Akkam’s Razor

• GOOD » Books Are the New Cars» - Another day, another imploding industry…
• Economist’s View: “Capitalist Fools” - Was there any single decision which, had it been reversed, would have changed the course of history? … The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. … The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

Back during my car dealer days as a finance manager in a Philadelphia Saturn dealership, I accepted the title of this post as the mantra for ‘getting done’ good people with less than stellar credit histories.

The gist of the tactic was to assume that the credit analyst and/or loan officer at the lending institution, with whom you had hopefully built a good relationship, had no information about the borrower other than the loan application and the credit bureau profile.

Typically, the reports were a nightmare.

Charge-offs. liens. Bankruptcies. Civil Judgments. Foreclosures. Repossessions.

In short, these people likely had no business looking for a car that couldn’t be bought in cash. But there were other people who fell on hard times, were taken advantage-of, or were just unlucky. Maybe it was a sickness, a layoff, or some other life changing event that financially handicapped the applicant. During the course of my conversation with the applicant, I’d tease out their story.

“What happened, what changed, and why won’t it happen again?”

At the same time, I’d make sure we had the applicant in the right car, gotten a sufficient down payment to provide equity and investment, and then I’d share that story with the credit analyst. If the analyst trusted me, and knew I had put together a loan that made sense, they’d stretch, but I had to convince them as to what changed and why it won’t happen again. Without the person’s narrative, they would be no more than a credit score, just a numerical summation of ‘what happened’.

In looking at General Motor’s Annual Report (and by extension the auto industry as a whole) especially with regard to any potential bailout, I think the same tactics should be employed.

A couple of semesters ago, I read a Businessweek article on Home Depot then-CEO Bob Nardelli’s plan to turn around Home Depot.  BW glowingly reported on Nardelli’s personnel changes and differing style, with his strong preference for hiring former-military persons in key rolls.  Anecdotally speaking, a masters program classmate who was also a Naval Academy graduate mentioned that Home Depot had indeed made a push for hiring employees who were formerly Officer Grade to run their stores, casting the opportunity as entrepreneurial.  Businessweek gave several hints as to what was coming in their description of Nardelli’s style: