Two Studs

Little Bear Park, the kiddie park where the
Rizzo gang told Vives & Gottlieb to meet them.

I've resisted following up on the City of Bell crimes til now, but the trial of assistant city manager Angela Spaccia -- guilty -- and the plea by slimeball Robert Rizzo of no contest to 69 counts has resurfaced this "huge little story." So, while the big EM08 dawgs (continue to) sip cognac on yachts and laugh at the little peeps, at least these medium gangsters are getting bracelets. 

Here's a pretty good talk with Pulitzer Prize winning journalists Ruben Vives and Jeff Gottlieb. What I appreciated was how they detail that from deciphering contracts to interviewing to forensic accounting to making simple requests that can stretch for days if not weeks... this is long, painstaking work that only investigative journalism can do. They remind me of my television hero, Columbo; persistent, a focus on detail and a poker pro's nose for horseshit when they smell it.

More, their talk underscores why media is so crucial to freedom. Rather, a media that values sunlight, can figure out the dollars and has the balls to stand up to power.

Back on the ground, reporters Vives and Gottlieb deserve some kind of medal. An unlikely pair, Gottlieb is the grizzled vet, having bounced round honing his skills, while Vives shouldn't even be in his position if we listened to some. As a kid he was an undocumented immigrant (Guatemala). That he's here, standing with a Pulitzer in hand speaks well for our country.

These guys are studs, and really make me proud. Sometimes our country works pretty well.
(Doesn't Gottlieb have a passing resemblance to Bob Odenkirk? Don't know who Odenkirk is? Better call Saul....)

This Broad

"Don't hate me because I don't do anything
but somehow get you to pay me. Hee hee!"

Who was it -- Goebbels...? -- that said if you keep on repeating a lie enough the plebes will believe anything?

Marketers practice the blunt force mind-screwing they do and feel it's a science; one technique they call impressions.(1) I don't know what the current rate is, but as I recall back in the stone age it was in the teens before a sheeple converted. That's a marketing slime $5 word for when you finally break down and buy after the Nth time seeing that NIKE ad, despite it having Lebron even when you HATE Lebron.

When I bring up the subject of marketing to crazy liberal groups like Occupy, they look at me as if I'm Count Alucard standing at high noon in defiance. They conflate "marketing" with "spam" and the evil empire, and I get it, but would they do the same with "project management" or "operations" or "customer service"? Of course not. 

One of the examples I usually cite (as I did with the crazy Occupiers) is during my pitch about marketing being an integral part of change (AND stasis!). Back in the stone age, America had a problem: trash. Litter was everywhere on sidewalks, and roads, not just gutters and alleys. What cleaned it up? Marketing, the Keep America Beautiful campaign. It ran everywhere: magazines, billboards, radio, newspapers, and, perhaps most famously, the Clio winning tv spot with "Iron Eyes Cody" (not a native, but an actor) turning to the camera as it dollied in to a close up, a tear running down his cheek. It raised awareness and exerted social pressure on the bad habit.

The key was impressions, a consistent stream of them. The medium may be the message, but so is access and the resources to deliver them.

Leading us to the current Commissioner of the Bureau of Labor Statistics, Erica Groshen. Newly minted as of 2012, the BLS has been chest thumping about unemployment having dropped to 7%. That of course is a lie, there being any number of ways to slice and make mincemeat of their hubris. But oh, they know marketing, and they own the media, which has no hesitation about carpet-bombing this "good news" every chance they get.

And who is Erica Groshen? It reminds me of Marcello's line about his betrothed, Giulia, in Bertolucci's masterpiece, Il Conformista, here paraphrased; She's all theory and academy. As if that weren't bad enough, she's also ex-NY Fed Reserve; double whammy for us, two for one for the evil empire! And before her? Another academic/bureaucrat, Keith Hall.

During the prime bubble inflating years of EM08, yet another academic-- see a pattern here? -- was honcho: Kathleen Utgoff. She hurts in more ways than one; she's an LA gal from Cal State Northridge and UCLA, where econ was her poison. And boy did she ride that pony; by my estimate she retired early (Phd in '78) and ...

...chose not to continue for another 4-year term and completed her term as Commissioner in July 2006. Secretary of Labor Elaine Chao and others honored her for her service. Although she has not ruled out future opportunities to serve the Nation, she now spends her time with her family and does volunteer work in her community.(2)

These are people who have never run a business much less been an entrepreneur and know nothing about the real world because they've never had to sustain themselves in it. There's not an innovative, problem solving bone in their bodies.

