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CNN IN THE MONEY
Different Economy Than 2000; Unemployment Falls, Fewer Jobs Added Than Expected; Nomi Prins Discusses New Book; Detroit Going Through Wrenching Contraction
Aired October 7, 2006 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN ANCHOR: Here's what happening right now in the news. From bad to worse for former Republican Congressman Mark Foley. A former congressional page linked to Foley's sex scandal is likely to talk to federal agents next week. That's the word from the lawyer representing the now-21-year-old male.
South Korean troops fired warning shots at North Korean soldiers today. The south says it acted after the north's troops entered the DMZ separating the two countries. Tension already was high over the north's threat to conduct a nuclear attack.
Does Cuban President Fidel Castro have cancer? "Time" Magazine quotes U.S. Intelligence as saying he does and that it appears to be terminal. In July Castro was sidelined for what was said to be abdominal surgery. His brother Raul Castro has been serving as acting president.
We'll update your top stories at the top of the hour. IN THE MONEY starts right now.
ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.
JACK CAFFERTY, CNN ANCHOR: Welcome to the program. I'm Jack Cafferty. Coming up on today's edition of IN THE MONEY, there goes the magic. The Dow racks up a new record and America kind of yawns. We'll see if the index is still a reliable guide to how the economy is doing.
Listening to your wallet. Author Nomi Prins went out and talked to every-day people about their money. Find out the players in Washington and how they affect what's in your pocket.
And how to make a car move, the people who sell Detroit's products might actually be hurting the carmakers. We'll take a look at whether the dealership system is working as well as it should or perhaps as well as it used to.
Joining me today, couple of IN THE MONEY veterans, Jennifer Westhoven and Andy Serwer.
The market has a little roll this past week, when the OPEC folks said they're going to cut production by a million barrels a day. Don't they all cheat anyway? ANDY SERWER, EDITOR AT LARGE, "FORTUNE" MAGAZINE: Well you know what's interesting, think Jennifer and Jack, is that six weeks ago the world was running out of oil, now all of a sudden we have too much oil. One thing that happened between the summer and now is that Chevron had that big oil discovery in the Gulf of Mexico. So all the people who said the world is running out of oil suddenly looked a little stupid, quite frankly.
The oil is way down under the water, but still we're not running out of oil, it is clear it is there. OPEC's got the problem now, not us.
JENNIFER WESTHOVEN, "HEADLINE NEWS" CORRESPONDENT: OPEC is largely emasculated right, I mean there a factor at the pump but they're not "the" factor anymore because Venezuela and Russia don't care what they say and yes everyone is cheating anyway.
CAFFERTY: We didn't get hurricane damage we got to the supply line that we got last year. Remember when Katrina and all those storms went through the Gulf and knocked down a lot of refining capacity that didn't happen this year. The additive situation has changed a little bit. So looks like for the moment things are all right.
SERWER: The other thing, too Jack is that big rally in oil stocks and energy stocks and commodity prices that all has been under winding, and selling it out because that whole thing is over. So those prices are down, that is part of the equation too.
CAFFERTY: Maybe all that money will run into Wall Street. It was a milestone week on the street, the Dow soared to a new record high, S&P 500 climbed to levels that we haven't seen in 5 1/2 years. But very few Americans seemed to celebrate, at least not like they did six years ago when records were last set and the records were coming every other day six years ago.
That's probably because a lot of us have more pressing matters to deal with today, stuff like the rising cost of health care, credit card debt, sky-high property taxes, yadda, yadda, yadda. Diane Swonk says we're living in a very different economy today than we were in the stock market heyday of the year 2000. She is a chief economist with Mesirow Financial.
Diane, it is always nice to see you. Should I be rushing out on the occasion of the Dow hitting a new high and investing my 401(k) in those 30 Dow stocks? Is this the time?
DIANE SWONK, MESIROW FINANCIAL: Well you should be investing in equities and investing to leverage for your retirement because if you don't invest in leverage your saving for retirement, you won't have enough for it. With that said, this is a very different economy than it was back in 2000. In fact in 2000 you should have been taking your money and being glad you got what you got.
The economy is -- the unemployment rate is running .5 to one percent above what it was back in 2000. Remember, back in 2000 that was the peak of the economic expansion. Ten years into an economic expansion, the riches of the expansion had finally reached the lowest levels of income; in fact people are getting bonuses to sign on at McDonald's. That's not the case today.
As you said earlier, we have other expenses we're worried about. Wages have been fairly stagnant out there, and in fact everything from real estate taxes to, even though oil prices are coming down which is great news, they're still eating up more than double the share of their consumer budgets than they were back in 2000.
