bizzXceleration: Performance, Value and Profit

Business Reputation vs Governance

Record Number of Americans (88%) say the Reputation of Corporate America Is "Not Good" or "Terrible" Bailouts, bonuses and bad business behavior all combined to erode the overall reputation of corporate America to its worst standing in ten years. Technology remains the highest rated industry, but its reputation declined along with six other industries, with the Automotive industry reporting the greatest decrease ever. The Financial Services industry now shares the lowest industry ranking with the Tobacco industry, with just 11% of the public giving positive ratings to these two industries. The Pharmaceutical industry was the only industry to register a significant positive change from 2007, according to the Harris Interactive RQ survey. Despite this free-fall in Corporate America’s image among consumers, Johnson & Johnson, Google, Sony, Coca-Cola, Kraft, and returning to the list of Most Visible Companies, Amazon.com, all received RQ scores that categorize their reputations as “Excellent”. An RQ score of 80 and above is considered “Excellent”. “While the overall reputation of Corporate America has never been worse in the eyes of the general public, greater understanding of and credit for working diligently to build and maintain a good reputation has never been stronger,” says Robert Fronk, Senior Vice President, Senior Consultant, Reputation Strategy at Harris Interactive. “The RQ study also validates that both corporate behavior and corporate communication play a major role in how a company is perceived.”

• Best and Worst Companies Ranking (vidclip)

The Best (and Worst) CEOs. Ever. Guy walks into a bar and declares that Henry Ford was the best CEO ever, the way somebody from Baltimore might insist Johnny Unitas was the best quarterback of all time. A woman on a bar stool calls him on it. “Hell, no! Lou Gerstner was the best pure manager to run a company!” Other patrons chime in: Bill Gates! Sam Walton! Epithets fly. Someone gets punched. No, we don’t know any bars like that either. But it’s an argument worth starting. So we put together a panel of business-school professors to help us come up with a list of the 20 Best American CEOs of all time. Ford came out on top. We also ranked the 20 worst, including six men who helped make today’s economy stink worse than Exit 13 on the New Jersey Turnpike. Part of the debate is deciding what makes a great CEO—some elusive mix of results, creativity, and character. “The great ones are those who left notable innovations,” says Peter Capelli, a professor at the University of Pennsylvania’s Wharton School. Most on our list fit that description: Steve Jobs with the Mac and iPhone, Walt Disney with animation. Warren Buffett may not be much of an innovator, but he is a great philosopher—the business Buddha. We think that counts. Doing right also counts. “Great CEOs understand their public responsibilities,” says author Richard Tedlow, a Harvard Business School professor. That’s Katharine Graham supporting Bob Woodward and Carl Bernstein’s Watergate investigation, or Lee Iacocca in the 1980s paying back Chrysler’s government bailout loans early (as if that will happen again). Raking in money or running up the stock price doesn’t make for a great CEO. That single focus eventually collapses on itself, leading to public scorn or even legal prosecution. Certainly, it leads to a spot on our 20 Worst CEOs list, whether it’s for Jay Gould in the 1800s or Dick Fuld and his odious banking brethren today. 

• 20 Best CEOs
• 20 Worst CEOs

Shareholder meetings turning ugly, but change remains elusive So what's bringing out the knives in 2009's annual meetings? While there are plenty of issues to complain about, analysts point to the anger over executive compensation as corporate enemy number one. "It's the symptom and the cause of what's wrong," says Nell Minnow, founder of Corporate Library, an independent research firm for corporate governance. "There are other issues like accounting and risk management, but compensation is a driving force." "It's the business climate and the growing recognition that we as a society have been enablers for this bad behavior," says Minnow. "It's important to let the CEOs know we are paying attention to them and people are letting them know." But whether shareholders can make a permanent difference beyond their anger, still remains an issue for some analysts. "The entire shareholder activisim movement has come about because boards are not viewed as helping shareholders," says Professor Espen Eckbo of the Tuck School of Business at Dartmouth College. "Boards are really working for management rather than shareholders. Until that changes, not much will get done." "I think shareholder proposals have a tough time passing," says Greogry/FCA's Crivelli. "Most individiual investors don't really read the proposals and simply proxy their vote to the board. It's tough to overcome that thinking." And at least one expert says the whole issue over shareholder anger could go away with a better economy. "It's all about how shareholders are doing," says Steve Barth, a partner at Foley and Lardner a law frim specializing in corporate services.

