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Weekly Financial Report
With Scott Roulston of Fairport Asset Management
Friday, January 11, 2002
Scott Roulston, CEO of Fairport Asset Management, discusses
the reasons for Ford Motor Company's current economic woes, the recent
sale of the Galleria at Erieview, and the loss this week of Wendy's corporate
leader Dave Thomas.
April Baer–Northeast Ohio automotive plants
are full of nervous people this morning. Just after 9 a.m. today, Ford
is expected to announce reductions in its worldwide operations that are
intended to counteract its first corporate losses in decades. There are
plenty of other items for investors to consider today in addition to the
Ford restructuring. The Consumer Price Index will be released and Fed
Chair, Alan Greenspan, is going to make a speech. Also, there has been
a big development in the local real estate market. I'm joined by Scott
Roulston of Fairport Asset Management who joins us every Friday to talk
about business news. Good morning, Scott.
Scott Roulston–Good morning, April.
AB–Let's talk about Ford first. I am at a
loss to understand this. Auto sales were reportedly wonderful in the last
quarter of the year. The Big Three automakers offered these incredible
bargain basement, zero interest financing packages. That supposedly moved
a lot of cars. Why is Ford hurting so badly right now?
SR–They are selling cars, and lots of them.
They are just trying to figure out how to do it profitably. Ford, in particular,
is getting it from all ends. The imports have invaded their turf in trucks,
which is really where they were making their most money. Their rebates,
as you mentioned, for the domestic automakers - well, for example, in
December, Ford's average rebate was $2300, Honda's average rebate was
only $500. So Ford had to give a lot more money away or discount their
cars a lot more to sell them. Ford has other problems too, relating to
their union contracts and what's happening is that Ford seems to be behind
the curve in reducing their cost structure. They're kind of aiming at
the present reality, rather than the future realities, and they're always
behind the 8 ball. Kind of like what GM did a few years ago.
AB–Yes, that's interesting. I remember Ford
used to be considered ahead of GM in terms of streamlining their profitability.
Any thoughts on how the rest of the auto industry is doing and what kind
of vehicles they'll have to sell?
SR–Well, the projection that I was just reading
yesterday (and there's a lot of information coming out at the Detroit
auto shows going on right now) is that mini-vans are going to decline
and SUVs are going to continue up. That raises a whole other issue relative
to gas mileage and so forth. But the imports are really the buzz right
now. It was interesting at the Detroit auto show that Pontiac and Toyota
have a joint venture going on with the same cars, but Toyota is getting
all the buzz and all the people congregating around their version and
the Pontiac isn't getting any attention, from what I heard from people
up at the auto show.
AB–Scott, a deal has been made to sell the
Galleria at Erieview. This complex in downtown Cleveland used to be the
hottest retail spot in town, but lately it's been quieter than the Erie
Street Cemetery. I haven't heard much about this group that's buying it.
What do you know about them?
SR–I was talking to a couple of people from
Colliers yesterday, who are the largest real estate firm in Ohio. First
of all, as far as the Galleria goes and what we have known it as in the
past, they both told me that as much as we'd like to see retail space
in downtown, there just is not the business to support it, and especially
without an anchor, it is not going to work. So the Galleria as we knew
it, you are not going to see any more Banana Republic stores down there.
But it is a good sign that these out-of-towners are coming in and investing
in downtown. Here's the scoop that you were asking. There are two brothers
from Pittsburgh by the names of Jim and Bill Rudolph and my understanding
is that their father was one of the largest Wendy's franchisers that had
very deep pockets. They took over an old building in downtown Pittsburgh
and renovated that. So maybe this will come back as some other use downtown
in Galleria. Let's hope so.
AB–You mentioned Wendy's. We should note this
week that the big burger empire based down in the central Ohio area, did
lose its founder and chief spokesman, Dave Thomas, this week. Not everyone
thinks this guy was great for bringing more fast food into the world,
but he was such a figure in that corporation. What an amazing loss this
must be for Wendy's!
SR–Well, I understand they even had a public
viewing at the corporate headquarters. It's hard to imaging Wendy's without
Dave Thomas. It's kind of like Disney without Walt, but even Disney moved
on and did pretty well and I'm sure Wendy's will.
AB–Dave Thomas was known to so many people,
partly because he stared in just hundreds of Wendy's commercials. I guess
that's going to be something their advertising department is going to
have to deal with too, huh?
SR–They spent $300 million a year in advertisements,
so now they are going to have to find a new spokesperson, that's right.
AB–Scott, thanks so much.
SR–You're welcome. Have a great weekend.
AB–Scott Roulston with Fairport Asset Management
talks to us Friday mornings about the week's business news.
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