star-telegram.com: Ed Wallace

Ah Still Love Fort Worth

Fri, 09 May 2008 17:23 CDT

Special to the Star-Telegram

I spent my summers in LA in the mid-sixties, so let me dispel at least one myth about some recent history: All the time I was there, I never once saw a hippie or even anyone posing as one. Likewise, I’ve read with interest the stories recently about the world’s rice famine and how people living in poverty in "third world" countries can no longer afford rice. That has brought back memories of living in the Philippines in the early sixties: Our home there was only 50 feet away from a street of one-room, handmade Nipa huts. Their male residents went to work at daybreak and came home about the time the bats starting flying, earning for that day’s efforts barely enough rice to feed their families.

Well, a month from now it will have been 40 years since my family moved to Fort Worth. It really was like moving to a "whole other country."

Up to that point we’d lived in Burbank, Merced, Fairbanks, Dover, Pass Christian, the Philippines and Altus (yes, Oklahoma), and most summers we’d spent in Burbank. I’d spend my days watching shows being filmed at NBC or hanging out with friends; one friend’s father worked at Warner Brothers and was the cinematographer on the movie, Giant, while another appeared as one of Debbie Reynolds’ grandchildren in How the West Was Won. OK, so Fort Worth didn’t have that kind of flash, but it was all make-believe in LA anyhow.

No, being in Fort Worth wasn’t the same as being in California. Yet what might surprise you is that our neighbors in Burbank were just as cautiously conservative as the folks in Fort Worth; there just weren’t as many outwardly friendly Californians as Texans.

If there was one truly great decision the parents made, it was to move to Fort Worth and call it home. I’ve discovered that, in uncertain economic times, this seems to be one region that doesn’t panic, where life and business seem to move on at a steady and reassuring pace. Maybe it’s the people.

Financial Lightning-Proof?

In spite of some of the high-profile economic issues I’ve written about in this Fort Worth Sunday paper column, or political issues such as privatizing our highways, the fact is that most don’t apply to our city. The bad economic hits seem to strike elsewhere. For example, when the Ford Motor Company released its sales report for April, showing another serious downturn in business nationally that was even worse for their truck sales, I was stunned to find that the Ford dealers in Tarrant County sold around 80 vehicles more than they had in April of 2007. Truck sales were down by fewer than 200 units, but sales of Ford Super Duty trucks here were up from last year.

Classic Chevrolet is still No.1 nationally, while Mortiz Kia was America’s No.3 new Kia seller for April, falling slightly from the No.1 position those folks earned nationally in March. Sam Pack’s Five Star Ford took the No.3 spot nationwide – and, if they had delivered just eight more vehicles, could have claimed second place with Ford for April; 22 more Ford sales and Sam Pack would have come in at No.1. The point is that if you read the national news, then car sales do look scary for the domestic manufacturers – but that’s just not the case for so many dealers in Tarrant County.

Stronger than Rent

There is a huge and fundamental difference between car buyers in Houston or Dallas and those in Fort Worth. I personally learned that lesson the hard way in 1979.

Almost 35 years ago – a month or so before the Arab Oil Embargo of 1973 hit – I started selling cars in Houston. For the first three weeks after that event, you could have gone quail hunting on the showroom floor at Sam White Oldsmobile and never worried about hitting a customer with shotgun pellets. Well, the media told us night after night about the high price of gasoline, showing film of people waiting in line to fill up their cars with that high-priced gas. Yet suddenly Houstonians were back in the showroom, buying automobiles like gas was still 29 cents a gallon. In 1974, with the nation mired in the worst recession since World War II, Sam White sold 5,200 Oldsmobiles — and Bill McDavid Oldsmobile in Southeast Houston outsold us.

By 1975, though, the Houston market was cooling fast, and I read in Time magazine that only two cities in all of America were already recovering economically: Dallas and Wichita, Kansas. It was that Time article that brought me back to the Metroplex, and that’s when I realized that no one in Houston really knew how to sell cars.

The distance between Oldsmobile stores in Houston was 22 miles or more; if you gave someone a reasonably fair price, they weren’t going to drive all over town trying to beat your deal by $25 – even back then Houston traffic wasn’t worth it. But Dallas was infinitely more competitive. Dealerships were often only eight or 10 miles apart, and back then the freeway system was wide open any time of day. People might purchase a car, sign the contract, leave a deposit and finance it with their credit union, and then call back two days later to say they’d bought elsewhere. Of course, only a small minority of Dallas buyers did that, but it had been almost an unknown situation in Houston’s car market.

Ultimately, in Houston one learned how to demonstrate cars properly, because that was always the key job description (and should be everywhere). In Dallas, on the other hand, if you were selling cars you had to really learn every aspect of the business, because otherwise you’d miss 90 percent of possible sales.

Then in 1979 I came home to Fort Worth.

If They Said It They Meant It

In my first month here I was selling cars like I was still in Dallas. Only … in Fort Worth, if someone shook your hand and said, "We’ve got a deal," it was a done deal – period, unlike in Dallas. If someone in Fort Worth made an offer on a car it was legitimate; you didn’t request a deposit check to guarantee that he’d keep his word. Not realizing that, I accidentally insulted a lot of people my first month here – I’d never had so many people jump up and leave a dealership so mad, so fast. The second month, I became more trusting.

I was to discover that this market was exceptional, and not just for that reason. If you did your job well your customers would buy from you over and over again; I could count on two hands the repeat owners I’d had in my four years working in Dallas. I’ve often been asked why there’s a difference between the car buyers in Fort Worth and other large markets, whether it be Houston or Dallas. I always thought it might be that so many people in Fort Worth knew each other, and they knew if it got out their word wasn’t any good, it could hurt their reputation. So huge were Houston and Dallas, no one the buyer knew might ever find out he’d welshed.

Aside from that, though, in Fort Worth people seemed to take just a tad longer to decide to buy a new car than they do in Dallas. They have pretty much made up their mind on the car before they negotiate, and if they like you as a person, there is almost always a way to make the deal work for everybody.

The Recession’s Over Yonder

Are You Better Off?

Thu, 08 May 2008 09:25 CDT

Ed Wallace

It is how we are educated that solidifies how every generation grows into adulthood aware of our nationality, respectful of authority and theoretically able to function cohesively as a unit to keep our society intact and vibrant. As children we are taught to stand in line (quietly) and given history lessons to give us a sense of what being an American means; all the while, teachers become trusted authoritarian figures in our lives. What is not taught in public school is everyday critical thinking — possibly because some human brains are not wired to test the validity of basic underlying assumptions. Moreover, because most children are trusting, we tend to come of age still not questioning what authority figures are telling us.

This system as laid out is the only thing that gives millions of young people a sense of being Americans, a sense of respect for others in our society and, one hopes, a sense of personal responsibility. The problem is that as most of us age, we no more question authority figures than we did our history teacher when being taught the Civil War. We simply accept whatever is said as fact.

Be Quiet and Rejoin the Herd

The easiest way to demonstrate that our education system is designed to create order instead of embracing creative chaos is the morning traffic jam. Let’s take the people traveling on Interstate 35 E into Dallas: Every morning they’ll find that starting somewhere in Oak Cliff the traffic will come to a virtual standstill, until the last 3 or 4 miles into Dallas often turns into a 20- to 30-minute drive. And every morning you will find thousands upon thousands of drivers wasting gas, fuming in their cars that something needs to be done about congestion. Yet there is an easy answer: All they have to do to zip into Dallas quickly is take the South Marseilles exit, go 1.5 blocks north and turn right on E. Jefferson Boulevard. It’s that simple.