The Economy Needs Corporate Governance Reform (Ichan) In his inaugural address this week, President Barack Obama said "our economy is badly weakened, a consequence of greed and irresponsibility on the part of some," and due in part to "our collective failure to make hard choices." He's offered few policy specifics other than saying we need to undertake massive new infrastructure and education programs. But he is right, there are a lot of hard choices we need to make. And one of them is the decision to fix the way public companies are managed. Private enterprise forms the basis for our economy. It provides most of the jobs we enjoy and creates the wealth that raises living standards. New government spending can only do so much to repair the economy. Reshaping corporate management can do much more. The problem with doing nothing is obvious. Faltering companies are now soaking up hundreds of billions of tax dollars, and they are not substantially changing their management structures as a price for taking this money. How does it serve the economy when we subsidize managements that got their companies into trouble? Where is the accountability? More importantly, where are the results?

Why investors can't oust bad CEOs Wonder why shareholders are so cynical? Why we're inclined to treat stocks as if they were lottery tickets instead of ownership in an actual company? Why investing for the long term increasingly seems like a sucker's game? Just take a look at what happened at the Bank of America (BAC, news, msgs) shareholders annual meeting April 29. Ken Lewis, the company's CEO since 2001 and its chairman of the board of directors, was re-elected to the board by shareholders. According to the company, the results weren't even close: Lewis reportedly got 67.3% of the vote. That came after Lewis' disastrous acquisition of Countrywide Financial added to Bank of America's exposure to the subprime-mortgage disaster and after Lewis overpaid to acquire Merrill Lynch and then misled shareholders about the size of the loss Merrill would report. We've got one of the truly disastrous CEOs of the past 10 years, a man who has helped destroy billions in shareholder value and doesn't have the slightest interest in changing strategies -- and he gets re-elected to the board with two-thirds of the vote. Exactly what do you have to do as a CEO to get voted off the board?

CEOs Should Take Investors Along for Ride From 2006 through 2008, the 10 largest financial companies in the U.S. awarded their chief executives a cumulative total of more than $560 million in cash, stock and options. Those firms -- some of which are no longer among the 10 biggest -- have lost a total of nearly $1 trillion in market value since the end of 2006. Is it any wonder that investors are angry at CEOs like Bank of America's Kenneth Lewis? Of course, CEOs earned a lot of that swag as options and restricted shares that have lost most of their value. But it's hard to argue they deserved it all; something is dangerously wrong with a system that showers riches upon good and bad leaders alike. Now consider Alleghany Corp. The small, New York-based insurance holding company hasn't awarded stock options to managers in decades, doesn't measure its performance against a peer group when calculating incentive pay and reserves the right to claw back bonuses if results are later revised downward. Alleghany's proxy statement reports that the CEO, Weston Hicks, has earned (although not necessarily received) $28 million since 2005. That hardly puts him in the poorhouse. But his shareholders are unlikely to complain. From 2005 through 2008, Alleghany gained an annual average of 1.7%, while the Dow Jones U.S. Property & Casualty index lost 2.7% per year. So far in 2009, Alleghany is down 8.3%, but the index has fallen 13.8%. Over the longer term, under both Mr. Hicks and his predecessor, John Burns, Alleghany has outpaced the overall stock market by a wide margin. What Alleghany and a few other exemplars in the world of corporate compensation do right says a lot about what the rest of corporate America does wrong. First, too many bosses get unconditional cash bonuses even when they push their firms to the brink of disaster. The compensation plans at both companies seem to have been designed not to maximize the short-term pay of management, but to reward long-term thinking that will benefit insiders and outside shareholders alike. In the 1949 first edition of his book "The Intelligent Investor," after which this column is named, Benjamin Graham said "there are just two basic questions" that investors should care about: "Is the management reasonably efficient?" and "Are the interests of the average outside shareholder receiving proper recognition?" Unless investors pressure more companies to adopt smarter incentive plans, the answer will remain "Probably not."

