The Price of Gas, Europe and the US

I hear a lot of people say we should not complain about the price of gas in the US because in Europe they pay twice as much for gas. I find this argument to be a bit misleading and used to create a false argument for why Americans should pay even more for gas.

Yes the price at the pump is higher in Europe, but the cost of gas itself is not. There are two issues involved, the price of gas and the tax on gas. In the US we have 11% federal, in Europe (France, Germany, Netherlands) you are looking at about 60% for gas taxes. So if the base rate on a gallon of gas is $3.35, the price at the pump in the US is going to be $3.72. In Europe you are looking at about $5.36 for the same gas. The difference is in the taxes.

There is not a price for Europe and price for the US, we all buy our oil on the same global market, so no, Europeans are not actually paying more for gas, they are paying more in taxes. Huge difference in how you look at the fundamentals. Of course there are other factors like local taxes, regulations on emissions, transportation costs, etc…

One thing people don’t realize is the fuel efficiency in Europe is much higher thanks to the lower emission standards on diesel. Yes, that’s right; the Europeans have less stringent standards than the US. Lets take the Honda Fit, which is a diesel version in Europe, it is far more fuel efficient than it’s gas driven American cousin. Same car, a just different engine. So yes, the European is paying more per gallon of gas, but is driving further on that same gallon. If it was not for the higher standards on emissions in the US, the American driver could probably also be driving just as far and being as fuel efficient.

So when people claim Europeans are paying more for gas, remember, they are paying the same, they are just paying more for the taxes on gas and that is what makes the difference in price, not the gas itself.

IMF says $100 Oil is OK

The IMF once again shows how out of touch with everyday people they really are.  $100 oil is not ok for the global economy; we saw it at $80 and even $60.  If you go to some developing nations, you will find many cars that run on non oil based fuels.  Why?  They can’t afford to buy oil.  And this is before oil hit $100, this was back when oil was at $80.  So already a large portion of the world is priced out of the market.  The US consumer can’t last another 5 years of such prices.  When gas eats up $70 a week that adds up!  That means less goes into the real economy the true engine that drives the global economy.

 

Too many analysts have forgotten what really makes the world go around.  Oil doesn’t, oil is a piece of it, but when oil prices are out of alignment as it is now, the real engine starts to shut down.  Consumers can’t consume because they don’t have money.  And things that rely on oil get priced higher and higher.  And unlike the developing nations, for some reason, the will to create real viable alternatives just doesn’t seem to be present in the US or Western Europe.  Why?  I really don’t know, how can small island nations transition to biofuel and natural gas to power cars and we can’t with all our technology, already have real working solutions on the road being used by everyday people; just like those developing nations have now?  It’s shocking and shameful we as the technology leaders do not have working solutions and better engines on the road.  We have the technology, I guess we just lack the will.

 

The IMF is just way out touch on this one, it’s going to spell trouble if they and Wall Street don’t put down the sparkling water and realize it is Main Street USA, Canada, Germany, Brazil, Kenya, Japan, etc… that is the driver of this world.  It’s time we move away from oil, there are plenty of ideas out there to do this; we should be putting our money into those ideas.  From a practical point of view, it only makes sense; the current system makes less and less sense everyday.

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China Selling you Counterfeit Computers

It wasn’t enough to poison our kids and our pets, now Chinese companies want to sell you counterfeit parts for your computer too.  The US and EU are actually cracking down on this one, which is telling in itself, cracking down on computer parts but not food, but that’s another blog post. 

 

As a fair trade capitalist, I think it is about time we slap some real penalties on China, they obviously do not want to play by the rules so do like you do in anything, penalize those that break the rules.  In hockey if you do unsportsmanlike conduct, you get thrown out, do the same to China, throw them out of the WTO until they learn that safety and brand promises are important aspects to a business and it is not for them to make money at all costs, some costs are not worth it, like a consumers health and safety.

