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Look, I’m typically an optimistic guy. You could even say I’m optimistic to a fault. But unfortunately, I’m finding it very difficult to remain optimistic in the current economy.

Let me be very clear, I’m not an economist by any stretch of the imagination. I don’t even have an MBA. However, I think I get a few simple economic principles and this
is one of my fundamental beliefs: strong economies cannot have a weak currency, a massive deficit, and a national debt with so many zeros they won’t fit on a billboard.

I don’t buy the arguments made in favor of the current level of deficit spending. Adding $1.8 trillion in one year to our national debt for the sake of kickstarting the economy makes no sense to me. What do we mean when we say, “The stimulus is necessary so the economy will start growing again?” Are we doing that so we can get back to our bad habits of buying homes we cannot afford and cars we don’t need? Why do we believe that our economy should start growing ASAP, regardless of the cost? A country with a big economy but a massive deficit and huge debt is very much like a big company with a lot of revenues but no profits and carrying a large debt load…kind of like GM. And by now we know what happened to GM.

So, the question is: will our economy become bankrupt? Why not? Countries have gone bankrupt and it appears they will continue to do so. This country is not immune to the economic dynamics that have forced other, albeit smaller, national economies into a state of bankruptcy.

We have a very large economy but, by the same token, our fundamental economic problems are very large, too. My concern is that we are in a recession and, rather than fixing the fundamental problems in our system, we are flooding the economy with money. Of course this will create short-term growth. In fact, I expect 2010 to be a decent growth year. However my belief is that this growth period will be short-lived, and our deficit spending combined with the size of our national debt will drag us down into yet another deep recession. If that happens, we will be in serious trouble. There will be no bailout.

You can compare our current situation to an individual who is hungry and is given a candy bar full of sugar to eat vs. a reasonable portion of food with protein and vegetables. Clearly, you will feel good for a short period of time, but your hunger will quickly return. In a similar way,  I’m afraid that within three years we will return to a very difficult economic environment, one which could turn into a long and sustained depression.

I think, as a country, we need to re-calibrate our approach to economic good health and re-examine our values when it comes to how, both as a government and as individuals, we choose to spend money. How should we measure our success as a country? Economic productivity and GNP per capita are just part of many important measures.

I, for one, am very concerned about the path we are on. It’s scary!

Eternal optimist and entrepreneur,

Payam Zamani

In the September 15th, 2008, Commemorative Edition of Automotive News, we celebrated GM’s 100-year anniversary.  Keith Crain, Publisher and Editor-In-Chief, said, “General Motors has magnificent heritage.  It will be fascinating to watch its second hundred years.”  Crain couldn’t have said it any better.  GM today sent out 1,100 FedEx letters to dealers, apparently stating, “We do not see that GM have a productive business relationship with (your dealership) over the long term,” according to a copy of the letter that the Associated Press received.  This comes one day after Chrysler closed 789 of their stores.

These cuts are only a portion of the 2,600 stores reportedly expected to close, which means we have yet to see the worst for GM.  In addition to the closings, 470 Saturn, Hummer, and Saab dealers are awaiting their fate as GM plans to sell these brands.  Chapter 11 for GM seems inevitable, although we’ll have the final ruling on June 1.

What will the next hundred years look like for GM?  Will there be a 200-year anniversary Commemorative Edition of Automotive News?  I certainly hope so.

My thoughts are with all the hundreds of thousands of people that were directly affected by the Chrysler and GM closings, but the questions that have always been in the back of my mind even before all this happened is, ‘Why did the domestic brands allow the gross over-saturation of their dealerships?  How did GM allow 25 Chevrolet stores (which was close to 40 only two years ago) to be opened in a 25-mile radius of Chicago?’  I can’t be the only one thinking this.

I agree with Keith Crain, but I think it will be more fascinating to watch the next five years, and I hope for nothing but the best for GM and all automakers.

Let’s hear your thoughts.

Often it’s hard to understand the logic behind some of these politically-motivated moves.

While I don’t fully disagree with the need for a shake-up of the U.S. car makers, I’m not sure if replacing the CEO of GM (who was actually making reasonable progress) with his own hand-picked COO is much of a shake-up. It seems to me that we are building up too much heat regarding the AIG situation, and decided to take our anger out on GM.

Incidentally, I’m interested to know how badly we have now damaged Chrysler’s ability to get an equitable deal done with Fiat. Can you imagine entering negotiations with Fiat while they know that your main financial backer has publicly announced that 1) your business no longer is viable, and 2)  they will only offer support if you get a deal done with Fiat…talk about having close to zero leverage.

I, for one, am very concerned that the steps we are taking to shore up the current economic problems are simply too politically-motivated, and don’t set-up the reorganized companies in the best manner to succeed. We hire and fire executives based on public opinion vs. what is truly good for the companies and can drive their ultimate success. We give the executives of these companies the task of fixing monumental problems, but when they earn a contractual bonus we demonize them.

