Wednesday, February 24, 2010

Tough Times for Toyota

Akio Toyoda was in front of a congressional hearing panel today doing his best to defend his company, Toyota. Sadly, things are not looking so good right now for them. Mr. Toyoda claimed that the company would release its findings after an investigation into the 38 complaints of unintended acceleration in the last 3 years. Yoshimi Inaba, the North American CEO, was present as well. He reassured the panel that the acceleration issues were not due to computer or electrical issues. This is quite the opposite from what James Lentz, the American president of the company said on Tuesday. He claimed the solutions may "not totally" solve the issues. He also claimed that the acceleration issues may very well be due to electrical issues. Either way, the effect of this hearing on the company's standings will be harsh. Earlier I claimed that it would take more to topple Toyota's standing in the auto industry. It seems this problem is bigger than I anticipated. Other Asian automakers are trying to jump into what they perceive as a market opening. In general, all Toyota offered was the usual corporate comfort talk, and in the process, contradicted themselves a few times. Hopefully, the findings of their investigation will bring better news for the company.

Thursday, February 18, 2010

An Opinion Piece I Wrote for the School Newspaper

Feb. 11 marks a dubious day in Iranian history. 31 years ago on that day what could be called the culminating moment of the Islamic Revolution took place on the streets of Tehran. Rebel troops overwhelmed the loyal followers of Mohammad Reza Shah, the last king of Iran. About two months later the Islamic Republic that still exists today was formed.
However, new things are afoot in that country. Since June of 2009, during the presidential elections, there have been intermittent bursts of protests and unrest. This past week, the celebration week of the revolution, was a week the government certainly did not want to be humiliated on. Government officials reportedly sent out text messages the night before President Ahmadinejad’s speech warning of death to anyone who tried to protest. There is no controversy here. This is the story of a group of people oppressed by a dictator and a tyrannical religious government. Yet I believe that that the true conflicts in that country lay not in the bloodshed on the streets, but in deep rooted societal problems.
I am 100 percent Iranian by blood, and I still have family there. Thus, I have visited the country a number of times, most recently at the end of 2007. During earlier visits I was too young to fully appreciate the sorry state of the country. In my last visit however, I remember quite clearly being struck by the physical ruin and shoddiness of Tehran. The ruinous state seems to have ingrained itself into the populace, as there is an air of wounded acceptance about everyone. When I talked to my relatives, I got the same vibe. There are people in Iran with Ph.D.s driving taxis because they cannot find any other job. There is essentially an exodus of young people from that country. It is a continuous downward cycle that is much harder to repair than it may seem. One cannot simply create new jobs to keep the youth there. Young people are needed to create jobs, yet they will not be there without already existing opportunities.
The Western media has a tendency to portray President Ahmadinejad as the sole perpetrator in this whole affair. Yes, he is the president, and he is, to be frank, completely insane. However, the real power has always lied with the religious powers. The Ayatollah Khamenei pulls the strings, as anyone in that country will tell you. So, if you think that yelling “Down with the dictator” is the step to political freedom, you are underestimating the roots of the theocracy. Iran is not a secular country in the grips of a theocratic dictatorship. The people of the country are, and have historically been, quite religious. It is no coincidence that the mullahs have all the political clout, and there will always be a large group of people whose faith will keep them loyal to the leaders no matter how tyrannical their rule.
There needs to be a big—dare I say calamitous—event to spark a new revolution. The continuous weight of injustice weighing upon a people’s shoulders does not instigate revolt—it crushes their spirit and leaves them drained. After the rigged elections, I thought that maybe that was the moment. The fact that people even had the energy and the will to rise up after 30 years of being crushed by tyranny was shocking to me. The government put down the revolts, and yet, they sprung up again and again. I saw something I did not think I would see in that country, perhaps in my lifetime. So, it has been about six months, and the question remains, “Has the moment arrived?” I say, “No.” I do not think this is necessarily a negative comment on the revolts. They are, in fact, a very surprising and uplifting sign. However promising the signs may be, as I just mentioned, this is not the movement that will, or can, overthrow the theocracy. I certainly hope the West realizes this, too. Devoting time, money and soldiers to what I believe is a losing struggle will not help the Iranians. If anything, it will discourage future attempts at revolution; it will engrain the sense of hopelessness that existed before. This is an internal struggle that needs to draw its inspiration from the Iranian people, but, sadly, I doubt that this is going to end with democracy in Iran.
The country needs more leaders, not to criticize the brave souls who have opposed the regime. However, there needs to come a time when the opposition leaders can stand up and make their cases without fear of being murdered. These sorts of tyrannies inevitably weaken over time, and it will be some more years before Iran gets there. Once the ruling parties have weakened, then the country will be ready for change. Whether a new, violent revolution springs up, or whether the change comes through peaceful political processes, I do not know. I cannot even be certain that Iran will transform into a democracy, but I do think that the current regime is still far too entrenched to be overthrown. The religious powers that be will need to be challenged by secular ones. I do not mean to bash religion, but there cannot be a theocracy in that part of the world that also provides freedom to its people. Evidence has shown this to be true. Whether or not theocracy can exist anywhere in the world is a different question, but in the Middle East countries like Iran and Afghanistan have shown us that religious government can lead to disaster.
Clearly, I do not think that Iran is ready or able for huge change. Yet, at the same time, as an Iranian and an obvious supporter of Iran’s populace, I feel awful believing that these revolutionaries will not overthrow their oppressors. As aforementioned, I still think, regardless of the outcome, that these revolts are positive events. They are the first signs of hope—of a fighting spirit—for a country that has not envisioned a bright future for three decades.

