Give Us the Facts?

The City of Boulder moves steadily forward with its plan to municipalize the electrical power grid in Boulder, buying our the Xcel infrastructure of wires, transformers, substations, poles, underground facilities, etc. The purchase cost to the City will run into hundreds of millions of dollars. The City will need to create a power commission and department to take over the duties of expansion and maintenance of the grid. They will need to respond to emergency power outages and other problems.

Some the funding for the purchase will be provided by selling bonds. Bonds require interest payments, and these payments will be borne by those who purchase power from the City (i.e., you and me.)

I continue to believe that Boulder's plan for municipalization of Xcel's franchise is a serious mistake. Part of that belief stems from the City's failure to provide any hard facts about the issue. We have been given nothing in the way of financial analysis, operating plans, staffing plans, or rate estimates. Does the Council have the data? It seems that if they do, and it supports justification of the municipalization project,they would tell us about it. We have many, many good thinkers in Boulder. Let us have facts.

The Boulder Daily Camera has frequent letters-to-the-editor, editorials or op-ed pieces. Some favor municipalization, others do not. It is an interesting, uninformed debate!

Give us the fact, Boulder City Council. We can think for ourselves.

Dialog versus Argument

Dialog, in its pure sense, means conversation among people who listen carefully to others in order to understand their values (from which beliefs spring), so that together they can develop solutions to difficult problems.

For example, first and foremost, some people value the enjoyment of their work more than they value the creation of wealth. Others, on the other hand, value creating wealth more than the enjoyment of their work. Most people lie somewhere on the continuum, enjoyment on one end and wealth on the other. Others, lie on the extremes of the continuum. These are the extremist.

From values grow our beliefs about working. You believe in working long, hard hours, while I believe in working less. We both feel we are right.

Now, if we have an argument about getting work done in a certain amount of time, we have difficulty creating a solution to the issue. In our argument we take positions based on our beliefs. Once positions are taken, creating a solution to the issue meets with great difficulty. I think I am right and you are wrong, and vice versa.

The argument, from positions, is not a dialog. In this argument we probably flare up in anger, and call each other names. Working out a win/win solution is impossible, so we compromise on a lose/lose solution.

If, instead of having an argument we have a dialog, in which we listen carefully to understand each other's values, we can usually create a win/win solution that satisfies our values.

For many years I have worked as an intermediary in business mergers and acquisitions. Frequently the buyers and sellers take opposing positions; positions based on their beliefs. It falls to me to move the parties to dialog; to listening to each other to understand values; and to develop win/win solutions.

Now that is fun.

No more politics

A few of my readers have said to me that they read enough, or too much, about politics as it is, and don't want to read more about them from me.

So, read my lips, "NO MORE POLITICS."

Ungovernable?

Sometimes I believe our country is ungovernable. Political parties are so wacky (all three, Democrat, Republican and Tea) and so rigid in their positions that true dialog leading to true solutions no longer seems possible

And with a chief executive who apparently has gone wishy-washy, leadership seems to have died.

Once again our government has put a band-aid on the fiscal policy of the United States.

What do we the citizens need to do to get long term solutions to these serious problems?

As an idealist, I suggest firing congress and the executive, and firing the lobbyists, and firing the special interest groups, and starting all over.

Oh well.

Pragmatists, as well are as others, are invited to comment.

More on Fuel Taxes

In an earlier post I proposed a three part tax to replace slowly diminishing fuel tax collections. The critical piece of the concept is the mileage tax. Both calculating the tax and collecting it challenge us with problems of privacy, accuracy, cost and enforceability.

Because of the privacy issue an onboard system of measuring mileage, by state, and computing the amount of tax due to each state requires combining GPS technology with an small computer. Sending the collected information to tax collecting facilities requires including a low power transmitter. Mass produced these devices will not cost a prohibitive amount – probably well under $100.

By keeping the data on the vehicle until the tax is paid, and erasing it at that time, eliminates the worry of many people that a large state or federal database of mileage and location information would be subject to many prying eyes.

At specific tax collection facilities the data gathering and computing device transmits the data so, one way or another, the tax can be collected. Stations could be specific to tax collection, or service stations, or even grocery or convenience stores. If the vehicle does not use any of the collection facilities the authority issuing the registration for the vehicle can collect the tax. If no taxes are due the taxing authority will have the information and no tax would be added to the registration fee.

Obviously, cost of the various devices needs thorough study, measuring one system against another. In addition, the concept requires research to determine the tax rates used for the various states. Other components of the three part tax structure, presented in an earlier post, also need research.

Implementation of the concept will take several years. Eventually the taxing concept will replace the current gasoline/diesel fuel tax.

Your comments are always appreciated.

Upheaval in the Auto Industry

My daughter called me this morning upset because President Obama’s administration, and the President himself, had forced Rick Waggoner to resign as Chairman of General Motors, and is forcing Chrysler to combine in some way with Fiat, as conditions of funding the bailout requests of the two companies.

It is easy to see her point – how can the federal government dare make decisions normally left to Boards of Directors. Do they even have the right?

It is also easy to see the other side of the question – the side I come down on.

Banks with loans to failing companies often refuse additional loans, or cancel existing ones, until the company shows evidence it can repay them. Often banks will tell Directors to hire a turnaround team to fix the problems. With the prospect of failure in sight, most companies do as the banks request. This seems exactly the situation with GM and Chrysler.

As I read in the papers, neither GM or Chrysler has developed a suitable business plan for fixing their troubles.

Now is the time.

Now they are saying to either make the changes or accept the consequences. The administration has ignited a fire under the managements both companies.

The Gasoline Tax Dilemma

A look into the future shows an alarming dilemma in the way our country funds its highway construction and maintenance costs.

The largest funding source for highways is the gasoline and diesel fuel tax. The essence of the future problem is that the fuel tax, over the next twenty years, will decline as vehicles use less gasoline and diesel because of better fuel efficiency and/or the switch to hybrid or electric power sources. As we green our planet, we, in fact, will run out of adequate highway funds.

Starting some six weeks ago, a plan has bubbled around in my head and finally has enough body to it to post it here. Concept only is described. Omitted are the details – I am seeking funding to fully research the concept and its many ramifications and do not want to divulge too many details. And there are many!

The tax plan has three parts:

· A tax that will encourage resource conservation

· A tax that will discourage the use of petroleum based fuels

· A tax that will discourage miles driven

Regarding the last of the three, there has been much written about measuring mileage driven using GPS technology. This rightly causes invasion of privacy concerns, because time and location data from the GPS could be inappropriately used.

In the Schaul concept (clever, creative name) is a system for measuring mileage and collecting a mileage-based tax that does not depend on GPS technology, does not invade privacy, and seems reasonably easy to collect. This may be the greatest value of the concept.

The various parts of the three tax bases adjust easily to replace the amount of fuel tax now collected, and as the fuel tax declines, can continually adjust to keep revenue at a level necessary to maintain our highways and bridges.

There are competing realities here. First, no one wants to pay taxes or add complication to the way they are calculated and collected. Second, the highway infrastructure will gradually wear out if we do not continue to improve it as population grows, and maintain it as wear and tear takes its toll. Making the taxes realistic and based on measurable factors, with easy collection systems seems a good way to proceed.

Your comments are always welcome.

Six Word Stories

Ernest Hemingway, when asked to write a six-word story, responded.

“For sale: baby shoes, never worn.”

Obviously not a Hemingway, here are a few of my six-word stories.

For business.

• Bad economy. Chest pain. Perhaps curable.

Or lighter ones:

• Beautiful pitch, perfect swing, one hero.

• Across the room, her smile spoke.

Or a sad one.

• Valentine’s Day. Where is she now?

Paradigm Shifts Coming

In an earlier post, December 28, 2008, I wrote about shifting paradigms. Now the signs are growing stronger – the recession we now experience will permanently change our lives. Paradigms will shift right before our eyes.

Petroleum prices will again rise. As the economies of the industrialized nations regain strength the demand for energy will rise and with it the price of all forms of energy. The days of electric powered vehicles are coming fast. Battery powered vehicles, or battery powered vehicles with on-board generators, will grow in number. Even gas or diesel powered vehicles will be smaller, more fuel efficient, and meeting tighter emission standards (in spite of objections by GM.)

Renewable energy is gaining. Chipping away at the market, it will add momentum as a result of the government’s stimulus spending.

Renewable energy comes many sources: biomass as fuel for burning and converting into e e thanol; geothermal sources not only hot water but water at 50° to 60° not far below ground level; the sun through solar thermal uses and photovoltaic electricity; the wind; the tides and ocean currents; untapped flowing rivers providing hydroelectric energy; and possibly others. By 2020 the share of all electricity generated from renewable sources will be slightly over 10%. (http://www.eia.doe.gov/oiaf/forecasting.html)

In time there will be more electricity generated from nuclear energy. Not in a short time though. By 2020 nuclear power generation will rise from about 2% now to almost 10%. (http://www.eia.doe.gov/oiaf/forecasting.html

We will see more and more energy neutral housing. Voluntarily initially, and later forced by building codes. Per capita energy consumption for housing will decline appreciably, over the next twenty and more years. Technologies already in use in Europe will become accepted in our country.

