The Rockefeller Offspring Misunderstand the Oil Business

Wednesday's Wall Street Journal reported on the Rockefeller family's publicly calling on ExxonMobil to more actively invest in non-petroleum-based energy sources.

The article noted,

"The descendants of John D. Rockefeller -- the founder of Standard Oil, forerunner of today's Exxon Mobil Corp. -- are publicly calling on Exxon to change its corporate governance and take a hard look at the future of global energy supplies.

A majority of 300 adult members of the wealthy Rockefeller family, influential shareholders of Exxon, voted to support four shareholder resolutions at the company's annual meeting in late May. The proposals include urging the company to create an independent chairman post, cut greenhouse-gas emissions and examine whether Exxon should take a more active role in developing sustainable energy technologies.

While most of these issues have been raised before by shareholder activists, the addition of voices from the Rockefeller family, who are well known for supporting environmental causes, adds considerable weight to the calls for change. Several members of the family will be holding a news conference Wednesday to discuss their concerns about Exxon's direction."

Call me, well, sceptical, but isn't this all really beside the point? The Rockefeller family was directed to spin Standard Oil into pieces due to John D.'s overzealous competitive spirit. Not to mention business practices later seen as unfair.


ExxonMobil is now a public company. Isn't it the height of arrogance for the great-grandchildren of the company's founder to be dictating strategy to this very successful petroleum-based energy giant?

For the record, the Journal article notes,


"Rex Tillerson serves as both chief executive and chairman. Exxon management opposes all four resolutions.

According to people close to the family, the Rockefeller clan is generally pleased with Mr. Tillerson, who became chairman and chief executive in 2006 and has led Exxon, the largest U.S. company by market capitalization, to several quarters of record-breaking profit."


Indeed, as the nearby Yahoo-sourced price chart for ExxonMobil, BP, Chevron and the S&P500 Index demonstrates, ExxonMobil has outperformed the index and other majors over the timeframe from the 1970s to 2008. That's 38 years!


The Rockefeller family ought to be pleased with where Tillerson, his predecessor, Lee Raymond, and those before them led the largest shard of the once-unified Standard Oil Trust.


Then we read in the Journal piece,

"They are concerned Exxon's senior management has tunnel vision and is too absorbed with the challenges of daily management of multibillion dollar oil and natural-gas projects to ask hard questions about the future of fossil fuels. Mr. Tillerson and other Exxon executives have said they believe oil and gas will represent the vast majority of energy consumption for decades.

Ken Cohen, Exxon's vice president of public affairs, said senior management has held numerous meetings with Rockefeller members and disputes the view it isn't searching for new fuel sources. "We are focused on delivering the energy the world runs on today, reliably and safely and with a lower environment footprint. In addition, we are focused on research and development activity ... looking for the step-change breakthrough that would improve the economics of various alternatives."

Ms. Goodwin, co-director of an environmental research institute at Tufts University in Boston, is supporting a resolution calling on Exxon to set up a task force to examine the likely impact of global climate change and how Exxon could make a difference if it took "leadership in developing sustainable energy technologies." "

By now, on Friday morning, as I am writing this post, there have been several media responses similar to mine. The Journal published a fairly scathing editorial this morning calling the Rockefellers' demands into questions on several counts. Larry Kudlow and Joe Kernen of CNBC did the same last night and this morning.


I wrote this post in November of last year addressing this exact issue with respect to BP, a major competitor of ExxonMobil, and this one just this past February, addressing the changing dynamics of the oil industry.

To me, several themes seem relevant here.

First, of course, is the question of what would possibly give a group of inexperienced investors in ExxonMobil, who just happen to be descended from the company's founder, the gall and right to tell the current management how to run the company? None of these Rockefeller's have worked at ExxonMobil, or, it seems, anywhere in the oil sector. What gives them the basis to disenfranchise other, poorer shareholders and tell the company's management to run the firm according to the whims of the privileged offspring of the founder?

Isn't this precisely why Standard Oil was broken up in the first place? To dilute Rockefeller influence on the company?

Then there's the obvious alternative for the Rockefellers- sell their interest in the company and invest in some green energy enterprises elsewhere. Or start their own. Use their family's investment and venture capital arm to do this and let other shareholders continue to hold ExxonMobil while the latter is managed according to the judgment of its current CEO and his team.

Additionally, as I wrote in my BP post of last year, there's the question of why a current petroleum giant would have any particular advantage in wind or solar energy generation and transmission. It would seem that neither of these renewable energy sources share much of any technology with oil exploration, refining and distribution. Thus, it's a likely waste of shareholder resources for an oil firm to go chasing after other energy sources. This is precisely the type of mistake that Tillerson and his team should avoid, and prevent a small group of vocal environmentalists with an axe to grind, who happen to be the progeny of the company's founder, from forcing him to make, to the detriment of other shareholders.

Finally, there's Schumpeterian dynamics at work. As my February post noted, ExxonMobil is currently on the way to becoming more of a refiner and distributor of oil and its refined products, as it fails to find and own sufficient reserves to replace its recent production.

In the current environment of nationalistic lockups of oil reserves in the ground, it could well be that ExxonMobil pumps out its own petroleum assets, refines them and what it can buy on the open market, such as it will be, and perhaps even go out of business with one last large dividend, as its reason for being simply evaporates.

That's what happens to companies whose best operating environment and salient reason for being disappears. Then shareholders can use their proceeds to buy other equities which they feel may bring them consistently superior returns.

Why anyone thinks that ExxonMobil, in a return to its futile diversification of the 1970s, will have better luck this time as simply a rich investor in completely foreign technologies, is beyond me. But clearly, the Rockefeller kids don't understand this, and probably aren't even old enough to remember how Lee Raymond, Tillerson's predecessor, shut down those wasteful experiments thirty years ago.

And, by the way, among the Exxon Enterprise businesses were solar, with which I consulted, as part of the Wharton Applied Research Center team. It was a waste of time and money then. So were the many information services businesses which were supposed to replace oil-intensive activities in the new age of the 1980s and beyond.

Maybe some of these Rockefeller offspring should go back to school and learn some history about the last time their family founder's company tried the route for which they are now agitating.

Commercial Bank Problems, CEO Firings, & Total Returns

Earlier this week, in Monday's Wall Street Journal, the paper's minority-owned analytic shop, breakingviews.com, made a big deal out of how Chuck Prince, Stan O'Neal and Marcel Ospel were kicked out of Citi, Merrill and UBS, respectively.


But the CEOs of badly performing WaMu, Countrywide, National City and RBS, the authors complained, remain in power.


