Swarf: Hyundai Heresy

By Lloyd Graff

Today’s Machining World Archive: May 2010 Vol. 6, Issue 04


I received impassioned letters (one is printed on page 13) about my “Swarf” piece in April recounting the purchase of new Hyundai cars by my two sons Noah and Ari. The letters were clearly heartfelt and probably representative of the feelings of many readers. They deserve an honest reply.

I did not buy the cars. My sons bought them, and they were focused on the monthly payments. Like me, neither are car buffs, but they valued my opinion on the car buying process more than on which car to purchase. They both did some research, but the primary reason Hyundai was on their radar screen was that they had driven a Sonata on a family trip in February and found it to be a capable performer.

I think the letter writers believe I conspired to have my sons reject American cars. But the fact is that they were rather naive car buyers and their driving experience was mainly with Toyota and some GM.

They were probably biased toward Toyota, especially Noah, who loved his 1997 Lexus despite a bad siege of transmission problems, dead air conditioning and a messed up radio. Ari’s strong bias was towards safety after working with badly injured patients in Chicago’s famed Rehabilitation Institute. I do confess I pushed them to look at the Prius, and if I were buying a car it would have been my choice because of the gas mileage. The question of buying American never really came up in the conversation. I had been a “buy American only” guy until 1996, when I chose Toyota because my Buicks and Chevys had been mediocre vehicles. GM had entered its desperate years and Toyota seemed more committed to America than they did.

I knew that my bread was buttered by the Big Three, but they were asking me to buy apple pie, motherhood and crappy products, and I rejected them with sadness.

Personally, I regret that we did not give Ford and Chevy a better shot. But the reality is my sons did not care, and I probably did not nudge them as much as I should have. We looked at Ford because it was gaining market share and I suggested they check it out. The fact that the salesman acted like he was doing us a favor to test-drive a Ford Fusion did have an effect on us. The attitude of a seller is important because it puts a human face on the brand.

In retrospect, I ask myself why we never even looked at the Chevy Malibu. It was probably because the Chevy dealer had shut its doors at the auto mall we visited. Both Ari and Noah were in a time crunch to buy because both of their cars were literally falling apart. They didn’t have the inclination to shop the market for weeks or months.For both sons, the last dealer we visited was Hyundai. (They never shopped together.)

Noah bought his car first. He wanted a vehicle with pizzazz, the lowest possible monthly payment and immediate availability.

Ari was more indecisive, but the fact that Noah bought the Hyundai probably affected his decision. He purchased his car a week after Noah, choosing a 2011 Sonata with a little less horsepower and smaller wheels. He really wanted a car that day, and buying a Hyundai offered the path of least resistance.

Response Letter
As an avid reader and financial supporter I was greatly saddened to see how your family makes major purchasing decisions. In your car shopping “Swarf” piece, you and the boys go to the local mega dealer, spend a couple of hours walking around and end up buying two cars based primarily on the “energy” of the salesman and the music in the showroom?

Let me get this straight. Both boys had to have new cars that day? They wouldn’t give the Ford guys enough time to check inventory at another lot and bring in the color or options they wanted? So some Koreans have good jobs because the Graff family is shallow and impulsive and won’t even take the time to see how good the American offerings are?

Where do you sell machinery? Hopefully to Koreans and the like, because it is people just like you that cause the high unemployment and loss of quality jobs right here at home. No, I don’t work for the Big Three. No, I am not a “union guy.” But I am an American manufacturing employer that works hard every day to keep my 40 people employed. I do that by quoting against companies across the globe that have the distinct advantages of near slave labor wages, a lack of employee safety and environmental compliance and trade imbalances that I have no control over. All I can do is to fight hard every day and hope that there are enough Americans that care to give American products a fair look. Obviously you are not such an American, even in these economic times.

I guess next IMTS I will wander around and see who has the best music, maybe even get a free latte and see who has the prettiest clueless girl standing out front. I will buy their machines, and who cares who the maker is? Who cares what the features are? Who cares about the impact on jobs? Not me, just bring on the energetic salesman!

Brian Capece has a five person shop in rural Maryland. He does wire EDM and precision machining for aerospace, satellite, medical and commercial clients, often working 65 to 70 hours a week. His wife runs his office now that his two children are in school. He’s been doing this for 10 years, since buying his first die sinker at an auction. It’s been a rough year for Brian. He says he used up his cushion of money to keep the business afloat while not letting any of his people go, because those core employees are the key to his business and if he lost them he would be in the soup.

He is finally back in the black but wonders if the path he has taken for the last decade was the right one. “After going to the tax man this year and seeing how much I had to pay, I really think I would have been better off working for somebody else than having my own business,” he said. His comment was not said out of anger or great regret, but I wonder how many people feel the same way—for the same money and less risk, they’d just as soon pull down a paycheck than sign all the checks.

Brian Pendarvis of Anaheim says he hasn’t felt the recession. His company, Pendarvis Manufacturing grew despite the softening that battered almost everybody else in the machining game. He attributes his success to marketing his job shop on the Web. Brian says he spends about $50,000 a year maintaining his Web site and spreading the word about his company’s capabilities on Yahoo, Google, ThomasNet.com and MacRAE’S. He pays for Google ad words, but just to promote the company within a 100-mile radius of Orange County.

His niche is combining fabricating, welding and machining, a combination we don’t see that often as firms reach for specialization. He says he tracks 5-8 calls per week directly from his Web prominence, which he says enables him to land one new customer per month on average. He lauds the work his Web designer has done for him—a firm that split off from ThomasNet—Creative Works.

Jim Chanos is famous for identifying the Enron scam, shorting the company’s stock and making a fortune. He runs a hedge fund named Kynikos Associates, which means “cynic” in Greek. He specializes in spotting emperors without clothes and is currently betting big that the Empire of China is a naked power. He compares China to Miamand Dubai of recent memory. The common thread is runaway condominium and office construction, huge real estate inflationand a shortage of able buyers. He says that today, all over China, high-rise buildings are rising, fueled by aggressive bank lending to developers. They are building 1,100 square foot shell apartments without floors, and selling them—or attempting to sell them, for around $150,000. The problem is that even though half are going empty, they are still building.

Chanos sees the phenomenal growth numbers in China being fueled primarily by real estate speculation and construction. In his view it is unsustainable. State and local governments are being funded by real estate development, so they have an interest in seeing it accelerate. They will suffer mightily when and if the bubble bursts. What happens if Chanos is right and the giant cranes go away like they did in Dubai and Miami? He feels that the raw materials companies who are supplying the steel, copper and cement will suffer immediately. Copper at $3.60 a pound could plummet, as well as iron ore and scrap prices. Crane companies will get killed. He feels that the Chinese currency, which everybody including the Obama administration is hoping will rise when it is no longer pegged—will fall.

Incidentally, Gary Schilling, the noted bearish economist who predicted the American stock market collapse (not the rebound, however) also feels the Yuan will fall in value when it is allowed to float. Jim Chanos is a very smart guy. He sees the Chinese bubble bursting later this year or in 2011. The Chinese have enormous reserves in dollars to soften the blow and may tighten credit dramatically soon to try to avert a property crash. China bashers may be happy to see the country suffer and revel in lower raw material prices, but with an interconnected world, be careful what you hope for .

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