The recent news release from Best Buy (December 15, 2009), of their improved Earnings per Share over last year further confirms the wisdom of not only focused expense management, but also of the advantages of focusing on non-core expenses.
Bob Willett, CEO of Best Buy International, noted that "[their] diligent focus on expense management this year" helped improve overall profitability. It was noted that Selling, General & Administrative (S,G&A) expenses decreased from 22.5% of revenue to 21.3% of revenue. This has a direct impact on the bottom line as well as on cash flow. Even with only a 5% decrease of non-production costs, the impact is both real and noticeable.
While the focus of any company should be on increasing sales, sound expense management practices are always essential. Non-core areas, although smaller than core areas, can nevertheless impact the bottom line. Ignoring non-core areas ultimately leads to inflated expenses and lower profits.
At least Best Buy has it worked out.
Thursday, December 17, 2009
Thursday, December 3, 2009
Will 2010 be a Better Year?
Yesterday, the United Nations came out with a positive forecast for the global economy for 2010. The primary drive will be from Asia. The U.S. is also expected to see modest economic growth.
Nevertheless, the U.N. cautioned the growth will be 'fragile' and could fail if stimulus spending stops and if the U.S. deficit and external debt continues to climb. Such a crisis could cause global instability.
No word yet on how continued stimulus spending will not lead to a (at least temporary) increase in both the U.S. deficit and external debt.
There is a lot of talk about a looming 'double dip recession' (also mentioned in the U.N. report). There is also a lot of talk about the likehood of 'modest growth' and a 'fragile economy'. I think it's more a case of both cautious optimism and having it both ways. If the economy grows, it was predicted. If it fails, it was mentioned as a realistic possibility.
On that note, I'm not going to be any different. I think 2010 will be better although how much of this is based upon wishful thinking I can't say. Suffice it to say that everyone appears to be in general agreement that we still have a long way to go.
What this means for businesses is simple: stay focused. Don't lose sight of sound cost management practices. Put them in place now (if you haven't already done so).
Nevertheless, the U.N. cautioned the growth will be 'fragile' and could fail if stimulus spending stops and if the U.S. deficit and external debt continues to climb. Such a crisis could cause global instability.
No word yet on how continued stimulus spending will not lead to a (at least temporary) increase in both the U.S. deficit and external debt.
There is a lot of talk about a looming 'double dip recession' (also mentioned in the U.N. report). There is also a lot of talk about the likehood of 'modest growth' and a 'fragile economy'. I think it's more a case of both cautious optimism and having it both ways. If the economy grows, it was predicted. If it fails, it was mentioned as a realistic possibility.
On that note, I'm not going to be any different. I think 2010 will be better although how much of this is based upon wishful thinking I can't say. Suffice it to say that everyone appears to be in general agreement that we still have a long way to go.
What this means for businesses is simple: stay focused. Don't lose sight of sound cost management practices. Put them in place now (if you haven't already done so).
Tuesday, November 10, 2009
Lack of Capital Still a Problem for Small Businesses
The recent news that commercial lending giant CIT Corp. is filing for bankruptcy can't be good for small and mid-sized businesses that rely on easy and cost-effective access to credit in order to survive.
Although experts are indicating that the short-term impact for retailers will be modest, there is less certainty about the impact by spring. John Holub, president of the New Jersey Retail Merchants Association indicated that the economy might turn around by this time, leading to alternative financing opportunities.
What if he's wrong? Banking (no pun intended) on a stronger economy is not a great strategy. Companies should always have contingencies for the worst economic times. Anyone can manage in a good economy. Surviving in a tough economy takes preparation and foresight, two key elements of effective management.
What strategies are companies putting in place to keep costs down and to maximize productivity? These should be the areas of focus. There is never a time when good expense management is unimportant, but there are times when it is paramount. Now is such a time.
Although experts are indicating that the short-term impact for retailers will be modest, there is less certainty about the impact by spring. John Holub, president of the New Jersey Retail Merchants Association indicated that the economy might turn around by this time, leading to alternative financing opportunities.
