Setting the scene
Keywords: [acquisition, agile, alliance, best practice, control, crisis, debt, deflation, equity, lean manufacturing, loss, manufacturing, measure, merger, MMP, service industry, IT, standardise, strategic, success, survival, unemployment]
There has probably not been a moment in recent history when the importance of making the right strategic decisions has been higher.
Introduction
It is most appropriate that MMP is addressing strategic issues at a time when we are experiencing the greatest economic crisis since the Great Depression of the late 1920s and early 1930s.
There has probably not been a moment in recent history when the importance of making the right strategic decisions has been higher. The extent of the crisis that we are experiencing is colossal.
Losses and debt
US stocks (shares) are down about $8 trillion since the beginning of this year and the decline in US homeowner equity is also forecast to surpass $8 trillion.
Credit card loans for the 10 months from September 2007 to July 2008 rose by $29,1 billion. And then, in the 10 weeks following that they rose by a further $32,3 billion as the home equity withdrawal ‘Auto teller’ ran out of funds and American consumers continued to live beyond their means. The second largest ‘merchant-vendor’ for credit card use is now McDonalds. It is indicative of the level of consumer distress when they need to buy their $4 Big Mac and fries on a credit card.
In the automotive industry General Motors last week reported a $4,2 billion loss and that their cash burn for the last quarter was $6,9 billion. The board has reported that the company will approach the minimum amount necessary (in terms of working capital) to operate its business during the current quarter and estimates that liquidity will fall significantly short of what it needs to continue operating during the first half of next year. Shares of GM are near a 60-year low (Ed’s note: on day 2 of MMP they fell to a 65-year low. Who knows what they will be trading at by the time you read this – or, indeed, whether GM will still be in business by then).
US employment
1,2 million jobs have been lost since December 2007 with more than 50% of those losses having occurred in the past three months. 66% of those losses are in manufacturing and the service industry, in which employment level are traditionally less sensitive to economic cycles, is starting to show signs of strain.
There are currently 10 million unemployed Americans and the expectation is that unemployment will continue to rise for the next eight to 10 months. Predictions are that a further one million jobs loss will be recorded over the next year, with the US unemployment rate set to reach 8%. This level of unemployment was last recorded in 1982.
The deflation, debt, unemployment spiral
The US consumer is facing a spiral of deflation and increasing debt as:
* Higher unemployment is leading to increasing home mortgage defaults.
* Increasing mortgage defaults are leading to lower house prices.
* Lower house prices are resulting in more home loans underwater.
* More home loans under underwater result in more foreclosures.
Each cut-back in employment or reduction in earnings has ripple effects which impact the wider economy. As unemployment spirals, counties and states are losing the tax base required to fund road maintenance and service delivery. This leads to more unemployment as they cut costs by declaring redundancies.
Continued on the web
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For more information contact Andrew Ashton, Technews, +27 (0)11 886 3640, [email protected], www.technews.co.za
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