Roller Coaster Ride

Courtesy of Jim Dunstan, chair of Azon USA

It is hard to know where to begin. Without question, 2008 has been one wild roller coaster ride. Early last year, during an Azon management committee meeting, I raised words of caution for the months to come, in the face of the almost daily bad news from economists. I do not normally exhibit pessimism, but my last message in the Spring 2008 edition of the Azon newsletter I stated, “These present times seem to challenge America unlike those we have had to deal with in the past.” I marvel at the self-appointed financial pundits who take credit for predicting a worldwide economic depression like that of the 1930s.

Few readers of this newsletter share the privilege with me of knowing first-hand what it had been like during the Great Depression. I am a true and bona fide Depression-era witness. As a five-year-old Depression-baby, I recall the election of President Franklin D. Roosevelt. During that time, soup kitchens and breadlines were everywhere, banks failed and the unemployment rate was at 25%.

Fast-forward 50 years to the 1980s when during the Carter presidency the rate of inflation rose to 13.5%. In December 1980 the prime rate of interest hit nearly 22% – the highest rate in U.S. history. Moreover, the jobless rate had reached double digits by 1982.

Another Fast-forward to 2008

Let us observe (on the roller coaster ride late in 2008) the current rate of inflation that is now declining due to falling oil prices, with reasonably low interest rates for those who can borrow and, at last report, non-farm unemployment is at 6.5%, but expected to rise.

U.S. Treasury Secretary Henry Paulson has announced a change in the direction from the bailout of the U.S. financial system—the $700 billion, Troubled Asset Relief Program (TARP) to a stimulus package to bolster the credit market. My sense is that The Fed is waiting for the other shoe to drop—huge defaults in credit card debt. Americans live in a non–cash economy. Anyone who doubts this need only to stand in line at the checkout counter to witness people swiping plastic cards for basic needs, the costs of which credit card companies take a percentage of. The credit card companies are very much in the grocery market business without owning a store.

The American auto business is on life support. My personal feeling, with all the proposed bailout money that is being talked about, The Big Three — Ford, General Motors and Chrysler—will go the way of big steel and will not survive. It is a sad assessment on my part, but an assessment long in coming—the American car companies have lost money for years. The jump in the cost of imported oil to over $145 a barrel rang the death knell for an industry that made its money off the gas-guzzling pick-up trucks and SUVs. The talk of propping up the car companies with bailouts from the Treasury has a lot of support from politicians beholding to labor unions. Money from the government to bailout The Big Three will not be enough to fix the systemic ills of overcapacity—too many assembly plants—products that don’t appeal to car buyers, and the really big one, legacy obligations pushed through years ago in collective bargaining contracts to a growing number of retirees. The costs of these obligations provide huge advantages to foreign car companies who also build autos in the United States. I do not speak to the merit of these issues, from my viewpoint “What is—is.”

Now that we are recovering from the election campaign fatigue, we can look for a turnaround in an economy that is bottoming out. Yesterday evening I filled up at the gas pump for $20 dollars less than just a few months ago. What has happened? Earlier in the year when the price of oil reached its apex, I raised some eyebrows when I predicted oil would be $80 a barrel by fall. However, oil is at $55 a barrel and still dropping. The hype is over. The speculators have walked away with the money, and the true basics come back into play: availability, the cost of production and supply and demand. Since the days of the oil embargo of the early 1970s, the voices for becoming energy independent have only been muted by the American’s love of cars. Every down turn in the global economy for over the past three decades has coincided with the price of oil—affecting everything we purchase.

Twisting and Turning for 2009

We will solve the energy problems; we will adjust our model for providing good paying jobs in a global economy that has shifted labor intensive manufacturing too regions with lower cost workers.

Azon surely is not untouched by the vagaries of an undulating economy. If anything, we enjoy the benefits for being in the right place with the right products.

Years ago my mentor, the late Sam Rich, founder and president of Acorn Building Components, the person most responsible for demonstrating the commercial success for the Azon technology, said to me, “We are not just building windows we are contributing to a basic human need—shelter.”

It is enduring business for us who labor at Azon. We are proud of the contribution we make in that very basic human need— providing comfort and energy savings in buildings.