WESTHOVEN: Diane, what do you think, I've got some friends who say that the fact that the Dow is at a record is crazy. They're looking at the housing market deteriorating, they're thinking about you know that taking a percentage off GDP is what the Fed chief said. At the same time we got this trouble in the housing market. Stocks are at a record. This is October.
SWONK: Well, it is October, but it's the bottom line -- I think stocks are still cheap. Remember, these record highs are being achieved against the backdrop of a much larger economy today. We've had the best run in profits in 40 years over the last four years and profits as a share of the economy. That means corporations having the upper hand over wage earners have grown to the highest level since 1960s, exceeding the highs of the '90s.
So from a corporate profit standpoint, this is a great time for Wall Street, although we're only in the mid part of an economic expansion, kind of similar to 1995 just before the stock market took off in the 1990s, which was not the best time for the average American.
SERWER: Diane, you sound obviously pretty bullish on the stock market right now. Which sectors do you like the most? A lot of people talk about big cap stocks coming back. The energy stocks are total dogs right now. The dogs of the Dow from last year, like GM, AT&T, Merck, those have done real well. Where do you put your money?
SWONK: Well I don't pick stocks per se, but in sectors I think there is some interesting plays within the transportation sector. Remember, all of those transportation companies that levied fuel surcharges, none of them are looking to take those surcharges off any time soon now that prices are coming down. So you could get some short-term gains out of that. Remember, wherever there is a cost of energy play at work, this is now working to widen profit margins where it had narrowed profit margins before.
Also, although energy stocks are not going to be doing as well because of energy prices and commodity prices coming off, there is enormous amount of investment in the pipeline no pun intended in the oil infrastructure, which is helping us out in that oil supply. And that is not going away.
In fact, my friends in the oil industry say it is really coming to a crest in the end of 2007. That will be helping out many of that infrastructure related companies. And companies like the Caterpillars of the world that help us get the oil out of the tar sands up in Canada, which we think is larger reserves maybe even than Saudi Arabia.
CAFFERTY: You said something interesting a couple of minutes ago. And I would like to go back and get you to follow up on what you said. You said corporate earnings have been better the last four years than they have for the last 40 years. That's good, I assume. Why doesn't it feel better out in the street? Why doesn't the average person feel like he's enjoying maybe some of this prosperity that the corporations obviously are?
SWONK: Well senior managers and whole newly minted class of millionaires have felt it very well. It's not just the rich getting richer. There are people who are moving up into the wealthy class in an unprecedented number. With that said the rest of us haven't had access to those numbers. Whenever corporations have an upper hand against wage earners it doesn't feel as good. You tend to get asset price appreciation. Not as much goods price appreciation.
In fact, one of the reasons the U.S. economy has been so resistant in resilient in the face of higher energy prices not seeing a lot of that pass through inflation has been in fact because it's been harder on wage earners than it has been for corporations.
SERWER: All right. Diane, everything sounds pretty good. What keeps you up at night though? What are you most worried about?
SWONK: Actually, one of the biggest things I've been worried about, I'm a little bit less worried about today, and that is the situation in the Middle East. I think the shift towards diplomacy which is helping to pull some of that premium out of oil prices is one of the best things I've seen go on in recent months.
Doing more diplomacy with Iran instead of military actions really helps to alleviate some of the power, frankly, Iran had in jerking the chain of oil markets. It also -- falling oil prices could really help to derail some of the power these dictators like Chavez have had throughout Latin America.
I am concerned though that once we pull oil prices out, all those OPEC dollars that have been coming back into the U.S. treasury market could go away, which would push upward pressure on interest rates and get back to that one fear we talked about earlier, the biggest challenge to the U.S. economy today, the housing market.
WESTHOVEN: That's just what I wanted to ask you about real quick. October is a rough month for stocks historically and we've got this housing market. We're seeing it start to crumble. What do you think -- what kind of impact do you think it will have on the economy?
SWONK: I agree with Bernanke. Our impact is actually a little more than one percent shaving off growth, giving us less than two percent growth in the third quarter and a little above two percent in the fourth quarter. Certainly nothing to write home about. That's just what the Fed asked for. They wanted moderation; the question is how will it go going forward.
The one thing that is reassuring at this stage of the game is commercial construction is up so much, and in today's employment numbers that came out this week we did see construction -- commercial construction able to absorb that loss in residential construction workers.
We see the offsets but that doesn't mean housing is not in recession, and in some regions of the country, places like Naples, Florida, I have family down there in the real estate industry, a thousand closings in 2005 in the month of July for titles at my cousins office, 38 this year. That's a collapsed recession.