We need to have the courage to make the right decision on its own merits. Find the best people to run these companies, and don’t expect them to be public servants Pay them market rate and more, so they are lured away from their current high-paying jobs at companies that are doing well, even in this tough environment.

The worst thing we can do is invest billions in these troubled businesses, but be stingy when it comes to hiring and paying the skilled individuals who are badly needed to wisely invest taxpayer money and turn these organizations around.

According to CNNMoney.com, nearly 20% of home sales in 2008 came from foreclosed homes, with another 11% coming from short sales. What’s even scarier is the fact that home values dropped more in the fourth quarter of 2008 than they did in all of 2007. As the presence of foreclosures on the market increases, the online buzz surrounding foreclosed homes follows closely.

As a company providing online real estate information, we measure the interest of home buyers across our portfolio of consumer acquisition sources. We’ve recently seen a drastic shift in the behavior of potential home buyers–more and more buyers are searching for foreclosures, and are showing less interest in “normal” home listings. Search queries for keywords such as “bank foreclosures” and “foreclosed homes for sale” have skyrocketed across the major search engines since Q4 of 2007.

Our marketing team first got a taste of the foreclosure buzz in late 2007. We had been targeting home buyers via search engine marketing for years, with foreclosure keywords representing a very small percentage of our traffic. When Yahoo ran a news story on their homepage highlighting an uptick in foreclosure listings and a reduction in home values, we quickly saw a shift in the interest of potential home buyers. For context, we were bidding on the keyword “foreclosed homes for sale” and went from spending roughly $50-per-day on Yahoo to more than $8,000 in three hours. The shift was quick, it was powerful, and it has sustained for well over one year.

Both sides of the foreclosure crisis are feeling the impact, but to varying degrees. Foreclosures have brought hardship to many families, forcing them to explore more affordable geographies while watching their home equity vanish. But for a new wave of home buyers, foreclosures represent an opportunity to acquire homes at prices that were inconceivable just two years ago.

Our goal, as we provide an online marketing solution to real estate professionals, is to acquire consumers with the highest likelihood of completing a real estate transaction. We’re interested to see where the real estate market will turn in 2009, and we’ll continue to monitor the intent of home buyers and sellers in an effort to provide the highest quality clicks and leads to our network of real estate agents.

Few things in life bother me more than management teams of various companies conveniently blaming their shortcomings on the macroeconomic environment. Never mind that before the slow-down their company wasn’t in a much better situation.

When was the last time Chevrolet, Ford, or Chrysler produced the best-selling car in the country? Over the last ten years—besides the massive, gas-guzzling SUVs that lacked any significant innovation—what other claims to fame do these companies have?

Is it really that complicated to figure out that the market responds positively to cars like Accord, Camry and Prius? How many millions of these models do Toyota and Honda need to sell in order for the domestic manufacturers notice the trends?

Interestingly enough, I see similarities between the problems plaguing the domestic “big three” and a company in a very different industry, Yahoo. They all try to solve their problems through deal-making, rather than turning to innovation and a long-term, viable, differentiated strategy. Combining Chrysler and GM for the cash is a horrible premise and, for synergies associated with volume and size, is an even worse idea. You get to the right volume by introducing models that consumers want to own, not by combining models that should have been cut long ago and will continue to lose market share.

Here is a 5-point plan that I think will go a long way toward putting the American car makers back on the road:

1. Own a product-line that’s made up of winners
   Car makers produce cars to make money, period. They should shut down all money-losing models, now. There should be no loyalty to any brand because one of the executives gets nostalgic when he rides in one. Kill the money-losers and cut enough elsewhere to become cash flow positive now—this quarter.
2. Simplify your plan and, in the short-term, only commit to proven strategies
   Cut the consultants and simply listen to the market. Don’t get too fancy with your products for the short run (the next 2 to 3 years). You need to have your own Camry, Accord, and Prius.
3. Communicate a killer strategy for the next 10 to 20 years
   As a nation, we like big ideas and big thinkers. Take a big bet and act like a visionary—become a visionary. For heaven’s sake, you guys have been in this industry for over 300 years combined. Where do you think the industry will go in the next 10 to 20 years? Solidify and communicate a differentiated, growth-oriented, and exciting strategy. Not only will your employees get fired up, but your customers will come along for the ride.
4. Bring in new, driven, motivated leaders
   Bring a CEO from a distant industry and a distant geography. Let’s see, people in what state buy a lot of foreign cars? California? Great, bring a CEO from that state. Steve Jobs would be great. You need a visionary, not an operator. All of you have excellent operators.
5. Deal with UAW
   The Union needs to wake up and understand that you can no longer be an employer that also produces cars but, rather, you are a car maker that employs qualified, professional, and hard-working people so you can make the cars and always earn a handsome profit. These employees should get paid a wage that represents their fair market value, and should be treated as your most valuable asset. You need to have the right to increase or decrease the size of your employee base as the market changes and opportunities arise or vanish. Any other type of relationship will not allow you to build a sustainable company for any of the parties involved.

