The End of General Motors?

The stock price of General Motors dropped almost 23% today, to a 60-year low of $3.36. The list of reasons for the company’s horrendous recent stock performance is expansive, but today’s sell-off was primarily triggered by two analyst’s new price targets for the stock price. Barclays believes it will hit $1.00, while Deutsche Bank has set a target of $0. Zero. Nothing. Nada.

It’s hard for me to conceive of this, but once-mighty General Motors may actually soon be worth nothing at all. In fact, if current trends continue, I feel this is unavoidable. A government bail-out could buy some time, but in my most optimistic thought exercise scenarios I don’t see a way out of this.

What does it mean for a stock to be worth zero? Well, there are a couple ways to look at it. Generally, a stock price reflects an expectation of future earnings. So, a stock price of $0 means that the expectation is that the company will never again make a profit. Ever. If you believed that the company would eventually be profitable, the stock should still have some value—a low value, to be sure, but not zero.

There’s another way to look at is this. Earnings (profitability) is a function of both revenue and expenses. Right now, GM can’t increase revenue, because nobody wants to buy cars (anyone’s cars), and even if they did, securing financing is difficult right now. So, all GM can do is control the expense side of the equation, by doing things such as reducing its workforce, idling factories, and selling under-performing assets like the Hummer brand.

But a stock price of zero reveals a deeper problem. It means that even if you sold off all of the company’s asset and then subtracted all of its liabilities (money it still owes), you’d have nothing left (or even still owe money). Put differently, if you sold off all of GM’s currently unsold vehicles and parts inventory, all of its facilities and the land they’re on, all of its manufacturing machinery, all of its computer systems, office furniture, staplers—literally everything—all the money you’d collect wouldn’t be enough to pay its current bills or other existing financial commitments. Complicating this severely is that it’s hard if not impossible to find buyers for any of GM’s assets, let alone at good prices. So even in a “fire sale” situation, investors would be left with nothing. Hence the $0 price target.

So GM is in the perfect storm. Sales are a standstill. Liabilities are climbing. It has assets, but can’t sell them. And the company will be out of cash in a few months. Unless you believe that a multi-billionaire (an oil sheik, perhaps) will sweep in, buy GM, and somehow turn it all around, I think Deutsche Bank’s estimate is fair.

I’ll talk more about the fate of the auto industry in future posts. But man, it’s depressing to think about.

Oil Oil Everywhere

Let’s take a test.

  1. What country produced more oil than any other nation in the world in 1996?
  2. What country produced more oil in 2006 than Iran, Mexico, Canada, Venezuela, the UAE, Kuwait, Nigeria, Iraq, and in fact more than ANY other nation except Saudi Arabia and Russia? In other words, what’s the third-largest oil producing nation on earth?
  3. What country’s annual oil consumption exceeds that of the next five largest oil consumers (China, Japan, Russia, Germany, and India) combined?

When you dig into oil industry statistics, it gets downright fascinating. My friend Grover Jackson found an amazing little webpage of statistics put together by Gibson Consulting (http://www.gravmag.com/oil.html), many of which are abstracted from a site run by the U.S. Government (http://www.eia.doe.gov).

I’m not trying to make a specific point by directing you to these sites, but amidst all the political bickering over energy policy these days, it’s good to be armed with some facts. I leave it to you, dear reader, to answer for yourself such questions as, “Do we really get most of our oil from countries that don’t like us very much?” and “Can’t we just drill our way to energy indepedence?”

By the way, if you answered “the United States” to all three questions above, give yourself a pat on the back. I told you it was fascinating.

Google, We Have a Failure

I’ve been reading about the new Google Android phone, a.k.a. the T-Mobile G1, with great interest all day today. I’ve been itchin’ to upgrade my Crackberry Pearl to an iPhone, but I first wanted to see how this new baby compared. There’s a lot to like about it. There’s also a lot I don’t like about it, not the least of which is that it’s ugly (hello, Amazon Kindle?) and has a chunky form factor.

But then I read that it doesn’t have a headphone jack.

Um, earth to Google, T-Mobile, and HTC (the manufacturer): that’s a fail.