 

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A Weak Dollar is just Dumb

We currently are experiencing a very weak dollar, for many this is news, but really a weak dollar isn’t news, it’s been around for 30 years and the reasoning behind a weak dollar are as out dated as writing on clay tablets.  A strong dollar is what is needed, as strong a dollar as is possible and here’s why.

 

Back in the 70’s, when we actually had a manufacturing base in the US, people realized that a strong dollar made it hard for people in developing nations or what was called the third world back then, found it hard to buy US goods because their currency was so weak.  So instead of trying to improve the quality of life and value of the currency for these other people, the then new idea of globalization and free trade, came around and said “lets have a weak dollar so our stuff is cheap overseas.”  People went along with that idea, probably not realizing what a bad idea it was.

 

So since the mid 70’s the dollar has been weakened intentionally.  So when I hear conspiracy theories about the intentional weakening of the dollar by Bush, I kind of shake my head.  Yeah he is weakening it, but not like he is the only one who was doing it, so was Clinton and all the others before since 1975.  Now this doesn’t excuse anyone from knowing the facts on the issue.  The idea back then was to make our products competitive, back when manufacturing was king of the economy.  Fast forward to the present, manufacturing is not king, the consumer is.

 

So all those manufacturers who wanted to sell cheap stuff to people in the developing world, decided to go produce their goods there, leaving we the consumers as the king of the US economy.  Now the logic of that is another debate, which I am not discussing here so please refrain from debating this point.  70% of the economy is driven by consumer spending, about 10-15% by manufacturing, so we have a weak dollar to help 10% at the expense of 70%.  A strong dollar means everything is cheaper, gas, food, cheap junk from China at Wal Mart, etc…  A weak dollar means all those things cost more.  You spend more money to buy the same donut that was 63 cents last year, now is 67 cents, same donut, it doesn’t taste any better!  So as you spend more on the same thing you can’t spend enough on all the things you want and the consumer engine slows down and so does the economy.

 

It is unfortunate that the free traders fail to realize that their policies are failing.  First off, if they were so concerned about people in other countries being able to buy their products, they should have focused on quality of life, not price.  So the theory was flawed from the start.  Second, why are we the consumers paying the price for all this?  If you want to have a strong dollar and as a consumer, you do!  Fight to impose taxes on companies that outsource and are just branding companies trying to sell you junk that is probably tainted with lead anyway.  But first you need to ensure we vote in people who understand a weak dollar is just dumb and will fight to have the strongest dollar possible.  When the corporations complain about it, who cares, they are 10% and they will leave and have left us to produce overseas.  In fact it should be a law that a company can not lobby unless 70% of its manufacturing is based in the US.  That would solve a lot.

A Year Without WalMart

I’ve been reading this wonderful blog here on WordPress called That’s Swell by a fellow blogger and her experience with giving up WalMart.  I particularly liked part II of the series as it talks about Sam Walton and how he was a real believer in Buy American and how after his death, the company took a dramatic change. 

 

Remember back then, we had NAFTA to worry about.  We had some companies already producing in China but it was so small, nobody really noticed.  The reflections on how times have changed in the last 15 years is amazing.  And something as small as stock prices of a discount retailer from Arkansas having that much impact on globalization and daily life for, millions if not billions around the world.  Cheap tainted goods for Americans and pollution and tainted goods for Chinese.  Was the stock price of Wal Mart worth it? 

Recall Conspiracy?

I have been hearing a lot of talk now that there must be a conspiracy going on against China goods, why all the recalls?  Well it is quite simple and easy to explain without the need to rely on conspiracy theories of any kind.  This isn’t anything new, we have known about it for a while, the problem with China goods.  Just look at the FDA’s own records, the fish problems have been going on for years. Nobody paid attention to it, until some pets got sick and people started looking around at other products.  This is natural.

 

Never underestimate the anger of pet owners whose beloved family member got sick from bad pet food.  China was the problem and the source.  It actually took some time for this to get rolling, very little in March or April.  Some news in May and then an explosion this summer in the form of massive recalls.  If you look at the way most trends, products or information gets spread, this follows a natural pattern.  A few early adopters notice, the trend setters catch on and then the masses. 

