Professor Elam

Save Me an Aisle Seat!

I have added my suggested list of movies with ethical themes to the Handout section of WEB CT for your class. An asterik indicates I have a copy of that movie.  Sadly, most video stores either sell older ones or a few may be in the classics section. However, amazon.com to the rescue, all of these are available for ten bucks or so and yes I will buy your copy if it is one I don't have for future classes, so get busy and find your favorite.

No you are not constrained by this list, certainly my original list has expanded to this one as from student suggestions, Not Without My Daughter was such an addition.

I do ask that you tell me your selection first so that we can avoid having two people do the same film in the same class. 

I will also be posting a list of business books I have, there is the Cedar Valley CC library and the Lancaster Public library both on Dallas Avenue which is just the next exit east on I 20 from Houston School Road. Again, I find that if it is something I want it is easier to just go to amazon.com and buy used for about what I would spend in gasoline and time trying to find a copy.

Dennsi Elam

Discussion Site on WEB CT

All

The graduate class has responded well to my request to discuss articles on this Blog.  Indeed, Jordan McClary and Sharell Gallien made 11 and 10 posts respectively.  WEB CT gives me a report on who does what so those of you who have not 'hit a lick' yet take note.  My feeling reading the posts is that I have managed with this many posts to appeal to some of your interests. 

It may be that I need to group all three classes together so we are all on the same discussion page so to speak, it may be a bit late to do that but I will see.

Sharell ran across an interesting article about the president of Texas Southern . Seems she, the President not Sharell,  is charged with co opting $650,000 to her own use.  We will be examining the motives and rationalizations of such folks every semester. I have posted the list of movies by the way, so start your DVDs and VCRs as I will soon be assigning times to report to the class. 

Note to the undergrad classes, you can start posting on the discussion site of WEB CT anytime now.....

Dennis Elam

Real Returns

There is a good article on the low end luxury real estate market ($750K-$1M) on page  W 8 of the 1/26/07 WSJ.  It never pays to be late to the party so to speak.

And again in the statistics don't lie but dept....when I was studying to become a broker in 1972, mutual funds handily indexed the year 1931 as the assumed start point to buy a mutual fund.  That handily indexed the DOW industrials to its all time low at about 44, which was a whopping 300 at the top in 1929. This of course was wildly unrealistic, virtually no one started investing at the bottom of the Great Depression, but the arithmetic of it made the theoretical returns look oh so much higher.  It would be the 1950s before the DOW actually traded over its 1929 high again after all, if they had taken that year as a start it would be obvious that no one would have made any money in a mutual fund for thirty years!

A similar thing is about to happen.  2002 was a melt down year what with 9/11 and the dot.com bust.  This year will eliminate it from the five years average. Five years now spans 2003-2006 eliminating the disaster of 2002.  This will magically transform the five year 'average
returns.   See the article on page Cn 1/26/07, The Butual Funds Eraser. This is exactly the sort of information I am trying to deliver to you outside the normal textbook and classroom.

DLE

PS can you identify the home pictured at the start of this post?

Ford GM The Saga Continues

Yes I spend a good deal of time talking about the troubles of Ford and GM, but right before our eyes, nothing demonstrates Dr. Deming's 14 points and seven deadly diseases of TQM intertwined with , ahem, accounting difficulties, better than this.

I made the post Making a Change a Tough Job before I read the article about GM Ford in the Friday 1/26/07 front page article.  Please read this article.  Title Big Three face new obstacles in restructuring, it details that all the cost cutting and muscling both suppliers and dealers is over.  Suppliers are in bankruptcy or are just saying no, dealers now have multiple dealerships, often with better selling Asian vehicles, and worse, GM Ford et al continue to sell valuable assets to bring in cash to shore up falling market share in hopes that sometime soon they will have a hit on their hands.

Worse, Ford is suffering an outflow of management talent, well, would you stay if  say KIA offered you a job?  So Ford is considering offering bonuses to get mgt 'talent' to stay.  Well, remember the story about the new North American marketing chief spending $200K to fly back and forth to his home in  FL, needless to say this is not sitting well with unions that are being asked to make sacrifices. 

I will be asking you to make presentations this semester.  This article makes an excellent use of charts on page A 8.  Take a look at Ford negative cash flow  versus debt assumed to bring in cash.  This is the worst of all worlds-the debt equity ratio rises while NOI is negative!  Now GM is considering selling Allison heavy duty transmission unit.  Ford has hocked its plants.  GM has sold 50% of GMAC.  How long does one mortgage what is left to save a sinking ship?

I thought the most interesting question was posed at the very end of the article.  The WSJ asks, ahem, do auto makers' financial problems affect your decision on what car to buy?  Now there is a good question.  If eventually buyers begin to doubt the longevity of the auto maker, will Ford be here to service my F 150, the end is pretty well sealed. 

Again, Deming makes the point that long term strategy is just that and brings long term results.  This re shuffling of the balance sheet can buy some time, but product saves the day.  Jerry Flint suggest GM will be a 20% market share company, and he has criticized Ford for lacking a real plan. 

As I said yesterday, failing to make radical change in the face of radical market shifts can eventually be fatal.  Since WW II, Packard, Studebaker, American Motors are companies that failed or were sold. GM has now shuttered Oldsmobile and thinks Buick, Pontiac, Hummer and Saab are all weak.  Ford tinkers with closing Mercury and Lincoln has little to sell.  Ironically Foose in Farmers Market is doing well making a 40 year old GM and Ford product.  Gee if only GM and Ford could get back to the future......

Well even among sad stories there are winning stories, check out the story in the saturday morning DMN about Classic Chevy in Grapevine, the number one volume chevy dealer in America.  The story says they have the largest inventory, about 1700 and sold about 4300 last year.  That's an incredibly slow inventory turnover, but the article says it brings more lucrative repair and maintenance and trade in business.  You can check them out at Classic Chevy   The article mentions a more laid back customer friendly attitude that has attracted customers and execs from other dealerships gobbled up by large chains. See, there's Dr. Deming again, put the customer first....

DLE

Ethics in Accounting

The headline in the Friday Jan 26 2007 detail how Gloria Orapello rang up  $383,788 in personal charges on her DISD charge card.  The theft by credit card occurred over  a period of 27 months.  Apparently half of the 1,200 employees are guilty of some level of theft by credit card.  Now this raises several questions. 

Clearly no adequate system of internal control was in place at the time the cards were issued.  Why not? Where were the internal and external auditors?

Clearly no one had any oversight over these employees, even the simple expedient of limiting the card to $500 would have helped.

Ms. Orapello says she "greatly regrets her conduct in every way," according to her lawyer.  No doubt she regrets getting caught but what are we to do with Ms. Orapello now?  What is justice?  Perhaps we should call on Prof Senderson in Criminal Justice, what was this woman thinking would happen?

Ethics requires a framework of reference.  What standards are violated?  Who are the stakeholders?  What are the consequences?  Under different theories of ethics, justice, rights, etc. what harm is done and to who?  She could face ten years in jail and $250,000 in fines, DISD has apparently paid the charges. So we throw her in jail, if so how would she pay the fine?  Do we need a new sort of justice for such a crime, how should she pay for her crime?  And what do we do with the others?

Now, what is the collateral damage?  Is there further damage? Suppose DISD floats a bond issue, should we trust them to safely spend the money?  For that matter can they be trusted to even spend the current level of property taxes?  What does this say about the general level of regard for 'education professionals?

Please read the complete article, we will discuss this in class and examine it further in auditing this next fall.

DLE

Improving Margins

Here is a great story about Managerial Accounting.  MCD and TGT have done well at squeezing more money out of exisitng stores, WMT has not, here is how McDonald's is using 13,000+ restaurants to make more money from existing locations.

The trick is to use your location and add value during times that you are not now selling meals.  The Egg McMuffin made breakfast a fast food item. So by opening 24 hours MCD is able to attract the 24/7 crowd that works different hours.  A longer than usual story and a great managerial read.  This is what every chain store wants to do but few achieve.

CLE

Making a Change-a Tough Job

I just read another insightful column by Jerry Flint about  GM's market share loss.
Please click and read the column. Mr. Flint does an admirable job of using statistics that anyone can understand, look at the waterfall decline in market share.  What was the GM Board thinking?  Yet the Board did not take action to remedy the situation.  As Mr. Flint says, nothing is going to change until the market share stops going down.