Performance Realities vs Fantasies

2008 "Worst Year" In Fortune 500 History It was 1955, the year Disneyland opened and Ray Kroc sold his first hamburger. Bill Gates and Steve Jobs were born that year. And it was in 1955 that Fortune magazine published the very first Fortune 500 list. It's an annual compilation of America's 500 largest companies, its changing roster reflecting the current economic climate. "Everything that happens in business in the United States shows up in one way or another in the 500," said Carol Loomis, Fortune's senior editor-at-large. "It's a mirror to the economy."  Since 1955, more than 2,000 companies have earned a spot on the list, but in 55 years only three have achieved the number one slot: General Motors, ExxonMobil and Wal-Mart. … And that brings us to a first-look at THIS year's list, which we're pleased to reveal this morning with thanks to our friends at Fortune Magazine. Read it ... and weep. From $645 billion in profits in 2007, profits dropped this year to just $98.9 billion - an 84.7 percent decline! Records were broken: Eleven of the top 25 largest corporate losses in list history took place last year. The biggest loser of them all: Insurance giant AIG. The company posted a $99.3 billion loss. But it's still on the list ("too big to fail" indeed!). It's ranked at number 245, down from number 13 just one year earlier. Thirty-eight companies disappeared from the list altogether. Bear Stearns and Lehman Brothers may be no surprise, but it was also "last call" for brewer Anheuser Busch. Earnings vs Recessions Graphic

• More Companies At Risk of Failing
• How the Fortune 500 Will Change Post-Recession

Credit Rebound Running Out of Steam Too far, too fast? Investors have rediscovered their risk appetites, leading to a remarkable rally across all asset classes. But the recovery in the credit markets -- still at the heart of the crisis and central to any durable improvement in the economic outlook -- now looks to be running out of steam. Over-bullish equity investors should take note. Some recovery was overdue. Once it became clear governments had averted the complete collapse of the financial system, credit markets were bound to rally from prices that discounted a deeper downturn than the Great Depression. Since March 9, the iTraxx Europe credit derivatives index has tightened by 38%, reaching levels last seen in early October, while the S&P 500 has risen 34%, leaving it marginally higher on the year. The rally has been the equivalent of a huge sigh of relief. But there are three reasons to believe the credit market rally has gone far enough. First, any economic recovery is still an article of faith rather than a matter of fact. First-quarter earnings for S&P 500 companies may have beaten expectations, but revenues were down 14%, suggesting any improvement is the result of cost cuts rather than increased private-sector demand. Second, the global corporate default rate only hit 8.3% in April, according to Moody's Investors Service. That is still a long way below many analysts' forecasts of 14%-15% over the course of this cycle. Many investors believe that the credit market cannot recover fully until defaults peak -- expected in the fourth quarter. 

Global Companies Rethink Strategies  Consumers from the U.S. to Europe to Japan appear to be growing more cautious amid fears that the world economy will worsen over the next 12 months, according to a report to be released Thursday. The new frugality is forcing global companies to revise their strategies and offerings. Most consumers in a Boston Consulting Group survey of 21,800 people world-wide said they are cutting spending, searching for value and discounts, and staying home more. "Our consumers are going back to basics," said Catherine Roche, a partner at the consulting firm. "They don't want to be as conspicuous as the past … avoiding visible logos on their bags and clothes." Indeed, brand loyalty in most developed markets is waning -- so-called brand fatigue -- but remains strong in parts of Asia, according to the study conducted between October and February and then revised in March. In India and China, 79% and 71% of respondents, respectively, said brand was enough reason to pay more on a purchase, compared with 27% in the U.S. and 17% in Europe. Still, nearly half the Chinese consumers surveyed and more than three-quarters of the Indians said they planned to at least curb spending on nonessential items. And retailers in both markets say they are trying to attract a broader customer base by lowering prices. The report also hints at a shift toward products more value and durability. Appliance maker Electrolux AB noted as much in its first-quarter earnings. "The green range is very popular all over Europe," said Electrolux spokesman Anders Edholm. "This is really something to take into consideration. When they save water and electricity, they have to take a couple of years to get return on that investment."

The sensible giants IN RECENT decades running a business or household with a conservative balance-sheet has been a bit like being the only person in an opium den not to inhale. Consumers and financial firms got sky high on cheap debt. Lots of non-financial companies chased the dragon, too. In America corporate gearing is now at its highest level since at least the second world war, says Smithers & Co, a research firm (see top chart). Default rates are near their highest level since the 1930s. Yet the data reveal a striking oddity: the largest listed firms have disproportionately little debt compared with both smaller listed peers (see bottom chart) and private firms. Of America’s ten biggest non-financial firms, no fewer than six, including Microsoft and ExxonMobil, reported net cash positions at the end of 2008. Different accounting conventions make comparisons inexact, but non-financial firms in the S&P 500 index of listed American companies appear to account for only about a third of national corporate net debt, despite contributing a majority of profits. In Europe, with its tradition of bank financing, firms have always been keener on debt, but although overall corporate gearing has risen to “unprecedented” levels, according to the European Central Bank, listed firms have actually steadily cut theirs since 2000. In the most recent boom, companies bought by private-equity outfits, the corporate equivalent of subprime borrowers, packaged their debt into collateralised loan obligations, a form of structured credit that is now as toxic as it is hard to explain. The rash of leveraged buy-outs may account for as much as half of the rise in American corporate net debt since 2002. Size helps, too. Even today nearly half of European and American stockmarket value sits in firms worth over $50 billion. Such firms were too big to be a target of private equity, even at its most hubristic. Without predators breathing down their necks, these firms could play it safe. Yet not all quoted companies enjoyed the benefits of reputation and size: whisper it quietly, but most were just sensible. The boards of medium-sized firms—such as Motorola or Cadbury—successfully resisted pressure from activist investors to gear up as the economy deteriorated. Having had near-death experiences at the beginning of the decade, big industrial firms in Europe, such as Alstom and ABB, were far more cautious this time round. All this is likely to change the debate on corporate leverage in two ways. First, the gung-ho and largely erroneous assumption that higher debt means higher risk-adjusted returns will be replaced with a more measured assessment of the limited boost to tax efficiency that leverage can provide. One banker in London suggests that for the next few years, managers will be prepared to take on more debt only to the point where they are sure that they can refinance it if another crisis should strike. That suggests that quoted firms could further reduce their net debt from today’s level of about 50% of their book equity. Second, the psychological scars will run deep for the private firms that bear a disproportionate burden of overall corporate debt. Many face bankruptcy, with the destruction of value that entails. Financial regulators, too, are far less likely to tolerate the sort of capital-market fads that allowed private companies to overload on debt at the top of the economic cycle and infect the banking system as they did so. It used to be that equity, as well as lunch, was for wimps. Not any more.

Company Stores: Bad vs Good vs Hmmm...

Cars That Wrecked Chrysler  Chrysler's 1998 merger with Daimler-Benz bore promising fruit with the 2004 rebirth of the Hemi-powered Chrysler 300C. With a dose of German engineering, Chrysler had seemingly rediscovered its founder's vision. Walter P. Chrysler had wanted his car company to offer investor class quality at working-man prices. With its Mercedes-based suspension and all-American Hemi engine under its boxy hood, the 300C performed with a power and alacrity that belied its relatively low cost. In hindsight, the Dodge Magnum, introduced at the same time, should have provided a warning of bad things to come. The thuggish wagon was a big hit at first and it was, in most respects, every bit as good as the 300C. But the interior lacked the 300C's stylishness. In fact, it lacked any apparent design at all. And the materials were rock hard and cheap feeling. Chrysler LLC learned something with these two cars: Design sells. But what began as a selling point became, for Chrysler, a rickety crutch. Under its new owners, Chrysler seems to be learning its lesson at last. But several models Chrysler has introduced over the last handful of years have eroded Americas trust and driven the company to bankruptcy.