 

So we had a few people who caught on, then the trend setters and finally everyone is looking around every corner wondering if their product from China is safe.  Add to that, the products in question are for kids, that gets people’s attention!  When you mess with someone’s kids, you are asking for more trouble and people are now questioning anything from China, where as before they just believed the brand promise without question.  The alarm is sounded, this is going to get wider.  Which is a good thing because if it had gone unchecked, imagine if people became ill or worse from these products on a wide scale.  Remember the spinach scare last year?  I know a lot of people who do not eat spinach anymore.  The ball is rolling so this is here to stay, and with the Christmas season coming, you can be assured more testing is going to bring up more recalls.

 

I don’t have any sympathy for the producers or China; they failed in their brand promise to deliver us quality goods, which does imply a safe good.  They will have to work hard to earn the trust of consumers.  Which is a good thing, consumers should question their manufacturers about the products they sell.  That’s how consumers stay informed and keep producers focused on quality.

 

Why some people want to claim the recalls are a conspiracy are because they don’t fully understand how people as a group react to alarming information.  I’ve been watching this since the first story on pet food hit the media and this is not a conspiracy, it’s not even a fad, it moves too slow.  We haven’t even hit the peak yet.  The great thing is, companies are taking advantage of this and new channels for businesses are cropping up.  In fact I just read how a local supermarket is going locally grown for produce as a result of concerns about where produce come from and they are doing great.  This is great, consumer demands are being met.  It goes to show that when given a chance, consumers will pick quality over cheap goods. 

 If anything the above example probably shows if there is a conspiracy, it was on the part of big multinationals who claimed we were getting inexpensive goods by moving production to China.  Not really, just their profit margins got better, the prices didn’t get that much lower. 

Chocolate, Flip Flops and Toys

Well a busy day for recalls, also a rather gross day. 

Now I never think of China when I think of chocolates but then that’s just me.  But for some unlucky shoppers in South Korea, they found a little something extra in their chocolates and it wasn’t a caramel center.  It was worms.

  

This is just breaking so it is hard to say where the worms entered into the chocolates, but it is still raising questions and the manufacture’s less than up front stand, only raised more questions.

  

A woman bought some flip flops from Wal Mart, only to experience what she says is basically a chemical rash burn on her feet.  According to some news sources, Wal Mart is finally pulling these off the shelves.  You can view the woman’s site, but I’ll warn you, it’s kind of gross at times.  

And finally, paint sets and crayons are being recalled, again, made in China.  I’ve lost count of how many children’s items have been recalled but the fact that it is in the millions already, is shocking enough.  And the fact most of the Christmas toys are already on their way, means we can probably expect a lot more.    

The Toxic 55

A fellow WordPress blogger has put together a list of the “55 Famous Toxic Foods From China.”  Worth a look since this blogger does focus a lot more on China than I do.  I’ve been reading his blog for a while and what he says is often inline with independent source of my own.

The Mattel Recall

Brand is the big key in marketing and business these days; it is how you interface with customers.  Everyone interacts with your brand on a daily basis in the consumer goods world.  But what happens when you screw up and the mask is pulled back and we find, the brand is more smoke and mirrors than reality? 

 

I saw the interview of the Mattel CEO talking about “our products.”  I had a little smile on my face when I heard that, because they don’t actually make the products, they manage the brand!  As long as nobody looks beyond the brand the illusion works just fine, but when you have a major screw up like millions of toys being recalled, people are going to look beyond the brand and take a close look at the nuts and bolts and realize, there is a disconnect between brand and product.  Mattel is not a toy manufacturer anymore; they are a branding company of toy products.  They used to make toys, but in the case of the recalls items in question, they are a branding company, must like Nike is.  The design a toy, send it off to a 3^rd party who manufactures that product, that’s Mattel.

