The “Brangelina” Story as a Business Model

The story of Angelina Jolie and Brad Pitt can be compared a lot to that of Daimler-Benz and Chrysler merger although the first one lasted 3 years longer than the later. At the time it happened, it was considered a merger made in heaven between 2 big superpowers and at the time it was over it was deemed worthless. For the sake of our story we will consider Brad Pitt to be Daimler Benz and Angelina to be Chrysler.

When Brad “merged” with Jolie he had a small foothold in America (Jennifer Aniston) which was somewhat not fully satisfying him. Brad (Daimler) wanted to expand his reach in America and he came across Jolie (Chrysler) a luxurious, flashy and highly in demand brand at the time and they both clicked. During the years that ensued, Brad went on to strengthen his foothold in America (Daimler building factories in the USA) while Angelina drifted away from her core business (less movie appearances) and did not increase her territory (Chrysler failed to expand into Europe at the same pace that Daimler expanded in the USA). During that tenure Brad was rumored to have had some flings (Daimler’s stake in Mitsubishi and Hyundai motors) but both were ended or denied. Trouble kept coming with Angelina (Chrysler) suffering the most – nervous break downs, double mastectomy and eating problems (Daimler Chrysler merger came to an end in 2007 just one year before the financial crisis when Chrysler took bailout money from the US federal government)

So now what?

For Brad: He will probably keep moving along and searching for bigger and smaller stakes here and there to try to polish his image (Daimler has a small share in the Nissan Renault alliance to help the German manufacturer in building small cars and EVs) Ironically he is rumored to have cheated on Angelina with a French actress (anyone else sees the humor here?) or to increase his reach in unexplored territory (50% stake in the Chinese automaker BYD and 12% in Chinese BAIC as well). He is unlikely to find another “Chrysler” or to settle back to a “small foothold” but he will be “everywhere” (Daimler has operations in 16 countries!)

For Angelina: the “old” lady will have to wait for a Sergio (CEO of FIAT) to come along; someone who wants her for her great past and who hopelessly believes that this past will push him forward to grandiosity; he will be happy enough to carry her big debt (6 children) but unfortunately he won’t get anything. Sure enough every now and then she can give him a “jeep” but that won’t cover the investment. She will drag him in to what she has always done and he will fumble along still thinking that he can get a bigger foothold in America (Sergio Marchionni still hopes he can revive FIAT in USA through Chrysler.)

In the world of business, mergers in the “same line of business” either face spectacular success or fail spectacularly. Unfortunately the 2nd option prevailed for our 2 actors in this case just like the Daimler Chrysler case; and as in most failure cases one gets out damaged more than the other and so far it seems that Angelina has had the shorter end of the stick. As the wise man once said “if it is too good to be true, then it probably is!”


Why Low Oil Prices are Bad for the Global Economy as Well

In 2 weeks I’m going to be in Lebanon for vacation and as I will stop by the gas stations to fill up my car, I will be paying almost the same price that I used to pay when I first graduated from university around 6 years ago. At nearly 25,000 Lebanese Pounds per 20 liters all the Lebanese will be raving about it and enjoying this Holiday season to the maximum ( yes they will forget all the economic, social, residential, and environmental issues, they will also forget the refugee spillover from the neighboring war-plagued Syria, they will forget that we are still without a president for almost 8 months now and that our parliament is aiming to outlive the parliament that was around during all the 15 years of civil war. Ironically enough most of the faces are still the same and yes I am talking about the parliament and not about a senior citizens residential compound)

Of course not only the Lebanese are the ones joyful about it; in fact they share the same feelings with more than half of the residents of the planet. Americans are planning more and more road trips and the demand for big SUVs is ramping up again, and the Europeans might have something to cheer them up and keep them warm this winter after fears of Russia cutting them from the oil supply as a result of the ongoing tension between Russia and well most of the world. But all this comes with a price tag and a hefty one also; just as the increasing prices have been hurting the economies so will the decreasing prices. OPEC is still insisting on keeping the production and supply levels on current levels although supply is far exceeding demand and thus challenging the free market theory that supply and demand will lead to a market balance. The reasons behind this decision are plenty but I am not going to delve into the politics of it right now but the fact is everyone is hurting from it.