CAFFERTY: But Naples was also one of the places we saw some of the great price escalations during the housing boom. I mean those houses in Naples went double, triple ...
SWONK: It was bubble city and it's popped. The issue about this is it's very, very localized. Chicago has not seen anything like that. Our prices are still going up. Large numbers of Americans actually own their own homes. Almost a third of Americans actually own their homes outright. They've got a lot of attrition on equity.
CAFFERTY: Good stuff Diane. Nice to see you as always. Thank you.
SWONK: Thank you.
CAFFERTY: Diane Swonk, chief economist at Mesirow Financial.
When we come back on IN THE MONEY, in the firing line. The labor market is looking a little shaky. A disappointing jobs report last Friday and a whole slew of layoffs. We will look at what's that mean for the big economic picture.
And the head sales force. You'd think the more dealerships a car company has the better. Well not necessarily. See why all those showrooms might no the be helping Detroit.
Plus, top dollar. CEO pay up, we will find out if performance is rising with it. Here's a hint -- not necessarily.
SERWER: The unemployment rate improved in September, but U.S. employers added far fewer jobs than Wall Street had hoped for. The jobs report came out on the heels of a Challenger, Gray and Christmas study, which showed U.S. corporate layoffs, surged 54 percent in September. For more on what the jobs numbers mean for the overall economy we're joined by John Challenger, CEO of Challenger Gray and Christmas, and outplacement consultancy.
John let me ask you, how would you characterize the job market right now? Is it soft? Is it tepid? Is it blah? What do you say?
JOHN CHALLENGER, CEO, CHALLENGER, GRAY & CHRISTMAS: Well, it's slowing. We saw job creation averaging about 170,000 jobs a month up through March of this year. Then it slowed down. We're now averaging about 120,000 jobs getting created. Unemployment has stalled. We've been staying between 4.6 percent, 4.8 percent all year. That being said, that's a pretty good job market. That's near full employment. But it looks like things are going to start to slow down and get slowly worse as we move into the next year.
WESTHOVEN: Let me ask you, John, I saw one economist note out that said if you look at trends that are happening in this report, compared to the past few months we could be on track for job losses by next year. How concerned are you about that? Do you think that might happen?
CHALLENGER: The big issue is job creation. Is the economy growing enough, are there sectors in the economy that are still really moving forward and creating jobs. We only saw 51,000 jobs this month. That was much lower than estimates, and certainly is going to cause many consternation about whether or not the job market is going to slow down as we get into 2007 and create that scenario you were talking about.
CAFFERTY: Well, this is traditionally a kind of volatile time of the year, September, October, when it comes to jobs and employment, you got the kids going back to school, et cetera. There was a sharp upward revision in the August unemployment numbers, 60,000 jobs were added to the original number.
It you take the 60 plus the 51 you're talking about the last 60 days job creation of about 110,000, 112,000. Some people might suggest that's kind of right in the sweet spot, you don't have inflationary growth in the economy but you have enough jobs being created to keep the GDP number moving higher.
CHALLENGER: Well, certainly that is in line over the last two months with that 115,000, 120,000 we were talking about. So no question, we need to look at more than just one month of data to see whether or not this economy is going to downshift another gear like it did in March.
Hopefully that's not the case. What we do find is in this last three to four months of the year is often the heaviest time for layoffs, more than any other period. Companies that have been not making their numbers now start to cut jobs. They want to please Wall Street. They've got to make their earnings. So that leads to more layoffs.
SERWER: Hey John, what about industry sectors of the economy and also geography? What's hot? What's not out there?
CHALLENGER: Areas of the economy, there are really facing toughest sledding are the Midwest with manufacturing; you saw the numbers go down again in this month's report. We also see that Detroit in the automotive companies are now beginning to lay off not only just in those big three but in the suppliers as well. New Orleans is still struggling as a difficult spot in the economy. Now the strength in the economy are health care, energy, professional services, those are areas that continue to generate new jobs. WESTHOVEN: John, you just were talking about Detroit. If you were one of these autoworkers just out of the union, who took one of these buyouts or is facing layoff, where should you look? You just mentioned three industries, but also what should they be really expecting to get from their new job? Because they're coming from a place where they got a lot of perks. What's realistic for them to expect in the new job?
CHALLENGER: Probably they're not going to be able to hold money if they came out of the big three. It does mean a salary cut. What many people are doing though is going into areas of the economy that are strong, that don't necessarily need highly skilled workers.