Crossing the Jefferson Street Viaduct with the 30 other drivers who have made that same quick critical decision to improve their morning commute, you can look south and see, extending for miles, a traffic jam that avoiding took you only two quick turns and cut 15 minutes off your commute. So why do thousands of intelligent people each and every day go through the same frustrating and wasteful ritual, when an easy and satisfying answer to the problem has always been there? That’s how we were taught.

Stuck in your car, waiting impatiently in traffic is exactly like being in sixth grade when your class filed into the cafeteria; you were told to stand there quietly without complaining, no matter how hungry you were. It’s this ingrained habit of non-critical thinking and unquestioning acceptance that makes morning traffic jams worse than they need to be. It makes ideology — obedience to a concept, as opposed to reasoning through a solvable problem — the basis for our daily decisions.

But DoubleSpeak Sounded Right

This uncritical obedience extends into today’s modern economic world. After all, when the discussion turns to what is ailing Detroit, politicians of both parties and the media will lay the blame on automakers’ lack of outstanding products, on high labor costs and so on. Detroit, they’ll say, created its own problems; and so our automakers should either solve them by themselves or fail. The problem with that line of logic is that today it is patently untrue. Detroit has some of the most outstanding products it’s ever offered; and the wage structure negotiated in the latest UAW contract pretty well ensures that the next generation of automotive workers won’t qualify as middle-class Americans.

Now, when Jim Press quit leading Toyota in the U. S. to move to Chrysler, he was reportedly guaranteed over $50 million to switch companies. That is a high labor cost.

Contrast that with Wall Street, where a Nov. 19, 2007, Bloomberg article stated, "Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won’t prevent Wall Street from paying record bonuses, totaling almost $38 billion."

It gets better; the article specifically states that the bonuses will go to workers at Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns! So: Shareholders in securities lost $74 billion, but the people whose complete incompetence lost their money for them were paid $38 billion — and Bear Stearns was about to go under. Contrast that to Chrysler’s $1.6 billion in losses and the media’s opinion that Detroit’s demise is related to some assembly line worker making $27 an hour.

It seems strange that the media has long extolled the brilliance of Wall Street and praised the financial gods that are today steering us into new and incredible economies that will make all Americans wealthier. That’s not reality. Future autoworkers will have their pay cut in half — so much for the promise of prosperity for all — and most Americans believe that’s OK, because ideology has beaten it into our heads for 30 years that unions are destroying America. Yet it’s a proven fact that Wall Street managed to completely collapse our banking system and lost shareholders $74 billion in securities last year, while paying themselves $38 billion in bonuses. Yet no one questions that scenario at all.

What is wrong with this picture?

Punishing The Intelligent

The Federal Reserve couldn’t open the floodgates fast enough to dump (as of April 22) $360 billion to save those New York-based investment banks and financial institutions. The Fed loaned money to investment banks for the first time since the Great Depression — to the tune of $38.1 billion a day during one particular week. At the same time it’s been lowering interest rates, which effectively punishes individuals who are in fact good at saving their money, and those living in retirement whose incomes are based on saved earnings, which now pay out lower interest rates. That’s punishing the smart to save the stupid.

The Fed’s reducing interest rates is also one of the primary causes of the current rush into commodities, which has caused everyone’s oil and food prices to rise — which in turn keeps everyone from being strong consumers of durable goods, such as automobiles. I wonder how much Detroit could change the automobile world if Washington had shelled out $360 billion to them in the last four months.

Now it’s time to expose the big lie.

Whenever it considers reducing interest rates, the Fed is supposed to be mindful of the effect the rate cuts will have on inflation. After all, if your paycheck is static, any rise in the costs of items you cannot get out of buying can hurt your family’s financial well-being. But the Federal Reserve continues to maintain that inflation is still under control — giving them the green light to lower rates even more. And yet, although you hear over and over again that inflation is under control, your checkbook stubbornly contradicts that. You know something is wrong, but those in authority repeatedly tell you that no problem exists.

How could this be?

It’s because the government changed the way they account for employment, inflation, the GDP and other important data in 1982 and again in 1998. Why? So they could tell the average American how wonderful everything is.

A Question of Character

Fri, 25 Apr 2008 16:58 CDT

Tucked away in the northeast corner of downtown Fort Worth is Nash Elementary. I have no idea of its history, but it’s rather small and obviously built many decades in our city’s past. Something true but not as obvious about Nash is that its students often come from our city’s most financially disadvantaged families. Yet it is also true that when you meet the children of that school, they are some of the sweetest and most polite children in our city. And, for more than 20 years now, 570 KLIF AM radio has taken the responsibility for bringing Christmas to the children of Nash Elementary.

For the past 12 years, I’m proud to say, the station’s contributions to that annual charity now total three times what they once did, thanks to many of our good neighbors in the area’s automobile industry. I just can’t think of anything worse for a young child than not receiving any gift at all at Christmas; in Dallas Fort Worth a respectable number of well-known and successful car dealers try to make at least that one small difference in as many of these children’s lives as we can.

It’s said that you can test someone’s true character by giving them not money but power; and that may be true. I think maybe a better indication of character is someone that does the right thing, even when no one is watching.

Little Things Make Big Differences

Most of my friends in the automobile industry quietly go out of their way to make Dallas Fort Worth a better place to live; because they are doing it for the right reasons, not to make a big show of how decent they are, they don’t publicize their good deeds. So, after last week’s column on the widespread lack of integrity, this week I’d like to "out" some of our car dealers, most of whom I’m proud to say are also my friends, for the good works they do.

John Chase and his son Chad at Autobahn Motorcars often are the No. 1 supporters of Big Brothers and Sisters of the Metroplex and participate year after year. Without fanfare, John escrows money from every car sale and donates it to their annual car raffles. Autobahn’s contributions are in the hundreds of thousands each and every year; that is how committed the Chase family is to helping the children of the Metroplex.

Over at Meador Chrysler Jeep, General Manager Mike Biggers has long been a driving force for New Day Services in Tarrant County. To help young children in trouble in our court system, New Day provides a full-time pastor. Years ago I felt compelled to help Mike out with this program; now each year around Christmas Mike Biggers and Hershel Hunter at Meador hand me a check for the kids at Nash Elementary, and I respond with my check for New Day. Certainly we’d like to think that as parents it was and is our obligation to teach our kids right from wrong, but often those principles wind up being based on the religious lessons we learn when we’re young. In my opinion, if New Day helps just one kid in trouble to get on the right path in life, it’s well worth some sacrifice.

My friend Carl Sewell also puts aside monies in his dealerships with the sole intent of helping fund local community activities and charitable events.

And, in the tradition set by their great-grandfather, Frank Kent, and carried on by their mother Wendy, Will and Corrie Churchill always seem to surprise me. They’re the newest Dodge dealer in town; yet, when their first Dodge Challenger comes in – a car on which most dealers are going to make a fortune – Will and Corrie have decided to simply give the car away to the Fort Worth Symphony Orchestra to use in its charitable fundraising.

Their Deeds Say "Character"

Last year I was asked to speak at the annual managers’ Christmas party for Classic Chevrolet (and the other Classic dealerships). I had absolutely no idea what they wanted me to talk about, but nothing could have prepared me for what happened that night. Tom Durant opened the evening and for the next 30 minutes or so, Tom had his managers come up on stage; then, instead of bragging about Classic’s having taken top honors again as the No. 1 Chevrolet dealership in America, Tom encouraged his managers to talk about decent things they’d done for others in the course of a year.