What gives?

The article's authors say that the composition of these banks' boards tends to be local, and such familiarity breeds an unwillingness to fire the CEO.


Instead, I would opine that local business figures' presences on these boards explains the appalling lack of oversight and inability to feel sufficiently powerful to oust these CEOs. I would guess it's a case of the CEOs recruiting local businesspeople whom they can intimidate, influence and control. That is, it's much less a sense of social discomfort than feelings of inferiority and insecurity on the part of the carefully-chosen local business lapdogs.


But something else has already happened, and breakingviews, and we, should not overlook what it is.


Stock prices at these institutions are off big time. Some by more than 60% in a year, others by as much as 80%.


The important phenomenon, if you are like me, is already evident. Shareholders who finally had had enough simply sold the stock. Enough of them, relative to buyers, it appears, to push prices down so low as to create the large negative total returns over the last year.


Isn't this in itself a statement of capital markets efficiency? Sure, it doesn't speak well for 'corporate governance,' but I don't believe in that anyway. That's for Congress to legislate and some accounting firm to audit compliance thereto. It doesn't really affect the operations of these banks. And it never will.


The CEOs and senior management of these smaller, but well-known financial service firms still made bad risk decisions, lost tons of money and have therefore seen shareholders vote with their feet/dollars.


As to the CEOs? I don't think you're ever going to see the perfect corporate world where failing CEOs get axed, with loss of tremendous amounts of compensation, when their decisions go wrong.


That's fantasy. Not reality.

Kerkorian & Buffett Are Back On The Investment Trail

The beginning of this week saw evidence of a return to big capital moves and investments capable of triggering later, or funding current megers.

First, Kirk Kerkorian has bought up just under 5% of Ford, with a tender, at a premium, for about as much additional equity in the firm.

Kerkorian, as you can read from my prior labelled posts, most recently this one, involving GM, has been around the auto maker investment track twice already. He triggered Chrysler's sale to Daimler, and fought unsuccessfully, through his emissary, Jerry York, to help GM retrench and deliver more shareholder value in a more timely manner.

My guess is that Kerkorian likes what he sees in Alan Mullaly's efforts at Ford, but correctly realizes that, on its own, Ford will never be a long term provider of consistently superior returns for shareholders. Thus, Kerkorian is probably positioning for either an exit at a 'local' top, before the stock price plunges again, or to participate in his J.P. Morgan-style sector-based investment banking activity by marrying Ford with Carlos Ghosn's Nissan.

Either way, I wouldn't bet against Kerkorian reaching his own investing objectives with Ford. And, for what it's worth, we learned this week that York has already met with Mulally to assure him of Kerkorian's support and satisfaction with his efforts to date at the automaker.

Then we have Warren Buffett joining Mars to buy Wrigley. Due to Wrigley's relative scale deficiency, and the temporary stock price depression due to margin pressures caused by commodity price inflation, Mars moved quickly to secure this acquisition. By using Buffett, it avoided both a bidding war and the need for a protracted campaign to convince lenders to fund the acquisition.

Buffett is usually fairly astute at these sorts of deals, and probably, as a price for his participation, got nice terms, too.

So it would seem that large, sophisticated private investors are demonstrating that it's safe to go back to investing in companies and betting on longer term expansion and business health.

Hopefully, the more publicly-held segments of the financial services sector will be following soon, in a considered and intelligent fashion.

Recession? What Recession?

Well, it's official! This morning's first quarter GDP number is 0.6%.

As it happens, according to economist Brian Wesbury, who appeared on CNBC's Squawkbox to discuss the number, it is just where he forecast that it would fall.

So, let's see, it takes two negative quarters of GDP growth to define the economy as being 'in a recession.'

Fourth quarter of 2007's GDP change was positive. Now, so is the first quarter of this year.

No recession yet.

Wow! What about all the doomsayers and gloomsters, led by the two Democratic Presidential candidates?

I guess they are just plain wrong.

There were two other notable occurrences on the CNBC program this morning.

First, resident 'senior economic idiot' Steve Liesman tried to call Brian Wesbury a 'two-handed economist' and nearly had his head bitten off by the well-regarded economist. It was quite humorous, actually, watching an economics reporter try to tangle with a real economist with some actual academic training and experience.

The point at issue was Wesbury's contention that the Fed's interest rate moves had, indeed, goosed retail sales and overall spending, but that, since it also has stoked inflation, it has been a two-edged sword.

The other interesting exchange was between Wesbury and Diane Swonk, also a Chicago-based economist.

Diane agreed that economic data did not qualify the US as being in a recession. Then she immediately launched into a variety of 'soft' explanations and conjectures- income inequality, consumer confidence surveys, etc.- to allege that we really are in a recession.

Diane's specious logic and grasping at unproven, anecdotal, and, in the case of her allegation of greater changes in US income inequality, just plain wrong information, demonstrates why some people think there is a recession.

There's a reason why recessions are defined by a simple measure. That's because we define recessions by an output measure, or result, GDP change, not an input measure, or cause, such as consumer confidence, or incorrectly alleged incomes inequality or other soft data.

And now, this morning, we know the US is not in a recession.

A Refreshing View of Customer Service

Friday's Wall Street Journal carried an interesting review of the book "The Best Service is No Service," by Bill Price and David Jaffe. The book was reviewed by David A. Price.

Being academically trained in marketing, I was interested in what the authors had to add on this important topic. After-sale experience by the customer is, of course, critically important for a number of reasons- rebuy probabilities and word-of-mouth advertising, to name just two.

Mr. Price begins his review by stating,

"In theory, we should be living in a golden age of customer support. Blogs and Web sites make it easier than ever for consumers to reward good service and punish bad. Companies, for their part, can avail themselves of sophisticated customer-service technology and, thanks to the rise of Indian call centers, less-expensive workers.

But reality hasn't seemed to follow theory. When calling an 800 number, we expect to find ourselves in voice-response hell. We dutifully follow instructions to key in a 10-digit policy number – only to be asked by the customer-service rep for the same darn number. Waiting on hold for 25 minutes? Well, that's what speakerphones are for. A simple email query languishes for days. When it comes to service, entire industries – cable-television operators, cellphone companies, airlines, health insurers – are regarded with the disdain once reserved for used-car dealers."

So true. Already we see that the authors correctly observe that many US companies use automation to cut the costs of customer service, as if it were some unwanted, but necessary function, like garbage removal. Thus, opportunities to use technology to wring more precious customer information from these contacts, as well as leave customers with a positive feeling toward the company and its brands, is irretrievably lost.