One of the things I like about the Android is that it nicely integrates Amazon’s DRM-free MP3 download store, which I vastly prefer to iTunes. It also nicely integrates YouTube, which I confess I’ve been using with increasing frequency. Unfortunately, if you want to hear the audio from these or any other sources, you have three horrible options:

1. Listen through the phone’s speaker. That’s not even a realistic option, of course.

2. Connect a bulky $10-$20 external adapter between the USB port and your headphones. It might look as cool as and be as nice to have in your pocket as this:

3. Buy some sure-to-be-massively-overpriced headphones that connect directly to the USB port.

I look forward to v2.0, but for now I think I’m gonna get me an iPhone.

Let’s Not Blamestorm

I’m tired of business buzzwords. Both reading them and writing them.

Why is it that no matter what your product does – seriously, it could be a toaster – it’s got to be powerful, flexible, cutting-edge, scalable, robust, easy to use, easy to deploy, easy to manage, AND seamlessly integrates to something (your countertop space)? Oddly, all products are apparently equal because each one will claim to be best of breed (or best in class).

No matter what the truth is, every company is a market leader that somehow raises the bar for operational excellence. Huh?

Every company and/or every product must leverage something. Ignore the fact that leverage is a noun, not a verb. In marketing jargon, it’s a synonym for “uses.”

The most important thing is that every company leverage its core competencies. Translation: do what it’s good at. Brilliant.

The number one reason companies have a RIF (reduction in force, a.k.a. layoff) is because they had a strategic re-alignment. That’s just a stupid way to say that their priorities changed, and whatever you work on is no longer a priority. Sucks to be you. The good news is that you weren’t fired or “let go” — you were “involved” in a RIF.

If a company obtains or produces a product or service from within its national borders it’s called on-shoring. If it’s from a different company, it’s outsourcing. If it’s from the same company or one of its affiliates, it’s in-sourcing. Now, if it comes from another country, it’s off-shoring. But if it’s from a nearby country, it’s near-shoring. So if it’s from a nearby country but supplied by another company, it’s…yeah, whatever.

Employees aren’t “hired” – they’re brought onboard, in a “process” logically coined onboarding. When they leave, is that called offboarding? No, of course not.

Employees aren’t “assigned” things to do – they take ownership of the process. But if everyone owns it, who actually does it?

John, What Were You Thinking?

I’m going to try to resist the temptation – at least for now – to directly address what I think of Palin’s viability as a VP pick. I think McCain made a serious strategic error by choosing Palin. And I think that will cost him the presidency.

There are die-hard Republicans and die-hard Democrats, and those folks will always vote with their party. I mean, to be realistic, Evangelicals may not like everything about McCain, but it’s not like they’re going to vote for Obama or Ralph Nader. McCain doesn’t need additional votes from die-hard Republicans, and he’ll probably never sway a die-hard Democrat. So who does he need to impress?

Theoretically, there is a large group of “undecideds” out there who could go either way. Grab them and you win the election. But I believe the notion of “undecided voters” is a myth. I have never met someone who is truly undecided, despite what they might report to a pollster. There is always one issue, or a set of them, that is so important to each and every voter that he or she will lean right or lean left and, when it’s time to vote, barring some extraordinary event, they’re going to pick the candidate on that side. Sure, some will “stay home” on voting day, but they’d probably stay home no matter what.

I’m not saying that some people don’t struggle with their choice. Clearly, both McCain and Obama have some strong pluses and minuses, which can make the decision tricky for some. 2008 is not like 1980, when even die-hard Democrats had to meditate on the wisdom of voting for Carter over Reagan. But even then, the majority of them voted for Carter. Everyone leans left or right. The devil is just in the details.

The interesting dynamic of this election is that we have two candidates running who generally stick to their classical party platforms. As a result, the loyal party voters have an easy choice to make. If you’re “undecided” and, say, abortion is a critical sway issue for you, the candidates’ positions are clear and you’ll have no trouble picking your winner. The opportunity for a candidate in a close race like this one is to blur the lines between those choices.

Obama understands this. His choice of Biden was brilliant, because Obama knew that one of the major issues “undecideds” consistenly dinged him on was his lack of overall experience and his lack of foreign affairs experience, specifically. Fine. Add Biden to his ticket, and problem solved. Now those undecideds have fewer reasons to object to Obama and he surely gained some votes with that choice. That’s good strategy.

But McCain screwed up. Take a moment to make a mental list of all the things a voter on the fence might object to about McCain. Too conservative? Too religious? Too boring? Pro life? Pro NRA? Pro big energy? These are valid reasons not to vote for someone. So, strategically, what he should have done is pick someone left of him on at least some of these issues – someone like Lieberman, if not him, specifically. Yeah, that would annoy some (most? all?) of those die-hard Republicans, but they would still vote for McCain despite it. It’s better to have people vote for you with some misgivings than to lose the election because you didn’t get enough votes.

But McCain didn’t choose someone a little more moderate or balanced in any way. In Palin, he chose someone who is in my eyes MORE to the right than he is. Huh? I completely understand why this choice delighted loyal Republicans. But McCain completely missed the point that the goal of a presidential campaign is to win the election. It’s not about “uniting the party” or “sticking to principles,” John. It’s about becoming the next President. My small handful of left-leaning but not Democrat-loyal friends who were willing to consider McCain if he chose a moderate VP are now running into the arms of the Obama camp. Bad strategy, John.

And before you say it, let me address it. Yes, picking a woman could theoretically gain you some votes from undecided women – but only if those undecideds were right-leaning in the first place. Does anyone really think that women who supported Clinton would support McCain, regardless of who he chose as VP? Clinton was the most liberal candidate in the field, and McCain is extremely conservative. If you liked one strongly, you wouldn’t like the other. Give women some credit; they’re not going to support someone with positions opposite to those they hold just to make a statement about female empowerment.

The bottom line is that I think McCain’s strategy will backfire in the end. He’ll probably gain some votes with his pick, but I predict he’ll lose more than he gained. Unfortunately, we’ll never know for sure.

A Hero in Healthcare?

Health insurance carriers get demonized a lot, and for good reason: they’re often demonic. But I’m here to tell you, I’m impressed by a change Humana has made in how they decide whether to grant an individual a health insurance policy. First, some background.

We’ve all heard Democrats, Republicans, and just about everyone else complain about the lack of affordable health insurance. Without a doubt, that is indeed an enormous problem. But for years I’ve thought the deeper problem wasn’t so much that health insurance isn’t affordable, but rather that it wasn’t available, at any price.

In 2003, I tried to get health insurance as a self-employed individual. Most insurance carriers wouldn’t even consider covering me. Why? I had asthma, which meant I had to see a doctor once in a while and needed expensive inhalers. I thought this was silly, since my asthma was very well controlled and the costs of treatment really weren’t that high. Moreover, why wouldn’t an insurance company just put an exclusionary rider on my policy so they wouldn’t have to pay for my asthma treatment? Or – even better – why not cover my asthma but jack up my premiums to compensate for the increased costs of my coverage? Nope, those options would make too much sense. Instead, they just wouldn’t cover me. At any price.

Think about that. Is there anything else nobody will insure? If you have the worst driving record in the world, you can get auto coverage. Expensive, yes, but you can get coverage. You can get insurance on experimental aircraft that have a greater than 51% chance of exploding. You can insure a house in Los Angeles built squarely on the San Andreas Fault. I’ll bet someone will even insure a house in New Orleans’ Ninth Ward against flood damage. But insurance to cover a common, easily and effectively treatable medical condition? Nope. Even for $10,000 per month? Nope. $1 million a year? Nope. It seemed like something went terribly wrong with the free market system.

In 2003, the only insurance provider that would cover me was Humana. The coverage they offered me was not particularly expensive (around $135/month) and was quite good. It was a PPO that covered 80% of most in-network expenses, subject to a relatively low annual deductible, and had low co-pays for office visits and prescription drugs. The catch? A full rider for asthma, allergies, and spinal implants (which I had installed a year prior). Of course, asthma and allergies were, by far, the most common thing I ever saw a doctor for, but under Humana’s offer those treatment costs were on me. My spine probably wouldn’t need any more care, but if it did, the costs could be overwhelming. As fate had it, I did end up needing an MRI of my spine, and that set me back $600 out of pocket. I appreciated that Humana covered me at all, but in the year I had that coverage, I never needed it. My only medical expenses were asthma, allergy and spine related, and I paid for those dearly.

