from WPP in 2000. Oh come on now, let’s be fair about this. Young Scheele probably was awarded this highly competitive fellowship because he was the best of the best of the best qualified applicants. Let’s examine the facts: He graduated from Northwestern University with a degree in history and beat out more than 1,000 applicants for the position which has been known to accept fewer than 10 recipients annually. This is one of the most sought after and competitive fellowships in Europe. Young Scheele should be congratulated for achieving this honor and distinction. I have often heard it said that the elite advertising industry in Europe is clamoring for history majors from ho-hum so-so universities. I am sure the boy achieved it on his own merit without family leveraged influence or power-brokering as some might be insinuating. To say otherwise would be sort of like insinuating Bill Ford is not qualified to run Ford Motor Company.

A sinister subplot playing in the background revolves around David Thursfield, the company's purchasing chief and executive vice president in charge of international operations. Thursfield has a reputation as a crackerjack cost-cutter (Another clue-impaired bean counter?). Thursfield appears to be heir apparent to Scheele’s position if Sir Nicholas ends up getting the Royal boot. Many industry analysts and Wall Street prognosticators are already writing Scheele’s corporate obituary. On the other hand, this guy Thursfield is ambitious and rumored to be vicious. Insiders say he is openly at war with Scheele in a death feud although that’s been publicly denied by all parties. I have a feeling you can count on Thursfield to be taking hard shots at the visibly wounded Scheele on every given opportunity. I liken Thursfield’s current demeanor as equating to a piranha smelling blood in the water.

All of this scandal comes at a time when Wall Street analysts seem to be lining up to downgrade Ford’s credit ratings. On February 28, Sean Egan, founder of Egan-Jones ratings agency, was quoted in Grant’s Interest Rate Observer and a week later in London Daily Telegraph as saying, "If its name were not Ford they'd probably be in bankruptcy now. They continue to have access to the market because of the good brand name they've built up over the past 100 years, and if it weren't for that brand name Ford would have an increasingly difficult time rolling over its liabilities."

Remember this: Egan was the same analyst who predicted that Enron and WorldCom would bankrupt light years before anyone else on Wall Street even saw a blip on the radar screen. This guy is sharp, with a track record for accurate predictions against the grain. Egan, in a series of interviews with several newspapers, offered eight reasons why he believes Ford is in serious trouble including multibillion-dollar pension fund liabilities and other obligations and a lack of cash to fund future borrowings.

Egan was also quoted as saying, “Just makes me so damned mad when I think about it. We all saw it coming...why couldn't they? Billy may save the company by selling it off...but let's face it...he was part of the Wardroom (Officer core) that stood by and watched (and maybe even encouraged) as the ship drove itself onto the rocks of destruction. As far as I know, we still have the very same board of directors that hired Jac Nasser and gave him the authority to buy everything in sight...even if it didn't have anything to do with building a car...”

Well golly...damnation...do you folks suppose Mr. Sean Egan read my December article here, “Invasion of the Body Snatchers,” in which I predicted virtually every point Egan makes today...point by point...you can archive the entire article at
http://www.zieglersupersystems.com/dealermag/body_snatchers.htm.

As predicted here

The paragraphs below are some selected excerpts from what I wrote here in December 2002, under the subhead “And the hits just keep on comin’.” I wrote:

This really isn’t funny anymore. The inane, bumbling incompetence at Ford Motor Company emanating downward from the top has been regularly the target of some of my best humor. But, now this is getting serious. Ford is in the worst financial position imaginable with no viable plan and no qualified management at any level with the expertise or horsepower to pull it out of the ditch. At least the captain of the Titanic tried to turn the ship before it rammed the iceberg. These alleged perceived fools are doggedly sticking with the same formula for disaster that put them in this mess to start with.

Ford’s pension fund is dangerously under-funded (as in out-of-trust?). 

Excuse me folks...with the kind of exposure we’re talking about here, $25 billion isn’t a pimple on a gnat’s ass. Hell, Jacques blew through that much in a bad quarter while the board of directors sat around playing with their thumbs in undisclosed locations.

One article said Ford Motor Credit has an outstanding bond debt approaching $157 billion...$23 billion of which must be renewed in 2003 alone. (Ziegler Note: As of March 15, 2003 Ford's $161 billion of debt is more than 10 times its market capitalization of about $14 billion.)
 