Price further reports that the authors define customer service narrowly and pragmatically,

"They consider customer service in its narrow sense of customer assistance – taking orders, answering help-desk questions, resolving complaints, handling billing inquiries. Mr. Price (the author, not the reviewer) is a former senior customer-service executive at Amazon.com, the company from which the book draws many of its most compelling positive examples."

The authors report how most businesses actually perceive and track the function,

Messrs. Price and Jaffe note that three-quarters of chief executives in an Accenture study believed that their firms provided "above average" service. Yet almost 60% of those same firms' customers were upset with their most recent service experience. Senior executives at most companies, the authors believe, are simply in the dark. "The standard across most service operations is to report and track how quickly things were done," they write, "not how well they were done or how often, or why they needed to be done at all.

Thus typical measures like "pickup within three rings" or "email response within 24 hours" hide more about customer service than they reveal. And the measuring is easily gamed. At one company where managers imposed a target "average handle time" (call time) of 12 minutes, phone calls miraculously shortened to just under 12 minutes: As the 12-minute mark approached, agents simply said whatever it took to get the caller off the phone. The call center at another company hit on the idea of reducing the number of phone lines so that excess callers simply got a busy signal – and went unmeasured."

I really loved this part of the review. It was very eye-opening, if not completely surprising. I can personally attest to receiving many post-sales or customer service event emails which, by their design, obscure the real issue and will serve no useful purpose, in my opinion, in helping the companies' managements truly understand what went wrong, if it was properly addressed, and how 'satisfied' I now am.

Think about that second italicized paragraph. Only managements which have virtually zero identification with the long term healthy growth of their companies could behave this way. Rather than consider how to use the customer contact to their companies' benefits, these managers look for ways to simply make the contacts go away or appear minimal.

Instead of these inept approaches to customer service, the authors draw on the experiences of one of them, Mr. Price, at Amazon, to suggest at least one better approach,

"The authors contrast these crude metrics with Amazon.com's focus on "CPX" – contacts per order, contacts per unit shipped, contacts per transaction and contacts per customer. In other words: Don't just ask how long it took to help the customer, ask how often the customer needed help and why. The goal is to avoid creating a need for a customer to contact the company in the first place."

I found this hint of the book's meatier parts very encouraging. These sound like great ideas for describing what is actually occurring in the post-sale information-gathering and expectation-management phase of the sale. The authors further describe some Amazon practices,

"In contrast with writers who offer platitudes so general as to be nearly useless ("Listen to the customer!"), Messrs. Price and Jaffe lay out specific recommendations. Among these: Hold weekly operations meetings to go over CPX scores. At Amazon.com, Mr. Price recounts of his tenure there, chief executive Jeff Bezos would often show up and join in the discussion. Teams would then work between meetings to zero in on "root causes" and solve problems. The authors also recommend charging the costs of customer support back to the product teams that created the need for it; make them feel the pain."

These, too, sound very useful. Especially fully-costing customer service back to the product group which engendered the need for the costs. The fact that Bezos would attend and participate in these meetings tells you that he felt, and wanted to communicate, how vital it was to fully understand and make use of customer service events. Not just to minimize them, but to understand what they told Amazon's managers about the actual provision of the initial products, and how to address whatever was going on that caused the need for the post-sales service activity.

I found this to be a thoroughly refreshing approach to customer service that harks back to the original marketing philosophy of creating long term customer value and company profitability. Rather than try to simply minimize the effects of product policies by reducing the cost of customer service, it just makes so much more sense to use the function as the information-rich opportunity it is to provide necessary feedback to a company's operating groups on how their efforts are ultimately perceived by their customers.

Rare Common Sense: Continental Airline's Kellner

Continental Airlines shareholders should be very pleased to have such a sane, reasonable, pragmatic CEO in Larry Kellner. Succeeding Gordon Bethune on January 1, 2005, Kellner seems to have continued Continental's relatively good performance among other US airlines.

The nearby two-year price chart for Continental (CAL), UAL (UAUA), Delta (DAL), and Northwestern (NWA) and the S&P500 Index shows that, of a badly performing bunch, Kellner's Continental is the best. By a lot. His airline declined nearly 40%, which is bad, but much better than the other three, which all fell by nearly 60%.

Regarding the putative UAL merger, it was reported that Kellner explained,

“The best course for Continental is to not merge with another airline at this time,” Larry Kellner, chief executive, and Jeff Smisek, president, said in a message to employees. “The board very carefully considered all the risks and benefits of a merger with another airline, and determined that the risks of a merger at this time outweigh the potential rewards.”

How refreshing! Kellner avoided the temptation which so often sways CEOs- instantly growing larger - in favor of remaining in the best operating shape he can under currently difficult conditions.

All of the airlines have felt the effects of higher fuel costs, as portrayed in these additional Yahoo-sourced price charts for the past six and three month timeframes.

According to the Wall Street Journal piece on the prospective merger with UAL, Continental's Kellner was

"obsessing over the calculations around synergies, the costs savings and revenue enhancements central to a merger."

The Journal also reported in Monday's edition that,

"Mr. Kellner has publicly questioned whether mergers would create service problems and labor tensions, and until recently said Continental preferred to remain independent."

Airline total return performance hasn't been a pretty picture of late- not for years, in fact. But at least Kellner's management team is sanguine about complicating an already tough situation by adding the difficulties of merging with another carrier, UAL, which isn't really even finished resolving all of its Chapter 11 issues.

It appears that Gordon Bethune performed well as CEO of Continental for so many years. He recruited and developed his successor, Kellner, in a manner that continued Bethune's own sense of restraint and focus on performance for shareholders, not just his own ego.

GE On The "Raging Bull"- What Don't They Get?

I have received quite a few visits from this referring site lately. Evidently, due to my posts over the past several years regarding GE, its current CEO, Jeff Immelt, and the man who selected him for this role, retired GE CEO Jack Welch, some of the denizens of this stock message board found my blog and those related posts.



Over the past few months I would see this referring URL occasionally. However, with the recent frenzy over GE's missed earnings number, Jack Welch's comments on the event, my appearance on Bill O'Reilly's program dealing with GE, Immelt and Iran, and the company's recent annual meeting, the number of visits from this message board have picked up in frequency.