They produce NOTHING. Well, unless you count bureaucracy under the guise of policy-making.

Or paperwork. In the aftermath of the Pecora Hearings, the Glass-Steagall Act was an utterly ridiculous 37 pages or something. And yet, it protected us in terms of its goals for half a century. Meanwhile, the Dodd-Frank Act? Over 800 pages.

Is it really any wonder why we're so jacked?

Then that numbnut Phil Gramm decided to grow a hair up his ass and, with then Travelers honcho Sandy Weill's cash in pocket, began to methodically work his slimeball routine on congress. And it worked. See the Gramm-Leach-Bliley Act of 1999.(3) Weill, by the way, was so confident that Gramm-Leach-Bliley would pass, that he applied for and received -- evidently with our bureacrats' blessing -- a special dispensation to go ahead and merge with Citibank before Gramm-Leach-Bliley passed, and America crossed an historic line with the creation of its first Frankenbank: Citigroup.

Personally, having taken econ in school I can safely say that, as taught in the academy, it's a sure cure for insomnia, and has as much relevance to the real world as rocket science to workers eking out an existence in East LA.

As a friend pointedly put it recently when talking about bureaucrats, academics and theorists: If they didn't have their "jobs", these are people who wouldn't know what to do with themselves.

And lest you, dear reader, think I have some inborn sense of disdain for theorists, let me disabuse you of such; one of the most influential books in my life is Noel Burch's seminal Theory of Film Practice, and I have nothing but respect for Bill James.

And as if it wasn't a cruel jester ruling this sad universe, here's a bit of recent history: the one recent presidential advisor who has business experience? None other than Obama hand-picked slime ball, the former GE CEO Jeff Immelt, one of the worst CEOs ever. Maybe not Rick Wagoner bad, but horrible by any standard. Look up both of their track records if you don't believe me.

Immelt and Wagoner do share something else quite significant by the way: both have MBAs. From Harvard.

Then again, so does Groshen. Patterns, indeed.

---------------------------------

1. For those with a case of auto-masochism, it also quantifies and therefore justifies marketing and therefore marketers. Slap up flavor of the month singer/actor/athlete in a campaign on billboards, mags, site banners, commercials... and sit back and wait for the magic. If revenue goes up, well, there it is, and they're off to bonus land and the Clio awards. Next to bankers, pols and Hollywood execs, marketers have a bad case of full of shit. Interestingly enough, if the company posts negative during the campaign, well, it must be "the economy."

The corollary in sports are athletes and incentives. Star clauses have things like making the all star team will get you X amount over and above, or leading the league in scoring, etc. But I've often wondered why it doesn't work the other way if an athlete has a dog of a year. Or is just plain overrated. For NBA fans, think 19 mil and then picture Rashard Lewis (pre-Heat stint).

Back to the point about brilliant marketers (and bankers, pols, etc.) and blunt force; that entertaining old curmudgeon of Hollywood, Sam Fuller, said something funny once and I paraphrase:

Know what they do to ferret out snipers? They send a lone soldier out into the open; when the enemy shoots at him, they can get a bead. They thought that one up at West Point.

2. http://www.bls.gov/bls/history/commissioners/utgoff.htm

3. Gramm's balls only grew once he'd decimated Glass-Steagall; he then turned his best evil eye toward derivatives, and cheer-led the Commodities Futures Modernization Act a year later, in 2000, which kept derivatives dark. Thus, the fertile ground was perfectly primed for EM08.

And lest anyone still believe in the big game of "Democrats and Republicans" let me point out that each of these bedrock EM08 laws were of shepherded by a Republican -- Gramm -- and signed into law by a Democrat: Clinton. Americans should use a Q-Tip as history once again screams at us. 

Barnum's Dictum: snapchat

This fish is a sucker.

If you want to get a close up look at how stupid America is, look no further than this, from snapchat's Wiki:

As of October 2012, Snapchat had not made any revenue.^[7] Spiegel said in October 2012 that the Snapchat team was unwilling to be acquired.