My friend Ken Thompson, the top Chevy salesperson in America, had visited Christ’s Haven for Children, where he found out the shelter’s one old black and white TV had broken; so out of his own pocket he purchased six new HDTVs for the center’s kids. Another manager told of a woman who came in to buy a used car, but the deal could not be made. However, the woman’s trade-in was mechanically unsafe to keep driving and it was obvious she had no money. So they took up a collection in the used car department and fixed the woman’s car for her.

Needless to say, I sat there speechless; nothing I was going to say that night could be as inspiring as what I was hearing. I’d always known how generous and caring Ken was, but that night I learned what drives Tom Durant and his wife, Susan.

A Light Through the Darkness

Eighteen years ago Elizabeth Page had just graduated from the Southwestern Adventist College. She was 10 days into her new career as a social worker at the Johnson County Mental Health and Mental Retardation Center when a black day hit Cleburne, Texas: At the local county courthouse, Elizabeth was gunned down by a psychiatric patient, shot several times in the back. She was not expected to live, but she did – disabled and wheelchair bound.

Her mother, Wanda Page, would in time leave her job as a successful real estate agent – not just to be the primary caregiver to her daughter, but also to learn how to navigate the system to ensure her daughter’s continued care. However, in doing so, Wanda found that her family’s tragedy was, sadly, not unique. So Wanda Page founded the Disabled Crime Victims’ Assistance and started sharing her knowledge of a very complicated system with others who, like Elizabeth, are the victims of senseless crime.

Last year, Wanda helped the families and victims of 113 similar tragedies. In most years she has done her good works without any personal compensation; her vehicle, a 1980 Cadillac, was so run down that she had to put a pan underneath it every night to catch the dripping oil, then add it back to the engine in the morning. Wanda didn’t want anything for herself, but she wanted to keep helping others.

Her office is located at the Park Plaza Fort Worth, where Linda Votaw and Steve Nichols noticed the truly heroic work she and her daughter perform so unselfishly. Wanting to help, they pulled a group together and raised the money to buy Wanda a new car; only they might have been a little short. Steve had heard me talk about Ken Thompson on my radio show and decided to call him about the possibility of acquiring a new Chevrolet Malibu as a surprise gift for Wanda and her daughter.

Well, you’d have to know Ken and Tom Durant, but this sale meant as much to them as if someone had ordered 1,000 commercial trucks that day. Within 15 minutes the decision was made to sell the car for the price that worked for the generous people of Park Plaza, even though that price was below Classic’s cost. Ken Thompson personally delivered it, and Wanda Page, who has spent two decades giving everything for others, finally reaped a little of the blessings her good deeds have sown.

Christmas Spirit, Every Day

Every Man for Himself

Fri, 18 Apr 2008 16:42 CDT

Some 20 or 30 times a year, whenever there’s a big rain at night, someone driving way too fast down the hill along my property’s western edge loses control of the automobile, slides off the road into my yard, and does moderate damage to my corner landscaping. Often their forward momentum takes out the corner stop sign, and occasionally they’re going so fast that they slam the car into the barriers catty-corner to the house. Luckily, in the 16 years I’ve lived there no one has been seriously hurt from not paying attention, and that’s good. But in all those 300-plus accidents, not once has anyone ever knocked and offered to fix the minor damage they’ve caused. Over that period 10 to 15 have asked to borrow the phone to call a wrecker or a spouse – but not one person has offered to fix what they tore up.

“Not My Problem!”

I thought about this seeming absence of honor a lot last week, when the story hit the news about that North Carolina gas station, the one where the attendant accidentally programmed the pumps to sell premium gas for 35 cents per gallon, instead of the $3.35 per-gallon price it was supposed to be.

It was an honest mistake, but one that cost the station owner $3.00 for every gallon pumped that day. The Star News Online did a major story on this mis-priced gasoline at the Kangaroo Express station, and the star consumer of the piece was Deshauna Canty. Ms. Canty found out about the gas station’s mistaken pricing from her children’s babysitter and immediately drove down to fill up her Ford Taurus in the early afternoon. By that time the incorrect price had been on the pumps for at least four hours.

Hoping that a good thing can last, Canty then went home and grabbed the family’s Lincoln Navigator, which by her own admission usually costs somewhere around $100 to fill up. On that special afternoon, topping off her Navigator’s tank would set her back only $9.80.

News of this unbelievably priced gasoline quickly spread up and down the block, as those who filled up on 35-cents-a-gallon gasoline were bragging about their find. But what’s truly amazing is how much gas the Kangaroo Express pumped that day in the 10 hours that bargain-basement price was breaking the station’s owner. Only when the local police arrived at 6:30 that evening – to break up the traffic jam that extended out of the station and into the street – did the owner realize that all day long his employee’s mistake had been robbing him of $3 on every gallon pumped. But the owner’s cluelessness isn’t the most troubling part of the story: Not one person all day long told the owner he had mis-priced his gasoline. Instead, not only did they fill up their vehicles, they also told everyone else they knew about the cheap gasoline.

I still believe that most people are fundamentally honest, decent and hard working, but a story like this makes me rethink that position.

What is going on today that so many people, literally hundreds of individuals, fully aware that they were getting a gasoline bargain that could be nothing but an error in pricing, could go in and rip off a gas station owner as if he were the cause of the high gas prices everywhere else? It used to take a lot to make people with basic moral principles and a sense of common decency violate their own integrity. And yet that is exactly how hundreds of people responded to a mistake in North Carolina on April 10.

Nobody Saw Me Do It?

A few years ago at a Shell station in Ovilla, I watched a woman pump gas into her late-model Lexus RX330. When the tank was full she put the nozzle back into the pump, looked around quickly, jumped into her vehicle and sped off. The owner ran out and asked if I’d noticed her license plate number; she hadn’t paid for her gasoline. Who knows, maybe it was an honest error on her part; maybe I read too much into her scanning the station to see if anyone was watching her before she bolted – but people like her are why cash buyers have to pre-pay now.

Now, it might be almost understandable if the thief had been driving a 20-year-old Malibu – after all, being broke in America isn’t much fun. But when you see someone driving a Lexus (or read about a woman filling up both a Taurus and Navigator, using her Visa card), stiffing people, what’s going through their mind becomes a bit more troubling.

Using Our Honesty as a Club

It’s not a new phenomenon, but I didn’t think it was so widespread. By my estimate about one out of six people don’t seem to have much trouble demanding something they really don’t have coming. In the car business it happens all the time, like this.

Customer X comes into the store looking for the person who sold him a car. Once he finds out that the salesperson in question is no longer at the dealership, he’ll find a manager and charge that their salesman “promised him” a stereo upgrade, chrome wheels or something similar. Not everyone, mind you; a very small percentage of buyers. Wanting to satisfy all customers, you go pull the paperwork, but it says nothing about these promised items. So you point that out to the customer, who then claims it was never put on the contract – but insists promises were made nonetheless.

Now you’re forced to confront your business relationship with your former employee. And yes, on rare occasions that person was dismissed for promising things that weren’t part of the transaction; in that case you take the customer at his word. But I say it’s rare because salespeople who do such things don’t last long in dealerships. No, usually the salesperson left for some reason besides dismissal and had never promised any customer anything that wasn’t part of the contract. Yet suddenly, the moment they no longer work there, here come people demanding more stuff after the fact, claiming that’s what they were promised. And that’s a no-win situation.