Ford Brings New Focus to Small-Car Market In its heyday, Ford Motor Co.'s Michigan Truck plant generated up to $3.7 billion a year in profits building sports utility vehicles. On Wednesday, the auto maker will detail plans to convert the plant to produce a compact car that never made a nickel in the U.S. Building a profitable Ford Focus small-car line will require huge changes in how the vehicles are equipped and assembled. By one estimate, the earlier-model Ford Focus lost as much as $1 billion a year. But Ford believes it now has a new formula to turn those losses into steady profits. Among the changes planned: Ford will build the same vehicle here as in Asia and Europe -- allowing for greater economies of scale. It is also counting on new union work rules to reduce labor costs. The Dearborn, Mich., auto maker aims to revive the car's reputation by producing a battery-powered Focus model, its first all-electric passenger car.Mr. Mulally said as a result of the world-wide production and expected labor-cost savings, the Focus in the U.S. will be "profitable from initial production" starting next year. At the heart of the plant's transformation is a flexible body shop operation that will allow multiple models to be assembled in the same plant. Since 2006, one of Ford's priorities has been the development of vehicles that use the same architecture. For all of Detroit's automakers, the challenge of earning profits on small cars instead of trucks and SUVs is enormous. They earned an average $7,000 profit per vehicle on trucks and SUVs, but little or nothing on small cars. U.S. consumers also have been reluctant to buy small cars from Ford, General Motors Corp. or Chrysler LLC because of the reputation of Japanese competitors for higher quality cars.

Unease Brewing at Anheuser  Construction crews arrived at One Busch Place a few months ago and demolished the ornate executive suites at Anheuser-Busch Cos. In their place the workers built a sea of desks, where executives and others now work a few feet apart. It is just one piece of a sweeping makeover of the iconic American brewer by InBev, the Belgian company that bought Anheuser-Busch last fall. In about six months, InBev has turned a family-led company that spared little expense into one that is focused intently on cost-cutting and profit margins, while rethinking the way it sells beer. The new owner has cut jobs, revamped the compensation system and dropped perks that had made Anheuser-Busch workers the envy of others in St. Louis. Managers accustomed to flying first class or on company planes now fly coach. Freebies like tickets to St. Louis Cardinals games are suddenly scarce. Suppliers haven't been spared the knife. The combined company, Anheuser-Busch InBev NV, has told barley merchants, ad agencies and other vendors that it wants to take up to 120 days to pay bills. The brewer of Budweiser, a company with a rich history of memorable ads, has tossed out some sports deals that were central to marketing at the old Anheuser-Busch. The changes have been tough for workers to swallow. Some are grappling with heavier workloads, anxious about job security and frustrated with the emphasis on penny-pinching, say people close to the brewer. Former executives say workers feel less appreciated in a no-frills culture with fewer perks.

Best Buy Expands Private-Label Brands Best Buy Co. is rapidly expanding its private-label electronics business in a gamble to gain a key competitive advantage over rivals such as Wal-Mart Stores Inc. and Amazon.com Inc. Best Buy believes it can prosper in private-label electronics -- an area that has historically flummoxed U.S. retailers -- by using the mountains of customer feedback it collects from its stores to make simple innovations to established electronic gadgetry. The move comes as Best Buy's position in the consumer electronics market has strengthened in the past year following the liquidation of former rival Circuit City Stores Inc.Sales of Best Buy private-label electronics soared 40% during the past fiscal year, which ended Feb. 28, even as the company's overall sales and profits sank. Popular products included a global-positioning system with Google Inc. search capabilities, a high-definition radio receiver that displayed the names of songs, and stripped-down digital picture frames without pricey extras such as music-players.Retail experts believe the largest U.S. electronics chain by sales could further distance itself from competitors if its exclusive electronics lines develop the type of brand loyalty Sears Holdings Corp. enjoys with its Kenmore appliances and Craftsman tools. Best Buy now sells hundreds of electronic products under an umbrella of five house brands that includes Insignia and Dynex televisions, Rocketfish video cables, Geek Squad flash drives and Init electronics cases and accessories. But Best Buy's private-label gambit has its perils. Promotion of its own brands threatens to strain relationships with some product makers, who are now also competing against the retailer. And the reputation of the private brands is a two-edged sword, with potential to lift Best Buy's appeal to customers, or tarnish its overall reputation for quality. Even before the recession forced a new emphasis on budget options, retailers have been building private-label product lines because they typically generate higher profits for the store than selling other brands. So far the trend has been most successful in the grocery business, where house lines such as Wal-Mart's Great Value have tapped into consumers' willingness to forgo famous names on staples such as sugar and milk in exchange for lower prices. Electronics have fared worse, because consumers see products such as mobile phones as brand-driven status symbols. Technological advances make it difficult for retailers to develop relevant products without investing huge sums in research. Earlier this decade, Wal-Mart experimented with an inexpensive electronics line called iLO before dropping it to refocus on name brands. Best Buy, meanwhile, struggled trying to sell computers under its own house brand, VPR Matrix, which was launched in 2001 and phased out in 2003. Best Buy began another private label push in 2004. Earlier Best Buy Blu-ray players and digital converter boxes were identical to electronics sold at Wal-Mart and Radioshack Corp. stores, because they were made by the same Chinese factories. But now the company is moving away from buying "off the shelf," and employs a team of engineers to innovate products using customer feedback, said Best Buy Executive Vice President Mike Vitelli.After noticing that many portable DVD players were purchased for young children, the retailer in 2007 developed a spill-resistant Insignia model with rubberized edges. It became a top seller and received a Red Dot Award, a coveted German design prize.