To get the above done, you don’t need money from the government. In fact, I suggest that you stop wasting your time in Washington, and instead focus your efforts on fixing your own problems and cut enough to reach sustainability without counting on outside help. Own your problems and seek opportunities in the current market.

We have a nation of 300 million and a planet of over 6 billion screaming for cheaper, smaller, and more fuel-efficient cars. All car makers will be doing exactly that over the next 5 years. How will your approach be different than the simple, generic response we have come to expect form Detroit? Give it a try and surprise us with a response that does not further confirm the depressed nature of the industry but, rather, will uplift us by communicating your visionary strategy for the next decade or two and live up to your own, legendary past.

We’ll all be there to cheer for you and will drop our Toyotas and Hondas so we can once again own a symbol of American ingenuity.

My sincerest wishes for your success.

Payam Zamani
A founding father of the online automotive industry

At Digital Dealer, the keynote address had an interesting stat:  cost to sell a car with offline advertising is $600, while cost to sell a car with online advertising is $300.  I thought Cory Mosley should have just put up that one slide and asked the audience the following question, “Why are car dealers still advertising offline?”  To be honest, I don’t get it.  If a business could consistently achieve a 50% reduction in the cost-of-sale, wouldn’t they rapidly shift their ad spend from offline to online?

Then I read an article at DrivingSales.com on managing advertising waste.To me, the article is about measuring the impact of advertising. Do more of what works, and immediately stop what isn’t working.  Most importantly, only invest in advertising if you can measure the impact.  It’s no secret, the automotive industry is suffering as the economic downturn accelerates and people delay big-ticket purchases.  Perhaps car dealers are seeking better controls, more flexibility, more measurable ROI—or just don’t believe that online really works.

Here is my challenge to all service-based businesses (not just car dealers): for one month, let’s say November or December, stop all offline advertising and shift your entire advertising budget to online.  It doesn’t matter if you are a car dealer advertising in the local classifieds/TV/Radio, or a Real Estate Agent advertising with postcards and grocery store shopping carts; see what happens to your phone calls, walk-in visits, cost-of-sale, and close rates when you shift ad spend online.  Any takers?

According to Inman News,  Zillow.com accounced today that it is laying off 25% of it’s workforce in anticipation of a prolonged recession.  According to Rich Barton, Zillow’s chairman and CEO, they are a young, unprofitable company.  He said the company’s revenues do not yet cover the expenses.  As a business partner of Zillow, we are hopeful this difficult decision helps lead them to profitability.

Additionally, Redfin, another Washington-based company, announced a reduction in force of 20%. Redin offers an alternative solution to listing and transacting your property. To make matters worse, the New York Times, reported today that housing starts are at the slowest pace since 1991 and “applications for building permits, considered a sign of future activity, fell sharply in September, dropping 8.3 percent to an annual rate of 786,000 units, the weakest level since November 1981.”   There is a glass half full point of view here, as painful as these slow dows are, it appears the massive glut of real estate inventory finally has a chance of being cleared out.

As a CEO, there are few things more threatening to your business than running out of cash or, even worse, experiencing an interruption in cash flow. That’s the point at which the ability to control strategic direction becomes limited, if not lost, and the company will experience a potentially irreversible downward spiral. That’s kind of what will happen on Wall Street if the $700B bailout is not passed. This may explain the fear we’ve been seeing in the eyes of Hank Paulson and Ben Bernanke.

They have a delicate position. On one hand, they need to communicate the gravity of the situation to get the support needed to turn things around. On the other hand, if they were to brutally, honestly, and completely reveal the ramifications of no action or slow action, the entire world economy would likely come to its knees.

I don’t know much about Hank Paulson and Ben Bernanke. However, I can tell you the speed at which they are moving and their dedication to the responsibility bestowed upon them should be an example for the likes of the head of FEMA and many other government agencies.

The current crisis was certainly avoidable and should never happen again. I hope that what we have experienced will be a lesson to financial institutions and consumers alike. Institutions should better understand the fact that providing loans to consumers—a euphemism for selling the use of money—to those without the capacity to repay the principle, much less the interest, is beyond bad business.  And consumers should understand that under normal conditions loans, despite initially attractive terms, always come at a price and are rarely readily available to those with difficult credit histories.

Hopefully, we’ll soon start to see progress in the efforts being made to get us out of this mess. I, for one, have much more confidence knowing that Hank Paulson and Ben Bernanke are working on our behalf. I think the extent of their roles in preventing a complete meltdown will become much clearer in years to come, and I look forward to reading many of the books that will, no doubt, be written on this subject.

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