Frontier Logistics
Ahern and Associates’ Take on Capitalism in America Today
Only as the recession recedes, will it become fully evident how permanently the government’s role has expanded and whether as a consequence a new form of American capitalism will emerge.
One thing is clear; the government has a much bigger role in today’s US economy than it did before the financial crisis. The “frontier” has shifted and the realm of the state has been enlarged. In order to plan the success of your business over the next 4 – 5 years, it’s important to understand the dynamics of the economy; not only what took place, but what’s on the horizon.
It’s also important to understand that;
• With a substantial amount of government debt;
• Tax increases are a fact of life, and;
• As a trucking or Logistics company, you need to plan your expenses to your profits.
In order to start planning, you need to understand what precipitated the economic collapse and the government’s participation;
• To prevent crumbling housing and credit markets from sinking, the federal reserve spent, lent, and invested more than $2 trillion in one initiative after another.
• If you owned a credit card or money market fund, had a savings account, or bought a Dodge pickup; odds are that the US stood behind the firm that served you.
• Washington pumped $245 billion into nearly 700 banks and insurance companies.
• They guaranteed almost $350 billion of bank debt.
• It made short term loans of more than $300 billion to blue chip companies.
• It propped up life insurers and money market funds.
• It bailed out 2 of the 3 US auto makers.
• It lent billions of dollars trying to jump start commercial real estate, small business and credit card lending.
• On two separate stimulus bills, enacted one year apart, the government committed $955 billion to jump start the economy.
Today, the US government directly or indirectly, underwrites 9 out of 10 new residential mortgages, nearly twice the percentage before the crisis. According to the Wall Street Journal, the Treasury Department stated it would cover an unlimited amount of losses at mortgage giants, Fannie Mae and Freddie Mac, through 2012.
Even though the bail outs were designed to be a short term temporary fix, the government won’t return to its pre-crisis form. The reason; the financial system was operating much more fragile than many anticipated.
Regardless of your personal views on whether the government’s approach was the right or wrong approach, it has set a precedence and that precedence is that;
• Big business now has an entitlement theory, and;
• They have a bail out mentality.
In other words, large businesses will expect bail outs if another financial crisis occurs. With unemployment hovering at 10% – 10.5%, it is yet to be determined how strongly the economy will grow when the adrenaline of the stimulus is withdrawn.
Most banks appear back on their feet. Of the $245 billion invested in bank shares by the Troubled Asset Release program, more than $175 billion has been repaid. Since the Treasury Department tested the financial strength of 19 large financial firms, they have raised $136 billion in equity capital and borrowed $64 billion without US guarantees. However, not all of the rescues look successful;
• The US had to re-do its initial bail out of giant insurance company, American International Group.
• GMAC Financial Services, and;
• Both remain unable to raise new capital.
The Treasury Department holds warrants allowing it to acquire nearly 80% of Fannie Mae and Freddie Mac. Congress isn’t so willing to surrender its leverage with GM and Chrysler and, as we all know, there is a big push to tell businesses how executives can be compensated.
It is true that some of the larger banks have already paid back its TARP money, but there is no doubt that the government has and will continue to exert more control over businesses. Ultimately, that also means that;
• Taxes will go up.
• Inflation will rise, and;
• The transportation industry will continue to be challenged.
These statistics are not meant to depress anyone; it’s simply a fact of life and the statistics are important for the trucking industry to understand so that they can develop their business plan going forward. Over the next 6 – 8 weeks, I am going to be discussing;
• How to create a business plan.
• How to set goals and objectives in a difficult economy.
• How to make your people assets and not liabilities, and;
• How to treat each truck as a profit center.
9/11 was a wakeup call, and so was the demise of the financial markets. 9/11 has forever changed the way in which we travel and the collapse of the financial markets has forever changed the way businesses will operate going forward.
About the Author
Andy Ahern is CEO of Ahern & Associates, has four children and is originally from Chicago, Illinois. He received a Bachelor’s degree in Marketing and Business Education from Southern Illinois University and is an accredited member of the National Bureau of Certified Consultants and the Institute of Management Consultants. He holds the appellation of CPCM and CMC. Andy was recognized in the 1997-1998 American Directory of “Who’s Who in Executive Businesses” and received the Business Man of the Year Award in 2002. He recently was a recipient of the National Leadership Award presented by President George W. Bush, and is also a recipient of the Ronald Reagan Award.
General William “Gus” Pagonis