Flash forward to 2008. The COBRA coverage I had from my previous employer was soon to expire and,  self-employed again, I went back to Humana to see if they’d cover me. I fully expected them to play the rider game once more, but they didn’t. Instead, they surprised me and offered me full coverage with no riders, but with a 42% hike in my premium. Hallelujah! My new premium of $250 per month may sound high, but I consider myself lucky. You do get what you pay for, and to be fair this is excellent coverage, with no exclusions.

Before you conclude that Humana is the bomb, I should point out that Humana has a long list of conditions that will automatically deny you of coverage. If you’ve ever had a condition on that list, regardless of your health status today, you won’t get coverage. Period. No exceptions. In addition to this being inhumane, this is just bad business policy. If there is a price at which it makes sense to cover asthma treatment, there should also be a price — even if astronomical — at which it makes sense to cover cancer, AIDS, or any other condition on their list. If an individual doesn’t want to or can’t pay that, fine, put a rider on their policy for that condition but still offer to cover them for everything else. Why isn’t it that simple?

I’ll write more about my suggested fixes to the healthcare system in future posts. There’s a lot to fix. And we must fix it. But for now, the fact that Humana will insure people like me gives me a glimmer of hope for our healthcare system and some supporting evidence that, in the end, free market principles prevail.

It’s the Economy, Stupid

Obama likes to continuously remind us of McCain’s recent claim that “the fundamentals of the American economy are very strong.” You see, Obama supporters argue, McCain is clearly out of touch with mainstream America — if not reality — if he thinks the economy is in good shape. Obama instead advocates exactly the opposite position: the U.S. economy is in shambles.

So who’s right, Obama or McCain? It all depends on one’s point of view.

At the macroeconomic level, McCain is absolutely right. McCain said that the fundamentals of the economy are strong –- not every aspect of it. Fundamentals like what? Well, the economy grew at a very respectable 3.3 percent last quarter. Exports are booming. The stock market, though highly turbulent these days, is mostly up and, critically, has by no means “crashed.” Unemployment, though it ticked up recently, is still impressively low, especially compared to other western nations. Inflation? Interest rates? Yeah, those ticked up a bit, too, but again, not to unmanageable levels. By the technical definition of the term, no, folks, we are not in a recession. And the current economic climate is nothing like the Great Depression, the oil shock days of the 1970s, or the ludicrous economic climate of the late 1970s and early 1980s. It’s not the go-go economic days of the 1990s, but it’s not terribly far from it.

The notable exception to all of this is of course the credit crisis. Sure, it’s harder to get credit these days. That’s annoying to first-time home buyers, car buyers, and businesses looking to expand. But I see a silver lining to this: it’s about time that financial institutions got pickier about to whom they lend money. It was precisely because for years they were willing to dole out money to unqualified people that the financial markets crashed in the first place. This hurts in the short-run, but your kids will thank you someday.

So how is Obama right? Because Joe Voter doesn’t live at a macroeconomic level. Down at the micro level, a lot of people are feeling some very real economic pain. Yes, gas prices are higher than ever. Yes, healthcare costs continue to spiral upward. Yes, the price of certain foods has gone up. If you have an adjustable rate mortgage that recently adjusted, you’re not a happy camper. And if you looked at the price of imported French cheese lately, you may be thinking about switching to Wisconsin Colby. These are the kinds of economic mini-shocks that “the people” see every day. The average Joe or Jane doesn’t care, if they even know, about those “fundamentals” McCain referred to.

And yet, despite these micro-level problems, there’s always a flip side. For example, high gas prices (that’s bad) are steering people looking for a new vehicle to think small. But if you’re in, say, the construction trade, you probably need a pickup truck. Lucky for you, right now you can buy a brand new one for thousands off sticker price and get lower-than-average finance rates — and that’s good. Another obvious example: it’s a bad time to be a house seller, but it’s a great time to be a house buyer.

My point: there’s no such thing as a universally good or bad economy. (Okay, there are exceptions: Zimbabwe’s economy is really bad no matter how you look at it.) What’s good for one person may be bad for the next, and there is often a disconnect between micro and macro economic conditions.

So Obama, quit your whining about McCain’s comment. The economy isn’t that bad, and the Republicans aren’t entirely to blame for the bad news that does exist. Even so, McCain, you and your fellow Republicans need to demonstrate some enhanced appreciation of the fact that a lot of Americans are feeling economic pain. You might want to have the count of how many houses you own at the ready, for instance.