I ran into this just a couple of weeks ago, visiting a friend who runs a dealership on Fort Worth’s West Side. A customer came in, looking for an employee who no longer worked there, and that particular individual told the manager that that salesperson said he would get free gasoline for a year. To make it so would cost around $1,675 or more – far more than the dealership made on the deal. Another problem that cannot be easily fixed.

“You Didn’t Say I Couldn’t!”

Some years ago when I was working for a local luxury car dealership, as part of our grand opening we held a contest to win a year’s free use of a $40,000 car. Hundreds showed up that day to see if the key we had mailed them would open the door to that car, and a very lovely young lady won. As I recall she worked for an ad agency in Dallas. She owned one of our products that was paid for, so she asked a favor: Could we please buy her current car from her, and after one year when she had to return ours, she would buy a new one from us. We agreed, as that seemed reasonable.

She went back to Dallas and quit her job. Then she took off to see North America – in our new $40,000 luxury car.

She called once from close to the Alaskan border, complaining that the tires were worn out and we needed to buy her new ones. She had other dealerships across America call us for purchase order numbers for maintenance that needed to be performed. Her threat was always the same: If you don’t pay for it, then the work won’t get done. By the time the year was up, she had put well over 50,000 miles on that vehicle and pretty well had beaten our new car to death.

90 Days Down

Tue, 15 Apr 2008 09:05 CDT

For years I’ve been calling attention to the downside risks for the American economy; and sometimes that seemed rather contrarian, especially when the nightly news was giving the nation’s economic growth such constant positive press. Of course, so much of what was thought to indicate an amazing boom period for America, such as the incredible housing upturn, now in large tracts of the country that has largely turned out to be a bust. Oil too continues to defy the laws of financial gravity. It’s staying outrageously expensive, when all business logic – along with the wisdom that the world’s economies are likely slowing – dictates that oil futures should be falling.

A few weeks ago this column covered these asset bubbles, which not only have a negative impact on the average consumer’s budget but also violate the fundamental law of a free market: supply and demand are supposed to dictate price.

You may recall my saying then that there was and is no shortage whatsoever for gasoline in this country. Reserves on hand had hit a 16-year high, while at the same time the daily buffer for oil production against demand had grown from 1.5 million barrels a day to over 3 million; and no entity, asking to purchase oil during this “crisis period,” had gone away empty-handed. In fact, there was so much gasoline on hand, refiners admitted publicly that they were cutting back gasoline production – so their profit margins per refined gallon would “improve.”

Less than Optimal Timing

That article itself, with a few data updates reflecting the different publication dates, made its own nationwide news run starting April 1, when BusinessWeek picked it up and put it on the front page of the online edition. For the next four days it was the No.1 most read, No.1 most e-mailed, No.1 most discussed article they’d published.

Writing for Fort Worth, for print, I had accused Wall Street of irrational exuberance in bidding up oil contracts on the futures market, then using massive PR campaigns to fool the public into thinking there is a real oil and gasoline crisis going on. Here in Texas that story on oil futures didn’t even raise an eyebrow. But now that story about how the futures market works was published online, right in the center of where that action was taking place.

Some did not care for the reporting, to judge from the almost 400 blogged comments that attached themselves to the article. Yet to all the issues I laid out in the open, there one was e-mail response that I appreciated. It came from a gentleman employed by Morgan Stanley and read, “I understand the basis for every fact you quote in this article. You are “spot on,” to use commodities vernacular. Wall Street, Washington and the media are stoking a bubble only eclipsed by the credit bubble now deflating.”

Looking at the overall context, an article I’d written two weeks previously went national during a week of extremely negative economic news. We’d lost another 80,000 jobs; investment banks, trying to stay solvent, had been borrowing $38 billion per day on average from the Federal Reserve; and the International Monetary Fund had announced it was cutting its outlook for the world’s economic growth this year, blaming “the worst financial crisis in the U.S. since the Great Depression.”

Excess Oil — in a Shortage?

Within hours of that article’s BusinessWeek posting, the weekly oil report came out from our Energy Information Administration. Because American refiners had been cutting back on gasoline production to increase their profits, we had managed to put another 7.4 million barrels of oil into our reserve system. If it weren’t so tragic, what happened next would be almost humorous.

Suddenly every oil analyst being quoted in the media said they’d had no clue whatsoever that our country would have that much excess oil to add to our reserves for that week. At the same time, they all warned that we were really going to be in trouble; as the nation’s gasoline reserves were falling before the key “summer driving” season. To which all I can say is, “Give me a break!”

It’s been widely covered in the media, including in this column, that refiners in this country were complaining about their margins and were going to cut back on gasoline production. In fact, our refineries ran at such a reduced rate the last week of March, you’d have had to go back to the months after Hurricanes Katrina and Dennis to find refinery runs that low. Moreover, every oil analyst knew that. You have to assume they are intentionally misleading the media when they deny it after the fact.

When refinery runs are cut that severely, refiners don’t need nearly as much oil as they needed the week before. That was the primary reason that we put the incredible sum of another 7.4 million barrels of crude into active reserve that week. Nothing shocking about that at all – unless you’re an oil analyst being quoted by the press.

So, after a week of horrible economic news for the nation and world, right after another series of reports that gasoline and oil demand are both down in the U.S. and during a week when we stockpiled huge amounts of crude, what do you think happened to the price of oil that day?

It went up by $3.85 per barrel!

Good for Texas?

One of my ongoing predictions has been that, though these oil issues would in time hinder economic growth in the U.S., like previous periods of high prices in the oil patch this one would play to Texas’ benefit. Recently we learned that Dallas Fort Worth led the nation in population increase; office leasing is up 75 percent for the first three months of this year, while high-rise construction cranes silhouette themselves against our vast Texas skies from West 7th in Fort Worth to downtown Dallas.

More proof of our population’s growth: Numerous dealers in the Metroplex took top honors for selling the most new cars in March of any of their respective manufacturers’ American dealerships. Tom Durant and his staff at Classic Chevrolet continued their multi-year run as the largest volume Chevy dealership in the country. Matt Ducote and his kids at Moritz Kia also came in No.1 nationally for their brand. Sewell Infiniti in Dallas too blew past everyone else in the nation, having the most exceptional month in company history.

Additionally, from what I’ve gleaned from dealers across the Metroplex, it seems that used car sales were again setting records or near records at many locations. Twenty years ago in the car business, if a dealer sold one used car for every two new vehicles, that was considered an exceptional job. Now, one can easily find dealers who sell two used for every new car, while sales of pre-owned luxury cars are also setting records. A case in point: Autobahn on White Settlement had an all-time-record month for certified pre-owned BMWs, but that seemed to follow the national trend; BMW’s pre-owned sales jumped 40 percent over March a year ago.

I also predicted in this column that because of the economic problems in many regions of the country, we would see yet another year of suicidal incentives from many automobile manufacturers. Sure enough, that has taken place in the past few months and has continued into April.

Poor Mexico, Conclusion

Fri, 04 Apr 2008 16:44 CDT

The never-ending, desperate search for oil to supply our nation’s economic engine with its preferred fuel is not a phenomenon that suddenly showed up with the First Oil Embargo in 1973, when it became apparent that we would have to depend substantially on imported oil to sustain our way of life. As early as 1920 America was importing 20 percent of the oil we used from Mexico, a situation that their internal revolution did little to stop. However, facing new demands from the Mexican government, many oil companies had already moved farther south to Venezuela.

