Detroit Auto Show

The Detroit Auto Show has finally given us some interesting news. Emerging markets are fueling demand for new cars and, as sales there outpace developed countries, these customers will be increasingly important to major auto companies. The most recent demand is for an ultra-low cost (~$2,500 - 4,000) vehicle.

This type of car would open the door to innumerable new drivers. Temporarily ignoring the increased congestion and adverse effects on the environment, the prospect of a new paradigm in car manufacturing is a relief.

Americans are particularly fond of their large, comfortable automobiles. Current pricing differentials on small to mid-size vehicles are not enough of an incentive to buy a smaller car. However, if the price tag dropped to $4,000 on a small vehicle, I predict many buyers will reevaluate how much space they really need. The price would create a breaking point to finally separate Americans from over sized and inefficient vehicles.

Another benefit of the $4,000 car option is greater flexibility for American consumers. The U.S. personal savings rate in November was negative 0.5%. With finances stretched to the limits, it is no wonder we are dealing with the sub-prime mortgage crisis and a looming recession. The sensitivity of American consumers is levered so tightly to home prices and interest rates, the rest of the economy falters soon after any housing disturbances.

Below are a few scenarios based on estimated car prices and basic assumptions for payment. Specifically:

- $300 Monthly Payment
- $1,500 Down Payment

My conclusion is the economy, the environment and our culture would be improved dramatically by shifting priorities away from ostentation to conservative and thrifty consumption.

Bush and Facts

Why do we even fund an intelligence service if the President dismisses what they say based on his wants? This administration, even after all its mistakes, continues to embrace arrogance and ignorance to guide policy.

We live in dangerous times and desperately need a pragmatic and truthful leader.

Disappointing news from today's New York Times:

On the question of Iran, Mr. Bush said he tried to explain his desire to intensify international pressure on Tehran over its nuclear program, despite a National Intelligence Estimate released in Washington in December that concluded that the Iranians had halted a covert nuclear weapons program in 2003.

He distanced himself from that finding more starkly than before, arguing that Iran’s continued enrichment of uranium was a threat because the knowledge used to master that process could be transferred to weapons research.

“I defended our intelligence services,” he said, “but made it clear that they’re an independent agency, that they come to conclusions separate from what I may or may not want.”

Clintons and Values

If you had any doubt about what matters most in the Clinton household, look no further:

He [Bill Clinton] continued: "I actually tried to talk Hillary into leaving me when we were in law school, that's the God's truth. I told her, 'You have more talent for public service than anybody in my generation that I have met... I shouldn't stand in your way.' She looked at me and said, 'Oh, Bill, I'll never run for office.'"
--The Trail, January 7, 2008

Bill and Hillary have lived their entire lives in pursuit of power and influence. This blind ambition leads to policies and campaigns based on polls, a loss of values and purpose and ultimately a weak leader. As Hillary's campaign continues to unravel, realize the Clinton's willingness to elevate politics above marriage (and everything else) set her on this path long ago.

Schultz Back at Starbucks

It seems Howard Schultz is one of the informed readers of Earnest Observer. The company replaced Jim Donald with Schultz yesterday and it finally appears Starbucks is concerned with serious issues raised in a recent post.

From the Financial Times:

A company statement said the move was part of a set of initiatives aimed at "refocusing the company on providing customers with the distinctive Starbucks experience, and building on Starbucks' legacy of innovation."

This is a good decision for Starbucks and possibly the last chance for a company on its way to competing with McDonald's:

McDonald's is setting out to poach Starbucks customers with the biggest addition to its menu in 30 years. Starting this year, the company's nearly 14,000 U.S. locations will install coffee bars with "baristas" serving cappuccinos, lattes, mochas and the Frappe, similar to Starbucks' ice-blended Frappuccino...

The coffee chain has evolved into more of a filling station. It is now battling fast-food outlets for some of the same customers and meal dollars. Today, about 80% of the orders purchased at U.S. Starbucks are consumed outside the store. The average income and education levels of Starbucks customers have gone down, the company has said. As part of a big push into food, Starbucks sells lunch at more than two-thirds of its company-owned locations in the U.S.
-- Wall Street Journal, January 7, 2008

Defining Conspicuous Consumption

From the New York Times:

The office, which Mr. Cappello said cost $300,000 to $350,000, holds three dozen antique chess sets, several hundred globes, 1,800 handmade canes from around the world and thousands of antique books. The paneling came from a castle in the south of France, and the Empire-period fireplace, he said, was built for one of Napoleon’s residences. A billiard table from 1849 and a large partners’ desk anchor opposite ends of the room, and 19th-century military and animal paintings adorn the walls, along with two big plasma screens, “for watching football games with my buddies,” he said.



Here are my predictions, based on the limited (thankfully) exposure I've had to people like this:

1) He has no idea how to play chess.
2) He does not use a cane.
3) Someone else picked out the antique books to adorn his walls.
4) The real reason for the room is to avoid his family while claiming to work. (You can just see the love he has for his daughter pouring out in the picture...)

All this reminds me of a quote from an earlier post:

Whatever happens, the old American scorn for pretension is bound to reassert itself someday, and dear God, let it be soon.
--B.R. Myers

Hoping for Cautious Captains

From yesterday's Financial Times:

In politics, business and finance, as on the seas, the hero is the person who tackles a problem, rather than the person whose actions prevent the problem arising. The statesmen we need are those who avert wars and prevent depressions, but such individuals gain little credit.

I thought about posting the entire article written by John Kay. It raises questions about politics and the leaders we choose, businesses and the compensation and stature afforded top executives and even challenges the integrity of modern capitalism and the pursuit of a career therein.

I have not conducted a detailed study, however, it seems that many of the problems in business and politics are faced by the very leaders who created them. President Bush and the Iraq war and bank CEOs and the subprime financial crisis are the most obvious recent examples. The public often praises fortitude and resolve during these events, rather than the intelligence to avoid the situation altogether. (However, in these two events, the failure has been so widespread and pronounced the public has lost its willingness to watch in awe as the leaders charge ever onward. "Stay the course" as a slogan has lost its appeal.)

In business and politics, praise is often directly related to compensation and success. The cautious manager is in danger of producing average results, but will rarely lead a company or country to ruin. Whereas the "bold" leader will more likely achieve stellar results or massive failures. These failures not only affect their reputation and legacy, but also have lasting effects on the citizens and employees who count on their judgement and expertise.

Steady growth and progress in business and politics are admirable goals. However, steady usually isn't associated with fame, fortune and unfettered praise. Consider the potential inverse relationship between these desires and a future leaders results.