What if he's wrong? Banking (no pun intended) on a stronger economy is not a great strategy. Companies should always have contingencies for the worst economic times. Anyone can manage in a good economy. Surviving in a tough economy takes preparation and foresight, two key elements of effective management.
What strategies are companies putting in place to keep costs down and to maximize productivity? These should be the areas of focus. There is never a time when good expense management is unimportant, but there are times when it is paramount. Now is such a time.
Monday, September 14, 2009
Ignoring the Lessons of the Past
On the anniversary of the collapse of Lehman Brothers, President Obama urged Wall Street to learn 'the lessons of Lehman' and not repeat the same mistakes.
There are many who are suggesting that Wall Street has not learned the lessons of Lehman, opting instead to fight any new regulations that might impede lending, borrowing, investing or any other business the banks are involved in.
What lessons should have been learned? What lessons have been learned?
Large banks CAN and Do fail.
Re-packaging junk and calling it AAA doesn't change reality.
Being highly leveraged in high-risk securities is dangerous.
Investing in complex derivatives that you don't understand is downright foolish.
However, what has probably been learned is this: if Big Banks get into trouble, the government will bail them out.
Without the bailouts, the crisis would have been massive. With the bailouts, the lesson is not learned.
Caught between a rock and a hard place.
There are many who are suggesting that Wall Street has not learned the lessons of Lehman, opting instead to fight any new regulations that might impede lending, borrowing, investing or any other business the banks are involved in.
What lessons should have been learned? What lessons have been learned?
Large banks CAN and Do fail.
Re-packaging junk and calling it AAA doesn't change reality.
Being highly leveraged in high-risk securities is dangerous.
Investing in complex derivatives that you don't understand is downright foolish.
However, what has probably been learned is this: if Big Banks get into trouble, the government will bail them out.
Without the bailouts, the crisis would have been massive. With the bailouts, the lesson is not learned.
Caught between a rock and a hard place.
Friday, September 4, 2009
U.S. Debt Approaching $12 Trillion
I had to post this link to the new Calculator developed that has 16 digits...in order to show the U.S. debt which was $11,792,918,170,836.43 on Sept 1st.
this is a sobering thought in light of the rosy economic predictions coming out of Washington. Layoffs have continued, although at a slower rate but there are some signs that a recovery is beginning.
The stimulus package has had a positive impact and this will likely lead to improvements next year. Vehicle sales were positively impacted by the 'Cash for Clunkers' program and total vehicle sales will likely be higher next year. However, recovery is not going to happen overnight.
Still, in case some of you are thinking that everything is fine again, take a look at the debt. You may have to purchase the new calculator as most calculators are unable to display the number.
this is a sobering thought in light of the rosy economic predictions coming out of Washington. Layoffs have continued, although at a slower rate but there are some signs that a recovery is beginning.
The stimulus package has had a positive impact and this will likely lead to improvements next year. Vehicle sales were positively impacted by the 'Cash for Clunkers' program and total vehicle sales will likely be higher next year. However, recovery is not going to happen overnight.
Still, in case some of you are thinking that everything is fine again, take a look at the debt. You may have to purchase the new calculator as most calculators are unable to display the number.
Wednesday, July 15, 2009
Chrysler Pays of $1.5 Billion TARP Loan
GMAC Financial Services, formerly Chrysler Financial, has paid off its TARP loan of $1.5 billion.
Chrysler used the loan to provide up to 85,000 consumer loans and said it was paying back the TARP loan in order to avoid higher costs.
This is a step in the right direction as Chrysler is sending a message to the general public that it is on the road to recovery. It is also demonstrating priority in keeping costs down while trying to ensure it does not lose momentum.
Timing is important and Chrysler is setting the right tone by moving quickly. meanwhile, GM is also out of bankruptcy and actually beat Chrysler in terms of time spent re-structuring (40 days vs. 42 days). Speed is critical as delays will only serve to negatively impact public perception.
What is emerging are leaner and more efficient automakers. The question will be whether both automakers can produce cars that consumers want and whether or not they can survive in this highly competitive market.
So far, both have surprised analysts with their speed in restructuring. Let's hope this is a sign of things to come.