Both countries had been mired in poverty, Venezuela since the populace had run the Spanish out in 1829. Now in total control of his country’s resources was Venezuela’s leader, the cruel and brutal General Juan Vincente Gomez, who believed in enriching himself no matter what it cost his fellow citizens.

Oil Moguls Love Dictators

When Royal Dutch Shell led the oil pack into Venezuela in 1913, it proved that the oil business makes for strange bedfellows. Shell was the primary mover and shaker in the fledgling oil industry; and yet during the Great War General Gomez was solidly pro-German – even mimicking the dress of the Kaiser for his public appearances.

As related in Daniel Yergin’s book, The Prize, Woodrow Wilson called Gomez a scoundrel who ruled through terror and brutality; but that may have been an understatement. Yet from the oil industry’s perspective Venezuela was attractive because of Gomez; he could give them assurances and ironclad contracts, and in the early twenties in Mexico, such things had become elusive. Unfortunately, after seven years of exploration, many believed that Venezuela’s oil promises were little more than that. One study by Shell would suggest that the Venezuelan oil bounty was little more than a mirage. That would change: In December of 1922 the Barrosa Well came in, delivering 100,000 barrels a day of crude. Suddenly the industrialized world had a new favorite supplier on the oil scene.

Venezuela’s oil production grew from 1.4 million barrels a year in 1921 to 137 million barrels by the end of that decade, with only the U.S. producing more crude. Still, the oil companies voiced concerns to our State Department; Gomez could not possibly live forever, and should he die they might well find themselves facing the same situation they had in Mexico – a rise in nationalism.

If the Yankees Invade, Burn the Assets!

Right around then, in 1927, tensions between the U.S. and Mexico were growing again, based in part on distrust in the oilfield. Rumors were starting to spread in Washington that we might again invade their country militarily, and those rumors were taken as fact in Mexico. Their government ordered General Lazaro Cardenas to set fire to the oilfields the moment the U.S. Army crossed the border. Fortunately, cooler heads prevailed and the problems between our two countries took an 8-year breather.

Not that the underlying problems went away. After all, this was during the Great Depression, and oil was worth little in comparison to its value during the expansion of the world’s economy during the 1920s. As we see today, impoverished countries that control huge amounts of oil come to depend on the revenues it brings, either to fund their governments or to enrich their corrupt leaders.

From a historical viewpoint, corrupt leaders are more pliable in critical times for the oil industry, accepting smaller kickbacks from oil sales. But governments in serious need of cash just to operate are far more problematical. That was the situation in which Mexico found itself during the Depression. Not only were their oil revenues seriously down, but their oil prices couldn’t begin to compete with Venezuela’s low cost of production.

Nanny Dictator

Adding to the complexity of the problem, in 1934 General Cardenas came into power, and he was determined to raise his countrymen’s standard of living. While other generals seizing power throughout Latin and South America were decidedly fascist, Cardenas was what we might call a radical leftist. He was determined to reallocate the land, build new and massive public works and improve the education system throughout Mexico.

As with all revolutionaries whose aim is to rewrite the future for their countries (including ours during the American Revolution), Cardenas found the idea of letting foreign powers control his country’s commerce unacceptable. For our part, many in government took to referring to Cardenas as a Bolshevik, and that didn’t quite square with Roosevelt’s Good Neighbor Policy toward Latin America. And so Cardenas began renegotiating with the oil companies for higher wages for the Mexican workforce and a higher royalty rate for the government, to fund his plans for the restructuring of Mexico. In essence, Cardenas was trying to do in Mexico in 1938 what Hugo Chavez says he’s trying to do in Venezuela today.

The international oil companies agreed to Cardenas’ wage demands for the local workforce, but refused to give control of the decision-making to Mexican nationals; and so on March 8, 1938, General Cardenas nationalized Mexico’s oil industry. He broadcast the news to the nation and immediately tens of thousands took to the streets of Mexico City to celebrate the decision.

Sadly Predictable

England, which had the most invested in Mexican oil, cut off diplomatic relations and then moved to close off all traditional business alliances with Mexico. Sadly, predictable results ensued: Mexico simply shifted its alliances, now becoming a reliable oil supplier to Hitler’s Nazi government and to his close ally, Italy’s Mussolini. As a result, England was now dependent on Venezuela for 40 percent of its total oil needs.

If this story sounds familiar, it should. That’s the joy of taking the long historical view of the oil industry. It is a reminder that in terms of oil supplies and political alignments, nothing has really changed in the last 90 years. The only difference is that today we are focused on the Middle East and their internal and external problems, while in the first era of imported oil demand the problems were located in Latin and South America. But, as long as the demand for oil grows, when alliances end – like that between England and Mexico – some other buyer simply shows up to purchase the crude. If Britain didn’t want Mexican oil, then Germany and Italy did. If we refuse to buy Iranian crude today, Japan and China are more than willing buyers. The oil cycle remains unbroken, but it once again is becoming more intense.

With one possible exception – and that returns us to Mexico. Today they know their national oil company, Pemex, is in serious trouble. Moreover, they also understand that they might have yet one more major oil bonanza lying off their coast in the Gulf of Mexico. According to a recent article in Time magazine, possibly 50 billion barrels of oil, or one-third of the Iraqi prize, lies just offshore. The big problem is that this new oilfield is in deep water; it is doubtful that Mexico has either the expertise or the discretionary funds to make this financial windfall happen alone.

They realize that foreign oil companies need to be invited into Mexico to help them achieve production – but the good people of Mexico still are immensely proud of the fact that they and they alone control their oil industry. So Mexico’s government has started a massive PR campaign to convince voters that it’s time to rethink their position as it pertains to oil.

Governments Ignore History

Poor Mexico, Part 1

Fri, 28 Mar 2008 16:36 CDT

Somewhere off the northern coast of Mexico, buried under the warm waters of the Gulf, there appears to be a $5 trillion treasure that could power all of America for seven straight years. Just 20 years ago, this multi-trillion-dollar find would have been beyond the grasp of the most advanced technology then known. Today, however, the latest oilfield technology could easily bring this potential 50-billion-barrel oil find to market — if there weren’t a non-technological obstacle in the way of getting these riches to the surface.

The problem certainly is not that Mexico doesn’t need the money; nor is it the fact that the U.S.A. would desperately love to share in this exciting bounty. So what’s the problem? We have the technology, they have the oil and a profound distrust still exits. When it comes to Mexico’s natural resources, the trust between our two countries has never recovered from the grave wounds it endured 70 years ago.

Today we consider fixing the problems of the Middle East key to our energy security, but that whole scenario is nothing more than a replay of our relationship with Mexico in the first 20 years of the last century. All that’s necessary is to replace Osama Bin Laden with Pancho Villa; add problems with the rising cost of oil due to surging international demand; and blend in an oil-rich foreign country whose government was in turmoil. In that context, it’s easy to understand why in March of 1938 Mexico threw out the foreign oil companies and nationalized its oil industry.

The story also belies a drumbeat in America that’s becoming constant — that to survive we need to become energy independent.