Here is what the latest linked page of comments between various posting readers on the message board says (my emphasis in bold),


"Your post got me thinking about a link that I posted not too long ago. It is "The Reasoned Sceptic". I will add the link a little further on. When GE went down, I thought The Reasoned Sceptic would do a writeup on GE/Immelt/Welch. Think I checked too soon after 4/11/2008 and found nothing new. With your post, I checked The Reasoned Sceptic today and found some rather interesting and uncomplimentary information about GE/Immelt/Welch. When you go to the link, scroll down the right side and look for these listings:


GE (25 writeups)

Immelt (19 writeups)

Jack Welch (5 writeups)


- The writeups at The Reasoned Sceptic, the last time I linked to the site, sounded believable. With GE coasting along, you might not really know what to believe about GE. With the miss by GE the writeups seem to have more weight! - The newer writeups were also troubling. You will have to go to the link and do some reading...you really do not want me to explain...this post may get long as it is. It will take some time...but worth reading. As Naz mentioned, read when you get your coffee or tea or whatever you like on the weekends.


- After reading "The Reasoned Sceptic", looking at the YAHOO chart of the GE/funds and the Excel chart of data...here are some thoughts on GE:


1. GE is in a predicament for this year. What will happen if GE "does not" do better than the S&P 500 or get back to last year closing price of $37.07? GE "just might" be the best place to be this year?


2. You would expect Jeff and the board to be pulling out all the stops to make GE move. If not, GE will come under much "greater" pressure! No excuses will fly this year if the market goes up and GE does not!


3. "IF" GE does well this year, maybe Jeff will save his job for another few years? If a CEO change is going to happen, it will take some time. For now, expect GE to continue in its current form.


4. If GE were to finally break up its current structure, "that" will also take some time. Whatever "might" happen to GE, you are looking at one to two years... All depends on how high Jeff can make GE jump this year...in more ways than one.


5. GE is moving very well as of Friday! They lag the market and need to first "catch up" to the market. After that, will GE continue to $42.12 like last year or better? GE needs to make a statement this year and finish with a "BANG"...and I do not mean Jack with the "gun"...then again...


6. It is easy to follow GE on the YAHOO chart with the five funds. I have added all the funds from the GE 401K for more detail and they all are "index funds" or represent the market. GE needs to mix with the funds or "lead" some...if not all going forward.


7. GE has not really been strong through the middle of the year...and last year is questionable to me. It does try to finish the year up. Will there be a run up from here going forward or a year end run up? Just have to look each day!!!


Hope all the links work and "don't" miss "THE REASONED SCEPTIC". May "rattle your cage" on GE, but says a lot that slowly got to me over the years. As mentioned, GE is just a choice...that I have not used very often. It would be a surprise to see GE do very little this year... Look at the links and do some reading. Any and all information on GE is a help if you are in GE or plan to be in GE. "


Here's what I don't understand.


First, how can these readers use terms like 'sounds believable,' or 'interesting and uncomplimentary information,' and 'may rattle your cage on GE?'


All of my posts are based on real performance numbers in the market- total returns and/or price changes of GE, the S&P500, or United Technologies. None use forward-estimates.


One or two have used GE fundamental information from its income statement, in order to compare its performance with benchmarks from my own proprietary research, as well as with the S&P500.


Of course, I do include Immelt's compensation numbers from the Wall Street Journal and, on perhaps one or two occasions, Forbes.


What's not to believe? And be upset? Why? It is what it is. GE has performed badly for shareholders under Immelt, who has been paid more than $20MM in cash, plus another $100MM or more in deferred compensation, and there's just no getting away from that fact.


Second, in what alternative universe are these 'investors' living? They write comments about Immelt and the board really having to 'pull out all the stops,' or makeup in one year for all of Immelt's prior mediocre performance. They toss numbers which I assume are hypothetical GE stock prices around like they have magical properties. As if Immelt or the board can make the buyers and sellers of the company's stock arrive at some magic number, to the penny.


As if, indeed.


Finally, these people chat about GE stock like it's the only investment vehicle in the world. For God's sake, people, have any of you heard of the S&P500?


Quit wasting your time kvetching about the stock of some low-growth industrial conglomerate has-been, and, if nothing else, go put your money into the S&P. On the basis of nearly seven years of data, chances are you'll earn a better total return there than in Immelt's GE.


But, what do I know? I just stick to the numbers and write about what I see.

Nelson Pelz Buys Wendy's

Last August, I wrote this post on the occasion of a Wall Street Journal piece about the decline of Wendy's, the fast food purveyor.

In that post, I concluded with these sentiments,

"The fact is, from a business history perspective, Wendy's had to slow at some point. It was Dave Thomas' passionate creation, and was inevitably destined to either grow too large, or miss some market trend. Companies don't grow forever. Changes in management, especially the loss of a gifted, passionate, insightful CEO, can cause irreparable damage.

If anyone should have had the sense to realize that Wendy's was finished as they once knew it, with Thomas' death, it should have been his family. Odds are, Nelson Pelz is more realistic about Wendy's than the family or its management. He realizes that it now is probably worth more in pieces.


A little perspective, and a lot less emotion, might have saved all the actors in this drama some grief, energy, time and money. Wendy's was destined to falter after the loss of Thomas, without some equally-passionate, experienced leader. Certainly, a relative newcomer, and an accountant, at that, wasn't going to be going toe to toe with McDonalds and winning. Or with Nelson Pelz, for that matter.


Sometimes, it's better to simply acknowledge change and get it over with."



This past week's announcement that Nelson Pelz had finally purchased the struggling firm elicited cries of outrage from Thomas' family.

Yet, it's a good bet that Pelz can do for the firm's shareholders what Kerrii Anderson never did in her more than five years as CEO after Thomas' death.



Much like Carl Icahn, Pelz is a fixer who puts his money where his mouth is. Shareholders should be happy at his arrival in their midst. Chances are, he'll get things moving to increase shareholder value in a business where management has gone to sleep.

As the nearby five-year price chart for Wendy's and the S&P500 Index clearly shows, Wendys' shareholders have not enjoyed the past half-decade. They missed out on a 50% rise in the index, and suffered a drop of about 10% in value instead.






But that's perhaps not the worst of the story.

By operating Arbys and Wendy's under one corporate roof, Pelz may get some economies of scale and leverage the business sense of his management team from Triarc about how to run a smallish fast food company in this era.

As much as Dave Thomas loved the company he created, and took public in 1976, the nearby look at Wendy's versus the S&P500 index from 1993 shows that Wendy's has only ever had a brief period of superior performance. That was twenty years ago, for a little less than three years. Then twice more, in 2002 and 2006, the cumulative price performance of the stock brought it briefly equal to the S&P.