Chrysler used the loan to provide up to 85,000 consumer loans and said it was paying back the TARP loan in order to avoid higher costs.
This is a step in the right direction as Chrysler is sending a message to the general public that it is on the road to recovery. It is also demonstrating priority in keeping costs down while trying to ensure it does not lose momentum.
Timing is important and Chrysler is setting the right tone by moving quickly. meanwhile, GM is also out of bankruptcy and actually beat Chrysler in terms of time spent re-structuring (40 days vs. 42 days). Speed is critical as delays will only serve to negatively impact public perception.
What is emerging are leaner and more efficient automakers. The question will be whether both automakers can produce cars that consumers want and whether or not they can survive in this highly competitive market.
So far, both have surprised analysts with their speed in restructuring. Let's hope this is a sign of things to come.
Monday, June 15, 2009
Chrysler Group
Chrysler Group has emerged from bankruptcy protection as the "New Chrysler" with FIAT owning a 20% stake (with an option to increase to 35% and later 51% if certain financial and operational targets are met).
At the helm is CEO of FIAT, Sergio Marchionne, a dual Italian and Canadian citizen.
The future for Chrysler was bleak to say the least, but this is a good start considering Marchionne helped turn around FIAT. In 2004 FIAT was losing money but under Marchionne began turning a profit in 2005 and has since grown in profitability and revenue. Additionally, while other automakers were shedding jobs, FIAT increased total employees by over 20% from 2004 to 2008.
What's interesting is that Marchionne, prior to FIAT, had no automotive experience. However, he has worked as a chartered accountant and as a tax specialist and has a strong financial background, all traits that helped him improve the Financial performance of FIAT.
Marchionne believes in accountability of management and looks for new talent. Perhaps this different approach, that is, a willingness to clean out myopic management, make the necessary changes and introduce new ideas will be the ingredients that will enable Chrysler Group to succeed.
At the helm is CEO of FIAT, Sergio Marchionne, a dual Italian and Canadian citizen.
The future for Chrysler was bleak to say the least, but this is a good start considering Marchionne helped turn around FIAT. In 2004 FIAT was losing money but under Marchionne began turning a profit in 2005 and has since grown in profitability and revenue. Additionally, while other automakers were shedding jobs, FIAT increased total employees by over 20% from 2004 to 2008.
What's interesting is that Marchionne, prior to FIAT, had no automotive experience. However, he has worked as a chartered accountant and as a tax specialist and has a strong financial background, all traits that helped him improve the Financial performance of FIAT.
Marchionne believes in accountability of management and looks for new talent. Perhaps this different approach, that is, a willingness to clean out myopic management, make the necessary changes and introduce new ideas will be the ingredients that will enable Chrysler Group to succeed.
Friday, May 1, 2009
More trouble for the Auto Sector
A sector which, in 2001, employed, either directly or indirectly, over 7 million North Americans, is facing further trouble. Since December 2007, the auto sector has lost 27% of its jobs. That's almost 2 million people.
With Chrysler going into bankruptcy protection, the number of layoffs are going to climb. Everyone is hoping the merger with FIAT will save the day, but the reality is, the next several months are going to be tough. There is certainly good motivation for both automakers to work together: FIAT is a small, niche player and access to a greater variety of brands and a huge North American network will certainly be a boost, while Chrysler's motivation is more obvious - survival.
Still, deals can fall apart. Implementation may be unsuccessful. Supplier disruption is guaranteed as are supplier bankruptcies. How this will impact all the big players is anyone's guess but it won't be pretty.
Further government financing is inevitable.
Who's fault is it? Well, there is enough blame to go around including bad management, bloated unions, foreign competition, etc. Now, President Obama is blaming the secured debt holders for the failure to reach a deal. He's right of course but at issue is whether or not they can get a better deal in bankruptcy court than what Obama has so far offered (33 cents on the dollar).
Let's see if Obama's strategy of calling them 'vultures' will force concessions.
Regardless, the future of the auto sector is far from certain and, for the short term, additional pain is all but guaranteed.
