When Buying Domestic is Really Buying Import

In these days of sky-high gasoline prices, drivers are looking for alternatives to reduce their overall costs of ownership - including purchase price, fuel efficiency maintenance and depreciation. The days of gas-guzzling V8 engines may be over, spelling a radical shift in the thinking of US car makers. Isn't it ironic that hybrids and electric cars were slow to the market by the domestic car makers (because their gas guzzling SUVs and trucks were their highest margin vehicles), but they have been able to unveil the Escalade Hybrid and Volt electric car in mere months after crude oil spiked to record levels?

It was not that long ago that Japanese (let alone the Korean) automobiles were considered to be of low quality and unworthy of consideration by discerning buyers. Where the Asian automakers have been very good (as opposed to the Eastern European manufacturers such as Yugo and Lada) is that they have persevered over their initial poor decisions of bringing low-cost, low-quality cars (remember the Hyundai Pony) to North America, and took a long-term approach to building vehicles that emphasized reliability, quality and fuel-efficiency. This is also a very different approach to the Americans who focused on lots of gadgets and features, big engines but poor reliability and low quality vehicles. Granted, they have started to follow the Asian philosophy, more out of necessity, and started building better quality products. This has been so ever since the Toyota Camry and Honda Accord surpassed the Ford Taurus as America's best-selling car. In the more conservative Canada, the smaller Honda Civic has been the best-selling car in that country, surpassing the Chevrolet Cavalier/Pontiac Sunfire a few years back.

Which brings me to this post, and how smart consumers can buy import quality vehicles but pay domestic vehicle prices. I have been doing this for years and have been rewarded handsomely for paying next to nothing for used cars that lasted me a number of trouble-free years. There are a number of cars on the market that are Asian but are badged as domestic. This has been going on for years, as all the US car makers have used their partnerships and/or ownership of Asian car manufacturers to help them bring smaller cars to the local market. They called it badge engineering. In the 1990's, the Dodge Colt was really a Mitsubishi, the Geo Storm was really an Isuzu, the Geo Tracker was a Suzuki, and even the Geo Priszm was really a Toyota in disguise. Buying them on the used car market was an especially good buy (except perhaps the Ford Festiva which was a re-badged low-quality Kia), as the rate of depreciation on these 'domestic' vehicles was much faster was much faster than those for their imported cousins such as Honda, Toyota and Mazda.

These days, such badge engineering still exists, although perhaps not as frequently as in the past. But buying a new Chevrolet Optra or Aveo is really buying a Daewoo, and the Pontiac Vibe is mechanically identical to the Toyota Matrix. Many Ford vehicles share a platform with Mazda cars. The Saturn Astra and Aura are really award-winning, German engineered Opels. Even some recent large-sized Chevrolet models such as the Epica were really Suzuki cars.

Because the Big 3 domestic automakers are currently in financial difficulties, they are more likely to offer all sorts of incentives and discounts, and you are much more likely to be able to bargain for a rock-bottom price with them than the dealers of imports. So get the best of both worlds by doing some research on the exact origins of the vehicles you are considering, and go get the salesmen to sharpen their pencils and grab yourself a bargain.

Are We Crazy or Is Everyone Else Lazy?

I recently wrote a post about the use of time, and as I am headed for a two-week vacation to the west coast (Seattle & Vancouver), I thought I would write a post about vacation time. This topic has always intrigued me, as people often tend to complain about a lack of personal time, and a need to find time to escape from the stresses of the rat race. Throw in the piddly amount of vacation time given to North American employers, and it becomes even more baffling that the average American and Canadian worker fails to use up all their allotted vacation days. Huh?

This anomaly has existed for many years. According to the OECD (Organization for Economic Co-operation & Development), recent stats show that Americans put in 15% more hours than their European Union counterparts, with Koreans putting in the most hours. At the same time,the average amount of vacation time for North Americans is two weeks while in Europe it is around four weeks.

