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TURBULENCE
"The
captain has illuminated the fasten seat belt sign. All
passengers will please return to their seats and
remain seated. Please check the security of your seat
belt. Flight attendants will discontinue cabin
service. We’re anticipating some rough air in the
area."
Over
the last thirteen years I have flown more than two
million miles with commercial airlines, mostly Delta.
Traveling more than 250 days a year, speaking and
consulting, I spend more time in airports and hotel
rooms than at home with my family. One of my favorite
stories is about the time when I was flying home to
Atlanta from St. Louis back in 1991.We’re talking
Eastern Airlines here. We encountered some rough
weather and the captain announced that all passengers
should take their seats and check the security of
their seat belts.
It
was one of the most amazing things I have ever seen.
We were bouncing all over the sky. At one point the
plane dropped several thousand feet in the blink of an
eye. I was sitting in first-class and the man in the
seat in front of me was drinking a beer. The beer
jumped up, out of his glass, and floated, suspended in
mid-air above his head for probably five or six
seconds. It was just an amber liquid globule hanging
up there changing shape like an ameba. Then the plane
leveled out and it splashed down all over him. Now
that’s what I call severe turbulence!
As
I write these words, it is Labor Day Weekend. Just
last week Hurricane Bonnie was pounding the North
Carolina coast. Well fans, I suggest that you check
the security of your seat belts because I predict that
we are in for a bumpy ride. There’s a hurricane
brewing, and unfortunately, We’re going to have to
fly right through the center of the storm.
With
the Pacific Rim crashing economically, tensions
rekindling in the Middle East, and with the Russian
economy becoming more unstable by the moment; It is
becoming increasingly obvious to me that global
economics are going to drag down the U.S. Economy into
some levels of recession. U.S. Banks and investors
stand to lose a lot of money here.
Remember
that I said this…Watch for South America and Mexico
to crash harder than Russia. I predict we’ll see
their currencies in freefall. In that more than 25% of
U.S. Exports are going to South America, it will send
shockwaves throughout our economy. Of course, in their
smug superior wisdom (arrogance), our two domestic
manufacturers, General Motors and Ford, have invested
heavily in Mexico, South America and the Pacific Rim.
They have long viewed The United States are a
"Mature Market" and they have directed their
focus on cultivating business in "Emerging
Markets" overseas.
In
the words of Dorothy from Kansas, I believe Ford and
GM are learn the meaning of … "There’s no
place like home"… Of course in the case of Ford
Motor Company, it is becoming increasingly difficult
to find anyone in top management who is an American
national. Look for General Motors, Ford and
Daimler-Chrysler to wake up one day and realize
they’ve blown billions of dollars trying to
cultivate business in "Submerging
Markets".
In
the immortal words of the Rock Group "Queen"…"Another
One Bites The Dust".
I
went on record in this magazine, two years ago…last
year…and this year as saying that Cross Continent
Auto Retailers would be the first big public
company to tank. When Bill Gilliland first took that
company public, "Automotive Snooze" and all
of the other industry cheerleaders went on record that
this was the "Messiah"…If this guy
couldn’t pull it off nobody could. He was going
around the country making speeches to Dealer Groups
and Big Wall Street seminars. Bill was the "IPO
Superstar".
Hero
to Zero…Well,
of course by the time you read this you are already
aware that Cross-Continent Auto Retailers was sold to
Republic Industries for a reported price of $145
million dollars.
Cross-Continent
stock had crashed, bottoming out at somewhere around
$6 ¼ a share…Cross-Continent Auto Retailers was in
the toilet. Republic bought the company at the
"Fire-Sale"price of $10.70 a share. What
puzzles me is that the press releases say that Mr.
Gilliland and his key executives will stay on with
employment agreements with Republic. Excuse me
folks…Didn’t the folks at Republic check their
resume’??? Is this what we refer to in business as a
"Golden Parachute"?
What
about Republic Industries’AutoNation and CarMax ?
Well, They have become major non-news events. CarMax
is just one big yawn and AutoNation is rapidly
becoming the biggest joke in the industry.
Their
stocks are at an all-time low. Wall Street remains
substantially unimpressed with their "Economies
of Scale" as their retailing failures become
increasingly more embarrassing. Republic Industries’
Magic Ford in Valencia,
California is jokingly referred to on the streets as "Tragic
Ford".
At
less than $7.00 a share, CarMax is an endangered
species just a notch above being
"Off-The-Board" in the penny stock category.
(CarMax…The Next Big Public Company to "Bite
The Dust"?)
Right
now, CarMax is in a heated battle with a Dealer’s
Association in the Chicago metro. The dealers are
buying huge blocks of advertising saying that
CarMax’s retail prices are too high…and CarMax is
responding, saying that is not true.