With Chrysler going into bankruptcy protection, the number of layoffs are going to climb. Everyone is hoping the merger with FIAT will save the day, but the reality is, the next several months are going to be tough. There is certainly good motivation for both automakers to work together: FIAT is a small, niche player and access to a greater variety of brands and a huge North American network will certainly be a boost, while Chrysler's motivation is more obvious - survival.
Still, deals can fall apart. Implementation may be unsuccessful. Supplier disruption is guaranteed as are supplier bankruptcies. How this will impact all the big players is anyone's guess but it won't be pretty.
Further government financing is inevitable.
Who's fault is it? Well, there is enough blame to go around including bad management, bloated unions, foreign competition, etc. Now, President Obama is blaming the secured debt holders for the failure to reach a deal. He's right of course but at issue is whether or not they can get a better deal in bankruptcy court than what Obama has so far offered (33 cents on the dollar).
Let's see if Obama's strategy of calling them 'vultures' will force concessions.
Regardless, the future of the auto sector is far from certain and, for the short term, additional pain is all but guaranteed.
Wednesday, April 15, 2009
GM going bankrupt and Chrysler all but finished
Mark Zandi, Chief Economist of Moody's Economy.com says GM will file for Chapter 11 protection and that Chrysler will broken up and sold to other companies.
Basically, Ford will remain the sole American auto manufacturer...at least on the current scale. GM will come back as a 'shadow of itself'.
What is most interesting is Zandi's final point about the lesson in all of this: if you have a fundamental problem in your business, it's better to fix it sooner rather than later.
GM was running a massive debt before the recession. All that has happened is that those companies that were poorly managed and in poor financial health have now been exposed.
The question is this: will other companies in other industries learn anything from this?
Basically, Ford will remain the sole American auto manufacturer...at least on the current scale. GM will come back as a 'shadow of itself'.
What is most interesting is Zandi's final point about the lesson in all of this: if you have a fundamental problem in your business, it's better to fix it sooner rather than later.
GM was running a massive debt before the recession. All that has happened is that those companies that were poorly managed and in poor financial health have now been exposed.
The question is this: will other companies in other industries learn anything from this?
Monday, April 13, 2009
GM Going Bankrupt
It looks like GM going bankrupt is inevitable.
Of course, it would have been better had they gone bankrupt prior to receiving US$ billions of taxpayer money.
This is simply the culmination of years of bad management and poor expense management. Bankruptcy is inevitable.
Next up: Chrysler...
http://www.financialpost.com/story.html?id=1491378
Of course, it would have been better had they gone bankrupt prior to receiving US$ billions of taxpayer money.
This is simply the culmination of years of bad management and poor expense management. Bankruptcy is inevitable.
Next up: Chrysler...
http://www.financialpost.com/story.html?id=1491378
Monday, March 30, 2009
Expert Predictions are on Par with Chance
This is a very interesting article which appeared in the New York Times by NICHOLAS D. KRISTOF on March 26, 2009.
What's interesting is how 'Hedgehogs'- experts with strong convictions who tend to see things in black and white - provide better 'soundbites' and are thus featured more prominently than 'Foxes' - who are more pragmatic and cautious and tend to be more accurate in predictions - but don't get as much air time due to providing less impressive 'soundbites'.
Something we should all keep in mind when we listen to experts making strong statements about the economy (or anything else for that matter).
http://www.nytimes.com/2009/03/26/opinion/26Kristof.html
What's interesting is how 'Hedgehogs'- experts with strong convictions who tend to see things in black and white - provide better 'soundbites' and are thus featured more prominently than 'Foxes' - who are more pragmatic and cautious and tend to be more accurate in predictions - but don't get as much air time due to providing less impressive 'soundbites'.
Something we should all keep in mind when we listen to experts making strong statements about the economy (or anything else for that matter).
http://www.nytimes.com/2009/03/26/opinion/26Kristof.html
Thursday, March 19, 2009
Will the Economy really recover by 2010?
There have been some rosy predictions about the economy lately. Federal Reserve chairman Ben Bernanke predicts the recession will end by the end of this year and the recovery will begin in 2010. Markets have rallied with news the U.S. government is pumping $1.15 trillion into the financial and housing markets.