That's a pretty small window of time for shareholders to have been fortunate to be holding the stock and enjoy a better return from it than from merely holding the more-diversified S&P500.

Rather than share the sentiment of Pam Farber, Dave Thomas' daughter, who, according to the Journal,

"...owns 33 Wendy's restaurants in Ohio with her four siblings," and said "It's just awful,"

of Pelz' acquisition, I believe this is the best hope shareholders and franchisees of the long-suffering, lagging burger chain have had in the last six years.

Immelt's Defense At The GE Annual Meeting

It's amazing how long Immelt is able to continue fooling his shareholders and board, isn't it?


The guy just makes Ronald Reagan's 'teflon President' image look like a piker by comparison.


On Thursday, the Wall Street Journal published and article entitled "CEO Defends GE'S Strategy Again."

According to the Journal,

General Electric Co. Chief Executive Jeff Immelt mounted a spirited defense of the conglomerate's business model, just two weeks after presiding over disappointing earnings that prompted the biggest one-day selloff in its shares in 20 years.

Speaking during the company's annual meeting, Mr. Immelt said both he and GE deserved the "tough criticism" they have received in the wake of the stumble. But he was adamant that GE is on the right path.

The executive has spent much of the past two weeks defending his management and rebuffing calls for a radical overhaul of far-flung business operations.......he described himself as "a complete believer in our company and our strategy."

Not everyone in the audience at the meeting in Erie, Pa., agreed with that conclusion. "Maybe it's time for a change" at the company's helm, said Gary Postlewaite, an Erie resident and GE employee who attended the meeting. "Maybe it's time to let somebody else have a shot."

Mr. Immelt took pains to dispel the notion that his confidence in the business model means he is standing pat. He said he has been an advocate of shedding underperforming business units and adding new ones deemed to have promise.

He noted that GE has exited businesses with $50 billion of annual revenue over the past few years, including the sale of its plastics division and insurance operations. He also said it is serious about cost-cutting, and he announced that it has increased its estimate for 2008 expense reductions to $3 billion, from $2 billion.

GE has blamed its first-quarter earnings -- in which net income fell 5.8% to $4.3 billion, well short of expectations -- largely on the credit crisis. Mr. Immelt said GE will look to reduce its exposure to some of the most volatile parts of the financial-services sector."

As I wrote in this recent post comparing the better-performing United Technologies with GE,

"So, as long as twenty years ago, UT began to pull back from the sprawl created by Harry Gray's reign. It now epitomizes the notion of a large, multi-business company focused on common customers and technologies throughout its units.

The company's name seems to now aptly describe it.

Contrast this with GE's more sprawling, less-related businesses: appliances, aviation, consumer electronics, electrical products, consumer & business finance, healthcare, lighting, media, oil & gas, rail, security, and water.

All conglomerates are not alike. The most diversified, financially-oriented US conglomerates of forty-plus years ago are long gone. Of the two remaining entities of this type, it's clear that the more focused, less-diversified one, UT, has handily and steadily outperformed its more famous counterpart, GE."

So it's ironic that Immelt is proud of his rapid shuffling of businesses, as if merely buying and selling the right ones will magically propel the company to consistently superior total returns.

In contrast, UT has held pretty much the same portfolio of businesses for twenty years, but improved productivity and generated new products and services within them.

Immelt truly just does not get it. And at something in the neighborhood of $20MM total compensation per year for over six years, that's a very expensive shame for GE's board members and shareholders.

Nobel Economics: The Sublime and the Ridiculous

This morning's CNBC Squawkbox program has featured three Nobel Economics laureates- Joseph Stiglitz (2001), Robert Engle (2003), Edmund Phelps (2006) and Robert Shiller, a Yale economics professor and author who has written about housing and financial markets.

I admit that it is interesting to see such an assemblage of economic talent in one place, and for that, I give CNBC credit. This part was sublime.

Of course, then they spoiled it by having their own resident senior economic idiot, Steve Liesman, share the air time with these other, professionally-trained economist PhDs.

Yes, that was the ridiculous part.

Generally speaking, Stiglitz, Engle and Phelps, along with Shiller, provided some simple, reasonable and insightful comments on various financial market topics.

For example, they noted that today's commodity price inflation is based upon real demand increases pitted against supply constraints, in the short run. Therefore, they cautioned against the folly of central bank rate increases to try to contain inflation. All agreed that this cure would simply kill the patient by throttling business growth.

Instead, they argued for allowing market signals to bring more supply onto the market, including the role of speculators. Rather than rail against those who, through derivatives, bet on commodity price increases, they note that these investors are taking risk with respect to a top in commodity prices, while providing added signaling power to suppliers of grains and energy commodities.

Their discussion of the housing market was rather more curious. To a person, especially including Shiller, they all argued for some form of Federal intervention, including Shiller's plea for some new governmental housing authority/lender of first resort.

Shiller contended that some nationalized mortgage bank needed to be created to lend and hold mortgages in a state of 'permanent workout,' was, I believe, the phrase he used, or something very near to that.

In effect, the Nobel economists, and Shiller, held that housing is so important to the US economy and its citizens that it is 'too important' to be left to markets. That private mortgage lenders engaged in overly-risky behaviors that have hurt us all.

Thus, in their considered opinion, we must now lodge all of this risk-assessment in a civil-service populated governmental entity.

Yeah. Right. And while we're at it, let's go find Russia's last seven year plan and try to emulate that, too.

But, to his credit, Stiglitz characterized the no-downpayment mortgages to poor people as essentially free options, because they were allowed to buy an asset with virtually no equity interest, betting on price appreciation. He noted that banks don't usually just give free equity options to financially shaky customers.

There aren't very many conservative economists, although some have won Nobel prizes. At least three of these economists- Stiglitz, Shiller and Engle- are pretty obviously liberals. Stiglitz served in Clinton's administration.

I think financial risk taking and mechanisms related to that is where economists part company with financial market theorists. For example, Steve Ross, currently at MIT, is both an economist and a finance professor. In an after-dinner speech at an MIT alumni function last year, he described the difference. There is one.

The assemblage of economic talent this morning on CNBC sort of self-organized into a stampede calling for more governmental oversight, regulation, pre-emptive action, etc., in the area of financial risk taking. I have to say, I think they all strayed on this topic pretty far from their actual area of expertises.

When viewer email questions were read aloud to be answered by the Nobel laureates, the first one involved who would be the best economic President among the current candidates.

On this point, you really saw politics and self-interest rear their ugly heads. Stiglitz and one of the other laureates quickly backed Obama. Arguments like his being 'new and open to new ideas,' and alleging that 'things are different now than in 1992, so Hillary won't be as appropriate' were the tone of their responses.