And yet, according to Expedia's 2008 International Vacation Deprivation Survey, 31% of Americans do not take advantage of their full vacation allocation, leaving an average of 3 unused vacation days, compared to only 1 in Canada. This translates to employees giving away $65 billion of earned money back to their employers.

To me unused vacation is like throwing away money. Anyone trying to maximize their dollars would make sure they take their full allotment of vacation days, if not for monetary purposes, at least for their own health, sanity and overall well-being. By the way, according to the Expedia survey, the average French worker gets 37 days vacation.

Thinking About Time

Today is Thanksgiving Day in Canada, and a well-deserved respite for the workforce. I'm sure that everyone relishes the day off to relax, but also worry about maximizing their free time to 'get things done'. Since I quit working, I have had lots of time on my hands, and sometimes the things that I said I would get done "when I had more free", still haven't been done. Most are mundane tasks such as sorting out my old financial statements, cleaning out closets, wash the car etc. Sometimes, no matter how much time we have, we will still procrastinate because no-one really likes to do the small and often dull stuff.

I am a great proponent of making 'To Do Lists' as it prioritizes the day's activities and gives me direction. When I have completed the list of tasks, I also gain satisfaction in accomplishing things I probably would not have done if I had just been left to my own devices. My biggest problem, as is for most others, is that I often tackle the easy tasks on the list first, and carry over the hard ones to the next day (indefinitely). I know that I should be doing it the other way, but humans tend to look for the easy way out first.

This got me thinking about how I use my time, and how many people seem to be so time-stressed these days. Rushing around like crazy, not enough sleep, not taking their full allotment of vacation days are all symptoms. We often spend inordinate amounts of time doing unproductive things, e.g. watching re-runs on TV, standing in line-ups, window-shopping etc., instead of more important things like connecting with friends and loved ones. I remember when I was working 60 hour weeks, my Mom would often ask why I hadn't called or visited for a long time, and my excuse was always that I was too busy at work and ran out of time. I had broken one of my own rules that I had demonstrated in an exercises used in seminars and workshops that I had delivered. The exercise was simple: Fold a sheet in half, and on the left side of the paper, write down the 10 areas where you spend the most time every day. On the other side of the piece of paper, write down the 10 most important things in your life (that you value or are passionate about). More often than not, this simple exercise demonstrates that incongruency between where we spend the majority of time (work, shopping, commuting) versus what's most important to us (family, friends, travel, reading, hobbies etc.)
I came across a little note that I had cut out many years ago, and every now and then I use it to remind me of the value of time. I'm not sure who the author is, but it has meaningful lessons that we can all use in our daily lives. Here it is:

Some Thoughts on Time

- How you spend your time is how you spend your life

- Each hour you spend is a piece of your life that is gone forever

- Spend your time on those things that matter to you most

- How you spend your time is a matter of choice

- Time, like money, is a resource. But you can't steal it, borrow it or save it for a rainy day. You must use it or lose it

- You can make time work for you or against you

- Where you are in your life right now is a result of your past choices you have made about how to spend your time.

I hope this post helps you to make better use of your time or help prioritize where you spend your time. And Happy Thanksgiving to my fellow Canadian citizens.

