Newspapers are the only Industry Sector run worse than the Automakers

As I mentioned in my posts earlier this month, the news media is really the biggest obstacle to GM’s success, not the debt holders or the unions

The media has been relentlessly bashing GM with negative front page headlines for almost two decades now.  Newspaper writers across the country have criticized GM for failing to react to changing market conditions with innovative new products; failing to create enough value to attract financing from private capital sources; and failing to overcome its challenges with labor unions and infrastructure overcapacity.  My response to this is “Hello? Newspaper editors– look in the mirror!”  If there is any industry that is run more poorly that the US automotive sector has been in recent years it is the newspaper business!

There is a great article on Wikipedia that summarizes many of the challenges experienced by newspapers in the US during the past few years.  Consider the following examples:

Ceased Operations Entirely

  • Rocky Mountain News
  • Tucson Citizen

Filed for Bankruptcy

  • Tribune Company
  • Minneapolis Star Tribune
  • Philadelphia Newspapers LLC
  • Sun Times Media Group
  • Journal Register Company

Reduced Delivery Options

  • Detroit Free Press – 3 days per week
  • Detroit News – 3 days per week

On Life Support

  • San Francisco Chronicle – Barely avoided closure recently
  • Seattle Post Intelligencer – Devolved to an Internet only model

Significant Market Devaluations

  1. San Diego Union Tribune – Sold to private equity for $50M declining from $1B 2004 market value
  2. McClatchy Company – Stock has lost 90+% ofits value since buying Knight-Ridder
  3. New York Times Company – Low stock prices in the $5 range and suspended dividend

The situation in the industry has progressively worsened to the point that a bill was introduced to the US Senate entitled the Newspaper Revitalization Act introduced, which would allow newspapers to restructure as non-profit corporations and to enjoy significant tax breaks.

The root cause of the industry’s collapse has been the advent of the Internet.  In about 10 years, the web has been able to capture significant market share of both advertising and readership from the subscriber base newspapers took hundreds of years to build.  Another irony of the newspaper industry’s struggles is that their product, information, could not be more in demand.  Consumers, investors and businesses alike are all seeking ways to find more information in faster time frames.  Despite the surge in demand, the owners of media conglomerates and smaller papers have been unable to transform their business models to capitalize on the opportunity.  With the exception of the Wall Street Journal, almost all the national newspapers in the US have resorted to giving away their on-line content for free.  And there is little evidence to suggest that the online forums are generating an adequate return from advertising revenues.

So why do we not see stories about struggling media companies on the headlines of newspapers? Is it because the newspaper industry is not as interesting to the general public as the automotive sector?  Is it because the newspaper industry is so complex that people would not understand it?  Or perhaps, is it because writing negative stories about the newspapers decline would conflict with the publisher’s goal of increasing circulation? 

Think about it.  Imagine if you opened up your newspaper every morning to read about how millions of people across the country were canceling home delivery of their local papers to instead get the same information for free from the TV or Internet.  Would this encourage you to subscribe to a second paper?  Would this encourage you to renew your subscription when the time comes? 

I wonder why fewer people are buying cars these days when they are constantly bombarded with stories about:

  • How consumer credit and financing is not widely available for buyers
  • How the quality of many vehicles does not justify the price
  • How it is risky to buy a warranty from a manufacturer that may not be in business in a few months

Car manufacturers and dealers – It is time to wise up and stop funding your biggest opponents!

The Newspapers (not the Unions or the Debt Holders) are GM’s Largest Obstacle to Success

The biggest problem that GM has suffered from since the 1980s is negative public perception – both at a corporate and a product level.  Despite numerous management changes and strategy shifts, GM has failed to convince the American public that is an innovative company which can build high quality vehicles.  From my perspective, one of the biggest reasons that GM has been unable to overcome its public perception dilemma is the on-going negative attention it receives in the media.  For as long as I can remember (at least over the past 20 years), GM has served as a punching bag for the media.  Not a month goes by without some negative story making the front page about GM.  Even at the height of GM’s market capitalization in the 1990s, the media found ways to criticize its management for its focus on SUVs, Minivans and Trucks.  The media portrayed these vehicles gas-guzzling monstrosities that posed a safety hazard to other drivers due to their size, weight and ability to rollover during collisions.  The past two years, have been a virtual field day for the media as GM suffered under extraordinary macroeconomic conditions.  Throughout most of 2007 and 2008 GM was heavily criticized as contributing to the environment and energy crisis in the US as oil prices spiked to $150 per barrel.  The second half of 2008 and early 2009 have seen GM devolve into the most impacted by the global liquidity crisis. 

Toyota, now the world’s largest automaker, is what most experts point to as the industry’s poster child for success.  Toyota has defeated GM on its home turf with better designs, higher quality and more fuel efficiency.  However, Toyota has been experiencing financial performance almost as dismal as GM during the past six months.  A recent article in Automotive News states that:

“In six short months, Toyota Motor Corp. collapsed from the world’s biggest, most profitable car company to the industry’s top quarterly money loser.  The roughly $28 billion swing – from record operating profit to loss – was whiplash fast…” 

Image Source: AP

Toyota’s greatest challenge has been currency fluctuations.  The yen has appreciated 14% against the dollar recently.  Toyota imports 45% of the vehicles sold in the US from foreign manufacturing plants, primarily in Japan.  Consequently, even minor changes in the currency rates can have significant impacts on profits.  Another challenge Toyota has experienced is with its product portfolio.  Toyota has de-emphasized focus on its traditional strength of small sedans as it has attempted to grow market share in the luxury and SUV sector.  With the record oil prices of 2008 and the economic crisis of 2009, both the luxury and SUV sector are struggling.  Toyota has the capacity to build 9.3M vehicles this year, but will only have demand for 6.4M.  A 3M (33%) production capacity excess for the company that has traditionally defined lean manufacturing is unprecedented.  Yet despite Toyota’s challenges, there has been little media attention on the Japanese automaker.  I read the Wall Street Journal every day.  I do not recall even a single story about Toyota’s problems being published on either the front page or the secondary Marketplace or Money & Investing sections.  

The fact is that the American media painted a bulls-eye on GM in the 1980s and has been shooting arrows at GM constantly since then.  And in 2009 they finally won.  The irony is that GM remains one of the most loyal sponsors of the television and print advertising spots that the media industry depends upon for its funding.