How disingenuous. Stiglitz worked for the Clintons, is a liberal Democrat, and probably sees the writing on the wall regarding Hillary's likely demise. If he's to snare another administration post, leading to more book sales down the road, what better way than to publicly provide Obama with his unsolicited endorsement on a nationally-watched, prominent business news program?

The most thought-provoking element of this morning's discussion amongst these economic literati, though, was the one about housing finance.

While I may disagree with Shiller's insistence on some ironclad uber-management of the function, in order to completely stamp out any sort of market 'failures' in the future, his arguments illustrate something important.

As my friend B has held for a decade, the eventual structure of the US financial services sector has seemed to be five or fewer gigantic utilities, along the lines of the current Citigroup, BofA, Chase and Wachovia. These firms, plus, perhaps, a few weaker investment banks added to them, have morphed into slowly growing, ponderous financial titans incapable of much growth.

B's idea was to eventually separate all of the truly core, insurable financial services activities, such as DDA accounts and transactions businesses- clearing, settlement, etc.- into government-insured, low-yielding utility-like entities.

Perhaps the ultimate solution for housing finance, along the lines of Shiller's suggestions, is to move residential home lending into a government-insured utility, too.

If housing is to be a major component of our economy, and we also wish to insulate borrowers against predation, interest-rate risk, and even asset value risk, perhaps we just need to remove the sector from the for-profit arena.

The last few decades saw significant private mortgage finance options grow to compete with Fannie and Freddie. Jumbo loans and low-doc, no-doc loans appeared, were offered and securitized. Now, it seems, the wisdom of that final step, and probably the earlier ones, was doubtful.

The effects of those mistakes, pulling housing prices down in the locales which also experienced such rampant appreciation, has soured many Americans on the idea of leaving this sector to private capital.

If, in their collective wisdom, citizens-cum-voters decide that they must punish private lenders, and themselves, indirectly, by prohibiting any more freewheeling privately-owned housing finance providers from behaving as they did in the prior housing cycle, so be it. In effect, Americans will have chosen to simply limit risk-taking in this sector, along with growth.

What the economists all failed to note, however, is the scream that would have arisen from liberals, had much of the private enterprise housing finance shut off credit to lower-income Americans. Charges of discrimination and redlining would have abounded.

Maybe, a la Shiller's solution, we'll just settle the argument once and for all by draining the profit-making incentive right out of housing finance, and returning it to its stodgier, less-risky roots in pre-1980s finance.

Some Recent Earnings Performances: Apple, Starbucks & Boeing Plus Microsoft On Yahoo Acquisition

Yesterday's Wall Street Journal contained articles on a host of interesting companies about which I have recently written. Nearby is a Yahoo-sourced two-year price chart of the various firms I'll mention in this post- Apple, Boeing, Starbucks and Microsoft- and the S&P500 Index.

For example, Apple, a company in which we currently hold long-dated call options, rose nicely following its earnings announcement.

Despite the many protestations of pundits as notable as Herb Greenberg that Apple and Steve Jobs just could not continue to surprise, they did. Even when analysts factored in Apple's expectations management, the firm still outperformed them.

This is one reason that our equity selection process is so strong- it ignores those observers and analysts who fail to appreciate actual historical performance of individual companies, opting instead to predict to the mean of all companies' typical performances.

Then we have Starbucks, whose sales have been affected by related economic softness. By going downmarket in the past few years, as I've written in prior posts, the firm exposed itself to the more price-elastic buying behaviors of less-wealthy customers. We're now seeing the results of that strategy.

Whereas financial firms purchase excess growth through asset risk, consumer goods companies like Starbucks purchase it through penetration of non-traditional segments whose buying behaviors are different than those of its core customer group.

So far, Howard Schultz' return to the coffee giant isn't going so well.

Boeing reported earnings on Wednesday, too, also announcing earnings above expectations. Consequently, its stock rose on the news by some 4.5%.

Does this mean Jim McNerney has finally straightened out problems at the airplane maker? Not by a long shot. Boeing is still counting on reversing the Air Force's decision to use Airbus planes to replace its fuel tankers, and the Dreamliner may yet suffer another setback.

Whereas Apple has gone from strength to strength for several years, as evidenced by the price chart above, Boeing has been struggling. I'd have to see a much longer period of sustained revenue growth and total return superiority before I'd believe that Boeing has solved its problems.

Then we have Microsoft. For a change, the Journal's article about the tech giant's CEO, Steve Ballmer, actually reflected well on him. Having its Yahoo acquisition offer outstanding for nearly three months, the software vendor, as represented by Ballmer, is expressing confidence that they can, if necessary, skip the Yahoo deal.

That's actually heartening to me. Not that I'm a Microsoft shareholder. It hasn't been in my equity portfolio for nearly a decade.

But Ballmer made some sense in that he has acknowledged his own firm's risk in integrating Yahoo. Citing internal reasons for not increasing Microsoft's bid for Yahoo, the CEO gave shareholders some reason for sanity in the looming hostile phase of the firm's quest for the ailing internet portal player.

As miserably as Microsoft has performed for years, it will probably only do worse as it attempts to do several new things: integrate a large acquisition, deal with various staffing exits and other related issues, and then have to actually make good on the promise that the Yahoo acquisition will somehow solve all of the firm's ills.

So, on balance, it's been a promising week for some large US companies. Not necessarily sufficient for me to invest in those I don't already own, but at least some signs of better management and perspectives among CEOs of Boeing and Microsoft.

Wachovia's & Citigroup's Annual Meetings

My longtime friend and sometimes partner, B, sent me a copy of the American Banker's article yesterday on the annual meetings of Citigroup and Wachovia.

The article noted,

"The chiefs of Citigroup Inc. and Wachovia Corp. faced angry shareholders Tuesday as both companies held their annual meetings.
Though disgruntled shareholders are not a new phenomenon at annual meetings, both Citi and Wachovia held their powwows this year on the heels of reporting substantial first-quarter losses tied to the persisting credit crisis.

In New York, several shareholders called on Citigroup's entire board to resign, but all the directors were reelected, Citi said, with at least two-thirds majorities. In Charlotte several investors demanded that G. Kennedy Thompson step down as chairman, president, and chief executive."

I couldn't agree more with the shareholders calling for Citi's entire board to resign. And, given Wachovia's troubles from its Golden West acquisition, Ken Thompson should be leaving, as well.