Greed versus Morals - the Blight on Capitalism

Congressional hearings grilling the heads of Lehman Brothers and AIG have focused on the huge payouts to executives while the losers have been their employees and taxpayers. What has come to the attention of the public is how much money someone like Lehman CEO Dick Fuld made over the past few years (estimated to be $490 million of which none is recoupable) while tens of thousands of his employees have now lost their jobs and with the worthless stock price, their savings and retirement plans. How he sleeps at night is beyond me. There was a time where the average executive earned about 20 times the average salary of their workforce. Now, a CEO can earns hundreds of times the average salary of their employees. How much money is enough? It's one thing to be like Warren Buffet and Bill and Melinda Gates who have donated the bulk of their fortune to charitable work, but another thing to behave like former Tyco CEO Dennis Kozlowski who spent $6,000 of company money on a shower curtain. Really, how much greed can one have? I hate the phrase "Whoever dies with the most toys, wins" - it is shallow and narcissistic. I prefer the Talmudic principle which states "there are no pockets in the burial shroud" or in other words, "you can't take it with you".
Even worse is the milk crisis in China where melamine has been mixed into milk-based products such as baby formula and popular beverages. Not only have an estimated 50,000 Chinese babies been affected, but babies have died from kidney failure arising from the tainted baby formula. Again, greed has trumped basic morals. It is unconscionable that someone would knowingly risk another human life, and that of infants no less, to gain financially.
These examples are a blight on the capitalist system. I am a supporter of the basic concept of capitalism, but I believe in social capitalism which takes into consideration society as a whole and not just that of an individual. No, not socialism, but some balance where it is not dog-eat-dog, where rules and regulation are in place to safeguard society from rampant greed. If these were in place, the current economic crisis may not have happened or nay not have been as severe. While the days when society placed a greater emphasis on performing noble acts on behalf of their community and country may have been absent during this most recent baby boomer generation, there are signs that this may be changing.

The younger generation has become a force of change regarding the environment, more young people are shying away from being workaholics to focus on more time with family, there is a resurgence of people working and volunteering for non-profits, as they search for greater meaning in life. A terrific book to read is "Leaving Microsoft to Change the World" by John Wood which chronicles his journey from employee at Microsoft to starting a charity called Room to Read which has built thousands of schools in developing countries, and provided scholarships to thousands of girls in countries where providing education to females in not considered a priority. Before you say that here's a guy that had millions of dollars to do this, you will be surprised that he was not a wealthy man when he left Microsoft to do this - he only had enough stocks and savings to last a few years without drawing a salary. What is interesting about John Wood's story, is that he did struggle between the need to make good money, buy a nice house and attain status, versus the need to do something meaningful and fulfilling. He gave away many comforts and perks to make a meaningful difference in the lives of tens of thousands of children. What have you done for your community lately? As I see younger voters starting to take an interest in politics, and claim their right to determine how their vote will impact the direction of their lives, I take comfort that, at last, we are moving in the right direction.

A Lot of Dough & Advice, A Little Too Late

I've been watching a lot of TV lately, trying to keep track of the credit crunch, massive bailout money thrown out by Central Banks across the globe, plunging stock markets around the world, the Iceland economy on the brink of collapse and both the US presidential race and Canadian federal election.

Protestations from both Obama and McCain that they foretold the crisis by warning about the sub-prime mortgage crisis and Fannie Mae/Freddie Mac situation respectively sound hollow. Obviously neither of these candidates had enough influence to even have their concerns addressed or register a blip on the political front, as these concerns have only been brought to light after the crisis sit full stride. The smartest financial gurus at the switch, Hank Paulson and Ben Bernacke, didn't forsee this either. Why? Because greed trumped fear ....... until recently. Sound financial principles and regulatory oversight were ignored until it was evident that something had hit the fan. Now fear has overtaken greed and everyone is panicking.

In elections on both sides of the border, the electorate has spoken as to the most important issue for them - the economy. In Canada, the incumbent Conservative Party had a seemingly insurmountable lead a few weeks ago, and because of their casual attitude to a worsening economic environment, they have experienced a voter backlash and risk not only losing their lead, but also squandering their chance to lead the country. Likewise in the US, where the economy's troubles has helped Barack Obama and forced John MCCain to focus on a topic that he has admitted is not his strong suit.

Even on shows like Dr. Phil and Oprah, hot topics are how to tighten the belt, get out of debt, stop spending money unnecessarily and focusing on what is really important in life. Whereas shows with these topics were sporadic in the past, they are now coming thick and fast. Advice is easy to provide now. Sure, it is the topic de jour, but perhaps it would've been helpful if all of this was more proactive, adding to the warnings rather than trying to put out a fire after it had started. Have things other than money only become important when the situation has become untenable?
Unfortunately, critics like hedge fund manager David Einhorn who raised the alarm bells on Lehman Brothers, Warren Buffet who called the complex derivatives that started this mess, 'financial weapons of mass destruction' or Prem Watsa of Fairfax Financial who placed a huge bet on credit swaps because he saw huge flaws in the way financial companies were over leveraged, were all ignored. All of these smart men and astute investors were derided as Chicken Littles, only to be proven correct in the end.

