The Roemer Report November 1987

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Trucking and the Stock Crash?

Wall Street’s October nose dive will probably ripple through a number of key sectors in our economy that supply freight to the trucking industry. We're in a volatile period at the moment. An uncommon demonstration of fiscal responsibility by the administration and congressional leaders could calm the market and diminish some harsher consequences. But, at the moment, here are some of the probable impacts of the Wall Street nosedive. (1) Traffic in auto showrooms was already slowing before the stock market headed south. Next year's total domestic and foreign auto sales projections are being revised downward. The re-emergence of incentive financing could juice up sales, however. (2) For retailers, the market plunge came at a difficult time. Christmas orders are being shipped and it's too late to significantly adjust planned holiday inventories. Because of the holiday season, any downwardmovement in consumer confidence shouldn't impact freight levels until after thefourth quarter. Tonnage levels in the first and second quarter of 1988 are anticipated to be flat -- not significantly up or down -- just steady. Economists say the market plunge could reduce the GNP by one-half of one percent for 1988...reducing economic growth from 2.5% to 2% and potentially eroding consumer spending by $25 billion. (3) LTL rate discounting will probably re­emerge in the industry.Less-than-truckload consolidation is expected to pick up steam as a result of flat economic growth projections. (4) Just-in-time inventories will increase in popularity as companies search for ways to reduce material handling and distributioncosts.

IS THE STEEL REBOUND FOR REAL? It's understandable that carriers who depend on the steel industry could be wary of recent reports that American steelmakers are coming back strongly. One fear is that the comeback may be a temporary blip resulting from a weaker dollar. The reports are reliable, however, and there are several good reasons why domestic steelmakers could be on the right track at last: (1) A number of old, obsolete plants have been closed and efficient new methods are on stream. (2) Japan's labor cost advantage over American steelmakers isdisappearing.(3) Shipbuilding, highway renovations and auto industry demand are keeping mills busy while order backlogs climb. (4)Labor relations in the industry are improving. It's still true, of course, that imports have grabbed nearly one-fourth of the domestic market. Another problem is that low­ cost steel producers in Brazil and South Korea are boosting their exports to the U.S. The American steel industry also faces a few more plant closings as it slims down for future competition. Meanwhile, though, conversion to the continuous casting method is dramatically improving both productivity and quality. One of the best signs of industry health -- and product quality -- is that Japanese automakers are buying American steel for their U.S. plants.

WHAT DID THE AUTO TALKS ACHIEVE? Financial analysts predicted confrontation at the bargaining table between the UAW and General Motors or Ford. Anticipated bitter battles never developed. A compromise contract emerged that appears to provide job security for the UAW and work rule changes for GM and Ford. The UAW received profit sharing, wage increases and some control over job reductions. The benefits to Ford and GM focused on the reduction of job classifications and the establishment of union-management committees to. create "team concepts" on the assembly line. Other topics of interest are: (1) GM's work force of 335,000 workers is nearly as large as it was a decade ago. An estimated 35,000 workers are eligible for retirement at GM. Ford's work force is only 110,000 workers. In the new contract, attrition is the agreed way to reduce the work force. Industry experts predict that GM could eliminate as many as 40,000 jobs during the period of the agreement. (2) Plant closings.Several previously announced plant closings at GM and Ford will be implemented. But future production cannot be transferred to offshore facilities. According to Douglas Fraser, former UAW president, "One of the tragedies" of this contract is theft that auto industry employment will decline. More importantly, young people will not play a major role in the auto industry work force. Over the long-term, an older work force is more costly and jeopardizes a continuous transfer of job skills from older to younger workers.The biggest contract. benefit to both sides may be the replacement of the standard approach of confrontation with one of cooperation.

TRUCKING COMPANY PLANS THAT GET USED: These days every manager hears the same refrain: "think long run." Short-term thinking, they are told, has largely diminished America's competitive clout. But effective managers take neither a long- nor short-term perspective exclusively. They have an abiding interest in overall quality, and they adapt whatever time frame fits their presentproject.But what about strategic planning? Isn't that kind of long-term thinking essential to any firm? Yes, says Pastin, but only if you create a plan that gets used and doesn't spend its life in a notebook. Here's one way to ensure results.... Get managers together for a "goal-seeking" session.Begin by exploring the company's current objectives -- the ones that aren't working. But don't engage in scapegoating. Focus instead on explaining why the old goals were chosen in the first place. Understanding that goes a long way toward explaining what went wrong. It helps managers see the difference between "living" goals and those that just get talked about. Plus, it makes managers aware of what is (and isn't) important to an organization. The only plans that are ever realized are the ones that people get -- and stay -- excited about.

HOW CUSTOMER SERVICE GENERATES TRUCKING PROFITS: It pays to invest in customer service and satisfaction. The Technical Assistance Research Programs (TARP) studied various aspects of customer service and found the following: Customer Problems.Twenty-five percent of the time a purchase is made by an American householder, there is a problem with the purchase. However, almost 70% of those with problems don't complain. Dissatisfied customers don't complain because...they don't know where to complain...they don't know how to complain...and they feel complaining won't really help them. The dominant response of a dissatisfied customer is the path of least resistance. He simply goes to your competitor to purchase needed products or services. Customer Loyalty.When customers do complain and receive satisfaction, they develop strong brand/product/service loyalty. Customer Service Generates Profits.Ongoing TARP studies reveal that successful customer complaint handling departments have commonly earned in excess of 100% return of investment. Particularly high returns are found in industries like durable goods, automotive, retailing and banking. You can, indeed, make a silk purse out of a sow's ear if you show some empathy and innovation in dealing with those inevitable customer complaints. Here are a few examples of ideas that can generate revenue. Use a publicized toll-free number for complaints. Automate and review customer complaint data to analyze patterns. Conduct regular customer audits on complaint handling satisfaction. Employ an ongoing communication training program for your staff. Two principal strategies are vital for turning problems into profits. First, actively solicit customer complaints. Vigorously pursue complaint handling feedback from customers. Secondly, support complaint handling efforts with training, vision and policy.

THOSE 1988 TAX PROSPECTS: Political sparring over the 1988 budget is in full swing in Washington. The recently revised Gramm-Rudman budget-balancing law mandates program cuts for an unbalanced budget. The absence of new revenue or spending reductions will force an estimated $23 billion in automatic spending cuts. Here are a few of the emerging issues: (1) The Debate.The White House is firmly against new taxes and indiscriminate budget cuts. The search for non-tax revenue increases is underway. Congressional Democrats are preparing a $12 billion tax increase plan. (2) UserFees. The administration considers user fees a potential method of increasing revenue without increasing taxes. User fees would be imposed on individuals who use specific government admission fees to national parks. User fees are assessed proportionally to the use of services and targeted service areas include international air travel and cruise ship tickets. (3) Closing Loopholes.Closing loopholes is actually the elimination of an exemption. Repealing exemptions for gasoline and other excise taxes for state and local governments is under consideration. Under another proposal employers would be required to pay the Social Security payroll tax on cash tips received by restaurant service personnel. In the end, the 1988 budget plan is headed for tax debate and voluntary or involuntary redrafting.

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