That might mean security businesses have been hot, energy we've seen people moving out to the west and southwest for energy jobs. Construction has been strong. People who are adaptable and flexible can take some of those skills and move them on.
Some of the best workers are going to some of the automotive companies that are doing well, the Japanese companies are hiring and are picking up the best, most highly skilled, high-performance workers.
CAFFERTY: We got some gangbuster retail sales numbers last week, Wal-Mart being perhaps the exception. But overall, some people are saying that gas prices coming down have freed up some money to go elsewhere, but people were out shopping.
We are looking at the Christmas season coming up and that is always huge in terms of not only job availability for part-time workers but also for these retailers as they look toward the Christmas season. Give me your sense of what we're looking at as we head into Christmas of '06?
CHALLENGER: The last two years we've seen about 700,000 jobs added during this last quarter from retailers who hire people to handle the extra flow. It looks as though retailers are cautious this year. They want to take a wait-and-see approach, make sure that the business is coming in, that the consumers are going to be buying.
My guess is the heaviest time is going to be in November. If you're out there, you're thinking about getting a second job to allow you to get the discounts at your favorite store, do it now, go see the store manager and get in line so that when that job opens up, you're getting hired.
CAFFERTY: Good advice. John nice to see you thanks for joining us today. I appreciate it.
CHALLENGER: Thank you.
CAFFERTY: John Challenger, CEO of Challenger, Gray & Christmas.
Coming up after the break, the price at the pump, from the clothes on your back, see what falling gas price is doing for retail sales. We just grave you a little preview of what that discussion might consist of.
Also ahead, welcome to the machine. We'll talk to a former investment banker who wants Americans to be more aware of the link between Washington and what's in your bank account. Here's a hint, most of it is in Washington, and it is not in my bank account.
And brighter bulbs see how changing a few light bulbs could help the planet and your wallet. Stick around for our "Brainstorm" segment.
SERWER: You might have lower gas prices to thank for that comfy new sweater you're wearing today. Many of the nation's clothing retailers reported strong September numbers thanks to less pain at the pump and some cooler temperatures. But not everyone got in on that action. That's the subject of this week's "Street Talk."
What we're talking about here is lower gasoline prices putting more money in consumers' pockets and then going out and shopping and buying that comfy sweater, et cetera. The exception is Wal-Mart. The reason why that's a little surprising is because Wal-Mart's executives were saying that, oh, our business is bad because of these high prices and we're hurt more than anyone because we serve the lower end consumer and this takes money out of their pocket. I don't know what they're saying today.
CAFFERTY: So what is the reason?
SERWER: Maybe they don't have the right product mix.
WESTHOVEN: Well did you see, now they are saying they also had this awful technical glitch. It's hard to understand how that's going to affect anything.
CAFFERTY: We talk about Wal-Mart once in a while in this program, is the geometric progression of a company that size. You can't keep increasing sales and profits by a factor of whatever, 10 percent when you get to be one of the largest private employers in the world now or something? I mean there is a point at which numbers begin to fight back.
SERWER: They call that the tyranny of large numbers on Wall Street. You're right; you can't grow 15 percent a year. You are they're lucky they grow one or two percent a year. And that's hard. I think that new drug plan in Florida where they have $4 for prescription drugs that could help.
CAFFERTY: That is a good idea.
WESTHOVEN: They say that is working out.
SERWER: That will get people in the stores. They got to figure things out. But the Bigger picture is gas prices are down a lot and that's good for our economy and it is good for retailing.
CAFFERTY: Like a tax cut.
SERWER: It really is. It's shown in all these studies if you're paying $2.20 a gallon instead of $3.20, it's obvious. That's a whole lot of money extra to spend in stores. Retailers are looking forward to that.
CAFFERTY: Might be a good Christmas season.
SERWER: It just might be a good Christmas season and it is getting close.
Coming up, the hand that swipes the plastic. It's your money. Find out how much Washington affects how you use it. We'll speak with an author who says you're getting jacked!
Plus, find out why having too many dealerships might actually be bad for a carmakers. Well, you can understand that.
And we'll read some of your e-mails from the past week. You can send us an e-mail right now, too, or whenever you're feeling lonely. We're at INTHEMONEY@CNN.com.
WHITFIELD: Hello, I'm Fredricka Whitfield. Here what's happening right now in the news.
In the Mark Foley e-mail scandal, a lawyer for one former page says his client is expected to talk with federal agents next week.
More bloodshed in Iraq today. A suicide truck bomber hit an army checkpoint killing at least 14 people. It happened in the northern city of Tal Afar. Elsewhere at least three people were killed in other attacks and 17 bodies were found, many showing signs of torture.
