Ignoring the consumer usually is not the brightest strategy

It is often rightfully considered when of the most powerful industries in the World. Detroit motorbusiness generates anually a higher income than a wide number of independent and sovereign countries all over the World. But what it seemed like a rocksolid business, is now trembling and asking for (the U.S. much hated) governmental hand.

A crutial mistake that lead to this situation was a classical one. And one we all wouldn't be expecting of such giants - but maybe thats what traditionally happens to giants, they grow so much that they lose sight from who buys their products.

The Big-Three Detroit automakers (Ford, General Motors and Chrysler) have lost their consumer focus. It is as simple as that. They thought they could control the market, the cars people would demand forever, ignoring the World that was evolving around them, like shuting themselves from whatever happened out there. Well that wasn't true, and now Detroit is learning the lesson.

You can't really ignore consumers. Detroit has gone after a model of creating people's demand for their products, and ignoring trends that influenced what people wanted from their cars. It would come on a time when consumers would become more and more sensible to environmental issues, more and more cash strapped to ignore that their cars costed a fortune just to fill the gas tank (of increasingly high-priced petrol, due to oil supply shortage and increasing demand). You couldn't think that you could drive demand forever for big gas-guzzlers in front of consumers eyes and sharpen their teeth for the cars they made - not the cars people would want to buy!

And you can't ignore competition. Especially when they have heard consumers. Especially when European and Japonese car makers are selling cars in the U.S. that they know are right in terms of marketing trend and people will demand in the medium term (when they realize those cars cost less, are better quality-built and more fuel consumption efficient ones).

Detroit has always been an inspiration for marketeers all over the World, with Henry Ford leading the pack of brilliancy in building a great industry from realising what the consumers really demanded. Now, the U.S. automakers are again presenting and remembering a valuable lesson the marketing World shouldn't forget.

A hint on a possible coalition?

The words were pretty surprising, and let me be sincere about it, I personally think that it is the kind of blunder that can end any political career. But, when Manuela Ferreira Leite, the main opposition party leader, today said that it could be good to have a 6-months periods without democracy, she could be hinting at a bigger and bolder move than just a quick slip of tongue and thought towards more far-right wing (or far-left, don't forget it...) ideals or utopias.

Portugal is immersed in a crisis that goes well beyond the turmoil that affects the World's economy nowadays. With a 100% debt weight (GNP index), around 5% annual debt service (thus meaning, that something like 5% of all that we produce is used to pay interest....), a sharply unfavourable foreign trade sheet, sluggish (at best) economic growth over the last few years, weak productivity, an annual and consistent Office budget deficit,... Portugal is struggling to keep alive on the international scene.

Everyone knows that huge reforms are needed to correct this situation, a gigantic task that every Portuguese knows to be of epic proportions... and every Portuguese knows will take its toll on any government. So, wouldn't it be good if a government had such power for a finite period of time to tackle those reforms?

The so called "Central Block" was an early 80's government coalition, between the two biggest Portuguese political parties (closer to social democrat values), in a time when the Portugal was also in a severe crisis, paying the price for getting out of an old-fashioned government and economic system to a revolution in a increasingly high competitive and changing World. Who lived it knows just how difficult it was to put this country up for running back again.

Such a coalition nowadays would be particularly positive. It could bring the stability to put those much needed reforms running, to a point when there would be no turning back. Could it be what the country needs? I am not sure, but the situation surely looks grim, with several disfunctionalities erupting from too many systems in our nation, with structural problems highly visible in Justice, Treasury, Economy and Education. Maybe the time as come to propose something radical to fix things up.

Just a few words of caution:

- such a coalition would only work out for a short period - after some months (luckily at least two years) it would break down, amid internal turmoil, as natural ideological differencies would start to erupt, and both parties would try to become dominant. A major characteristic with such a solution would be that this would still be a democracy, and that natural differences would flair up - fortunately!;

- though such a coalition would be positive at a legislative and executive level, it shouldn't interfere with the other major State power - judicial one. Courts and police should maintain its independence and the coalition should be closely scrutinised on its activities by the judicial and presidential institutions;

- both parties should be prepared for a rough time. Public opinion would not adhere to many of the proposed politics (remember this is one of the major reasons reforms are still to implemented), and they should be brave enough to sail through the consequences... and know that at the end of the coalition, both would have lost a significant share of voters.

I am not sure at what Manuela Ferreira Leite wanted to say. But maybe she was hinting that such a solution would be possible with her on the helm of PSD. Lets hope it that was what it meant...

http://ultimahora.publico.clix.pt/noticia.aspx?id=1350420&idCanal=23

How a small stone throwed to the lake can generate a large wave that changes the shoreline

"Nothing is stronger than an idea whose time has come" - Victor Hugo

In 1955, a middle-age bus driver stood up and moved to the back of the vehicle, towards a 42 year-old black working mother. The words and actions that ensued changed the United States and the World, granting equal civil rights to a group of people that always had been put aside. We can recount everything that followed, the 60's and 70's struggles, the positive discrimination legislation in some areas to counter the negatively bias that was rooted in society, the politically-correct movement, the gradual acceptance of differences, the large impact the media had on culture and the way hip-hop became fashionable. But the point is, that small rock that was thrown more than 50 years ago, in a semi-obscure corner of USA, reached the lake shore today, when Barack Obama was elected, ending the landscape for years to come.