Oil producing countries are going to face massive budget deficits with many of them starting to question for how long they will be able to sustain such low prices and still go on with their development plans. Europe seems to be heading towards another recession in which low oil prices will not be of much help (the PIGS are now PIIGS with Ireland joining the club) they should start looking for a different animal name soon and preferably a longer one it seems.

In USA seemingly it will have the worst effect. The country that started the global economic crisis in 2008 might as well be leading the world into another one and if USA sneezes, Europe gets the flu. Right after the crisis, a massive effort was put into creating a more efficient economy that is not as much relying on oil as before and as a result a wide variety of fuel economic cars started to take more place on the roads instead of the traditional much larger gas guzzling V8s, the Prius which was literally the laughing stock of every movie and every comedian started to have its last laugh against all the skeptics. Green energy was strongly supported and subsidized and the glass panels industry witnessed a great boom. Now the lower oil prices have halted all this with the people reacting very fast to the low oil prices and ordering big trucks again and the still expensive alternative energy sources are being ditched in favor of traditional energy sources. What is even more, GM has announced its plans to lay off some workers from its Lake Oreon plan starting January 2015 and the reason cited is simply due to decreased demand on its economical cars the Buick Verano and the Chevrolet Sonic and I am guessing it won’t be long before the other carmakers will follow lead. Such is how much shortlived is the people’s memory and that’s how quickly they go back to old habits. Am I the only one seeing a “cash for clunkers” campaign looming in the Horizon once more?

Fiat was gambling on its tiny 500 model to conquer the streets of USA, Smart America was hoping that this would be its revival point and VW group were betting that their fuel economical tiny cars will help them dethrone BMW and Daimler as the kings of European cars in the USA. Alas, all those dreams might be going with the wind now.

In Lebanon, we party all the time; in the middle of the Israeli invasion on us we were partying, in the peak of the global crisis we were partying and now we are partying. In fact we don’t need a reason to party, we just need…… a place! But this time we have a reason and it’s the oil crisis. While countries have been bracing for the damages that the oil prices will cause to their economies, we are planning where to spend New Year’s Eve! I just hope that the economy does not sour so much that I lose my job and miss the chance of enjoying the low gas prices!

Dacia, the Smart Car That Did What “Smart” Couldn’t Do

“ Any customer can have a car painted any color that he wants so long as it is black” the famous quote from the legendary Henry Ford when he was referring to his T-model – the car that made history. The importance of this quote lies in the fact that although the Germans might be the ones who invented the car, it was Henry Ford who laid the basics and essential reasons behind making                 a car. And today and more than ever, the basics he laid are serving their best purpose and proving what a visionary this man was.

In the 80’s of the last century, the Lebanese Nicolas Hayek devised a plan to produce a small economic car that would sell for less than $10,000 and serve basically the European Countries. Having saved the entire Swiss watches industry singlehandedly by creating “Swatch” the low end but high quality Swiss watch that was sold to the mass market and made enough sales and profits to save the ailing luxury watch makers, he was convinced that he could do the same to the European Car industry. The idea he came up was brilliant but the realization – well not every fairy tale has a happy ending. Having designed the car, his idea was to offset the high production costs that might kill the car’s purpose so he reached out to existing car makers in the European Market and it was Daimler Benz that adopted the idea and agreed to bring “Smart” to life. Unfortunately, how they decided to do so was not so bright. The idea behind the car was to keep it as simple as possible and as basic as possible. Daimler’s first mistake was the location: “France” a country known for its high production costs while they should have opted to countries of the Eastern Block if not India or China unless they had in mind to compete with French carmakers: Renault, Peugeot, Citroen although the idea seems to be farfetched given the concept of the “smart” car. To make things worse they were obsessed with safety measures and wanted to earn all the safety stars that were possible which added additional cost to the car. Needless to say, when the car was launched it was not below $10,000 at all and thus the car did not serve its purpose. Sales were not as strong as the hopes that were built on it and the company started piling up losses. Along the years that followed, they further scaled down their operations by discontinuing 2 of their cars the Smart Roadster and the ForFour and many concepts that were in the pipeline were ditched, while at the same time Dacia was increasing its car range and foraying into new markets. Then all of a sudden, Daimler went all American on Smart by merging its management with that of Daimler and closing its independent design centers in an attempt to cut costs; this was the exact mentality with which Americans managed their car companies and which almost led to their demise.