Banks will become banks to accept deposits and lend money, and not to be places to make investments. Investment banks will just what the words say – places to make investments. Both will be more rigorously regulated (until the next lull.)

Athletes earn as much as owners are willing to pay them. If they have a bad year, though, their compensation normally goes down. Why not apply the same rules to the executives of our corporations? If you are a stockholder of a company, will you push for realistic executive compensation, and accountability for performance? If so, inflated salaries will slowly disappear, especially after stockholders sue enough Boards of Directors for failing in their fiduciary role. Instead of bonuses, poor performance will lead to reduced compensation. Is this an unreal dream? I do not think so.

(Charlie’s note: I wrote this blog posting early Tuesday morning. As usual, it was in the editing process until this morning, Wednesday. I was surprised to read, a day after I wrote the above, that President Obama has suggested limiting salaries for executives of companies accepting bailout money.)

The paradigm for health care in the US will change, in fits and starts. Our system badly needs revising. Costs are outrageous compared to those of other countries, including those that provide even better care than do we. Drug prices are too high. Why does the government not negotiate prices with the pharmaceutical companies? That will change.

The psychological effects of the recession will last for many years. Financial caution will be the watchword. Just as is the financial caution of elders who suffered through the Great Depression. This is not limited to only those who incomes have suffered in the recession – almost all. There will be a slow market for luxury items, from yachts to houses and down the line. This caution is not limited to consumers. Businesses of all sizes will spend less freely and expand more slowly.

Air travel, in the midst of rapid change, will be even more difficult than it is now. There will be no relaxation of security; it will become even tighter. Fares will remain high. There will be fewer flights and almost all will be full.

Because of high fuel costs, people will travel less, and when they do, for shorter distances. As a result, families will tend not to scatter as far as they do today; conversely, family units will become more compact. Additionally, the young will assume more responsibility for their elders. I believe there will be a strengthening of family values.

"The only thing we have to fear...."

“This is pre-eminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great nation will endure as it has endured, will revive and will prosper.”

“So first of all let me assert my firm belief that the only thing we have to fear. . .is fear itself. . . nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”

Taken from President Franklin Roosevelt’s first inaugural speech, in 1933, these words might well be spoken by Barack Obama next Tuesday, January 20^th, Inauguration Day, 2009.

President Obama will then face the worst economic conditions since those faced by President Roosevelt.

He must bring to his presidency a clear vision of what he wants done with bailout and stimulus, and then have the leadership strength to accomplish it.

For the benefit of our country, and politics aside, best of luck to him.

No Time to Waste

President-elect Obama has asked Congress for quick passage of an economic stimulus package. Some in Congress are grumbling, and some seem to want to analyze and modify the basic requests in time-consuming processes. Obama wants Congress to move faster than that, and with good reason.

Much of the proposed stimulus money aims at projects already on the books, for the most part designed and ready to go. Implementing those projects will very quickly add jobs to the economy.

With unemployment claims over 500,000 a month, and two month delay in approving the stimulus proposals will add a million people to the unemployed list. The unemployment rate, just reported at 7.2% will climb another point. Even with the stimulus funds moving toward projects, unemployment will continue to rise at least two months. That could be another million workers out of work, and the unemployment rate over 9%.

So, Congress, hear the message.

There is no time to waste.

Forget about partisan politics. Forget about your egos. Our economy is crumbling. The longer it takes to get the stimulus package approved, the more it will crumble.

Get with the program.

Shifting Paradigms

Paradigms are a set of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the community that shares them. (From a definition found at www.thefreedictionary.com/paradigm.)

When a paradigm in an industry changes, the business “winners” after the change most often are not the old-line companies who were the winners before the change. They are fresh new entities with new ideas for satisfying the market. The winners have no entrenched personal empires, no buildings and factories to amortize, no rigid ways of doing business – all of which prevent the old companies from changing.

What the new companies do have is a large dose of outside-the-box thinking, a willingness to take risks, the energy to get things done quickly, few layers of management….

Old, classic examples of paradigm changes include the railroaders who hauled passengers but thought of themselves as railroaders, and who were overwhelmed by the airlines who entered the business of hauling passengers in airplanes instead of trains. How would our landscape look now if the railroads, instead of scoffing at the airlines, had become the movers of passengers by airplane as well as trains?