50 years ago, James Blake and Rosa Parks had no idea what would happen. But when one has any doubt about what the importance of individual actions on the World, I think this one says it all. It let the trigger go, and ignite that idea whose time had come.

http://en.wikipedia.org/wiki/Rosa_parks

http://en.wikipedia.org/wiki/Martin_Luther_King,_Jr.

For the People, by the People, through the People

I am not sure who will win the Presidential Race in the US (though I have a hunch...), but, whatever happens, let me say how joyful it is to watch such an electoral turnout in a mature democracy. It is really amazing to watch people queueing for 2 hours, in the rain and cold, waiting for their turn to vote. In a democracy old of 230 years, it is great to understand that these People still believe that their individual vote will make the difference!

Auditing

When you audit a company, when you certify their figures, what you are doing is stamping your credibility on it. You are shouting to the World "You all know me, and you know I don't lie. And I hereby say that, having thoughly examined this company, it, on itself, is not lying".

Credibility is central to auditing business. There is nothing on it as one reputation. And one earns it through years of meticuluous and successful books examinations, warehouse stock counting, documents and bills checking and cross-checking. It is not easy to achieve. And it is one's most important asset in this business. People will hire you for your reputation, for the undisputable stamp of quality you put on ones results, for the beyond any doubt assertion you do to their books.

So there isn't anything more important than its reputation and credibility for an auditor. Still, it is interesting to see a situation like the Banco Português de Negócios', where you can find competent auditors who did their business and even contradicting their hirers intention issued warnings on their situation (like Delloitte did in 2003, and being 'fired' for that) and others who, for 4 consecutive years, referenced the 'good health' of BPN's accounts - something we now are sure wasn't the true.

The auditors performed their job at BPN - some of them rather poorly. Because of that, the faulty auditors credibility is not much of a value nowadays, and all the companies it certified over the last years are shadowed by its bad practice - their accounts are not trustworhty anymore. Let's see where this ends up for this auditing company - but we all watched what happened to Andersen a few years ago on Enron's...

A word on Banco de Portugal

As the Portuguese central bank, BdP should be the central guarantee of Portugal’s finantial system. Still, over the last few months, a number of worrying situations as occurred, the ones BdP should prevent.

1) Today’s announcement that Banco Português de Negócios will be nationalized as from tomorrow, is the last word on a very confuse situation evolving this bank – and a clear sign BdP should have acted earlier. BPN has always been a somewhat misty institution, a less than clear actor in Portuguese banking system, with a confuse shareholder list, not fully-disclosed operations, an aggressive stance on companies acquisition and an incredible list of exotic actives (including an impressive collection of Miro’s modern art paintings). In 2003, Deloitte (BPN auditor at the time) had already issued an alert to the extreme weakness of some of the bank’s ratios – not only BdP didn’t act on the warning, but it also let Deloitte relationship with BPN be terminated and replaced by a new auditor (which never issued any warning nor acted on what we now know was irresponsible banking management). Still, despite this incident, and the surmounting and increasingly worrying news that were coming from BPN, never (before June this year, after a very harsh warning from BPN new Board, directed by Miguel Cadilhe, a former Portuguese Finance Minister) as the BdP acted or investigated or audited BPN by itself;

2) A similar attitude was taken on BCP issue. We now know that BCP has acted on a very unclear way in a number of occasions, namely funding the buying of its stocks by investors in order to strengthen the ‘decision hard core’ and undisclosed offshore operations. Despite the high profile of the bank and its much speculate driven high share value, the BdP never audited the bank’s bills or operations;

3) Over the last few years, Portugal has steeply increased its debt ratios, that now surmount closely to 90% of the country’s GDP. Default situations are on the rise, together with loans signed on to pay for other loans,… Still BdP is failing to take any way of action on this problem, particularly on luxury or near-luxury products acquired through high-interest credit to consumption.

These 3 issues, unrelated should be enough to call for action on Banco de Portugal way of dealing with the nowadays and actual situation of the Portuguese economy, but special the financial system it regulates. We all should pay close attention to this issue on the next weeks.

2450 Million Euros

It is one of the most incredible features of Portuguese economy. We all learned in college that the State is usually a reputable entity, that assumes all its debts and pays them fully at the contractual time. Well… not the Portuguese one.

After years of irresponsible cash flow management, the State debt to the private sector surmounts at… 2450 Million euros! Lets not try to drive this to small politics – this isn’t a problem solely of this government, or the one before, it is an issue that has been initiated decades ago, but in which each individual government since then is responsible for not being able to tacke. Delays on payments from public sector hospitals to suppliers, not paying contracted work on schools assistance, or construction works or… whatever. It is something that runs across all the Portuguese economy. A huge problem waiting to be tackled, that consumes valuable resources from the private companies, shifting money from investment to cover the hole of money that the public sector owes them.

Now, as recession threatens (? – I think its already here) to plague the Western world, and cheaper loans are gone, the Portuguese government decided to announce another program to end public sector debts – a even greater need nowadays, that would enable the affected companies to stop loans to cover this hole, while injecting money in the whole economy. But how is this going to work? A major question mark arises, even because some of those debts were not contracted directly from government-dependent offices, but by Towns or semi-public institutions like hospitals.

So, the word is… let me wait and see.