As of February 2013, Snapchat confirmed a US$13.5 million Series A funding round led by Benchmark Capital, which valued the company between US$60 million and US$70 million. On June 24, 2013, the company's blog welcomed IVP as the lead investor from the Series B financing round, in which General Catalyst, Benchmark Capital, Lightspeed Venture Partners, and SV Angel also participated.^[22][23]

A mid-July media report valued the company at US$860 million.^[24]

On November 14, 2013, The Wall Street Journal reported that Snapchat declined a cash offer from Facebook of US$3 billion to acquire the company.^[25]

According to Om Malik, on November 15, 2013, Google offered $4B for the company but Evan Spiegel declined.^[26]

          --source: http://en.wikipedia.org/wiki/Snapchat

The key line, of course, is the first: As of October 2012, Snapchat had not made any revenue. NOT profits, but ANY cash flow.

Then you take a look at their team; go ahead, search them, unless this is the far future and they're long gone by now and buried somewhere on Alexa along with the first round Net bubble burst circa 2000. But to this point I only have this to say: There's a REAL reason why we don't allow anyone to be president that's under 35.

"Irrational exuberance" is one thing. Not learning is quite another. Together, we're talking suckerland part two.

A while ago I was texting on this subject to a friend. I wound up like this:

here's the litmus test for all these whippersnapper start ups and "wantrepreneurs" that think they're so clever and evidently everyone else thinks so smart, innovative, cutting edge...; make their services paid and watch what happens. ha! most people confuse equity market valuation [or in this case, investor exuberance] with real value. the truth is the former is speculation. the latter is vaguely proven, if that. 

Ta da.

Turn it Over

One of the greatest bands ever, in a breathtaking re-mix by Bill Laswell. If Emergency! is one of my desert island albums, and rated 10 out of 10, the old TIO was a 7. And that's for the inherent musical content.

At now over 40 years old, TIO has some dated, corny and well-known elements. But the burning fire of exploration at this band's essence creates a timeless feeling on its best moments. And there are many.

A bow to Laswell, who has almost created a new album. The butterfly has emerged, and she likes it loud.

As Usual, Blues & Sushi

Notice: They're not Japanese

Right now there's a lot of energy circling around the entrepreneurial wagons. In LA, the too So-Cal coined "Silicon Beach," is propelling more networking, seminars, angels, vcs, Meetups, advisors, mentors, consultants, incubators, and crowd this and that than comfort permits. If the word "bubble" makes you shift in your seat, read on.

This is about one facet of this phenomena, the so-called "Lean" approach to startups, popularized by Eric Ries. First off, I'll say that I couldn't agree more with lean principles, but second, not because of Ries, because I've known about lean for a while. Years ago I got interested in how companies ran, and along the way, as millions did, read Peters' &  Waterman's In Search of Excellence. But it was the PBS doc based upon the book, if memory serves, that opened my eyes. In it, I first learned of Toyota's and Honda's different approaches to running a company versus the typical American pyramid.

For those who dig just a bit, it's easy to find that it was Toyota, decades ago, that originated lean principles, not Ries, who in fairness mentions Toyota. And while the "experts" fawn over lean this and that in its processes, they neglect the most important factor: people. 

While implementing lean approaches in process, the most important thing Toyota did was to recognize that you can say "we're gong to be lean," but how, exactly, do you do that? 

Back in the day, Toyota issued a company-wide offer: make a suggestion that helps the company run more efficiently and guess what? You get paid. Honda, meanwhile, took a different approach; while one diagram displayed the aforementioned typical American pyramidal top-down -- and therefore information flow -- approach to management, Honda's diagram was all over the place, with lines criss-crossing in a bird's nest. Their reasoning was simple: open up comm lines so that ideas -- people, not bureaucrats -- begin increasing the probability for synergy.

And here's the crux of the matter: you can have lean principles, mvps, pivoting... but if you give it to a bunch of "twenagers," what's going to happen?

Go back to the example of Toyota soliciting ideas from its crew, high and low. Management thinks they know about the assembly line, but the workers are doing the assembly line. Doing doesn't necessarily confer knowledge, much less insight, but how can it hurt to open up the comm lines to those on the front lines rather than constantly having a one-dimensional view from a bird's eye on high?

This simple thing -- grounded in people -- was the crux of Toyota's lean principles, not process re-imagining per se.

By handing over things such as lean principles and Business Model Generation (Osterwalder & Pigneur, another good read) to skinny jeans, I believe that's a good thing. But without the experience or training and skills that enable one to think so that you can pivot in a logical way, there's a false bubble of confidence bred. The joke goes that youth is wasted on the young, but we don't laugh when we say that a president can't be under the age of 35.

Think about one of my favorite things, basketball. The sport is rife with stories of young, high flying athleticism and enormous amounts of skills. But it's also true that no less than Michael Jordan himself points to the mental aspect of sports as being the toughest challenge. During a revealing interview, the living legend had this to say about his storied comeback to basketball after his brief baseball detour:

Q: When you came back, there was a new breed of players that had not tested themselves against you.

Jordan: Well, it was a challenge. One of the reasons I left was because I didn't have as many challenges as I [had] previously. Now I had all the challenges in the world. People were presenting different challenges to me and that's something that I was really thriving [on]. Young kids were talking trash to me. Some of them were physically, athletically a lot better than I was. But I think another championship -- to do what hadn't been done as far as I could remember. What separated me from them was I knew more. I knew how to win. I knew what it took. So that was a challenge to prove and see if you could teach these kids what it takes about winning. Not just physical skill but how to apply that in similar situations. The same thing that Magic Johnson and Larry Bird did to me in the 80's basically. It was my responsibility to teach these young whippersnappers how to do that, and in the midst of all that, it was a challenge to come back and win.

--NBA at 50 Interview: Michael Jordan, Part 2

What separated me from them was I knew more.

In essence, I think another bubble has been built, albeit anything that gives entrepreneurship  a leg up on the typical American favoritism toward huge conglomerates can't be all bad. What this bubble boils down to is that by emphasizing process without the skills to think logically through one's business model in all of its contingencies, that false sense of confidence builds. It's a step up from where we were, and in fairness, people such as Ries, Steve Blank and Osterwalder are steps in the right direction, but I'm pointing to something much more fundamental.

One of the things former Apple evangelist Guy Kawasaki says to startups is to hire better than yourself. What he points to is that startups are a far more complex landscape than a game of poker, and that people and thinking are the crux of the matter. There must be a sober way of mapping out one's business model in all of its permutations, not just acquiring a few skills, such as developing an mvp. To circle back to basketball, it's like having a hotshot shooter who can't handle the most fundamental aspects of the game such as switching on defense. Running a business is an ultra complicated affair, and if you're not sound fundamentally, no amount of mvp or testing would cause me to place a bet on you -- which is what an investment in a startup is -- a bet.

Look at the movie studios, one of the oldest institutions to employ the mvp principle in the form of pre-release screenings and focus groups to garner early feedback. Most movies languish and fall far short of expectations, prompting William Goldman's infamous dictum about Hollywood: no one knows anything. This is because of one thing: the studios not incorporating a ground up approach at the very beginning of the development process. By ignoring fundamentals, they automatically incorporate more risk into their formula.

Last, I find it amusing, but not surprising, that lean principles are having a hey day now. Ries has fashioned a career from it. But just as the blues only found its rightful place in American minds when foreigners such as Peter Green, John Mayall and Eric Clapton championed the art form, so too are these Japanese principles now wending their way into American startup circles. Just like sushi, Japanese finger food, now made an entire meal due to white people giving the "this is good" thumb's up.

Go figure.

Chris Herren: "Unguarded"

Some people meditate. I got the pot sink. This is where I found myself.

--Chris Herren

What's valor? Maybe a better question is, what's valorized?

About six months ago, fellow hoop head Johnny S and I were talking and he mentioned the Jonathan Hock, ESPN 30 for 30 doc on Chris Herren, Unguarded. As someone who's been following hoops all my life I knew the surface story about Herren, but when Johnny told me about this flick I made that mental note that sticks.

It's not a great story insofar as surprise, mystery or forecasting. In fact, it's the classic predictable tragedy made right and triumph, much like The Pursuit of Happiness. Yet it's really moving, and credit goes to Hock, who edits Unguarded masterfully, weaving different presentations by the now clean Herren deftly to  various audiences: youth, druggies and cons.

This story formula could have easily sunk to pandering, and the truth is that the major credit must be paid to Herren who deals straight and with the voice of the real behind him, exerting a solid undercurrent that builds empathy.

The coda has his current life in stride; wife and kids, the fans who loved, then  reviled and now respect him, all back on board. That of course is a great thing, but for me, the most moving parts of stories where people triumph over adversity are those moments, those turning points, where a crossroad is approached. For  Malcolm, it was lying in prison, his mind coming alive through books. With Herren, his was also a punishment; having to wash dishes in solitary, the pot sink room, for hours on end. It's where he was alone with the biggest hurdle; himself.