Consider the Swiss, whose paradigm of a watch included a spring, escapement, gears, hands and a dial face. Enter the Japanese, whose paradigm for a watch includes a battery, a chip and a digital readout. The watch making business all but disappeared from Switzerland in its rush to Japan. The Swiss, who were offered the digital watch designs but passed on them, had a capital and emotional attachment to the old paradigm. Later, of course, the Swiss adopted many of the features of electronic timekeeping and do continue to make many fine watches. The volume market, though, theirs for many years, is now owned by companies in the Far East.

Almost every day paradigm shifts are taking place.

Consider the impact of NetFlix, with a new paradigm for distributing movies for the home market, had on the video store of the old paradigm. How many video stores remain, and how big a share does NetFlix have of the market? In watching the postal worker put mail in the boxes near my home, and seeing NetFlix envelopes in almost half the boxes, the question is answered.

Another recent shift is the advent of Craig’s List, the Internet classified advertising giant. From a small beginning in San Francisco, Craig’s List now has free nationwide classified advertising. It is very effective. Newspaper owners are crying about the demise of their classified advertising revenue, lost to Craig’s free list. Why did the newspapers not start the free lists? Did their thinking not go out of the box? What would be the situation if they had been the ones to start the free list, and receive advertising revenue for display ads on their pages? Would they be in such dire straights as they are now?

Now we see several paradigm shifts in the auto industry. Fuel prices will soon rise again, creating greater and greater demand for fuel efficient vehicles. Electric cars, and hybrid-electric cars will eventually dominate. Lithium ion batteries will replace older technology. Are the old-line battery companies leading the charge to lithium ion? It does not seem so – the bulk of the companies manufacturing them are in the Far East.

There will be many paradigm shifts resulting from the deep economic recession. The next posts to this blog will explore ideas about them.

Sign of the Times

As sometimes I do, today I looked in the Daily Camera, the Boulder (Colorado) daily newspaper, at the “Hot Jobs” listings. It was startling. As little as two months ago the number of jobs listed for Boulder and surrounding towns was over 500. Today it was just slightly over 300.

That is a 40% reduction of job availability in slightly over two months. Probably the end of season has some effect on the numbers, but not 40%.

The shortage of jobs is a grim reminder of the depth of the recession. It portends a long and slow recovery of consumer spending, the primary driver of our economy, and thus a long and slow recovery in the economy.

Bailout or Failure?

It is Wednesday evening and so far, there is no bailout program for the auto industry. Although a bailout is not the greatest idea, compared to certain other options, it is by far the lesser of two evils when considering the consequences of the failure of at least two of the three American auto makers.

Without an immediate bailout, GM and Chrysler will no doubt file for bankruptcy in the next sixty days. Executives of the companies have said bankruptcy would be q disaster because customers would not buy their cars. That does not make complete sense, though. If the manufacturers maintained their warranty programs throughout bankruptcy, and dealer service departments continued to operate, it seems people would buy the vehicles. The bigger problem of revenue generation is the lack of the right vehicles for the market, not a bankruptcy.

As earlier written on this blog, it still seems that bankruptcy of GM, with post petition financing guaranteed by the government; a line of credit for Ford guaranteed by the government; and the breakup of Chrysler makes the most sense.

If in bankruptcy, GM can quickly deal with the problems of high labor costs, high legacy costs, too many dealers and debt overload. They can shed models and factories and dealers, and renegotiate their debt, and in two years exit bankruptcy as a smoothly operating company with the beginning of a competitive model lineup. Many thousand dealers will be out of business, with great dislocation to customers and employees – unfortunately that is the consequence of the Big 3’s poor management through the years.

Although Ford is stronger than GM, they also may need to go through a Chapter 11 proceeding in order to achieve all their goals in the time available. Union reaction will have great importance in determining the issue.

The next few days will decide the fate of the companies, their employees, their customers and the many other stakeholders. Too bad I will not be the “Car Czar.”

GM and Bankruptcy

Executives of General Motors Corporation are saying GM cannot survive a bankruptcy, and needs government money to continue operation.

The second part of their statement is certainly true. In the latest report, GM is asking for $4 billion to keep operating through December and another $4 billion for January. With more to come.

The first part of the statement, about not surviving a bankruptcy, seems wrong. There are many, many cases of companies going into bankruptcy, emerging and regaining successful operations. Two come to mind – the Dana Corporation, and automotive and truck parts and accessories manufacturer; and Harnischfeger Corporation, a mining and heavy equipment manufacturer. Both now are successful, generally thriving companies.

Think about the airlines – most have been, are in, or are going into bankruptcy. People still fly on them. Usually there is an interruption for a few days, and then service is as normal as airline service is.