On the other hand, we are still seeing housing prices fall and unemployment figures are continuing to rise. Factor in that AIG is not exactly financially healthy and we have the recipe for disaster. Apparently, AIG requires bonuses to keep their 'talent' - the same talent that got them into the mess in the first place. The bonuses are supposedly to ensure they don't leave and force AIG to require another massive bailout.
Additionally, we aren't seeing a sudden surge in consumer spending, nor are we seeing a recovery in the auto industry. I think Mr. Bernanke is looking at different numbers than I am. Of course, one can reasonably argue that half the problem, and thus half the solution, is consumer sentiment. If optimism returns, people may begin to spend again, which will, presumably, strengthen the economy.
On the other hand, with consumer debt at record highs, maybe spending money we don't have is part of the problem. Combined with a huge government debt which is steadily climbing and the fact that China has indicated a concern the U.S. is simply printing money, thereby devaluing China's investment in the U.S. and we are faced with a less rosy outlook.
Quite frankly, I don't see an end to the recession by the end of the year. I certainly don't see a recovery by 2010. I hope I'm wrong of course as nobody wants to be the harbinger of doom, but I just don't see how everything will turn around in a year.
Pushing through massive stimulus packages quickly may be required to help the economy but the risks of abuse, poor decisions, and recklessness are directly proportional to the speed with which the bailout is implemented.
A bit of a catch-22.
On the other hand, we are still seeing housing prices fall and unemployment figures are continuing to rise. Factor in that AIG is not exactly financially healthy and we have the recipe for disaster. Apparently, AIG requires bonuses to keep their 'talent' - the same talent that got them into the mess in the first place. The bonuses are supposedly to ensure they don't leave and force AIG to require another massive bailout.
Additionally, we aren't seeing a sudden surge in consumer spending, nor are we seeing a recovery in the auto industry. I think Mr. Bernanke is looking at different numbers than I am. Of course, one can reasonably argue that half the problem, and thus half the solution, is consumer sentiment. If optimism returns, people may begin to spend again, which will, presumably, strengthen the economy.
On the other hand, with consumer debt at record highs, maybe spending money we don't have is part of the problem. Combined with a huge government debt which is steadily climbing and the fact that China has indicated a concern the U.S. is simply printing money, thereby devaluing China's investment in the U.S. and we are faced with a less rosy outlook.
Quite frankly, I don't see an end to the recession by the end of the year. I certainly don't see a recovery by 2010. I hope I'm wrong of course as nobody wants to be the harbinger of doom, but I just don't see how everything will turn around in a year.
Pushing through massive stimulus packages quickly may be required to help the economy but the risks of abuse, poor decisions, and recklessness are directly proportional to the speed with which the bailout is implemented.
A bit of a catch-22.
Wednesday, March 11, 2009
Consumer Incentives to Buy Autos
Along with Ford, Toyota has asked the Canadian government to provide incentives to consumers in order to increase new car sales. These proposals include a $2,700 US incentive to purchase a new vehicle in 2009 as well as credit and tax breaks.
Incentives have been proposed in the U.S. including incentives to purchase Hybrid vehicles and other 'buy American' proposals, but while the various auto manufacturers have been offering various incentives and rebates, it does not appear, as far as I can tell, that the U.S. government is offering anything close to what the auto manufacturers are asking of the Canadian government.
The argument put forward by Toyota Canada is that rather than focus on a bailout to the Big Three, the Canadian government would be better off stimulating the auto industry via incentives to consumers. This would positively impact the whole supply chain by stimulating demand. Of course, this way the bailout would help Toyota and not just the Big Three. Interestingly enough, Toyota has asked the Japanese government for a $2 billion US loan in order to help cover expected losses of $3.9 billion US in 2009. Additionally, Toyota has indicated that GM and Chrysler should be given a loan from the US as this will help all automanufacturers by ensuring suppliers stay in business.
It's hard to reconcile the two but perhaps the argument can be made that if GM Canada goes under it won't negatively impact Toyota or other Asian automanufacturers since suppliers in the U.S. are far more important. Additionally, by stimulating consumer demand, Toyota stands to gain in Canada whereas the potential loss of critical suppliers in the U.S. would have a devastating impact on Toyota and other Asian auto manufacturers.