It gets better, and speaks to a rare quality in individuals, the ability to introspect, to really get down and look at yourself. He speaks in the coda about how one day he noticed something about his behavior, that where once before, for years on end, he'd taken his shaver and toothbrush into the shower, but all of a sudden with sobriety, he'd stopped.

And in an insight that speaks as much to psychology as to that ability to really observe yourself, he said that now he was able to look at himself in the mirror.

VOX

http://prezi.com/qxpdat7cekkp/vox/

VOX on Prezi

Bitchey Brew

LA Remembered: Bullock's Wilshire

The LA of today is a strange animal; it hasn't forgotten its past, it's erased it. For locals, it's a source of nostalgia and bitterness.

My friend -- a native Angeleno now in DC -- was in town this week and we got caught up. Reveling in the LA weather and bitching about the DC food -- "the Chinese food, forget it. Worse than Panda express" -- we were standing near Sawtelle and Olympic at 2:30 on a Tuesday. I looked west down Olympic, then east; the traffic was backed up a good 3 blocks. I pointed it out to him and he just shook his head.

2:30. On a Tuesday. Seriously?

It's funny; EVERYONE trashes LA, and yet EVERYONE comes here. The locals have been overrun, and yet recently I've met a few and always raise the issue; "Not many of us left. Seems everyone's from New York or Chicago... anywhere but here."

Playa Vista conserves water: Yes they're plastic.

Drive down Lincoln these days by the marina and it's insane. HUGE, Blade Runner condos. Then there's the Playa Vista Stepford community reified in all of its banal horror, down to its plastic plants. What befits plastic people and their plastic lives more than plastic living?

And they've stacked these plastic Stepfords high, everywhere. Hank -- a local -- told me that they stack these nuvo Italo  monstrosities on top of a garage, that way they don't have to dig underground parking. When I got back a couple months ago, I went deep into the bowls of this horror show looking for a Coffee Bean to get caffeine and a work spot. Instead, I got coffee and walked around; it felt more fake than a studio lot, hyper fake, and with a cynical sneer. Another plastic duo with a kid comes into the cross hairs and it's time to cue This Circle Jerks' classic.

The LA of my childhood was so cool. Westwood Village used to cordon off the entire Village when it was a unique place, full of entrepreneurs. Huge crowds would just walk around everywhere. That some locals point to the shooting of that Japanese American gal as the beginning of the end, but I think it was something else; big commercial gentrification. Like ivy, the big corporations -- Music Plus, McDonald's 7 Eleven, The Wherehouse... -- all set up shop and stomped out the personality that was The Village. It became just like any other place with the same stores. It was boring.

Hollywood's always been seedy, but if you knew where to go it was living history. Larry Edmunds, of course, and Hollywood Book and Poster were must go destinations. I still have all my stills and one sheets. Musso & Franks, always over-rated food-wise in my book, but just dripping with history. And of course the Strip and its clubs and the off Strip clubs like the Starwood, the Palladium....

Then there was Mecca: Tower Records, where a limo would pull up and out would pop Nicolas Cage to shop. The locals were all, "eh," but you could always tell the noobs and tourists, falling out gawking.

It's the same thing with movie shoots. You come up here and it's all, "ho hum." Outsiders think movie making is SO glamorous. It's not. It's really boring watching peeps just standing around getting time and a half at scale.

The worst is what our politicians have let happen in terms of influx. There are, simply, too many mofos here. The locals are all old farts like me, dying out or simply sick of all the jerkoffs and have left. But what do the politicians do to alleviate the density? Why, they kiss the developers' big collective ass and let them overdevelop what used to be one cool city. In other words, their answer to over density is to bring in more mofos.

At least New York is compact and they have trains running everywhere. Not LA, as dystopian a city as any, with a unique breed of crazy. I still love it, there's simply no place like this weird experiment, the most diverse place in the world and yet wildly segregated. Gang central. Hollywood. Skid Row. The beaches. America's homeless capitol. The great architecture, the weather, the big toe shootin' up in your boot grub... The LA girls - yes, that much is true.

Still, it ain't like the old days.

The greatest theater in the world, in the old LA.

What you are Extorted, er, Pay For

Poker players call dumb players donkeys.