Steelmakers Anxious Over Chinese Iron Ore The Moscow Times Russian steelmakers are nervously looking east, waiting to see what effect a series of deals hammered out in China will have on their own fortunes. Traditionally, on April 1, the start of China's fiscal year, Russia's steel producers hold negotiations with iron ore miners to work out the terms of their annual contracts. Chinese iron ore producers are reluctant to agree to contracts that by UralSib's estimates will likely represent a 30 percent to 40 percent price cut from last year because of low steel prices worldwide. And the longer they wait to accept it, the greater advantage low-cost steel exporters such as Russia have. Usually, an agreement is reached in April; last year it was reached in June. This year, it could drag on even longer. Since 2008, Russia has grown from the fifth-largest steel exporter to the largest thanks to the ruble's devaluation and a troika of competitive advantages: raw materials, inexpensive labor and low energy costs. Severstal, the country's biggest steelmaker, announced Friday that it would be exporting half of its output this year because of rising demand in Southeast Asia. The Russian steel industry as a whole is seeing roughly 70 percent of its flat steel and 30 percent of its long steel sent abroad, Renaissance Capital metals analyst Rob Edwards said. But the industry, which is capitalizing on the higher prices that it can manage on Asian markets, will see the heyday come to an end when China's iron ore agreements are finalized. With a lower production cost, local steel is likely to sweep out most competitors. "When the iron ore price falls, the relative cost position of the Russians may weaken," said Michael Kavanagh, a senior metals analyst at UralSib. "In other words, the cost curve might flatten."

Clayton 'i-house' is giant leap from trailer park From its bamboo floors to its rooftop deck, Clayton Homes' new industrial-chic "i-house" is about as far removed from a mobile home as an iPod from a record player. Architects at the country's largest manufactured home company embraced the basic rectangular form of what began as housing on wheels and gave it a postmodern turn with a distinctive v-shaped roofline, energy efficiency and luxury appointments. Stylistically, the "i-house" might be more at home in the pages of a cutting-edge architectural magazine like Dwell — an inspirational source — than among the Cape Cods and ranchers in the suburbs. The layout of the long main "core" house and a separate box-shaped guestroom-office "flex room" resemble the letter "i" and its dot. Clayton's "i-house" was conceived as a moderately priced "plug and play" dwelling for environmentally conscious homebuyers. Clayton Homes plans to price the "i-house" at $100 to $130 a square foot, depending on amenities and add-ons, such as additional bedrooms. A stick-built house with similar features could range from $200 to $300 a square foot to start, said Chris Nicely, Clayton marketing vice president. The key cost difference is from the savings Clayton achieves by building homes in volume in green standardized factories with very little waste. Clayton has four plants in Oregon, Tennessee, California and New Mexico geared up for "i-house" production. A 1,000-square-foot prototype unveiled at a Clayton show in Knoxville a few months ago was priced at around $140,000. It came furnished, with a master bedroom, full bath, open kitchen and living room with Ikea cabinetry, two ground-level deck areas and a separate "flex room" with a second full bath and a second-story deck covered by a sail-like canopy. The "i-house's" metal v-shaped roof — inspired by a gas-station awning — combines design with function. The roof provides a rain water catchment system for recycling, supports flush-mounted solar panels and vaults interior ceilings at each end to 10 1/2 feet for an added feeling of openness. The Energy Star-rated design features heavy insulation, six-inch thick exterior walls, cement board and corrugated metal siding, energy efficient appliances, a tankless water heater, dual-flush toilets and lots of "low-e" glazed windows. The company said the prototype at roughly 52,000 pounds may be the heaviest home it's ever built. The final product will come in different exterior colors and will allow buyers to design online, adding another bedroom to the core house, a second bedroom to the flex room or rearranging the footprint to resemble an "L" instead of an "I." "We thought of this a little like a kit of parts, where you have all these parts that can go together in different ways," said Andy Hutsell, one of the architects.

