Hammer Time: Are Shareholders Worth It?

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balancing act

Capitalism has no loyalty.

They are all replaceable.

Products. Employees. Employers. Service benefits. Alliances. Joint ventures. Financial. Even the heads of multinational corporations and their boards are only as good as the quarterly numbers your “independent” auditing firm can concoct.

Capitalism is the ultimate “Come on!”, “Do it!” and “Fuck you!” economic systems. You name the angle or need for capitalism, and there is likely to be a market substitute that can immediately fill the gap. Even government regulations can be regularly challenged by trade organizations, international courts, and the all-too-common political handshake.

All this reality happens… on paper.

The truth is that capitalism is tempered by the culture where it is practiced.

In the world we live in today, corporations and industry interests are always looking to laws and relationships to protect their vested earnings. The ultimate goal of some companies is not progress. But to keep certain competitors and market substitutes out of the hands of the free market.

Consumer first? Probably not! Profit first? Dammit! This stark reality of corporate self-interest raises some tough questions regarding the US auto industry in particular.

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Everyone has their own hierarchy of merit when it comes to the success of a car manufacturer. Bonuses, dividends, stock options and pensions are being realigned to reflect the rewards of good work. So with that in mind, let me make you think of a question that has been on my mind for several years.

Are individual shareholders worth it?

Looking through the recent history of our industry, I struggle to find a single scenario where individual public shareholders have made a difference. Ross Perot couldn’t kick Roger Smith’s butt. Lee Iacocca and Kirk Kerkorian were the crown buffoons of an unnecessary takeover exercise. As for Ford, wasn’t the fact that the Ford family dominated the main reason an industry outsider like Alan Mulally managed to restructure the company? He didn’t need to worry about delaying a strategy or hiring a lackey on his management team just because some jerk with a lot of stock thought he knew better.

The small shareholders are nothing more than players. If something bad happens, they’re the last to know, and for good reason. They don’t know anything. Even if they did, their actions do not allow them to help create that change. I can’t think of a single situation in the last 50 years where a small shareholder has been able to make a difference in an auto company.

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Which offered the most stability and long-term success? In our industry, this may very well rest only in the wisest and most patient hands of the family business.

Japan’s most successful car company is owned by the Toyoda family. Europe’s most successful company, Volkswagen, is run by Porsche Automobil Holding. A German holding company owned by the Porsche families.

As for the American manufacturers, only Ford, a company controlled by the Ford family for more than a century, was able to survive the 2008 crash without a direct bailout. Stockholders have just lost all their money and are giving many of us a golden opportunity to short our shares. John Q Public and Cerberus were inevitably replaced by the Fiat and Uncle Sam syndicates.

Could individual shareholders Already make a difference in this business? If not, do they simply make it easier for the family with limited resources to control the business?

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Instead of offering a thoughtful yes/no based on ideological allegiance, I want you to think about financial issues as well. We are in a highly cyclical industry. The White Knights, along with the new leaders, helped save nearly every automaker from bankruptcy or hostile takeover at one point or another.

But can this defense be best executed with a family that has its own name and reputation to defend? Instead of a group of shareholders who are there simply because of the price of the shares?

My answer is yes. I believe that the small shareholders are nothing more than a reserve of money for those who do the real work. In a well-run organization, they provide liquidity. In good times, they get dividends and stock appreciation. In tough times, they usually have no way to change the way a car business works for the better. This company has too many influencers at too many levels for public shareholders to effect change.

I’m wrong?

Author’s Note: Even when Steve is wrong, you can reach him on [email protected]


Source : thetruthaboutcars.com

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