The Business section of the NYTimes.com site has an article about Tesla Motors, the Silicon Valley electric car start-up backed primarily by Elon Musk and a list of other high profile investors (including the Google guys).  The article centers around Tesla's recent request for a low interest loan of $400 million from the US Government as part of a fund whose goal is to improve US automakers' fuel efficiency.  Randall Stross, the reporter who wrote the article, has a very clear message as it relates to Tesla.  His argument is that Tesla is not a truly viable company and that tax payers shouldn't pony up for what he amounts to a boutique automaker that caters to the rich.  Tesla is behind schedule on its delivery of the $100K+ Roadster and even farther behind schedule on its plans for the more affordable $60K Model S sedan.  However, the bigger question to me, as a tax payer, is whether I think the future of America's auto industry is in the Big Three US automakers or somewhere else... say Silicon Valley?

When our family immigrated to the US in the 70's, the first car we owned was an old Mustang.  After a short trist with a VW Beetle and VW Vanagan (they were cheap), we next owned a Buick Skylark Wagon and a Ford Taurus.  My first car was a Dodge Colt.  From the Taurus my parents went to a Nissan Sentra, then a Honda Accord, and finally a Toyota Camry and Corolla.  After my Dodge Colt (I totalled it, but that's another story), my wife and I inherited a Maxima and a Camry.  Our first new car purchase ever was a Toyota Prius.  I remember the pride my dad had in being able to buy the Taurus which was considered at the time to be one of the better quality cars available.  However, since those days of the 80's and early 90's, the quality of American made cars has slowly declined while that of foreign brands from Japan and Europe have continued to increase.  It wasn't necessarily for lack of features/power/design but more for lack of reliability that forced us to move away from American made cars to Japanese.  Today, American cars have the perception of unreliability, whether true or not.  Given the issues that the Big Three face, I don't have much confidence that they'll be able to turn that around nor keep up with innovative companies like Tesla to deliver us the next generation of automobiles.  For that reason, I choose to cast my vote with the new unknown than the old unreliable.

UPDATE:  Jason Calacanis writes a very good response to Randall Stross' article.  It's posted on the Huffington post.

I'm reading the details of the Big 3 automaker's recent request for a $25 billion bailout.  Specifically, I'm referring to high salaries for executives in the midst of multi-billion dollar losses.  It's not the amount of the pay that bothers me.  CEOs and executives of multi-billion dollar companies are entitled to compensation above and beyond what normal folk should get.  What really gets my goat is that the domestic automobile industry has been lagging behind foreign players for years now yet none of these CEOs really seemed to care.  Instead of innovating, they decided to ask for a handout.  And I'm afraid that the government will give them this bailout for fear that tens of thousands of rank and file employees will lose their jobs.  The problem is that it will continue to perpetuate a philosophy of mediocrity amoung the employees of the automakers.  Do you think if Yahoo was given a bailout that Jerry Yang would have stepped aside?  It took the dramatic act of Yang leaving Yahoo for that company to finally move forward.  I doubt any of these CEOs would do the same.

On a side note, Toyota's chief makes about $1 million a year and his company generated close to $15 billion in profits last year.  I guess I should be a little upset.

Some time in early 2006, I did a phone interview for a position at Google. It was a pretty standard level job, something to do with AdSense/Adwords. At the time, I had just wrapped up my first start-up and was in need of a job. The interview was relatively short and I got the impression that I just wasn't Google material. Maybe I didn't pass the GPA threshold (I was told 3.5 and under need not apply) or maybe I just didn't leave a good impression with the interviewer - who knows. Needless to say, I did not get a follow-up.

Fast forward to today and the continued free fall of Google and others in the space...

As you can see, after its $20+ drop in the regular session, Google is down almost another $7 in after hours trading. Though still a powerhouse in search and with rock solid financials, the underlying issue will be how most of the employees who came on in that early 2006 time-frame will have options that are under water. Let's not even get into the folks who joined around late 2007 when they were trading at around $700. As a significant portion of their compensation packages go poof, these talented employees will start looking elsewhere. Also, recruiting new talent will become that much harder when a big part of your compensation is getting less and less valuable. And remember all those free meals? Looks like those are getting chopped, too. C'est la vie.

I'm far removed from my days as an economics grad but I think rate cuts by the Fed are not necessarily a good thing. Yes, it'll make it cheaper for banks/corporations/small businesses to borrow money but it seems somewhat artificial versus real value/wealth creation. Remember it was this artificial (and arguably fraudulent) boost that led us into the current recession. It's almost like a drug that the economy has grown accustomed to. I wonder if the Dow would have jumped almost 900 points today had a rate cut not been rumored.

But why is the rate cut necessary? As a corporation, would borrowing money at 5.5% versus 4.5% swing you from profitability to a loss? As a small business, if your credit card rate was 15.99% versus 14.99% would that really matter much? And if you couldn't afford to buy a house at 6.75%, you probably won't be able to afford that house at 6.25%. If nothing else, the market correction of the past few weeks should reset everyone's expectations that life won't be as it was during the boom. We should all adjust our spending accordingly and move on to the business of true value creation. Innovate more - work harder. Then the gains you have are real gains and not artificial ones.

If you have the time, This American Life has a great show on the background to the mortgage implosion and how interest rate cuts made by Greenspan contributed greatly to the downward spiral.

A few days ago I wrote about lay-offs and how I was glad we played it safe with our hiring strategy. Today, I read over at Techcrunch that Mahalo is cutting 10% of its staff. The thing I was most impressed with was CEO Jason Calacanis' honest admission that he let down the people who he had to lay-off.

"It’s my responsibility to make this hard decision and I don’t take it lightly. To the people impacted I’m very sorry that I wasn’t able to anticipate this better. It’s my fault and I’m sorry that you’ve got to bear the burden of my inability to better prepare."

 

Contrast this with the somewhat arms length statement Yahoo! CEO Jerry Yang made when he announced his 10% cut.

"affected employees will be notified of layoffs in the next several weeks. we understand that hearing this news now creates uncertainty, but we are moving ahead in a way that balances speed with a clear focus on accomplishing what is necessary to set the organization up for long term success. going forward it will continue to be important for us to make the right decisions to keep our business efficient and strong.

having layoffs is very difficult, particularly in light of all we’ve experienced this year. but we don’t take these decisions lightly, and are committed to treating affected employees fairly, offering severance and outplacement services."

 

In my very humble opinion, Jason's statement had genuine feeling and an admission of failure. It sounded like he really cared about his employees and that he took full responsibility for his actions. Jerry, on the other hand, seemed to take a very corporate approach in his statement. Almost as if he's disconnected from the entire process. In saying that they are "moving ahead in a way that balances speed with a clear focus", I felt he placed some of the blame on the company's poor performance on the employees themselves. As if letting them go will help turn the ship around. Let's not take into account the fact that Yahoo! could have sold itself to Microsoft just a few months ago for more than 2.5 times its current value. Or go back a few years and ask why Yahoo! couldn't counteract the Google threat even as they were sending millions of queries a day when Google powered their search engine. No where did I ever hear an admission of guilt from Jerry even though he is the head of the company.

In all fairness, it's easier to be close with your employees when the count is 50-60 versus 14,000+ and Jerry can't be blamed for all that is wrong with Yahoo! He inherited a company that lost its edge the day they decided to outsource their search technology. Still, a little contrition couldn't hurt.