President Bush's sister Dorothy Bush Cook broke the traditional wine bottle as the navy christened its newest carrier named for the first president Bush. Current President Bush joined his dad at the ceremony for the $6 billion nuclear powered carrier. It is the last of ten in its class. Nice family photo there.
Coming up at the top of the hour, a look at the legal aspects of the Mark Foley e-mail scandal. Now back to more of IN THE MONEY.
CAFFERTY: As you are no doubt well aware, health care costs in this country are soaring; personal debts are on the rise. What's the government doing to help? Not very much. If you want proof, look no further than your wallet. Our next guest went across this country doing just that and surprised what she found was a country mired in debt and hoping desperately for change.
Nomi Prins is the author of "Jacked, How Conservatives are Picking Your Pocket Whether You Voted for them or Not." She joins us now; she is coming off a four-month, 30-state odyssey in which she took a look at economic situation of just folks.
What did you have in mind when you started this thing, Nomi? Welcome to the program, by the way. It is nice to have you here.
NOMI PRINS, AUTHOR, "JACKED:" Thank you for having me. What I had in mind was a way to get away from statistics and polls and what's going on in Washington and New York and just get out and travel and drive and talk to people about their lives in their lives and see what really mattered when they really sat down and talked about their concerns.
WESTHOVEN: What did people say about their ATM card? That's I guess my favorite card. Then what's the link there from their money card to Wall Street and to Washington?
PRINS: Well, the thing is if you ask people blankly what's the most important card of your wallet, that's one that comes out. At least a third to a half of the time I spoke to people as the first card, your ATM or your credit card. And there isn't a distinct link mostly in people's minds to Washington until you start talking about credit and bankruptcy. On ATMs, though, there is a campaigning about how much it costs for people to get access to their own money.
SERWER: Nomi what I don't understand though is the title of your book. I mean this has a political orientation; sounds like you're picking on poor Denny Hastert and all of his buddies. What's this have to do with conservatives and Republicans?
PRINS: The reality is the conservatives -- I put the title in scare quotes on the book -- are not conservative with the country's budget. They created the highest deficit, the highest national debt, the biggest trade imbalance, an awful dollar, and all that's contributed to make it harder for people on the ground. But also they have passed a phenomenal amount of legislation that has hurt people in their wallets.
They passed a bankruptcy act that made it harder for individuals to declare bankruptcy, even though we're at record high numbers of bankruptcies. On top of that, they wrote into the act that if you're old or if you are coming back from war, or if you've had major health catastrophe, you can no longer protect your primary asset, your home, if you do have to declare bankruptcy. That's a far from conservative thing.
CAFFERTY: Is there a sense out there among people that you talked to across the country of disappointment or disgust or dismay at these morons in Washington? Or do the folks just kind of think, well, those are our leaders and they're doing what's best for us?
PRINS: That's definitely not the thought. The thought is that they don't get me. The major thought across the country, whether I'm talking to a single mom out in Portland who had to go to community college and tend to her two children, had head start cut and had no child left behind cut and is trying to be a nurse, she gets that the government is not helping her.
CAFFERTY: So let me ask you this. We got a mid term election coming up here. It is my fervent hope that every incumbent in the country gets voted out of office on his ear and we can start this thing all over again. Do you handicap the election based on what you've heard from people?
PRINS: I think this election will actually be more about what's going on in people's wallets. When people think about the fact that health care, if they have it, has doubled in the last four years. It is harder to declare bankruptcy; college costs have gone up by a third.
Gas prices have come back a bit, but they have doubled. When people think about their day-to-day lives, I think those economic issues are a lot more important to them than I think the politicians really are noticing. I think that's going to swing the election in the favor of getting people out who have not helped people in their wallets.
WESTHOVEN: What do you make of the fact that while you were touring was probably when gas prices might have been a lot higher than they were now. Do you think that's going to take a lot of the sting out of a people's sort of fierce oppositional feelings? People had a lot of high site and spirits when they were paying $3.00 at the gas pumps.
PRINS: I think people have better memories than they give them credit for. Yes, when I was touring prices were high, but they also felt they were being jacked, they were being taken advantage of by oil companies and by the government who was giving oil companies tax breaks and allowing prices to stay where they were at the pump. I think their memory is again a lot longer than politicians might give them credit for.
SERWER: Nomi, you were a senior executive at Goldman Sachs, presumably making oodles and oodles of money. What drove you to leave that job to write about this kind of snuff?
PRINS: Well, it is not most normal career path. I think I am probably the only one that's taken it. But I wanted to get a sense of what's going on in real life, in the world. When you're working on Wall Street it is so high finance, it is so travel.