If you need to see why there's only one weapon for shareholders, selling the stock of a company with which they are disappointed, consider the article's portrayal of Thompson's disgusting behavior,

"Mr. Thompson heard the first salvo early on as a critic approached the microphone before he could begin his presentation. Manuel Lopez, identifying himself as a shareholder, was the first of several to call on Mr. Thompson to resign. He accused management of either withholding facts or being "completely unaware" of Wachovia's financial condition, drawing strong applause from many of the 400 audience members.

Mr. Thompson took the criticism quietly before offering a mea culpa in his prepared remarks. "I'm not here to sugarcoat things, make excuses, or say that we are a victim of circumstances." Wachovia's revenue stream is sufficient to carry it through the economic crisis, he said, and he forecast long-term success. "Nothing is more important to me than restoring credibility" lost in the October 2006 purchase of the big Oakland, Calif., thrift company Golden West Financial Corp., he concluded."

As the nearby Yahoo-sourced one-year price chart for Citigroup, Wachovia and the S&P500 Index indicates, both banks lost more than 50% of their stock's value in that time period, while the index was marginally negative.

With results like these, you'd think Thompson would at least offer to return a few years' worth of deferred compensation, to show his firm's shareholders that he really 'felt their pain.'

That isn't going to happen, is it?

No. And this is why reforming CEO compensation to consist largely of lagged equity awards subject to consistently beating the S&P500's total return. Otherwise, CEOs like Thompson win big in good years, and do just 'pretty well' when their prior decisions boomerang, as his did with the Golden West acquisition.

You know that if one of his subordinates had been so boneheaded as to have done something so foolish, Thompson would have fired him.

Pandit's a little different, in that he lucked into his job so late in 2007 that he can't really be held accountable for much of anything yet.

If only his board were to resign, the new one could learn a lesson from both banks' recent difficulties, and redesign Pandit's compensation to go light on cash payments, and heavy on lagged, S&P-performance-related awards of Citi equity.

Well, at least you can't say commercial banking is as boring as it used to be.

Ford's 18 Months Under Mulally: Is This a Turnaround?

I first wrote about Alan Mulally's involvement with Ford, the company of which he became CEO in September, 2006, in posts here and here, in December of 2006 and July of last year.

Now, this morning's Wall Street Journal heralds Ford as its "..Recovery Advances; Earnings Improve."

But, turnaround?

According to the nearby Yahoo-sourced two-year price chart of Ford and the S&P500 Index, they were at about the same place when Mulally took over, on a percentage basis, from May of 2006. Now, the index is positive, with maybe a +5% return, while Ford is still negative, with what looks to be a return between -5% and -10%.

Granted, Ford has rebounded smartly from a -30% return only weeks ago, ending a precipitous slide begun last fall.

But, as I have asked in prior posts about 'turnarounds' at other firms, what will constitute a successful turnaround?

To me, net income performance, impressive as it has improved under Mulally, is not alone sufficient.

The pattern and magnitude of a firm's fundamental operating results create investor perceptions that underpin a firm's attainment of consistently superior returns for its shareholders.

Unless Ford is planning on really strong, consistent double-digit revenue growth in the years ahead, it's going to have to achieve any consistent total return performance mostly by productivity improvements.

It's clear that the Journal likes Mr. Mulally very much. All three articles about him provide unfailingly upbeat, flattering profiles. And my guess is they are not wrong.

Even this piece's details about Mulally's pushing to sell Jaguar and Land Rover, redesign the Ford Focus, and attack inventory problems all ring with the sense of a really good manager at work.

Still, call me sceptical. It's not just that Mulally must haul Ford back from the brink of bankruptcy or sale. He must, in my opinion, then lead the company to several years of unexpectedly good performance, either with new revenue and volume growth, or incredible productivity gains, in order to provide the basis for consistently superior total returns for shareholders.

Can Mulally accomplish this? Who knows? I'm a 'show me' kind of investor, and Ford has years to go before it can possibly, in my view, be accorded the title of a 'successful turnaround,' or 'recovery.'

United Technologies: A Different Type of Conglomerate Than GE

In last week's Wall Street Journal, the paper's minority owned breakingviews.com writers compared GE's recent and longer term earnings performances to those of United Technologies.


As it happens, Friday's Journal featured the UT earnings report, trumpeting the headline "United Tech's Profit Jumps 22%."


Of all the conglomerates which once dominated the US corporate scene up until the 1980s, only GE and UT remain. Names like Textron, LTV, Gulf & Western, Westinghouse, and Litton are history. ITT is no longer the sprawling giant of Harold Geneen's day, while the more recently-created Tyco has also scaled back after its architect, Dennis Kozlowski, went to jail.

Since GE is relatively better-known, and less-covered, let's take a moment to acquaint ourselves with the 'other' Connecticut-based conglomerate.


UT's website lists its current divisions: Carrier, Hamilton Sunstrand, Otis (Elevator), Pratt & Whitney, Sikorsky, Fire & Security, and Power.


The company largely serves two major markets: buildings and aircraft. The bulk of its divisions, products and services focus on the needs of customers with these fixed assets.


Originally created by its legendary first CEO, Harry J. Gray (1971-87), UT has only existed as a conglomerate since the early 1970s, as we will subsequently learn, below. After Gray, Robert Daniell (1987-1994) became CEO, ceding that position to longtime employee George David (1994-2008), who leaves the company this year.


This article describes the history of Gray and United Technologies. Specifically, note the following passages,


"Harry Gray had been appointed president of the United Aircraft Corporation in 1971. United Aircraft was at that time one of the largest companies in the country and had a long history of manufacturing airplanes and helicopters for the American military. Gray was determined to diversify United Aircraft in order to diminish the company's reliance on defense contracts. Flourishing Essex International became his first acquisition. Under United Aircraft, soon to be renamed United Technologies....

Through the 1970s, Gray continued his program of growing and diversifying United Technologies through acquisitions.

Although Harry Gray's aggressive policy of growth through acquisitions had built United Technologies into one of the 20 largest industrial corporations in the United States, in the mid-1980s a number of Gray's riskier ventures turned sour. Indeed, net income dropped by about $600 million between 1985 and 1986. After a great deal of internal turmoil amongst UTC management, Gray stepped down as CEO of the troubled firm in 1986. Robert Daniell was appointed in his place. Daniell immediately undertook a major restructuring of UTC, streamlining the unwieldy company by selling off divisions that did not fit into United Technologies' main product lines. In 1988, as part of this reorganization, the wire manufacturing operations of Essex were spun off as an independent company, although the new enterprise continued to produce the wire for the automotive wire assemblies and electronic devices manufactured by United Technologies Automotive. Daniell's reorganization of UTC also included the dissolution of The Industrial Products Division, thus making United Technologies Automotive an independent business unit within UTC.

