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.
Tuesday, November 10, 2009
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?
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