Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Corporate chiefs' 'cowboy' mentality at root of problem

- by Alan Duvall 

Published in Dayton Daily News February 12, 2006  

The United States in general and Dayton on a local level were rocked by news of General Motors’ announcement it was laying off 30,000 employees and shuttering 12 plants by 2008. 

Not to be outdone, Ford then disclosed its own plan to eliminate 30,000 jobs and close 14 plants.  DaimlerChrysler quickly jumped on the bandwagon to reduce 6,000 staff. 

Unions were not amused labeling the news “disappointing” and suggested strategic alternatives based upon increasing sales and market share to preserve employee livelihoods. 

Unfortunately, the big three automakers had already tried that route heavily discounting prices to move inventory.   

The result?  GM alone posted financial results indicating a loss of $4.8 billion in the fourth quarter and $8.6 billion loss for all of 2005 despite total sales exceeding $193 billion.  

How does a company lose money on $193 billion sales?  Sure, we can discuss financial theories revolving around terms such as health insurance, pension woes and retiree benefits.  But perhaps the true answer lies in the cowboy psychology of America’s business elite. 

First, compare the budget mentality of the typical U.S. worker who brings home a rigid paycheck – the same net pay week after week.  The worker must live within the budget with few options or financially suffocate. 

Business owners do not feel bound by such budgetary constraints, firmly believing they can always outrun short-term cash shortfalls.  Mentally, business people are always one new sale, one more customer away from achieving fiscal prosperity. 

“Selling out of harm’s way” spurs business strategies that can destroy bottom lines.  In a desperate bid to keep production people busy, owners often price products using competitors’ prices as barometers – instead of considering internal overhead costs.  Here's a lesson from Business 101 - Incremental sales are only useful if profitable.   

Financial retreat is not pleasant, yet it is at those defining moments swift financial retrenching is needed to preserve the business foundation.   

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.