In the EM08 big picture, the welfare bailout of GM is a mere divot on the course. While I was vehemently opposed to giving GM anything -- then CEO Rick Wagoner was about as bad a manager as this country's ever known -- what was astounding to me at the time was the amount of people who were in favor of welfaring this cesspool of bad management. Most of them liberals and Obama supporters.

One of them was a friend, Luigi, who insisted saving GM was the right thing. When I pressed him, he could offer no more than "Well, it saves all those jobs."

Me: "So lemme get this straight; GM jobs are more important than, say, jobs at [local grocer] Andronico's [which was going belly up]?

L: [bit sheepish] "Well.... no...."

Me: "Do you think it's the government's job to pick and choose favorites in a so-called free market and determine which businesses, which markets, are important, which ones aren't, which ones should get welfare tax money, and which ones shouldn't?"

L: ...

Flashback, 1960's. My pops bought a Toyota and it had all of the stigma that other Japanese products had then; "Made in Japan = cheap."

Did Toyota or the other Japanese manufacturers like Nikon or Sony cry cry cry "Waaaa FOUL! That's racist! That's unfair!"

No. They put on their big boy pants and said, we're gonna get better, because in business and life, that's what you're supposed to do, not sit around and whine or blame others.

Flashforward from the 60's a bit to the 80's: Remember here in heartland USA, where "REAL Americans" turned out and had Toyota bashing parties where they'd take turns with a sledge hammer and wack a Toyota?

Did Toyota or the other Japanese carmakers cry? Did they try and run pr end-arounds? Did they whine about anything???

Another 80's flashback: Chrysler CEO Lee Iacoca -- who I believe went on to become Time's Man of the Year -- goes to congress and gets welfare for his company.

Did Toyota or the other Japanese carmakers cry "FOUL! That's favoritism! That's protectionist!"?

No. They innovated, they reflected, worked hard, and ascended. They evolved. Toyota, of course, became -- surprise surprise -- #1. Honda's and Nissan's (nee, Datsun) ascendancy was also superstar status, as was the Japanese manufacturing sector in general.

Then there's South Korea's new kids on the block, Kia and Hyundai, who seem to get better and better every year. When it became known that Rodney King had been driving a Hyundai, the Orientalist jokes flowed. Gotta admit, they were funny.

But now, in today's time, Obama and his cronies have taken our money and welfared GM and Chrysler. Again.

So, scoreboard: When Japanese automakers are faced with pressure, they innovate, evolve, work hard.

When Waaaamerican car companies face pressure, they hold out their hands and whine, "GIMME MONEY!"

Is it ANY wonder why our country's marketplace is so distorted?

Btw, when ex GM CEO Rick Wagoner was forced to resign by the Obama administration (a calculated pr move), he nabbed about $20 mil for driving (yes, driving) one of the largest corporations in the world into the ground.

About 4 years ago I asked a group of poker players around the table how many drove a Japanese car; 7 out of 8. I was the one who was driving American because at the time I wanted to "do the right thing."

In a tip of the hat to P.T. Barnum, I admit it; I was a donk.

http://www.forbes.com/sites/louiswoodhill/2012/08/15/general-motors-is-headed-for-bankruptcy-again

Louis Woodhill, Contributor

I apply unconventional logic to economic issues.

General Motors Is Headed For Bankruptcy -- Again

President Obama is proud of his bailout of General Motors.  That’s good, because, if he wins a second term, he is probably going to have to bail GM out again.  The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company.  It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday.  This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share.  However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling.  It would be too embarrassing politically.  Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market.  For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011.  With a loss of market share comes a loss of relative cost-competitiveness.  There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.

To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu.

The Malibu is GM’s entry in the automobile market’s “D-Segment”.  The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord.  The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.

Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment.  This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.

GM is in the process of introducing a totally redesigned 2013 Chevy Malibu.  It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).

Automobile technology is progressing so fast that the best vehicle in a given segment is usually just the newest design in that segment.  Accordingly, if a car company comes out with a new, completely redesigned vehicle, it had better be superior to the older models being offered by its competitors.  If it is not, the company will spend the next five years (the usual time between major redesigns in this segment) losing market share and/or offering costly “incentives” to “move the metal”.

Uh-oh.  At this point, it appears that the 2013 Malibu is not only inferior to the 2012 Volkswagen Passat, it’s not even as good as the car it replaces, the 2012 Chevy Malibu.