You have so much money to play with, not just what you getting, but how you're traveling, where you're staying, who you are talking to. It is not really real. Being a journalist, getting out in the country, going to bars, getting my car stuck, getting lost, all of that stuff, that is just so much more real to me.
CAFFERTY: What's the most important card in your wallet?
PRINS: My most important actually is my health insurance card which I just after couple years of break having left Wall Street and had it, and then not having it as a writer for a while and having it back, I'm kind of happy about getting that one back.
WESTHOVEN: Nomi thank you for that. We see a lot of figures here. Good to have somebody who is out there on the ground asking people what's really going on?
PRINS: Thank you so much. WESTHOVEN: Thanks. There is a lot more to come here on IN THE MONEY. Coming up, smarter selling. Find out what carmakers like Toyota could teach Detroit about right-sizing their dealerships.
Plus, changing light bulbs. See how new designs are going easier on the environment and saving money.
WESTHOVEN: A possible alliance between General Motors and Renault Nissan fell apart this week after the two sides couldn't agree on the value of a potential tie up. Carlos Ghosn the big boss at Renault Nissan might still pursue another North American partner; it starts with "f" and rhymes with cord. But "The New York Times" report says Ford is losing interest.
Outside help may not be what the big three really need. Our next guest says Detroit is going through a wrenching contraction and that the dealership network is part of the problem. Joann Muller auto specialists with "Forbes" Magazine join us now. Joanne welcome to the program. If you're someone like me who doesn't know a lot of the ins and outs of the car business, there is a hostile relationship between the dealers and GM at times?
JOANN MULLER, AUTO SPECIALIST, "FORBES:" Well, certainly there is. And you know, these are all independent businessmen who have invested a lot of their own money in their dealerships. GM would like to be able to tell them what to do at all times but they just can't.
SERWER: Let me ask you a question Joann. What exactly, can you explain the relationship between the automakers and the dealers? How financially does it work?
MULLER: Well, the dealer has to first win a franchise. They have to pay money for that. Then he has to open a store on land that he acquired usually. He has to build the store to the specs of the automaker. He has to buy cars, usually a prescribed number of cars based on the price that the automakers tells him, and he has to sell them at a price at automakers tells them to sell them for. So they have a lot of capital tided up in these businesses. The margin really isn't very high at all, so they depend on volume to make their money.
CAFFERTY: So with that in mind, explain to us the theory that less might be more when it comes to the number of dealerships? If volume is so important, conventional wisdom to me would seem like the more outlets you got, the better chance of doing a big volume. No?
MULLER: Well the key is volume per store. This is the big difference. Toyota has only about 1,200 stores, and they're making -- they sell like 1,600 cars for each store in a year. And the problem is that GM, like Chevrolet, has four times as many dealerships selling half as many cars. Each of those Chevy dealers is carving up the pie.
CAFFERTY: I got you.
WESTHOVEN: Well, how do they get into the situation? Or maybe more importantly, how do they get out of it? Caterpillar doesn't have these problems. Toyota doesn't have these problems can't GM clean this up?
MULLER: Well, you would think that they ought to just, you know, buy these dealers off the same way they're buying off their employees to go way. First of all, that's a very expensive proposition. Second of all, these dealerships are all protected by state franchise laws.
You really have to have good reason to get rid of a dealer, and these are laws that -- these are local businessmen and they are cozy with their local congressman. And they have gotten these laws built up over the years; they really protect them a lot. The automakers hands are very much tied.
SERWER: Joann you a lot of people I talked to want to buy a car a certain way. They want to be able to go online, like you do with Dell and sort of design your car, imagine if you could email or go to Ford's Web site and pick out your F150 pickup truck, get the car, get the specs, and press a button and say I would love to get this in six weeks. Is that ever going to happen?
MULLER: Not as long as these franchise laws exist. But I will say this, you know a few years the automakers in particular Ford tried to do this, they pushed very hard for the Internet and the dealers just rebelled. It was quite risky for Ford and they backed off.
But you can go the Internet now, spec out your car, decide exactly what you want, you can find out what the dealer paid for that car online, you can find out what other people are paying for a car in your neighborhood that is exactly the way you spaced it, then you take that piece of paper into your dealership and say this is what I want, this is the price I will pay.
CAFFERTY: Does that work though? I assume on some level it does. But if the dealer says well you know what I got to get $500 more for the car, and I am not going to sell it to you at that price. Then where are you?