Energy-Independent for

Moments

Today’s urgency toward energy independence is framed as if it were something robbed, something that America possessed in the Golden Age of Oil but had lost in the last 30 years, leaving us vulnerable to dangerous international entanglements. It seems to surprise most people to find out that oil-wise, we were self-sufficient for only the first few decades we consumed it. As early as 1920, we were heavily dependent on Mexico to meet our oil requirements, because American crude production could not keep up with our rapidly growing demand.

I’ve written in this column about the Gasoline Famine of 1920, but in fact an oil supply inadequate to meet our demand for energy hit the nation hard starting with the abnormally cold winter three years before that.

As is true today, the Great War’s pre-emptive demands on energy supplies reduced the amount available for civilian use; compounding the problem were our growing automobile ownership and insufficient coal production. Our government stepped in immediately and shut down gasoline stations on Sundays, but coal was in such short supply that inmates were freezing to death in Northern prisons. Even the wealthiest Americans were complaining that there was not enough fuel to warm their homes. Woodrow Wilson’s closest advisor, Texan Col. Edward House, said at the time, “I have never seen such a storm of protest.”

The price of oil had doubled by 1918, and it doubled again within a few years. If the entire nation ever came to believe that the foundation for all further economic growth, on which the industrialized world’s future depended — oil — was the most important and tradable currency of all, it happened then.

Can We “Help”?

Making matters worse, the nation’s mindset regarding our southern neighbor then was similar to the way we now think about the Middle East. For our active participation in Mexico’s internal political strife then, as they are now in the Middle East, were motivated less by altruism than by eagerness to obtain a cheap and reliable supply of oil.

Keep in mind that in 1917 the Middle East was not the massive producer and exporter of oil that it is today. Oil out of Mexico supplied 20 percent of our national demand, fueled the British Navy and helped run the railroads of Russia. In fact, it’s almost fair to say that much of the battle for the political future of Mexico stemmed from the fact that enemies of its then-current government recognized that the nation’s oil wealth was being squandered, little benefiting its own people but enriching already wealthy nations.

Of course, that’s an oversimplification of the facts; even in the days before the oil age, countries like the U.S. and England were way ahead in the race toward industrialization and increasing their citizens’ wealth. It’s just that oil is such a convenient excuse for why one country is so poor, yet those who purchase its resources seem to become richer.

For Mexico, the oil story started in 1900 and reached its climax in 1938. Today it’s forcing the country to reconsider the position it took in response to that 38-year period, wondering if its future is being held back by past hatreds.

Thanks a Bunch, Villa

In 1900, 108 years ago, the head of the Mexican State Railroad suspected that there might be oil deposits in his country. Concerned about the nation’s shortage of wood for fuel, he invited Edward Doheny — who would later be a major player in the Teapot Dome scandal — and his Pan American Petroleum to explore the possibility of oil production in Mexico.

The following year the renowned British engineer, Sir Weetman Pearson, whose future empire would encompass the Financial Times, Penguin Books and The Economist, missed his train connection in Laredo. Forced to spend the day in that border town, Pearson heard rumors of oil literally bubbling to the surface in certain regions of Mexico. Unlike most foreign oilmen, Pearson had a close relationship with Mexico’s President Porfirio Diaz; Pearson had successfully engineered and built both the canal that drained the lake from under Mexico City and one of the country’s first transnational railroads. Realizing that his firm could engineer a new financial empire if he were to succeed as an oil magnate, Pearson set out to find his new fortune south of the border.

He was welcomed by President Diaz; certain events in Mexico’s mutual history with the U.S. prevented Diaz from fully trusting just Americans in the Mexican oil patch. However, for the next seven years Pearson spent his funds without noticeable success; and in 1908, just as the Model T came to market, Pearson fired his staff and replaced them with former employees of the U.S. Geological Survey. Sure enough, two years later they hit Potrero del Llano 4, bringing in 110,000 barrels of oil per day — at the time, the largest oil well in the world. Unfortunately, the very next year, President Diaz was overthrown and the Mexican Revolution was underway.

Turmoil engulfed Mexico over the decade that followed. No small part of it stemmed from Villa’s raids into the American Southwest; as one result, President Woodrow Wilson ordered our troops into Mexico, publicly taking the position that “We must teach [the Mexicans] how to elect good men.” And the oil industry expanded. Certainly there were times when mountain rebels seized certain of Pearson’s Mexican Eagle operations, and Edward Doheny continually begged Washington for more troops to protect his oil investments.

Thank You, Bubble Boys

Fri, 21 Mar 2008 16:48 CDT

“They see speculation in the market, I see decline in global inventories.” “I don’t think this is a big surprise, that we’ve had a jump in price when there has been a decrease in crude inventories.” — Energy Secretary Sam Bodman, Bloomberg News, March 5, 2008

“It should be obvious to you all that the [gasoline] demand is outstripping supply, which causes prices to go up.” — President G.W. Bush, Associated Press, March 5, 2008

One wonders if verifiable facts ever get in the way of this administration’s statements on issues that are critical to the average American’s well-being. After all, last time I checked, when politicians are elected to public office, or appointed like Secretary Bodman, they must take an oath to the American people before assuming their new positions. How can they forget a sacred oath so quickly? Were they daydreaming when they took it, so it never meant anything to begin with? Maybe it’s just another promise you have to make to get into office: When you’re securely incumbent you can ignore even solemn oaths you took.

Obviously, the two quotes that led this article came from discussions concerning the current high price for oil on the futures market. Bodman appears to be protecting the speculators in oil, as opposed to looking after the interests of all Americans. President Bush, apparently, has never talked to the Energy Department’s Energy Information Agency to see whether gasoline demand is actually up. More troubling, the writer of that particular Associated Press article obviously didn’t look up the EIA’s numbers to verify the president’s assertions: They weren’t accurate.

1. There Is No Shortage!

Gasoline reserves on hand have built up to the highest levels since the early nineties, which is remarkable considering that the nation’s refineries have been cutting back on the production of gasoline because their margins on gas have declined. In fact, gasoline reserves on hand have risen for 19 straight weeks, while oil reserves in this country have gone up in eight out of the last nine weeks – and would have gone nine for nine if fog in the Houston Ship Channel two weeks ago hadn’t kept oil tankers from unloading their crude.

In the same Bloomberg article that quotes Bodman from his CNBC appearance on March 4, he also said that thanks to ethanol the gasoline problem isn’t worse. He then added that the fact that making ethanol is forcing up the prices of other farm commodities, including hog and chicken feed, is “nowhere near as important as trying to relieve pressure on [gasoline] supplies.”

Of course, there is no pressure on gasoline supplies in this country as of today, but Bodman’s statement must have made eyes roll among the executives at Pilgrim’s Pride; they announced 1,100 layoffs on March 13, closing one processing plant and six of their 13 distribution centers because their company’s price for chicken feed went up $600 million last fiscal year and was on track to increase by another $700 million this year.

Here’s the scorecard, in case you missed it. There’s no shortage of gasoline or oil in the U.S. today, and we have near-record reserves on hand. Meanwhile, the Congressional mandate for ethanol has jacked up the price of chicken feed for Pilgrim’s Pride by $1.3 billion – and that’s just one companyprocessing chicken. This is what passes for acceptable to our Energy Secretary?

2. Demand Is DOWN, Yet Prices Are UP!

Just so we can all get on the same page, here are the verifiable facts on oil supplies, production and gasoline demand.

In January of this year, the United States used 4 percent less petroleum than we did a year ago; furthermore, demand has been falling slowly since July of last year. At the same time, worldwide production of oil has risen 2.5 percent in the first quarter, while worldwide demand has grown by only 2 percent. Production is expected to increase by 3.3 percent in the second quarter and by as much as 4.1 percent by the third quarter. The net result is that just the daily buffer for oil production against demand, which was a paltry 1.5 million barrels as recently as 2005, is now up to 3 million barrels in excess capacity today.

So, what is going on here? Why would our Energy Secretary say there’s a supply and demand problem when none exists? Why would he say that speculators have little or nothing to do with the incredibly high price of oil and gasoline, when it’s clear that they do? The president gives the ever-growing demand for gasoline as the primary reason why prices are so high, yet that notion can be dispelled in one minute of research. That’s the problem with rhetoric; it rarely matches the facts.

3. Speculation is Up, and the Dollar Is Down!

On the same day the president and our Energy Secretary made those foolish comments, no less an authority than Exxon CEO Rex Tillerson was quoted by Marketwatch as saying, “The record run in oil prices is related more to speculation and a weakening dollar than supply and demand in the market.” He added, “In terms of fundamentals, fear of supply reliability is overblown.”

As for the speculators, in 2000, approximately $9 billion were invested in oil futures, while today that number has gone up to $250 billion. Now, if any publicly traded company had an additional $241 billion put into its stock in the same period, its stock would rise out of sight too – even if the company was not worth anywhere near that amount of market capitalization.

Moving on to the weak American dollar as a primary cause for skyrocketing oil prices – there is ‘some’ truth in that statement. But consider this: The dollar has depreciated 30 percent against the world’s currencies since 2002, while the price of oil has gone up 550 percent. So, is it the weak dollar that has caused a 550 percent increase in the price of oil, or is it the extra $241 billion worth of speculation? Well, mostly it’s the speculation in the market.

Possibly just to ensure that oil prices don’t respond to real-world market conditions, Goldman Sachs forecast on March 7 that turbulence in the oil market could cause oil to spike as high as $200 a barrel. This flies in the face of all known information – but then again, Goldman Sachs started the current oil speculation craze.

What Is Washington Thinking?

Rounding out the list of experts discussing our oil and gasoline situation is Bill Klesse, head of Valero Energy. He spoke in San Diego a week after those comments from Goldman Sachs, the President and Secretary Bodman. Unbelievably, Klesse said that poor margins may cause Valero to sell one-third of its refinery operations; he stated that poor margins in recent months had caused planned refinery expansions, which would have produced 500,000 more barrels per day, to be canceled. Moreover, Klesse recently released the information that gasoline production has been curtailed in response to slowing demand. (Source: Reuters Online Service, March 11, 2008)

The 1980 Auto Shows

Fri, 14 Mar 2008 17:29 CDT

Today marks the last day of the Greater Tarrant County New Car Show, and sometime in the next day or two we’ll know whether this year’s attendance exceeded last year’s 146,000 paid admissions. Anyone inexperienced in this profession would think that this year’s economic news would have put off most potential buyers from attending the event. In reality, however, historically the auto show often seems to have drawn the most buyers when the weather was horrible, when oil prices were highest or when the country was enduring an outright recession.

Seems Like Just Yesterday

Since the Convention Center has been remodeled, today’s show is far larger than such events were in the past. It is amusing today to think how provincial the show was in our younger days – and not just the show here in Fort Worth, but auto shows across the Metroplex.

It just wasn’t that far back down memory lane – 1980, to be exact – that companies like Honda didn’t even provide cars for our annual show. Instead the Japanese automaker told its local dealers that any cars to be displayed were their responsibility. The big problem there was that, thanks to the 1979 Energy Crisis, virtually every Honda arriving at Tarrant County dealerships had been pre-sold. So arrangements had to be made with the buyers of certain vehicles that when their cars arrived, they would be on display downtown before they could be delivered to the customer. It was amazing how many people with Hondas on order so graciously agreed to wait to drive their personal car so that everyone for miles around could admire it.

Over in Dallas at the State Fair Auto Show, Hondas were almost hidden; frustrated potential buyers were frantically calling dealerships around the Metroplex to find out where inside Fair Park the new Hondas had been placed. It should also be noted that in that period Honda often sent local dealers too few sales brochures; many salespeople made midnight runs to Dallas to filch the needed brochures from racks at the Honda displays at the State Fair.

1980 was such a tough year for Detroit that our local dealer association printed up thousands of bumper stickers that read, “Buy America” to put on their Detroit-made company demonstrators and to hand out to customers at the auto show. The great irony was that some dealers handling domestic makes, who were the most enthusiastic supporters of those flag-draped bumper stickers, might have gone bankrupt back then had it not been for the extreme profits that their import car franchises were bringing in.

More amusing is that one year during the downturn of 1979 – 1983, the dealers’ association hired a motivational speaker for the salespersons’ breakfast to launch the show. For a solid hour every car salesperson in Fort Worth listened intently as this individual forecast that within a decade people would no longer buy cars from the likes of them. He also predicted that cars would be shipped from the factory without paint and the dealership would add that finishing touch for customers. What an idiot.

Then Things Changed

In those days, purchasing a new vehicle was still the easiest way to show your neighbors and co-workers your upward mobility – although that situation was just about to end. The status-symbol toys and appliances had arrived, and in 1980 there was a huge upsurge in sales of VCRs and microwaves. The first (primitive) home video games had been introduced and now their popularity soared. As I recall, cable TV forerunner OnTV first came to the Metroplex right around then, and for a reasonable sum one could get first-run movies over a private airwave.

Yes, 1980 may have marked the start of one of the most vicious recessions America has ever endured, but it also was the start of the Golden Era of Consumerism in America – and not only for the products just mentioned. Because that recession ended when the first of the great personal computers and personal cell phones found their way into the marketplace.

The public was actually concerned, back then, about the financial health of Detroit. Chrysler had introduced what we now call rebates in 1975, during the previous recession, but those cash-back offers seemed much less noticeable the second time around. However, it does seem strange now that in those days most Americans wanted Detroit to succeed again. How things have changed; today it appears that General Motors is about to lose 30 percent of its national production to the strike at American Axle, one of its key suppliers – and that news is not even considered really important.

That Was Then …

Things were so bad in Detroit 28 years ago that one enterprising laid-off autoworker used to drive to Houston every weekend, load up his pickup truck with copies of the Sunday Houston Post, drive like mad back to Michigan and sell those papers for a handsome profit, knowing his fellow autoworkers might find work in Texas. As I recall, Michigan was losing 1,400 of its citizens each week, while Houston was growing by a similar amount.

And then, as some of you may remember, just as Detroit was starting to recover from that recession, Houston’s economy went backwards. One has to assume that many Michigan transplants simply traded one employment misery for another.

Yes, 1980 was definitely a simpler time and place. General Motors survived in that period because it had already started to downsize its automobiles in 1977 – 78; many potential customers were trading in the far less fuel-efficient automobiles that they had purchased just four years earlier. Ford found its first real success with the introduction of its Escort, and Chrysler kept its business alive with the infamous K Car series.

Lessons Learned and Implemented

One big thing overlooked in today’s discussions on the automobile industry is how remarkably consistent that industry is today. For by the end of 1980, car sales had plummeted almost 30 percent from their 1978 peak. Today, even with all the bad news about energy, the mortgage problem and credit tightening, in the first two months of 2008 new car sales have fallen by a mere 126,000 vehicles from a year ago. If the market today were enduring the same pressure as it did 28 years ago, we would be seeing a car market crashing from 16-odd million down to 11.4 million sales. Obviously that hasn’t happened, nor anything close.