Perhaps the U.S. should follow Canada's lead and offer incentives to U.S. consumers to trade in old vehicles for new ones. This would be in addition to any incentives offered by the automanufacturers themselves. Not only will this help stimulate sales, it will be better for the environment by getting old polluters off the road. Such proposals are likely being considered but I'm pretty sure they have not been implemented.
Incentives have been proposed in the U.S. including incentives to purchase Hybrid vehicles and other 'buy American' proposals, but while the various auto manufacturers have been offering various incentives and rebates, it does not appear, as far as I can tell, that the U.S. government is offering anything close to what the auto manufacturers are asking of the Canadian government.
The argument put forward by Toyota Canada is that rather than focus on a bailout to the Big Three, the Canadian government would be better off stimulating the auto industry via incentives to consumers. This would positively impact the whole supply chain by stimulating demand. Of course, this way the bailout would help Toyota and not just the Big Three. Interestingly enough, Toyota has asked the Japanese government for a $2 billion US loan in order to help cover expected losses of $3.9 billion US in 2009. Additionally, Toyota has indicated that GM and Chrysler should be given a loan from the US as this will help all automanufacturers by ensuring suppliers stay in business.
It's hard to reconcile the two but perhaps the argument can be made that if GM Canada goes under it won't negatively impact Toyota or other Asian automanufacturers since suppliers in the U.S. are far more important. Additionally, by stimulating consumer demand, Toyota stands to gain in Canada whereas the potential loss of critical suppliers in the U.S. would have a devastating impact on Toyota and other Asian auto manufacturers.
Perhaps the U.S. should follow Canada's lead and offer incentives to U.S. consumers to trade in old vehicles for new ones. This would be in addition to any incentives offered by the automanufacturers themselves. Not only will this help stimulate sales, it will be better for the environment by getting old polluters off the road. Such proposals are likely being considered but I'm pretty sure they have not been implemented.
Friday, March 6, 2009
Fighting the Economic War
Friday, March 6, 2009
The Department of Labor announced today that unemployment has risen to 8.1 percent, higher than expected and the highest rate since 1983. A staggering 651,000 jobs were lost in February bringing the total job losses to 4.4 million since December 2007.
Back in December I had been predicting unemployment would rise to over 9 percent by the end of 2009 and it appears that, unfortunately, we are on track. Some economists are predicting 10 percent by the end of 2010. One wonders if this will turn out to be a conservative prediction.
Factor in that several analysts are indicating the massive bailout for GM will not be enough to save the troubled Auto manufacturer from bankruptcy and we are definitely going to see the unemployment figure jump as the domino effect takes place across the North American auto industry.
Don’t forget to add in the continuing slide in real estate prices (how many millions of homes have mortgages worth more than the value of their house?), and the predicted additional defaults and we have the recipe for disaster. Are we in a deep recession or a depression?
Any thoughts on how we can get out of this mess? What can companies do to reduce expenses and minimize job losses?
P Moorcroft
www.mgps.com
The Department of Labor announced today that unemployment has risen to 8.1 percent, higher than expected and the highest rate since 1983. A staggering 651,000 jobs were lost in February bringing the total job losses to 4.4 million since December 2007.
Back in December I had been predicting unemployment would rise to over 9 percent by the end of 2009 and it appears that, unfortunately, we are on track. Some economists are predicting 10 percent by the end of 2010. One wonders if this will turn out to be a conservative prediction.
Factor in that several analysts are indicating the massive bailout for GM will not be enough to save the troubled Auto manufacturer from bankruptcy and we are definitely going to see the unemployment figure jump as the domino effect takes place across the North American auto industry.
Don’t forget to add in the continuing slide in real estate prices (how many millions of homes have mortgages worth more than the value of their house?), and the predicted additional defaults and we have the recipe for disaster. Are we in a deep recession or a depression?
Any thoughts on how we can get out of this mess? What can companies do to reduce expenses and minimize job losses?
P Moorcroft
www.mgps.com
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