Trucks at Work
Revisiting the basics

Revisiting the basics

The superior man understands what is right; the inferior man understands what will sell.” –Confucius

A while back, I got the chance to sit down with one of my favorite contacts on the truck manufacturing side of things; a guy that’s been in the business of designing, building, and selling trucks for almost four decades. We were just talking shop when he related an interesting tale from his days as a heavy truck salesman some years ago – one I think anyone in trucking can relate to.

The story goes that a guy comes in looking to buy a Class 8 tractor with big power, a big square hood, West Coast bumpers … the works. My friend works the numbers, reviews this fellow’s business plan, income, family needs (home mortgage, etc.) and figures that payment on the truck of his dreams is about twice what this guy can afford. So he tells the customer, in effect, you’ve got to look at something less expensive – less power, less weight, more aerodynamic … basically the complete opposite of what his customer wants.


The guy shakes my contact off – “No, this is the truck I want,” he explains. My source again points to the numbers – if this guy buys this truck, the payments will suffocate him, most likely resulting in repossession. But the customer doesn’t budge.

“Look,” my friend recalls this guy telling him. “This is the truck I want. Now, you either sell it to me … or I’ll walk down the hall to the next guy and he’ll sell it to me, costing you a sale. You choose.”

In the end, my contact sold him the truck. And three months later, the bank repossessed it – just like my friend feared.

I’ve thought a lot about this story in recent weeks as the economic news keeps getting worse and more and more companies clamor for help from the federal government. Just like the trucker who wanted what he wanted -- damn what the numbers may say -- many corporate supplicants seem to laboring under the very same delusions.

The easiest example is, of course, the cabal of executives running reinsurance giant American International Group (better known as AIG) – idiots that went on a $440,000-plus executive retreat, complete with spa treatments and $500 bottles of wine, after begging for – and receiving – an emergency $85 billion loan in September (a loan that’s been expanded to $150 billion now). They followed that with an $85,000 partridge hunt in merry old England – getting grilled later about such foolishness on Capitol Hill.


Sure, half a million is a trivial amount amid the billions being bandied about here … but still! Anybody with half a brain would’ve canceled any such gatherings after the loan went though … or better yet asked one of its multi-millionaire executives to cover the tab.

Next, take a look at Lehman Brothers – or more precisely, their 3,500-piece art collection that went on the auction block back in September. ART? What, may I dare ask, is an INVESTMENT BANKING company spending money on an ART collection for? We’re talking top-dollar stuff by Jasper Johns and Andreas Gurky here – with million-dollar (and then some) price tags. I don’t care how well a company does – if the CEO wants a Picasso in his office, HE or SHE goes and buys it – not the company. That's just basic stuff ... isn't it?

And let me tell you, a LOT of Wall Streeters could afford to pick up the tab for their own art, for they racked up $33 billion in BONUSES last year – just BONUSES mind you, irrespective of salaries, stock options and the like. That’s more than what the former “Big Three” automakers TOGETHER are asking for in government bailout funds. (Maybe they should pass the hat among the investment bankers.)

“Shareholders and board directors have less and less tolerance for major art expenditures,” noted Orley Ashenfelter, a Princeton University economist in a great story by Daniel Grant in the Wall Street Journal. “Firms, especially when the economy starts to sour, recognize their need to stick to the core business.”

[Oh REALLY? It takes a downturn to figure this out? What DO they teach in business school these days?]

Yet even companies that do the right things got burned in recent years. Take Icelandair for example. After the Sept. 11, 2001 attacks, with the airline industry in free-fall, then-CEO Sigurdur Helgason figured it would be a good idea to build up a “rainy day” fund of sorts – building up a cash reserve worth 25% of revenues in three short years.


Ah, but such a pot of gold proved irresistible to the likes of Hannes Smarason, a brash young investor. Leading a buyout of Icelandair in 2004, he drained that cash pile to create a holding company – FL Group – that invested in other airlines. It didn’t work, according to a story in the Wall Street Journal, and though another group of investors bought Icelandair back, the airline is struggling to both rebuild those now-lost cash reserves and stay afloat at the same time – largely by cutting back on service, laying off staff, etc.; moves that wouldn’t be needed if those reserves had remained untouched.

What to do, what to do, what to do. I tell you what – if corporations and individual owners alike focused on just the basics of business, rather than the extraneous stuff (be it fancy art or needless horsepower) we wouldn’t be suffering as many problems as we are now.