Author: Rob Morris

When markets don’t work

Rob Morris 0 Comment Books, Business, Rants

Michael Lewis and David Einhorn have written the best summary I've seen of why the recent financial meltdown happened, in an amazing editorial in the New York Times.  Their very long, very well-done article (Part I and Part II) details both how regulation failed and how it is integral to smoothly functioning markets. 

Einhorn is one of the real heroes of this meltdown.  As a brilliant and wrongly-maligned hedge fund manager, he was one of the first and most articulate critics who chronicled the outright fraud, misconduct, willful ignorance, and inbred conspiracy perpetrated by financial companies (like Allied Capital and Lehman Brothers), bond insurers (AMBAC and MBIA), ratings agencies (S&P and Moody's), and government regulators (SEC, Treasury, and the Fed). 

This meltdown (and the hundreds of billions we're throwing at it) are the results of an unfettered, unregulated, so-called "free" market.  Einhorn and Lewis demonstrate why regulation is necessary to a healthy, functioning marketplace.

Dealership Economics: Wall Street Journal Edition

Rob Morris 0 Comment Auto Industry, Blog, Dealerships, Toyota

Here at Under the Hood, we've spent a lot of time analyzing the automotive industry.  You might remember the three-part series about the economics of dealerships (Click here for Part I: Car sales, Part II: Service, and Part III: Toyota) or the entries about the problems of the Big 3. 

Today, The Wall Street Journal has Page 1 profiles of two car dealerships in London, Kentucky (about 75 miles away from us here at Lowell's).  The profiles echo a lot of the themes you've heard here:

  • How the financial fundamentals of dealerships have been deteriorating.
  • How the Big 3 have too many dealerships (look closely at the WSJ "Dealership Decline" chart).
  • The relative strength of Toyota and the Japanese carmakers versus those from Detroit.

My guess: In 2009, we're going to hear a lot more Johnny Watkins-type stories of dealerships going out of business, especially in smaller towns.

[where: London, KY 40507]

Discovery tale: Do you have a Bugatti in the garage?

Rob Morris 0 Comment Business, Ideas, Rants

1937-bugattiThe recent discovery of a classic, rare, and dusty 1937 Bugatti in an old English garage got me thinking.

The Bugatti fits neatly into the popular imagination as a kind of "discovery tale".  Discovery tales are those romantic, hopeful stories about finding some valuable piece of treasure in an unexpected place.

The discovery tale permeates our culture:

  • The Rembrandt (or Picasso) in the attic
  • The winning Lotto ticket
  • The mid-19th-century stock certificate left by a long-lost aunt
  • The pot of gold at the end of the rainbow
  • The gambler who wins the big jackpot in Vegas
  • The starlet discovered in the drugstore
  • The search for El Dorado
  • Cinderella
  • The Antiques Roadshow

These are all stories built around the discovery tale.  Usually, the tales result in untold millions for the "discoverers": the family who found the Bugatti will be getting nearly $4.5 million.

It is a compelling story.  Except that it is totally unrealistic.

Don't get me wrong — I really like these stories, too.  As long as they are treated as fun, fantastical tales.

When the discovery tale becomes a personal strategy for wealth or success, it is a problem.  It is deadly when it becomes a build-it-and-they-will-come business strategy.

It is a problem in two ways.  First, it promotes faith in a highly unlikely outcome.  What do I mean?  Let's be generous and suppose that there are 100,000 Bugattis (or Rembrandts or jackpots or stock certificates) in the world.  Only a fraction of those Lotto tickets are going to be found in any one year (it took nearly 50 years for the family to find the Bugatti – there's a reason that such discoveries are so rare and notable).  Again, let's be generous and assume that 5% of these (5,000 or so) are discovered per year.

At this point, there is literally a one-in-a-million chance that you will be the discoverer of the next Bugatti in 2009.  And that's after being generous with our assumptions.

If you are now tinkering with the assumptions — "Maybe there are really a million Bugattis and there's really a 20% chance of finding one…" — please STOP.  It is nice to hope, but it is destructive to manipulate the odds in order to justify hoping.

The second big problem with discovery tale strategies is that they are passive.  Discovery tales encourage waiting and hoping as a substitute for industry and ingenuity.  People put off getting a better job or starting their own business while they wait for "things" to get better or for their lottery ticket to come in. 

So am I a total cynic?  No.

Everyone has undiscovered treasure.  But you don't find it.  You use it.  Your treasure lies in your hands and between your ears.  You are the garage — go make your rare Bugatti.

[where: United Kingdom]

Toyota developing a solar car?

Rob Morris 0 Comment Auto Industry, Lowell's, Predictions, Toyota

In another example of Toyota's consistent ability to anticipate the future and develop for it, the Nikkei is reporting that Toyota has a completely solar-powered car in the works. 

This follows similar reports in July showing spy photos of a next-generation 2010 Prius which would help power its hybrid engine with solar panels.