Thursday, February 4, 2010

Are Ford and Toyota Going in Opposite Directions?

Toyota Motor Company has been all over the news lately for certainly dubious reasons. With all of its problems with accelerators, brakes, and whatnot, the company has suffered a blow. Naturally, it will take more than this for one of the heavy-weights of the "reliable car industry" to topple. Consumer confidence may be a bit shaken, and it certainly didn't help that Transportation Secretary Ray Lahood told everyone, "My advice is if anybody owns one of these vehicles, stop driving it. And take it to a Toyota dealer." Ouch, and that's exactly what Toyota's stock price was saying, dropping more than 8 points in 3 days.

On the other side of the road, no pun intended, we have Ford. It posted its first full-year profit since 2005. They reported earnings of $2.7 billion. So, is Ford moving up in the world and Toyota headed down. Not exactly. It would be foolish to write off both events (Toyota's recall and Ford's earnings), as completely inconsequential in the short run, and we will certainly see this evidence in the stock market. However, as I said before, Toyota is not about lose its place among the most reliable car-makers. As for Ford, they did well, beating industry expectations. The bad news? From "JP Morgan analyst Himanshu Patel said that although Ford's adjusted results were stronger than he had expected, the gain 'was entirely driven by volatile financial services profits.' Patel said in a note for clients that a lease-related gain in the quarter from Ford Motor Credit Co was driven by gains in used-car values that would prove 'unsustainable.'" So, the jig isn't up for Toyota, and Ford needs put in a concerted effort to take advantage of Toyota's situation. It will be interesting to see how this plays out in 2010.

Wednesday, February 3, 2010

Here's One Way to Do It: A Plan for the Crisis

The first part of this plan relies on the banks. The banks would lower the mortgage payments on any of the mortgages they have that are in danger of being foreclosed. The percentage lowered is not set in stone, but I will set it as a 30% reduction. Let us assume someone has a $100,000 mortgage. The bank would then lower that number to $70,000. Now, with a significantly cheaper mortgage, many people can, and will, make the payments on their homes. The bank will then receive an option on any increase of the home price up to 10% of the original reduction. So, in our example, if the house appreciated 50% to $150,000, the bank would take $33,000, $3,000 more than its initial reduction.

The next part of the plan requires the government to play a role. In my example, the government would set up an agency. This agency would, in a sense, subsidize part of the reduction of the mortgages by the banks. Let us say that the bank has 50 of the $100,000 homes. If the bank were to reduce all the mortgages by $30,000, that would add up to $1.5 million in reductions. To take some of the financial pressure off the banks, this government agency would subsidize, say, 33% of the $1.5 million, which comes out to $500,000. The bank would then pay interest of 5% per year for 20 years back to the agency. In my example, the agency was government sponsored, and although I do highly encourage a public company to offer this service, there is also no reason why private companies could not lend money to the banks for these same purposes.

The goal of the plan is to curb in the surge in foreclosures that the U.S. has experienced. I do not mean to promote a perfect solution: many people have, and will, lose their homes. However, it is important that we recognize that this crisis was, in a sense, caused by a lack of incentives to be responsible. There was no reason for the banks, or anyone else, to want to thoroughly check the quality of the mortgages being given. If there is an overarching point I wish to make, it is that there must be incentives for the banks to help these struggling homeowners. It may sound self-evident, but it is poor incentives that got us in the current situation. It will take well placed ones to get us out.