Then there are the the retailers. Kmart and Winn Dixie stores have been through bankruptcy, along with many others. Each is better off after the event than before. Customers continue to do business with them.

GM executives say people will not buy GM vehicles if the company is in bankruptcy. What is new about people not buying GM cars? People are not buying GM cars now because they are the wrong ones, and of lower than desirable quality.

Bankruptcy will give GM the tools to deal with the killer problems they face as they go forward. It will allow reworking legacy costs, labor costs and an unwieldy dealer organization. Yes, enormous problems are involved in restructuring those items. They can be overcome.

Car buyers would no doubt rather buy cars from a revitalized, restructured GM that from the one that exists now, propped up by massive infusions of our (taxpayers’) money.

Let the government infuse the money into GM after bankruptcy. Everyone except some GM executives will get more bang for the buck.

Bailout Anyone? Get in Line

Whoee!

The homebuilders want a bailout, with the government offering to guarantee low interest mortgages and a $22,000 tax reduction incentive for homebuyers. Outrageous.

Next ought to be a bailout for underemployed management consultants.

It makes just as much sense.

Who is on your "top ten" list of bailout targets.

Practical Suggestions for the Auto Industry

A monolith is a geological feature, such as a mountain, consisting of a single massive stone or rock

In some respects, the US auto industry is monolithic. The three major US vehicle manufactures, GM, Ford and Chrysler all face: a difficult credit crunch – both from the lack of credit available to its customers and to the companies; high fuel costs that have almost destroyed the market for expensive, profitable large vehicles; and the impact of the economic recession, low consumer confidence, and low consumer spending. Additionally, the companies have very similar business models.

However, that is where the monolith ends. When considering rescue (or bailout) of the industry –each company’s situation is quite different.

GM, for example, has an approximately 22% share of the US market, is using cash at a very rapid rate; is almost bankrupt; has an impossibly limited lineup of vehicles consumers want; has high labor costs and high legacy costs. Already obtained autoworkers union concessions will allow savings in long term, but the kproblem is not long term, it is now. GM quality is low compared to most imported vehicles and to Ford. From an outside perspective, Rick Wagoner, its CEO, seems almost detached from the reality of current conditions.

Ford, on the other hand, with market share of approximately 16%, has reported cash reserves to last it for six months to a year. although Ford may face bankruptcy, its situation is not as dire as that of GM. Ford has introduced small, fuel efficient, cars (Focus and Fiesta) that consumers seem to like. Ford quality is almost to the level of imports. Ford CEO Alan Mulally joined the company from a career outside the automotive industry, and appears willing to, and is changing, the business model. Were it not for the credit crunch and the recession, Ford could have reached profitability in the near future.

Chrysler (10% to 11% market share) is the anomaly in the industry. Ownership of the corporation is private, unlike public companies Ford and GM. Available analyses indicate Chrysler has no cutting-edge designs or potential big sellers in its Chrysler, Dodge or Jeep brands. There will be no company rescue from vehicle sales – what models they will sell in the future remains a mystery. Chrysler quality is low. The situation at Chrysler is grim.

So, what are the solutions?

Bankruptcy with management change seems the only reasonable solution for GM. Bankruptcy will allow relief from high labor cost, legacy costs and other contractual situations (dealerships.) The government can provide post-petition financing, allowing time for the reorganization. The cost to the government will be far lower than if it provided funds to rescue GM with its present management and business model. As to the problem of the lack of small, fuel-efficient cars, perhaps GM can buy basic models from other manufactures, create its own trim packages, and have something to sell during the time it will take to bring GM small cars onto the market. Some ideas from the two previous postings on this blog could help too.

For Ford, the government’s rescue makes sense. The company is poised for profitability. If credit becomes more available, Ford will sell vehicles. They will continue to revise their business model for greater profitability. All the government will need to do is keep Ford supported for the interim. Loans or loan guarantees seem best.

Chrysler is a lost cause. Reducing the size of the company to a much smaller one, with limited vehicle models and market share, could work. Breaking up the company by selling brands and the factories to build them is another thought. The private owners of Chrysler took an enormous risk when the bought the company. Had the economy not sagged (collapsed) they might have won the bet. Now it looks like they lost. Government intervention with Chrysler makes no sense.

Let me know what you think by sending your comments.

Note: The last two articles meant to elicit comments from readers, and succeeded in doing so. Some comments were serious, some in jest. For example, one email asked, “Do you really want your auto industry run by the same people who run Medicare and the Post Office?” Another said, “First priority will be to entice Steve Jobs to take on GM. Would you please ask him to reserve one of the first iCars for me?”

What do you think?

HAVE A GREAT THANKSGIVING!