MULLER: Well you know what the dealers have come to reality, and this is the way cars are bought now. As long as you do your homework you are going to go in and get a price from your dealer. It is not as terrifying as it use to be.
CAFFERTY: Let me go talk to the manager.
MULLER: But they will go talk to the manager about your loan. And that is where they will try to screw you. Excuse me.
SERWER: That is all right.
WESTHOVEN: I want to back out of the dealership issue for a moment and ask you about this alliance. Why is Wagner it seems so uninterested in a potential deal? Why is Ford maybe not so interested? Isn't Ghosn supposed to be this miracle worker with troubling car companies? MULLER: Well, Ghosn has done a phenomenal work at Nissan, turned it around very quickly. The problem is that Rick Wagner at GM wants to hold on to his job. And he is very worried that this whole thing started when Curt Corran (ph) one of his biggest investors said oh we think you should team up with Ghosn.
Now that is very threatening to Rick Wagner as a CEO. I don't think anybody surprised that Rick Wagner didn't want to see this happen. He came up with some very specific financial reasons why it wasn't good for GM.
Now the question at Ford, everyone said well, Ford would make a much better partner. I think six months ago Bill Ford the chairman of Ford probably was interested in this kind of alliance. However, since then, you know, Bill Ford has hired a new CEO Alan Mulally at Boeing. He's got to give this guy a chance to figure out what to do. I don't think an alliance will happen immediately at Ford. But I would not be surprised, maybe in a couple of years, that these two companies might start talking again.
SERWER: All right. We are going to have to leave it at that. Joann Muller, auto specialist at "Forbes." Thank you for telling it like it is about auto, from the auto business.
Imagine if you could help reverse some world's most profound issues like global warming, rising energy costs and dependence on oil while also saving money? You may be surprised to hear a solution could be as close as you're nearest light switch.
(BEGIN VIDEO CLIP)
SERWER (voice-over): The next time you're in the lighting isle of your local retailer, you might find a product that looks more like a swirl of ice cream than a lighting device. They're called compact fluorescent light bulbs or CFLs. The EPA believes they could brighten our world in a big, big way.
STEPHEN JOHNSON, ENVIRONMENTAL PROTECTION AGENCY: An energy star bulb like this saves energy, it releases greenhouse gas emissions and it costs less for the consumer.
SERWER: CFLs bearing the Department of Energy's energy star seals uses 60 percent less energy than incandescent but emit the same amount of light. The bulbs cost more up front, priced at about $3 to $7 each, but last five to ten years. And while they light your home, they actually save you money. According to the environmental protection agency, swapping a 60-watt incandescent for a 13 watt energy star CFL saves more than $30 in electricity costs over the life of the bulb.
If every U.S. home installed just one energy star CFL the EPA says we'd save a startling $500 million in energy costs. That's enough to light 2.5 million homes for one year, or reduce greenhouse gas emissions equivalent to taking almost 800,000 cars off the road.
There is just one hitch though, consumers aren't buying them. Some reports say last year's CFLs represented only five percent of the two billion light bulbs purchased in the United States. But the world's largest retailer plans to change that.
Beginning with a major launch this month, Wal-Mart and General Electric, one manufacturer of CFLs, plan to widely inform consumers and sell 100 million bulbs over the next year. To gain shoppers' attention, Wal-Mart plans to rearrange store lighting isles.
They'll place energy savers at eye level on the most prominent shelves, and install educational displays that show customers why the switch makes sense. It's all part of a larger effort by GE, Wal-Mart and other corporations to become more environmentally friendly and offer eco-friendly products to shoppers. But, how does it affect the bottom line?
MICHAEL PETRAS, V.P. OF LIGHTING, GE: It might not be the best tradeoff for us because we are taking out incandescent light bulbs and going with compact fluorescents that last longer but if the customer wants it we need to be there with them.
SERWER: Each CFL purchased takes the place of six to eight incandescent sales. That said some retailers like Wal-Mart actually think it might have subtle advantages.
ANDREW RUBEN, VP OF SUSTAINABILITY, WAL-MART: Energy savings is a big win for Wall Street, whether it is the compact fluorescent light bulb or other product. Any time the customer is spending more on energy, whether it is at the pump or the electric bill, that's money we don't have a shot at as a retailer.
(END VIDEO CLIP)
SERWER: The environmental protection agency kicked off its annual "Change a Light, Change the World" campaign earlier this week to raise awareness of energy star lighting. For more information visit the agency's web page at EPA.gov.
Coming up on IN THE MONEY, please don't feed the fat cat. While workers do the heavy lifting, CEOs are making bigger money. See if that translates to better performance.