The smart money will be made by those who stuck to the fundamentals and did not get caught up in buying expensive items on credit, have been living within their means and saved cash for rainy days such as these. They can now deploy those resources on assets that will be sold at fire-sale prices, obtain discounts from desperate car manufacturers and retailers that are overstocked, and stocks that have been sold at the lowest prices in decades by investors who are trying to raise any cash possible.

I hope the trend of going back to basics will be a long-term one, and not only until the economy rebounds.

Who Can the Average Joe Believe?

I had a recent post about the worth of stock market analysts, and a report released yesterday by Merrill Lynch just reinforced my opinion. Their analyst just issued an opinion that crude oil prices may drop as low as $50 per barrel. Huh? Was it not just three or four months ago that the same analysts were predicting with much confidence and certainty that oil prices were going to $200 per barrel?

While they may argue that the world economies are going to slow down because of the recent financial turmoil arising from the North American economy, their original assessment of the projected $200 price was based on the burgeoning economies of developing nations such as China and India. While China may be more affected by the American situation than India, since they export more to the US, collectively these two countries account for more than 2 billion of the world's inhabitants that are quickly increasing their standard of living, and are also living in countries where home and car ownership rates are still extremely low. Not only that, but these are two countries where cheap cars such as the Tata Nano and the Geely provide an affordable entry for the fast-growing middle-class to car ownership. So, while there will be a noticeable impact from a worldwide slowdown, the average Chinese or Indian will still see an improvement in their living standards, and while the rate of growth may slow down, a $50 per barrel price is almost assuming no growth at all which I think is unrealistic.
My point is, again, that these analysts tend to use whatever excuse possible to justify a retraction of their earlier incorrect opinion. In order words, they are trying to explain the market which reacts to investor sentiment. Thus, I still don't think these analysts have any better knowledge of what is going to happen in the future than the market itself.

How On Earth Do Stock Analysts Earn Their Keep?

I'll be upfront - I lost money on my investment in Lehman Brothers. In fact, I expect that I will lose every penny that I had invested in the venerable 158 year old investment banking firm that had survived two world wars, the Great Depression, and numerous stock market busts. What makes me angry is that I kept holding not because I was stubborn, as much as I kept listening to the advice of numerous and well-regarded stock analysts who kept a 'Buy' recommendation on the stock all the way down, until they finally cut their rating to a 'Hold' two days prior to Lehman declaring bankruptcy.

Obviously, these analysts have a relationship with the companies and can usually be granted an audience with their CEOs or CFOs. They are supposed to know the company inside and out, and yet the market knew before these analysts knew that the company was in serious trouble. As an investor who is more often conservative than speculative in nature, my portfolio is filled with well-known names of companies that have a long record of dividend payments. I am happy to ride out a drop in price while I receive a dividend (which I have been doing with companies such as General Electric or Microsoft). Fortunately, my portfolio is diversified enough that the loss has not been fatal. Even though my portfolio is showing a single digit percentage loss, I'm still well ahead of most indexes.
Where I have an issue is that the analysts were steadfast that the Net Asset Value of Lehman was three times the stock price, making it grossly undervalued. Not just one analyst but a slew of them took the same stance. Yet, the market seemed to know what these highly paid, overpaid and well-connected analysts didn't - that the assets of Lehman were worth much less than the stubborn (and arrogant) Lehman management had valued them at.

I take full responsibility for not selling, and I blame myself for my own inaction. However, as a well-informed investor, I do a lot of due diligence, research and reading before I make a decision. Now, I'm wondering if I'm wasting my time, because these analysts don't seem to know any more than the market does. So, how on earth do these stock analyst earn their keep?