If you follow the automobile enthusiast press, you know that, under the leadership of then product czar Bob Lutz, GM went all out to develop a competitive D-Segment car for the 2008 model year.  The result was the 2008 Chevy Malibu, which managed to get itself named by Car and Driver magazine as one of the “10 Best Cars” for 2008.

However, when tested head to head against six other D-Segment sedans in the March 2008 issue of Car and Driver, the 2008 Malibu came in third, behind the Honda Accord and the Nissan Altima.  Adjusted to the points scale that Car and Driver uses today, the 2008 Malibu scored 187 points, 6% lower than the winning 2008 Honda Accord’s 198 points.

Still, third was a respectable showing.  The previous generation of the Malibu, a darling of rental car fleets, would have come in dead last in any D-Segment comparison test.

Acknowledging the importance of the D-Segment to the company’s future, GM’s CEO, Dan Akerson, ordered that the introduction of the redesigned 2013 Chevy Malibu be advanced by six months, from the fall of 2012 to the spring of 2012.

In their March 2012 issue, Car and Driver published another D-Segment comparison test, pitting the 2013 Chevy Malibu Eco against five competing vehicles.  This time, the Malibu came in dead last.

Not only was the 2013 Malibu (183 points) crushed by the winning 2012 Volkswagen Passat (211 points), it was soundly beaten by the 2012 Honda Accord (198 points), a 5-model-year-old design due for replacement this fall. Worst of all, the 2013 Malibu scored (and placed) lower than the 2008 Malibu would have in the same test.

Uh-oh.

Digging deeper, the picture just gets worse.  Despite its mild hybrid powertrain, which is intended to provide superior fuel economy (at the cost of a higher purchase price and reduced trunk space), the 2013 Malibu Eco delivered the same 26 MPG in Car and Driver’s comparison test as the Passat, the Accord, and the Toyota Camry.

In a recent speech, Dan Akerson admitted that GM’s powertrain technology had fallen behind that of competitors in some cases.  This is illustrated by the Malibu Eco’s EPA gas mileage ratings.  At 25 MPG City/37 MPG Highway, the Malibu Eco is not as fuel-efficient as the conventionally-powered 2013 Nissan Altima (27 MPG City/38 MPG Highway).

It might be possible for GM to give the Malibu a better powertrain during its five-year-product life cycle.  Unfortunately, there is no way that they will be able to correct its biggest design flaw, which is its short wheelbase.

For years, automobile companies have been trying to design cars with the longest possible wheelbase (distance between the front and rear axles) for a given overall vehicle length.  A longer wheelbase provides advantages in the areas of styling, ride, and legroom.

In developing the 2013 Malibu, GM decided to shorten the wheelbase by 4.5 inches from that of the previous-generation Malibu, from 112.3 inches to 107.5 inches.  This gave the 2013 Malibu the shortest wheelbase in the entire D-Segment.

The Car and Driver comparison-test-winning Passat has a wheelbase of 110.4 inches, which gives it a “unique selling proposition”, the roomiest back seat in the D-Segment.  The Passat has combined front and rear legroom totaling 81.5 inches, 3.5 inches more than the Malibu.

This may not sound like a lot, but, like baseball, automobile design is “a game of inches”.

For a 6’1” tall man, sitting in the back seat of the 2012 Passat behind a similar-sized driver is like sitting in a limo.  His knees will be nowhere near the back of the front seat.  In contrast, the same sized man would have to struggle to get into the back seat of the 2013 Malibu, and would have to sit with his legs splayed once he did.

Rear seat legroom is important in the family sedan market, not only for the comfort of adult passengers, but also for the ease of using children’s car seats.  The 2013 Nissan Altima also has longer wheelbase and more rear seat legroom than does the Malibu.

Chevrolet is not a premium brand, like Mercedes or BMW.  Since the 1920s, Chevy’s essential market positioning has been “more car for your money”.  Unfortunately, the 2012 Volkswagen Passat is more car for the money than is the 2013 Malibu.  There will not be anything that GM will be able to do about this for the next five years other than to reduce the price of the Malibu by offering “incentives”.  This will eat into the company’s profitability, which is already weak.

As a company, General Motors peaked in 1965, when it commanded 50.7% of the U.S. market, and made a stunning-for-the-time $2.1 billion dollars in after-tax profits.  Adjusted by the GDP deflator to 2011 dollars, GM made $12.1 billion in after-tax profits on $117.9 billion in revenue.