Wall Street analysts and credit-rating directors generally agree that Ford is barely covering its interest expense. We’re hearing Ford is hovering on the edge of the cliff. Dare I say hanging by its fingernails? One word that keeps popping up in article after article is the word “Survival.” There has even been conversation among analysts about what are the alternatives when and if Ford falls. If Ford bonds are in actuality downgraded to “Junk Bond Status,” it is generally accepted that the market does not have the capital capacity to absorb it. We’d be talking about Federal bailout similar to Chrysler Corporation of the early eighties.

“If autos were to drop to junk status -- because they comprise the largest percentage of many U.S. credit indexes -- it could rattle debt markets, with forced selling into a pool of potentially unwilling buyers.” (Rick Wagoner CEO, General Motors, Jan 31, 2003.)

Rereading literally dozens of pages featuring various analysts’ interviews and predictions over the last two weeks, the overwhelming theme is that Ford is teetering on the edge of the precipice. A March 12^h Auto Snooze article stated, in part: “Ford spokeswoman Marcey Evans said that Mr. Egan's analysis was "seriously flawed" and that Ford is "fundamentally strong." Ms. Evans noted that Ford has $25 billion in cash, has gained market share in the United States and continues to reduce costs. On the automotive side, she said, the company's debt payments amount to $1 billion in the next five years.”

Unfortunately, Ford’s self-righteous denials echo an obscure, not widely reported incident that happened on January 21 of this year and was reported by The Detroit News’ Mark Truby. According to Truby’s article, it appears that someone at Ford inadvertently posted the wrong financial information to Ford’s Web site…actually, I suspect, as does Truby does, that it was probably the right (correct) financial information. The slide, which was up on the Ford Web site for only 10 minutes, showed a projected loss of more than $1.8 billion in North American Operations (a three times greater loss than last year). Scheele and Ford tap-danced on the griddle in the ensuing press conference bombarded with questions from analysts and the press. Ford subsequently filed a report with the Securities and Exchange Commission sort of trying to say these slides were just scenario planning. The report said, in part...“Accordingly, anyone who obtained these slides should disregard them.”

Rod Lache of Deutsche bank titled his report on the press conference as, “Oops...What Slide?”

A giant’s fall

The continually deteriorating state of affairs at Ford has been the blunt focus of many of my articles over the last eight years....now, here we are at the point where all of my predictions have come true....and there is a deep sadness in spite of the fact that it was all the result of self-inflicted wounds...and these alleged perceived to be fools are still shooting themselves in the foot daily.

The decline of this once magnificent American corporation is a result of greed and incompetence and has been fueled by unfathomable dimensions of treachery and deceit which have become ingrained in its corporate culture. When Mark Egan blamed the board of directors, he was pointing the right finger at the true culprits. It wasn’t Jacques Nasser or Alex Trotman or even Bob Rewey, as despicable, treacherous and low as I perceived each of them to be, that put Ford in the toilet; but rather, it was the board...it was always the board. In my opinion, the aforementioned perceived pompous alleged ninnies who carried out the deeds were simply the scapegoats. If Scheele doesn’t survive the cut, the bench appears to be filled with replacement ninnies. (Opinion, the word ninny is subject to how you perceive ninnies.)

Ford Motor Company is in more trouble than you could have ever suspected in your wildest dreams. Actually, I don't feel a government bailout is an option. Chrysler got a government bailout back in the early ‘80s because there was evidence of dynamic, aggressive, competent leadership at the helm. Over at General Motors, it too has financial challenges to a lesser degree, but the difference is the fact they have a dynamic, aggressive team with Wagoner, Lutz, and Smith at the helm. General Motors has a sound business plan that is driven by product and sales...whereas Ford hires armies of attorneys and dull, plodding bean-counters (ninnies?) trying to wheedle out a profit through aggressive cost-cutting.

Egan alluded to the possibility that Bill Ford may have to sell the corporation. Although I can’t figure out how, there is a slim slither of a possibility Ford will come to its senses and pull this thing out of the fire. I would hate to see the company sold, dismantled, or partnered up with a foreign manufacturer in the driver’s seat. Maybe the all-new Tundra F150 isn't so far fetched as it sounds. I need to pour another Remy and think about this some more.

So, I am sitting here lacing up my running shoes and getting ready for the competition. You can sit around moaning and waiting for the bear if you want to but, as for me personally...I’m outta here.

Jim Ziegler is the president of Ziegler Supersystems, Inc. If you have specific questions or require more information about this subject, please check the appropriate box on the writer response form on page 3. [email protected]

This Man Means Business!