And it is time to hear from you as we read some your e-mails from the past week you can send us an e-mail right now to we are at INTHEMONEY@CNN.com.
CAFFERTY: When the boss does well, he makes a lot of bread. When the boss screws up, sometimes he still makes a lot of bread. Maybe even more bread than he was making if he'd done a good job. At least that's the way it seems sometimes. That's the focus of today's "The Number" segment. The number is 16 percent. That's how much CEO pay went up. Last year. That's right.
CAFFERTY: And the top guy on the list that we have is Barry Diller, over at IAC Interactive, he made $295 million.
WESTHOVEN: But that 60 percent is apparently a big slowdown in the amount that they had been getting. So I actually read a report that was like, aw! They're really taking it tough!
SERWER: U.S. income, median household income only increased one percent. While they're getting theirs, we're not getting ours. The other thing that I noticed in the study, the guy that led the list in the terms of biggest increase was the CEO of this company called Marvel Technology. He made $75 million. He pay was up like 1,000 percent.
Right? Just last week the company announced going down the tubes in terms of his business, they had to restate all their earnings because they had the stock option problems. So the shareholders are probably delighted to hear about there.
WESTHOVEN: I mean don't you find there always seems to be a correlation between the guys making the highest pay and then the next thing you know the company is cracking. It is not just happening for the CEO usually when you get that kind of ...
CAFFERTY: You look at Microsoft or Google or some of these companies that are make jillions of dollars for their shareholders. You can't begrudge the guy who invented Microsoft ...
WESTHOVEN: They just cut his bonus.
SERWER: Those guys make money in the terms of stock they hold.
WESTHOVEN: At least they're in pay for performance.
SERWER: That's what we get here. We perform a little bit and we get paid a little bit.
CAFFERTY: About time they kicked loose with something.
SERWER: I do.
WESTHOVEN: And now this week's "Life after Work." Retiree Clarence Wildes loved motorcycles since he was a kid. When he was forced into early retirement he decided to build a business around bikers. Spreading his love for the road. Valerie Morris has his story.
VALERIE MORRIS, CNN CORRESPONDENT (voice-over): Slowing down is the last thing on the mind of 57-year-old Clarence Wildes. He's finally living his dream. Sharing his passion for motorcycles.
CLARENCE WILDES, MOTORCYCLE INSTRUCTOR: I got interested in riding motorcycles when he was 18. My cousin had one. I wasn't allowed to have one, but I was allowed to ride his.
MORRIS: Clarence had an early retirement package when his job as an engineering manager was eliminated. He then took a substantial risk to finance a new business.
WILDES: I used some of what was left in my 401(k), which by then was a 101(k). A lot of it was on a wing and a prayer.
MORRIS: He and his wife Pat opened Rolling Wheels Training Center in Kansas City, Missouri, with just one student. After that, all the classes reached capacity. There are plans to open a second school in Florida, but Wildes insists it's not about the money.
WILDES: If I wasn't retired, we wouldn't be able to live off what we're making here. The passion drives us more than anything else. It keeps me wanting to come back. When you're work with your passion, that's really what it's all about.
MORRIS: Valerie Morris, CNN.
WESTHOVEN: We'll be right back with more IN THE MONEY. My favorite part of the program, Jack reads the e-mails.
CAFFERTY: Oh, yes.
CAFFERTY: It is time now to read your answers to our question of the week about whether the quality of your health care has improved along with the higher prices. Nobody said it has.
Emily wrote this, "Hell no. Greed is dictating health care because the insurance companies re completely in charge. This is a monopoly now and nothing the doctors or patients can do will make a difference."
Bob in Missouri writes, "My health insurance premiums have skyrocketed and now my doctor spends less time with me and he tries to push medicines that I don't need. Meanwhile, the CEO of my insurance company, United Health, now has options worth $1.6 billion. I wonder how much of that was taken out of the hides of the patients."
And Charles in Los Angeles sent us this; "The quality of American health care has declined as prices have increased, just as it was for cake during the reign of King Louis XVI and Marie Antoinette."
Here is next weeks email question of the week, "Is this a good time to get back into the stock market?" Send your thoughts on that to INTHEMONEY@CNN.com. You should also visit our show page at CNN.com/inthemoney. And on that note we thank you for joining us for this week's edition of our tidy little program.
My thanks to "Headline News" correspondent Jennifer Westhoven, "Fortune" Magazine editor at large Andy Serwer. Wastler has been fishing, he will be back nose to the grindstone next week and we hope to see you back here next week as well. Saturday's at 1:00, Sundays at 3:00 Eastern. Until then enjoy the rest of weekend.
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