In 1965, Volkswagen was tiny compared to GM.  It produced only 1.6 million vehicles, about 22% of GM’s 7.3 million.  VW’s total revenues were only 11% of GM’s.  The most powerful engine you could get in VW’s volume family car, the Beetle, had 40 horsepower.  The biggest engine you could get in GM’s equivalent, the 1965 Chevy Impala, had 425 horsepower.

In the first half of 2012, Volkswagen sold almost as many vehicles as GM did, 4.6 million vs. 4.7 million.  And, its total revenues were much higher, $119.2 billion vs. $75.4 billion for GM.  Part of this is the result of currency exchange rates, but VW had a significantly higher operating profit margin than GM, 6.8% vs. 5.7%.

Under the leadership of Ferdinand Piech, who is kind of like a German-speaking, automobile industry version ofSteve Jobs, Volkswagen is determined to become the biggest and most profitable car company in the world.  And, right now, they are eating GM’s lunch.

Not only has Volkswagen taken an important share of the U.S. D-Segment with their new Passat, but they are pulling away from everyone in the troubled European market, where GM is losing money on its Opel subsidiary.  The headline in the current edition of Automotive New Europe’s “Global Monthly” is, “Buried: VW Uses Europe’s Crisis to Crush Rivals”.  In this case, GM is one of the “crushees”.

Will GM be able to turn itself around, and save American taxpayers from losing $26.5 billion on Obama’s bailout?

One way to answer that question is to compare the 2013 Chevy Malibu against the 2012 Volkswagen Passat, as Car and Driver did.  Results: VW, first out of six; GM, dead last.  However, additional insight can be obtained by looking at how GM’s CEO, Dan Akerson (63), stacks up against Professor Doctor Martin Winterkorn (65), the man handpicked by Ferdinand Piech in 2007 to be his replacement as CEO of Volkswagen AG.

Akerson has an engineering degree, but he also has a Master’s Degree in Economics, and his first big job was as CFO of MCI.  Akerson was CEO of General Instrument, and then of Nextel, and then of XO Communications, which went bankrupt in June 2002.  He joined the private equity firm, the Carlyle Group, in 2003.

Akerson got his first job in the automobile industry when he was named CEO of GM in late 2010.  Recently, he has been hiring and firing top GM executives at an alarming pace, and he is understood to be working on a major reorganization of the company.  Akerson recently gave a televised speech to GM employees on the need for “integrity”.

Martin Winterkorn has a PhD in Metallurgical Engineering, and he has spent his entire career in the automotive industry.  At the 2011 Frankfurt Auto Show, Winterkorn was caught on amateur video sitting in, and studying Hyundai’s newly introduced i30, a competitor to VW’s best-selling family car, the Golf.  Here is an excerpt from a story about this incident published along with the video by The Truth About Cars, an auto industry blog:

“(Martin Winterkorn) pulled on the adjuster of the steering column, and heard – nothing. At Volkswagen, there is an audible (“klonk!) feedback whenever the steering column is adjusted.

Immediately, Klaus Bischoff, head of Volkswagen Brand Design was summoned. He pulled on the adjuster: No sound. “Da scheppert nix,” exclaimed Winterkorn in his heavy Bavarian accent. “There is no rattle!”

Winterkorn was livid: “How did he pull that off?” He, the blasted Korean. “BMW doesn’t know how. We don’t know how.” He, the blasted Korean, must have found out how to battle the dreaded Scheppern.

Tension is high. This could affect careers. Someone quickly explains that there had been a solution, “but it was too expensive.” That gets Winterkorn even more enraged. “Then, why does he know how?” For less money. He, the Korean. There is no answer. Hyundai has beaten Volkswagen at the Scheppern front.

Winterkorn measures the A-pillar, runs his hands over the plastic. He walks away, his entourage trots after him. Deeply in thought and very worried.”

Uh-oh.  While Dan Akerson is busy rearranging the deck chairs on GM’s Titanic, Martin Winterkorn is leading VW to world domination via technical excellence.

“The game isn’t over until it’s over”, but if President Obama wins reelection, he should probably start giving some serious thought to how he is going to justify bailing out GM, and its unionized UAW workforce, yet again.  And, during the current campaign, Obama might want to be a little more modest about what he actually achieved by bailing out GM the first time.