 

There is nothing wrong with being a brand company as long as you have a good brand message that is authentic to who you really are.  But in this case, it appears many consumers do not see Mattel as a brand company but a manufacturing company, it may really come back to hurt Mattel.  Mattel built its brand on the good name of its past.  The brand said “you can trust us to make quality toys for your children that are safe and reliable.”  We all grew up with a Mattel toy, we all have fond memories of those toys and Mattel knows this and plays it up.  That’s why it cost them 35 cents to a dollar to have made a Barbie doll yet sell it for $20 to $40 dollars.  The brand works well enough to demand that kind of mark up.  But now, we see the brand and the product are not the same.

 

Over the weekend I had my Google alert going to see what people were saying on this recall issue.  A lot of people feel mislead.  They feel they were lied to and they don’t like it.  Mattel was supposed to ensure quality and it didn’t.  Mattel created the image that they product their products, when in fact they do not.  People have a right to be mad at Mattel, they built up this brand relationship with consumers and now that image they painted for people looks a lot like a forgery. 

 

Keep in mind, Mattel is NOT the only one doing this; I am only singling them out because they are the latest to get caught.  I remember shopping for kitchen appliances last month and seeing a logo on a product that said “An American Company!”  It had American flags on the box and gave the impression that the product was American made.  But on closer inspection, it was made in China.  So this is not just Mattel, this is pretty widespread; I just don’t have the resources to go into it all.

 

The root of the problem is two fold; one is the race for the bottom in terms of cost.  This has pushed manufacturing overseas and into 3^rd party producers to lower costs.  The more this happens, the more the brand image becomes important.  Nobody thinks of China when they remember their memories of playing with Hot Wheels or Barbie, so the brand becomes more an illusion than reality but at the same time it becomes more important as a means to sell the ideals the company wants to express, not so much the reality.  The benefit is profits.  Remember 5 years ago, Mattel had some rocky numbers, now they are doing just great.  This is mainly because of the lower cost of production.  Instead of producing goods themselves, they outsource it, it costs them less yet I believe the prices haven’t gone down, so no savings for consumers. 

 

So you have another corporate victim of their own desire to reduce costs without thinking things through.  Many consumer posts I read said they will not by Mattel products and want American made toys now.  I some how do not think Mattel is going to build a plant in the US to meet these new consumer demands.  Which raises the point that the brand is an illusion and the real goal is profit, not toys.  Now don’t get me wrong, I do know the people at Mattel and many of them love the toys they help sell.  It is not Mattel as this bad apple in the bunch.  It is the system itself where the big box retailers demand low prices and something has to give.  The leadership at Mattel could have taken a stand and not shipped jobs overseas and risk not having their products sold in Wal Mart or Target.  Now thousands of jobs are at risk as a result.  That’s a hard pill to swallow as a CEO.  Which leads me to the other root cause.

 

As consumers, we have a power to influence the market.  Cheap products are great, I like a deal like anyone else.  But we have to look at the situation beyond the basic cost up front.  A study years ago, showed that those cheap bikes on sale at Wal Mart for $100, lasted a year or two.  An American bike for $300 would last years.  At the end of 5 years, the American bike with the higher price tag up front ended up costing less in the long run.  The repair and replacement cost of the cheaper bikes ended up costing more.  Low prices alone should not be your driving factor.  If you want to save money, think long term use.  A quality made product with a longer life is often going to save you money in the long run.

 

Also, think about where you money goes.  I always buy local, I like to go to lunch at locally owned restaurants, for example.  Why?  Because more of the money is staying locally.  Even better is the place that sources their ingredients from local farms.  When you keep your money local, you help improve the quality of life over all.  When you buy, think about where they dollar is going and how it is going to be used.  Is it going to China?  Wal Mart’s bank account?  Or the local shop owner who is then going to turn around and use that dollar to buy something else locally?  The latter often helps a lot more for you and your community.  Be proactive in your consuming of products!  Be an informed consumer, because informed consumers make informed decisions, and that will help prevent another Mattel situation.