A Ross way of thinking

September 16, 2008
By: Tim Heston

What a troubled week. Automotive industry execs spent it in front of Congress saying they need a loan. And of course there are those big weekend stories, with Lehman Brothers declaring bankruptcy and Bank of America acquiring brokerage giant Merrill Lynch.

Hearing and reading all the pundits pine over the troubled economy, one voice struck a chord with me.

I"d rather have a mediocre idea that was brilliantly executed than a brilliant idea that was poorly executed.

That was part of a National Public Radio interview with Wilbur Ross, the billionaire investor who bought up steel giants, packaged them into International Steel Group, turned the business around, and sold it to Mittal (now ArcelorMittal).

Ross made his comment when discussing what he feels is hurting the U.S. economy. American companies aren"t short of good ideas; they just haven't always been the best at executing them. He extends this idea to the importance of manufacturing, a sector driven by productivity and execution. As he told NPR, The fellow standing behind a machine for 10 years knows it better than the people who built it.

Not surprisingly, Ross doesn"t hold a rosy view of the new, service-based economy either. As he explained, I don"t think you can have our historic standard of living if what the economy consists of is flipping hamburgers, swapping pieces of paper on the stock market, and suing each other.

Ross is a complicated character. He"s been called a turnaround king by some, vulture investor by others. According to BusinessWeek, he"s spoken out in favor of tariffs to promote fair trade practices, and he"s saved U.S. manufacturing jobs. But he"s also sent some labor to low-labor-cost countries.

He"s plunged into other industries under duress, including the auto parts sector; textiles; coal; the airline industry, and even the troubled mortgage sector, last year purchasing the mortgage servicing arm of American Home Mortgage as the company was sliding into bankruptcy.

Wait a minute. Why, of all places, would anyone invest in the mortgage business now?

The industry isn"t going away, Ross told NPR. People still need homes. [The loans] were just poorly implemented.

After hearing that long view, I breathed easy. Sure, the financial services sector won"t likely be the same after recent events. And sure, the Fed just reported a 1.1 percent drop in industrial output last month, led by an 11.9 percent plunge in the auto sector. We"re amid stormy economic waters, but the storm will pass. People still need cars and places to live, and somebody"s got to make these products and sell them.

One of the problems with industries that have been in long-term declines is that very often the management in those industries develops a kind of loser technology, Ross told NPR. And when you ask them what"s wrong, they"ll point to extraneous forces. It will be the fault of the unions. It will be the fault of China, or the fault of the government. So rather than dealing with things that may be in their own control, they sit around and sulk about things that are fundamentally out of their control.

Consider the troubled General Motors, a company that turns 100 years old today. Its health care burden will be reduced in 2010 as retiree health expenses move to a United Auto Workers-administered trust. But problems remain.

Motor Trend Editor-in-Chief Angus MacKenzie explained that product-wise, GM's in a far better place than it has been in decades, with more good stuff to come. The problem comes with numbers: Through July, GM sold more than 1.8 million through eight nameplates; Toyota sold 1.4 million through just three (Toyota, Scion, and Lexus).

According to MacKenzie, The obvious question is: Should GM really try and market eight brands in North America? The obvious answer is ... no.

He went on to say that GM is burdened by an incredibly inefficient dealer network. Let's just look at one division--Chevrolet. At last count there were some 3,900 Chevy dealers across the country. Toyota has just over 1,200. In the seven months to the end of July, GM sold 1,095,618 Chevys in the U.S., compared with Toyota's 1,200,836 Toyota branded vehicles. Do the math. It simply doesn't make economic sense. GM needs to lose more than 2,000 Chevy dealers.

I believe Ross would boil it down like this: Selling cars in the U.S. is still a good idea; it"s just been executed badly.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
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Elgin, IL 60123
Phone: 815-381-1314