I was a Federal Bankruptcy Trustee for five years.  I observed the same thing.  People thought that small changes would make everything right again-it won't.  It is like Jimmy Carter wearing a sweater in the White House amidst the second oil embargo.  One can see the same thing in the worst of all situations, volunteer boards.  Volunteers never have a stake in the opeartion, if it fails their lives are unaffected. This cannot be tolerated. Yet Presidents line Boards with folks friendly to them to make sure just such opposition does not emerge.   Much the same can be said of the GM board.  As market share declined, they continued to earn Director Fees and no doubt met in the poshest of places. 

Another example would be the current plight of the Republican party.  Republican attack dog Ann Coulter observed that Republicans lost about the average number of seats in this last sixth years Presidency election.  True Ann, but they also lost control of the House, Senate, a majority of governorships, and hundreds of state house seats.  In short, a tidal wave turn occurred, not just a loss of 30 some odd House and 6 Seante seats.  I am not trying to get us off on politics but  this perfectly illustrates how one can either use the same statistics to do little or nothing, or sound the alarm for change.  Back to autos, I suspect Jerry Flint is right, that both Ford and GM will end up permanently smaller.  Ford wil probably end up as a light truck manufacturer the way things are going.

I started this post with the movie poster from Conan the Barbarian.  A movie star in what used to be striclty B movie territory, muscle men battling in an imaginary landscape, has become the most successful turn around politician on the scene.  After a rout that defeated all his ballot initiatives and being given up for dead, Arnold fired staff, hired new ones,  did a 180 on his strategy, and left his Dem opponent wondering what happened.  Contrast this with Bush who waited until after the election to remove Rumsfeld-in fact he did so the next day after denying he would. Even Chuck Schumer stated that if Bush had done that three months earlier, the election might have been totally different.

Bottom line-whether it is Ford, GM, or the White House, big developments call for big changes.  Gradualism will take you the way of Packard and Studebaker, not Toyota or BMW. Yet rare is the individual who in the face of declining fortunes who is willing to stand up and make radical change.  We will be visiting other examples here on the blog of such action, think Lech Walesa in Poland.

DLE

Whither Home Sales?

:Here is a piece of PR fluff-Existing Home Sales Plummet.  This article notes that home sales suffered their worst drop since 1989. Indeed the Chief Economist for National Association of Realtors NAR admits that 40% of the market in 2005 were speculators buying and hoping to re sell for a profit.  Indeed, there is even a television show named Flip or something that features such speculation. When such speculation reaches mainstream tv, you know it is a sign of a top.  Then in the same breath the economist concludes, my emphasis, that that speculators had now left the market .  What he really means is that housing sales slowed because the investors could not sell the ones they had purchased.  indeed, look a bit deeper and he notes that even in 2006 the prices of homes sold managed to rise 1.1%.  Now there is a bit of statistics don't lie but liars are always quoting statistics.'  What about the houses that did not sell, what did their prices do? The answer of course is that there is now a huge overhang of houses on the market that cannot be sold at the prices they were bought, much less for more.

All of which is to say, it pays to read statistics very carefully.

American Airlines bucks the trend

Pleae read this excellent column by George Will about American Airlines.    AMR is burdened with many of the same legacy costs at GM and Ford. But AMR is up from $3 a share to $37 in the last few years.  This is a good example of the problems of the union contracts and their costs I have discussed in class.  And it illustrates the cost reductions forced by the transparency of rates on the internet.

DLE

Is There a Ken Burns in the Audience?

In honor of Milton Friedman (see recent posts)  You Tube is sponsoring a
Challenge the Status Quo Contest.   Click on the link to the left to learn more about it.  Economist Friedman championed challenging the status quo, now you can too.  There are cash prizes and the video has to be between one and ten minutes.

Read more about Friedman and the forthcoming video on him Monday Jan 29 on PBS in John  Stossel's article.

What to challenge, read Stossell's article, Milton challenged just about everything, or   how about

Mexico's refusal to reform its economy , this is the only country in the world whose economic plan of its poorest consits of one word-leave!

Our failed war on drugs-Chicago gangsters of the 1930s could only dream of the money narco drug lords have made

Getting serious about energy consumption

Getting serious about education-cost, should everybody go to college, what's important

Social issues?

How about simpler cell phones and computers - see previous posts - instead of a whole new complex version of Windows and Office that none of us wants to learn anyway

Okay, start your digital cameras, remember, Steven Speilberg began with the tv movie Duel, Steve McQueen starred in the  Blob, think, American Idol Director!

DLE