By the late 1980s, with the major building blocks of the restructuring in place, UTC began to look once again towards strategic expansion, although this time only businesses that would mesh with their major product lines would be considered."


So we see that the modern UT is built upon a collection of businesses with explicitly related technologies, not just a scattershot of various unrelated businesses.


The nearby price chart for UT and the S&P500 Index, from UT's inception to the present, tells and interesting story.


A longterm 'buy and hold' investor would have done well to invest with Harry Gray back in 1971. But the same investor could have bought the index and jumped in later, around the time of Gray's exit, in 1987. Or, again, in 1994, when the current CEO, George David, took over leadership of the industrial conglomerate. In fact, all of UT's superior performance, relative to the index, can be accounted for by just David's years as CEO. Despite progress during both Gray's and Daniell's tenures, the relative gains for shareholders by UT, relative to the S&P, always evaporated. The company has had a relatively steady track record of total return performance, implied by the price chart, assuming a constant dividend. But, still, it couldn't consistently outpace the index.

It's clear that Gray's diversifications ultimately caused trouble for the company and its shareholders. For example, as Robert Daniell began to lead UT, this article appeared, describing his first two years as CEO,

"At the start of 1987, United Technologies took a charge of almost $600 million against earnings to reduce the work force and sell unwanted operations, reflecting a change from the earlier acquisition-minded growth days to a management stressing cost savings and profit margins.

Mr. Daniell sold off 25 businesses and focused on three major areas: aerospace, auto products and building products, including Otis elevators and Carrier air-conditioners.

The strategy has paid off, with United Technologies reporting 1988 earnings of $659.1 million on revenues of $18.5 billion, both record figures for the company."

So, as long as twenty years ago, UT began to pull back from the sprawl created by Harry Gray's reign. It now epitomizes the notion of a large, multi-business company focused on common customers and technologies throughout its units.


The company's name seems to now aptly describe it.


Contrast this with GE's more sprawling, less-related businesses: appliances, aviation, consumer electronics, electrical products, consumer & business finance, healthcare, lighting, media, oil & gas, rail, security, and water.


Originated from Thomas Edison's electrical-related ventures in the late 1880s, GE was itself originally a much more focused conglomerate.


As this GE webpage explains,



"1876 was also the year that Thomas Alva Edison opened a laboratory in Menlo Park, New Jersey, where he could explore the possibilities of the dynamo and other electrical devices that he had seen in the Exposition. Out of that laboratory was to come perhaps the greatest invention of the age - a successful incandescent electric lamp.

By 1890, Edison established the Edison General Electric Company by bringing his various businesses together.


Several of Edison's early business offerings are still part of GE today, including lighting, transportation, industrial products, power transmission, and medical equipment. The first GE Appliances electric fans were produced at the Ft. Wayne electric works as early as the 1890s, while a full line of heating and cooking devices were developed in 1907. GE Aircraft Engines, the division's name only since 1987, actually began its story in 1917 when the U.S. government began its search for a company to develop the first airplane engine "booster" for the fledgling U.S. aviation industry. Thomas Edison's experiments with plastic filaments for light bulbs in 1893 led to the first GE Plastics department, created in 1930."


Thus, we see that some of the current, or just-exited businesses, grew from events or technologies unrelated Edison's original electricity-oriented businesses.


When adding GE to the prior price chart, since 1971, for UT and the S&P500 Index, we see that UT has outperformed its more-diversified and famous fellow conglomerate. By a fairly wide margin, since the y-axis is logarithmic.


And, as I noted in this recent post, this chart again illustrates that GE's performance under Welch, from the early 1980s to 2001, were distinctly and uniquely superior, relative to the market. From Welch's retirement onward, GE has declined, then flattened, relative to both the index and David's later years with UT.


All conglomerates are not alike. The most diversified, financially-oriented US conglomerates of forty-plus years ago are long gone. Of the two remaining entities of this type, it's clear that the more focused, less-diversified one, UT, has handily and steadily outperformed its more famous counterpart, GE.

GM's Management Realignment

GM's brand management realignment was reported in an issue of last week's Wall Street Journal.

According to the article, the company has organized its eight brands into four groups, for purposes of coordinating sales, marketing and advertising.

Cadillac, Hummer and Saab have been grouped into a 'premium channel' of brands for GM, with former Nissan executive Mark McNabb appointed to manage the group in North America.

Buick, Pontiac and GMC form another brand group. Saturn evidently remains as its own brand. The article didn't detail which vehicles form the fourth brand group in this reshuffling.

Mark LeNeve, GM's North American marketing chief, was quoted as saying,

"Think about (the channels) like a business,"

with channel executives gaining control of and responsibility for marketing and sales resources formerly in the hands of now-eliminated regional sales executives. These channel managers will also have "a role in product development."

I guess anything GM can do to sensibly cut needless expenses is a good thing, relatively speaking. And perhaps doing that with similar-brand marketing and sales expenses is the next best thing to culling actual models and brands in the shrinking firm.

Still, one is left wondering,

"So what?"

Isn't the real Achilles Heel at GM product development and technological innovation?

Much of GM's marketing and sales strategies in recent years has involved zero percent loans and other pricing gimmicks to offload production.

True product differentiation based on features or customer-specific marketing and segmentation doesn't seem to have been the order of the day.

If it were, would sales have sagged so much? It's one thing to not have pricing power versus competitors, but at least match their sales penetration and market share.

In GM's case, it's been years since they have held share with premium gross margins.

Will this new marketing organization make this better? Well, technically, no, since the entire marketing and sales structure expenses fall under the SG&A line, which affects net profit, but not gross margin.

I continue to believe that for GM, cost-cutting is still a short-run solution to a long-run problem that involves creativity, design innovation and getting those functions back in touch with customer needs and preferences. In that sense, this reorganization only offers the hope that the single-line reference to the new brand group channel chiefs' input into product development might make some difference in the years ahead.

Based on prior results at GM, I wouldn't hold my breath waiting for this to work.

YouTube Video Clip of My Appearance on The O'Reilly Factor RE: GE, Iran & Immelt

In this recent post, I referred to my appearance on last Monday's Fox News program, The O'Reilly Factor.

After a week, someone has finally put the video of the O'Reilly segment in which I appear on YouTube.

For those readers who did not see it, but wish to, here it is.