Moreover, considering how badly the California, Florida, Michigan and Ohio markets are doing, it does appear that the rest of the nation is almost picking up the pace for the poorer performing regions. And the fundamental difference is likely not the success of the Japanese automakers selling to the mass market, although that’s impressive. No, it’s really been the rise of the luxury cars to their prominent place in today’s retail market, and here the Japanese have played an important part. In 1980 Lexus, Acura and Infiniti did not exist, but that particular recession made a very strong point on where the automobile industry was headed.

Today our dollar seems to be growing ever weaker against foreign currencies? The same situation existed back then, and the German Deutschemark was one of the hardest hit. When the Mercedes 300SD was introduced in late 1978, it had a list price of $26,995, but by late 1982 the retail price had shot up to $42,500 ($95,782 in today’s money). And yet, during that same period, Mercedes sales shot up across the Metroplex. For example, in 1978 a very strong month for Mercedes sales at Van Winkle in Dallas would have been around 55 vehicles. It changed ownership right around the time the economy tanked, yet by 1982 that same dealership was often retailing a couple hundred Mercedes-Benzes each month. (The Mercedes dealership in Fort Worth usually saw half that number of sales.)

The recession was still on and the prime interest rate had climbed to 21%. But the fact is that luxury car buyers came out en masse during that recession – and that was the lesson the Japanese learned about how to maximize their profits in the future.

Will Detroit Ever Fight Back?

Fri, 07 Mar 2008 17:29 CST

It’s already evident that once again in 2008 the automobile industry is going to take something of a pounding. It’s also safe to say that Honda and Toyota will probably have another good year; and, as I’ve said here before, the financial meltdown that is hitting a few chosen states looks like it’ll miss the Metroplex and Texas. But I’m still severely disappointed in Detroit.

I’m not talking about their products’ quality; again this year Detroit actually has some of the best vehicles on the market for the money. No, I’m disappointed because our auto manufacturers haven’t come out swinging on many issues that are critical to their success. Detroit has been playing defense and staying hid out for so long now, the pounding it’s taken from the national media has to have left the American public thinking that Detroit can’t win, no matter what.

Chrysler CEO Jim Press — formerly of Toyota — recently said that the Big Three of Detroit will never again control 50 percent of the American new car market. That statement may have a high probability of being accurate, but it’s certainly not carved in stone. Because at any time, no matter what the economy is doing, any manufacturer selling cars in this country can blow its business model.

How Quickly We Forget

As recently as the early nineties, when the Ford Explorer was becoming the darling of the public, BMW and Mercedes sales were nearly dead in the water. A weak American dollar didn’t help, and the public’s enthusiasm for their cachet had waned considerably upon the introduction of Acura and Lexus.

Likewise, VW almost ceased to exist in America in the mid-nineties; and at the start of this decade, Mitsubishi’s five-year run of exceptional increases in volumes when reckless lending practices by its finance arm stopped Mitsubishi’s momentum in its tracks. BMW and Mercedes started their current recovery in the mid-nineties; Volkswagen came roaring back starting with the new Beetle in 1998, and slowly but surely Mitsubishi too is winning back customers. Mazda, among the fastest growing car lines right now, didn’t fare so well throughout the eighties and the same can be said of Nissan in the early nineties.

However, when Detroit has a tough five-year patch, the media never quits discussing whether or not our manufacturers will survive. But when Toyota’s American volume dropped during the recession of 1990 – 1992, no one started planning a funeral for the company’s future as a mass retailer. In 1995 the Honda Motor Company earned only $84 profit per vehicle built, worldwide — but again, no one started writing that company’s obituary.

The fact is that Detroit lost its leadership position because it no longer wanted the job. I say that because, in recent years, Detroit could have stood up and taken stands on a few issues that deeply affect their customers and their own corporations. Doing so would have raised the public’s respect for those firms, as much as or more than coming up with new hit models or unbeatable rebates would have done – yet all three kept their mouths stubbornly shut.

Follow What Leaders?

As an example, three years ago I asked Rick Wagoner, CEO of General Motors, why Americans pay twice as much for health care as Europeans, yet on average they live a few years longer than we do. GM was already struggling with the high cost of employee and retiree health care, and because GM does business in other countries it is keenly aware of how lower health care costs elsewhere help reduce GM’s overall production costs. The reason I asked was that, if Americans didn’t know why our health care system was so incredibly expensive, GM was (and is) in a unique position to put together a blue-ribbon panel of corporate experts, health care administrators and doctors – and to determine for everybody what’s behind the outrageous overpricing of our health care. They could release the facts to the public, and then we could get busy trimming the costs while improving healthcare for all Americans.

In its midlife GM used to take just such a leadership role in national issues; back then GM felt that taking a high profile helped both the company and its customers. Wagoner, possibly the smartest automotive executive in the world today, was not sure why healthcare in this country was so expensive, even though it was costing GM billions each year.

“No Cure, No Pay” Might Fix It

In case you’d like to know, I’ll give you the answer: It’s heroic (and unbelievably costly) medical attempts to save the lives of the un-savable in their last year of life. In contrast, in places like Canada they don’t perform major heart surgery on people past their mid-seventies. They’ve come to the conclusion that it’s not a good return on investment.

Yes, that sounds cold and almost inhuman. But, with its 84 million Baby Boomers moving inexorably toward retirement, like it or not, America will be forced to have that same debate soon.

In second place for what’s hiking healthcare costs so high, I’d guess paying for medical care that doesn’t address the real problem or effect a cure. In 2000 I severely hurt my back; thousands of dollars and three trips to different orthopedic doctors later (I joke today that I put my pain pills in a Pez dispenser because I was eating them like candy), my back problem was worse than ever. However, on the fourth try, Dr. Ralph Rashbaum at the Texas Back Institute in Plano had me in and out in an hour and I haven’t had a problem since. Total cost of that one visit: $125.

General Motors, Ford and Chrysler all have suffered from the high costs of health care; but instead of taking up the cause of exposing then fixing our broken health care system, they found it easier to slide it off on the union to handle in the future. Of course, since the system is broken, it will fail under the UAW’s control also.

“But The Emperor’s Naked!”

The situation in the oil and gasoline industry is another example of an opportunity Detroit has ignored. Detroit could long ago have exposed the fact that excessive speculation in the oil and gasoline market is what is pushing fuel prices through the roof. Obviously this hurts all their customers; what’s worse, the high price of gasoline encourages many to defect to import brands. While I’ve pointed out that excessive speculation in oil and gas was driving prices sky high before, there’s been not one word out of Detroit on this issue, even though our manufacturers have the most to lose because of it.

Loads of really smart people work in Detroit who know how the futures market works, and they understand that there is no real supply and demand problem. After all, we now have the largest supply of refined gasoline on hand since 1994, and major stories in Germany’s Der Spiegel and the San Diego Union Tribune recently exposed how hedge fund traders and their PR firms have spun the price of oil into a bubble completely disconnected from reality. Fidel Gheit, the head oil analyst with Oppenheimer Funds, testified in front of Congress to that very thing back in December. So it’s in Detroit’s interest to fight back, knowing how lower gasoline prices would help their businesses in ways that rebates just can’t.

But on this issue that’s so critically important to Detroit’s long-term survival, just as on health care, they utter not a sentence.