• Clayton Homes "i-house" tour: http://www.clayton-media.com/ihouse/

Toyota Too Is Looking to Cut Costs When Toyota opened its newest North American assembly plant here last fall, it was chock full of the company’s very latest thinking and innovations for building a car efficiently. But with the global automobile industry mired in its worst crisis in a quarter-century, even Toyota’s latest standards for lean manufacturing are not good enough. Now, employees are huddled in a war room at the plant — called an obeya in Japanese — charged with finding upward of $100 million in annual savings from the Woodstock factory, where Toyota builds RAV4 crossover vehicles, and a nearby plant in Cambridge, Ontario, where Corollas, Matrix hatchbacks and Lexus crossovers are produced. Among the ideas: instead of spending $16,000 to hire a contractor to build a conveyor belt for delivering bins of parts to a section of the assembly line, workers designed and installed their own, for $700. The search for savings is under way at every Toyota plant, large and small, in every part of the world. Last week, Toyota announced a net loss of $7.7 billion in the first three months of 2009, even more than General Motors lost last year and projected an even bigger shortfall for 2009. The stumble, after years of record profits, has forced Toyota to make changes at every level, from its plants to its dealerships to the top of the company, where Akio Toyoda, grandson of the company’s founder, takes charge in June. The problems have been deeply felt in the United States, where Toyota faces a twofold challenge. It must restart its sales, which are down 38.4 percent this year, and navigate a changing political climate in which President Obama, a longtime critic of Detroit automakers, has become a cheerleader. When he announced that Chrysler was filing for bankruptcy, he urged consumers to “buy an American car.” It is a surprising reversal of fortune for a company that became an industrial-size perpetual motion machine, fueled by profits, quality and political power.

Will the Phone Industry Need a Bailout, Too? Congress has asked the Federal Communication Commission to develop a national policy for broadband deployment. But it might be more important to think through how the country will handle the aging and increasingly less relevant copper phone network. You can see the problem building every quarter, when the phone companies report they serve ever fewer landlines. They are mainly losing customers to cable companies, which offer competing broadband and voice services that make copper phone lines unnecessary. More people are also deciding to abandon landlines for cellphones. As all these companies lose wireline revenue, the costs of maintaining the wires strung on poles and dug through trenches is not falling nearly as quickly. It now costs an average of $52 a year to maintain a copper phone line, up from $43 in 2003, largely because of the declining number of lines, according to Larry Vanston, president of research firm Technology Futures, as quoted on GigaOm. I am also having a hard time seeing how the pricing structure of the voice business can hold up. Right now, voice traffic is such a tiny piece of the overall data moved over the Internet that the cost is insignificant. So far, stand-alone voice-over-Internet services have not really caught on with consumers. Vonage actually lost customers in the first quarter, when you might have imagined the tough economy would drive people to its cheaper service. And that’s after spending more money on marketing than it does on providing its phone service. But as a policy maker — or an investor, for that matter — these economics make for a great deal of risk. If competition ever creates a significant shift to Internet-based phone service, it could quickly decimate the already precarious economics of the local phone business. You can see these stresses already in the local phone companies with heavy debt burdens from leveraged buyouts. Craig Moffett, a telecommunications analyst at Sanford C. Bernstein & Company, suggests that even the phone companies that don’t have such high debt burdens are heading down the same path. “These are fundamentally bankruptcy stories,” Mr. Moffett said, suggesting the government may well be forced to confront a very expensive bailout of the telephone industry in a few years. “They have employment that is on a par with the big three automakers. And their pension obligations are close to being on par with the automakers too.”