Republic
Industries is going to buy back more than 500 million
dollars of their stock. I view this as a desperation
effort to prop up their stocks and maintain some level
of credibility.
Okay,
let’s put this on the table…Jack Smith and Ron
Zarella couldn’t possibly be all that popular with
General Motors Board of Directors right now. Their
market share is in the toilet, strike or no strike.
The
strike was a display of stupidity and inept
management…Nobody gained anything visible. Billions
of dollars lost. Could it be that the strike was a
smokescreen to make excuses for GM’s loss of market
share to Ford?
In
my opinion, Smith lacks the market savvy and the
"In The Trenches" Experience… He’s a
"bean counter" with limited successes in
smaller operations. His idea of making GM more
profitable is another round of squeezing suppliers and
battling the union. Question… "At what
point do you squeeze your suppliers so hard that
quality suffers?"
I
saw a billboard yesterday featuring the Chevy
Malibu…The caption read "The Car You Knew
America Could Build." Of course they were
featuring the Malibu which is actually an Opel, which
means that it is actually a German Car sort of like a
Chrysler.
As
for Zarella, this restructuring plan, which includes
realigning Divisions and Brand Managers, seems to make
a lot of sense until you stop and realize that he’s
also consolidating his own personal
"Power-Base". However, I still predict he
can’t build a strong enough "Power Base"
to give him job security if performance doesn’t
drastically improve.
In
view of the fact that General Motors will continue to
build out 1998 models when the other manufacturers are
rolling out 1999’s, there is going to be a major
bloodletting in the Fall that should already be in
motion as this issue comes out. (Remember I wrote this
in late August) Zarella and Smith need the numbers so
as not to show the 1998 model year as a total disaster
on paper for the benefit of the stockholders.
I
predict the manufacturers will offer another round of
through-the-stratosphere rebates and intensified
subsidies to move these units that will, in effect,
destroy the Used Car Market. It appears that the only
way some of these "Soap Powder Marketers turned
Car Guys" know how to sell anything is to shovel
tons of cash at the consumers.
I
would not want to be AutoNation or CarMax holding
large over-valued Used Car inventories in the fourth
quarter. Based on past history, I bet they’ll get
clobbered …again.
My
advice to the Dealers is "Hunker Down".
Those of us with real car experience have weathered
these storms before. Be aware of inventory aging and
watch the market closely because Car Values are going
to swing wildly from book to book. Don’t be caught
holding any 61day old inventory.
This
Fall and Winter is going to be the beginning of
"The Reckoning". You are going to see most
of the Public Companies bleeding money out of every
artery. Let’s face it folks, If they did a bad job
when cars were selling in the Utopian market we’ve
seen…They are certainly going to tank under pressure
of a slowing economy.
As
for the Manufacturers…I am going to take a high
level of Satisfaction as all of these
"Anti-Dealer Schemes" continue to blow up.
Even though the Ford Retailing experiment is already
bombing, big-time, they are still charging right
ahead, buying the all of the Ford Dealerships in
Oklahoma City.
General
Motors has selected Wes Rydell, the One-Price Guru
Chevy Dealer from North Dakota to look after their San
Fernando Valley Dealership Consolidation Project. Well
Sports Fans, I predict that the highly competitive
Southern California market will kick his butt all the
way back to the Frozen Tundra before this is all over.
But
also remember this…Factory mentality dictates that
even if something is flawed and failing, never admit
that you’ve done something stupid…you just need to
throw more money at it. Sort of like the General
Motors just on time delivery programs.
As
for me, by the time you read this I’ll be sitting in
my Lazy Boy Recliner by the fireplace, swirling a
snifter of Premium Remy Martin, watching the six
o’clock news and chuckling out loud. Once again
score one for the Good Guys. In the immortal words
of Bob Dylan… "A Hard Rain’s A-Gonna
Fall".
More
Food For Thought
Must
Reading!
You have just got to read this article…When
you have some spare time on your hands, get into the
archives of Business Week magazine on the internet.
Look up the July 27th issue of Business
Week.
In
a commentary article by Kathleen Kerwin titled "It’s
Time for GM to Face the Future", Ms. Kerwin
blasts General Motors to the point of suggesting that
it’s time for the Board of Directors to oust Jack
Smith and the entire top-management team.
Quote…
"Management is stuck in a time warp. If Smith
and his team duck again, GM directors ought to
consider another coup."
Personally,
It wouldn’t hurt my feelings to see Zarella standing
on an exit ramp with a cardboard sign.
This
article is the most damning article that I have ever
seen. In it Ms. Kerwin criticizes General Motors’
arrogance, incompetence, and overall lack of vision.
Ms.
Kerwin says, "GM still doesn’t design
vehicles the public wants, build them efficiently, or
market them effectively."
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