The mistake that Daimler made was in trying to give Smart its identity instead of keeping it independent; they must have thought that their name would give leverage to the young brand and help push sales but the effect was negative because no one is used to an economical car from Mercedes and the car was not even economical in the first place. They should have alienated it from them and given it its unique character just like BMW has done with the Rolls Royce and the Mini brands. Daimler did that to Maybach and killed it and so far Smart seems to be facing the same fate unless Mr. Ghosn manages to save what is left of the brand.

It took another Lebanese to realize Mr. Hayek’s dream and it was Carlos Ghosn who found in the Romanian brand Dacia the perfect car for this purpose (Yes it’s all about my fellow countrymen this time!). Dacia has been closely affiliated with Renault since its inception and many Renault brands were simply branded as Dacia with very small modification. This flirting and foreplay between the 2 brands came to an end in 1999 just at the same time when Renault purchased a stake in Nissan. Ironically at the same time Daimler merged with Chrysler in a deal that was about $40 Billion worth and at the same time the very first Smart cars were sold. I do not know who came with the idea of merging 2 luxury carmakers together; what were they thinking? That is if they were thinking at all. That deal did not live to be 10 years old, while Nissan Renault continues to thrive and grow until today. It is interesting how the fates of those 2 car makers groups are intertwined.

Mr. Ghosn, who had just managed a legendary turn around for the once almost bankrupt Nissan, turned his attention to Dacia and in 2004 the Dacia Logan was the first car to roll out of the Romanian factories as a totally independent car. Although some parts are furnished by Renault, the whole car now has an independent identity in contrary to previous models that were basically Renaults with different make-up. So while Daimler was merging, Carlos was diversifying. He made sure that every brand was separate in order to avoid any brand being hurt by another and to avoid overlapping. “Go back to the basics” was the theme for Dacia, a simple stripped down car that would take you comfortably from point A to point B without the toys, gismos and distractions of the other more luxurious cars. They were not even interested in the safety stars. A car big enough to fit a family and small enough to keep it personal as the great Henry Ford used to say. It comes as no surprise then that during and after the crisis when most car sales were slumping, Dacia was the fastest growing car in Europe and still reins the European markets while slowly making headway in the Middle East and other markets.

Mr. Ghosn seems to understand the US market much more than the folks at Daimler. He knows that the US consumer is not interested in small basic economical cars and this is why you don’t even see the small Nissan cars like the Tiida and the Micra in the company’s showrooms in USA and this is why he did not bother to try to introduce the Dacia to the US market at least not yet. For the Indian market, he has decided to revive the once iconic Datsun brand (for my American friends who are younger than 30 ask your dads about Datsun because chances are they owned one back in the 70’s and early 80’s). Datsun will probably sell in India for even a much cheaper price so Mr. Ghosn did not even want to risk the Dacia name, another proof of his understanding of the market and its segmentation.

Strange how those 2 companies are intertwined together; in 2010 a strategic alliance was announced between Daimler and Renault Nissan Alliance and the very first fruit of this alliance was that the Smart for two will benefit from the French automaker’s small car technology. Mr. Hayek’s vision for the smart car was to be a hybrid car, a vision that Daimler shied away at the time but which is the corner stone in Carlos Ghosn’s strategy. Now more than ever, the late Mr. Hayek’s dream seems so close to be realized. I guess it takes a Lebanese guy to realize a fellow Lebanese’s dream. Unfortunately Mr. Hayek is not around anymore to see his vision materializing.

Korean carmakers were once known to have cars with just the basics and the best purse but nowadays they are obsessed with being the new Audis in terms of luxury and designs. It seems that only Mr. Ghosn is the one who wants to scale back and go back to the basics of car making in order to offer the car that can fit every purse, purpose and preference (excuse me GM for stealing your moto but it seems to fit Renault-Nissan more).  I would like to end with another quote from Mr. Ford autobiography My life and Work “I would like to build a car for the great multitudes” and he did so with Ford T-model and then VW did the same with its beetle and they both managed to do so by sticking to just the basics and Dacia seems to be well positioned to fulfill the same purpose. Something tells me that Mr. Ghosn has copies of this autobiography on his desk and nightstand.