Toyota already exemplifies how a relentlessly innovative company can come to dominate its industry.  It appears poised to continue that domination for a while.

Looking forward

Rob Morris 0 Comment Lowell's

What will we be doing at Lowell's in 2009?  In no particular order, here's some of what we'll be working on:

  • Being the best.  We will continue to try to be the best place for automotive service in Kentucky.  We know we won't always be perfect, but we will keep striving…
  • Reaching out to customers.  We want to know what we are doing that works and doesn't work for our customers.  We'll be developing little ways for you to help us get better.  (Feel free to give us feedback in the comments section below!)
  • Blogging.  We're going to continue to talk about cars, business, and life here at the Under the Hood blog.  We've gotten good feedback — not as much as we'd like, but good nonetheless — about our posts, and we'll continue to use the blog as a platform to keep you updated about Lowell's.
  • Raising our profile.  Surprisingly, much of Lexington still doesn't
    know about Lowell's yet.  We'll be trying some creative ways to get the
    word out.  You'll hear more about them soon.
  • Improving the website.  We redesigned the Lowell's website in November, but still have a lot of improvements we'd like to make.  Look for those over the next few months.
  • A community project.  We've had an idea for a big community project brewing for a while.  We'll keep it under wraps for now, but keep an eye out for it in February.

[where: 111 Mechanic St, Lexington, KY 40507]

Looking back

Rob Morris 0 Comment Lowell's

As the calendar gets ready to flip to 2009, it is natural to reflect a bit on 2008.

The past year has been eventful one for Suzanne and I.  I "retired" from Lexmark after nearly 14 years (I walked off the campus for the last time in November 2007, but my official departure was in February), while talking with Lowell and Betty about buying Lowell's.  After many twists and turns, we completed the purchase of Lowell's at the beginning of July.

Pleasantly Surprised
And it turned out better than we imagined: Employees, customers, and Lowell and Betty have all embraced us as the new owners of the business they built over the past 29 years. 

All of our employees have stayed with us after the ownership change.  Their knowledge, expertise, and patience were enormously helpful to me as I drank from the firehose to learn about Lowell's.  I've been able to focus on the financial and technical details of the business, while they continue to run day-to-day operations. 

I initially worried that customers might leave after Lowell and Betty retired.  I shouldn't have.  Our customers have been wonderful to us — it is clear that they want the business to continue to live up to its great reputation. 

Lowell and Betty have also been exceptionally generous with their time and insights after the purchase.  Their openness and honesty were a big part of our decision to buy Lowell's.  They still come in each week to help me with questions, issues, and much-appreciated advice.

Even as the economy crumbled and business slowed, the commitment of our employees and customers has kept us relatively healthy as we see other businesses struggle.

Disappointments
We had a couple of disappointments this year.

The first was that one of our technicians broke his ankle in a mountain biking accident in late October.  As a result, he has been unable to work on cars for a couple of months, and still has a couple of months more left on his recovery.  We've been working with him to find "non-vehicular" ways he can help us from home, and he has started calling customers to follow up on the quality of our service.  We've also asked him to study to improve his technical skills and increase his certification level.  But we still miss his repair contribution, and we eagerly look forward to his return near the end of February.

The second was that both ACE Weekly and the Lexington Herald-Leader dropped the automotive service category from their annual readers' polls.

  • After having won ACE's Best in Lex poll for "Best Mechanic" 7 times – including 2007 – ACE's editors decided to "retire" the category in 2008.
  • And after winning our second Herald-Leader's Readers' Choice Award for "Best Repair Shop" in 2007, the category disappeared from the 2008 poll (We do, however, appreciate the nice write-ups this year from Herald-Leader business columnist Jim Jordan).

Over the years, these polls — coupled with the enthusiasm and loyalty of our customers — have helped us create enough credibility to attract new customers and continue to grow.  So, we were sorry to see them go, and hope that "automotive service" might make a return appearance in 2009.

A Great Year
All in all, 2008 was a pretty great year for us: we finally owned our own business — and it was a good one — and we were able to work with and serve fantastic people.  Who could ask for more?

[where: 111 Mechanic St, Lexington, KY 40507]

Why gas prices will go back up

Rob Morris 0 Comment Business, Gas, Predictions

From the Lowell's Corporate Office of Fearless Predictions:

Gasoline will be well above $3 a gallon by June, if not sooner.

The recent and dramatic decline in gas and oil prices has been great news for our wallets and our troubled economy, and the extra cash has provided some much needed relief from the barrage of recent bad news.  Oil is trading under $39 a barrel as I write this (It had topped $140 a barrel this summer).

But it won't last. 

How can I so sure?  I think part of the answer lies in how oil prices collapsed.  So we'll start there.

The Collapse

Three events converged — and then fed one another — to drive oil and gasoline to multi-year lows.  

Supply / Demand.  First, the economic slowdown combined with gas pump sticker shock to cause people to really pull back from using as much oil — fewer and shorter trips.  Meanwhile, petro-regimes were ramping up production, greedily grabbing for historically high petroleum prices.  More oil + Less consumption = Lower prices.

Stronger Dollar.  This summer, really low interest rates had made the dollar incredibly weak in the world market.  Essentially, each dollar bought less of everything from other countries (including oil).  As the US slowdown began to hit other countries in early autumn, and their banks lowered interest rates too, the dollar was suddenly much stronger.  As a result, each dollar now bought much more oil.

Financial Meltdown.  Finally, much of the run-up in oil prices was driven by speculators in oil-based securities in the financial markets.  The speculators drank their own outrageous Kool-Aid as firms like Goldman Sachs predicted $250-a-barrel oil by the end of the year.  As so many financial firms imploded (think Bear Stearns, Lehman Brothers, Washington Mutual, Merrill Lynch, etc.), they unloaded their more-profitable oil holdings in a panic to generate additional cash. 

Any one of these trends would have driven down prices somewhat, but combined, they caused prices to fall to almost one-fourth of their summer highs.

The Coming Spike

There are signs that a couple of these trends are reversing, and that there will be a near-term spike in the price of oil.

Weaker Dollar.  The recent moves by the Federal Reserve to take their funds rate to 0% have not been followed by similar moves by bankers in Europe and Asia.  This has served to significantly weaken the dollar in the global markets.  Each dollar will buy less oil and gas.

Less Oil.  OPEC members, watching their rivers of cash dwindle, have recently indicated that they will curtail production in order to restore higher prices.

Greater Demand.  At the same time, the US and other countries are stoking the economic engines with incredible amounts of 'rocket fuel': The government's huge economic stimulus packages and dramatic financial moves — from 0% interest rates to "infrastructure" projects to direct cash injections into failing firms — will (eventually) ignite, and will help the economy rebound, probably very aggressively.  As the economy takes off, much more oil will be needed to move products and rebuild infrastructure.

Speculation.  I would expect some moderation in the financial speculation — many
speculators just aren't around anymore — so I'd be surprised if the
prices reach the levels of this past summer.  There's also the Kool-Aid factor: Merrill-Lynch recently speculated
that oil prices would drop all the way to $25 a barrel.  They'll likely
be as outrageously wrong as Goldman's $250 prediction…

I'd look for these counter-trends to get traction in early January, and for the economic rebound to begin gaining steam in the April – May timeframe.  By June, these counter-trends will work together to drive oil and gas prices up again.  Netting it all out: I would expect gas prices over $3 per gallon and oil prices over $80 per barrel.

But that's just my crystal ball…  What do you think?  Where will prices be in 6 months?

[where: 111 Mechanic St, Lexington, KY 40507]

A decade of comments on Car Talk

Rob Morris 2 Comments Lowell's, Web

We have long enjoyed listening to Car Talk on NPR on the weekends.  Tom and Ray Magliozzi, the brothers who host the show, are very funny and informative. 

Until recently, we didn't realize that Car Talk had a rating and comment section on their website which prominently features Lowell's.  You can see what customers have said about us (mostly good!) over the past 10 years.

As always, we are deeply appreciative of support from our customers and community.  Thank you, and please let us know how we can do better!

[where: 111 Mechanic St, Lexington, KY 40507]

Recent Posts: 12/10/2008

Rob Morris 0 Comment Blog

Here are the most recent posts to Under the Hood:

How do you shop for gas?

Rob Morris 0 Comment Gas

I remember the oil crisis from the 1970's when I was growing up.  A habit I picked up from my parents during the crisis was to keep a mental catalog of which gas stations had the best pricing.  I tend to notice the day-to-day changes as I drive around town.

There's a BP and a Speedway which I pass on my way to and from work each day.  As gas prices dropped from $4 to near $1.50 per gallon over the past few months, the two stations moved prices down in tandem — the BP's pricing was within 2 cents of Speedway's, usually higher. 

A few weeks ago, the BP started pricing 15 to 20 cents higher, and they have remained about 6 to 10 cents higher since. 

As I watched these fluctuations, I wondered how people shopped for gas, and if BP might be taking advantage of a particular customer behavior…  Do they take advantage of people who shop at BP no matter what?

So we'd like to know: How do you shop for gasoline?  Here are a few of the ways in which people might shop for gas.  Let us know if any of these match how you look for gas, or if you use a different strategy:

  • Lowest Price: Shop for the lowest price, even if you need to drive a little further.
  • Certain Brand: Try to go to the same brand, regardless of location (Shell, BP, Speedway, Sam's, etc.)
  • Neighborhood: Look for a station that's close to home (or work)

Has your shopping for gas changed at all since the prices have come down, or do you still go to the same places?

I look forward to seeing your comments.

[where: 900 Winchester Rd, Lexington, KY 40507]