Mr. Ruggles Talk About Gaining Wealth through Dealerships
When Mr. Ruggles spoke to us last week I remember one point he made stuck out to me. He explained to us that dealerships only make about 2% profit on their car sales. This to me seemed very low compared to what I assumed dealerships would bring in on sales. One major reason why I was so surprised by the low return on sales that dealerships get is because of Tom Benson. Mr. Benson is the owner of the Saints and Pelicans, but he has one of the best rags to riches stories I know. He started his career as a car salesman and eventually purchased the dealership that he worked at from there he purchased more dealerships and developed wealth which he turned into more wealth and eventually purchased the Saints and Pelicans and is now the wealthiest person in Louisiana. Knowing his story made me wonder how this was possible with such small profit margins on cars sold in dealerships. My confusion led me to ask Mr. Ruggles how this would be possible and luckily Mr. Ruggles knows who Tom Benson is. Mr. Ruggles explained to me that since interest rates are low a dealership owner can take loans out on their inventory and if their dealership is successful then they can pay off their loans completely from their business and just generate equity. He explained that by expanding and using this method in multiple dealerships it is easy to amass wealth quickly and because of the success of Benson’s dealerships, he was able to expand into purchasing banks and real estate to gain more wealth.
The tour around Federal Mogul today was extremely interesting, and it showed me aspects of the auto industry that I had not known existed previously. The amount of attention that was given to every detail of the products that the company produces was astounding. Federal Mogul tries to research every aspect of the products that create such as the exact dimensions of each part down to extremely exact and minute measurements as well as using powerful microscopes and analytical machines to determine the chemical make up and topography of the surface of the parts on a microscopic level. The also analyze how each part affects the overall performance of an engine by having stationary engines with tons of sensors on them to tell them everything about their parts affect on the engine down to the amount of friction that each part creates when the engine is running. These extensive tests are all used to discover ways that they can maximize the efficiency of their parts. Seeing all of these processes separately made me think that they are all extremely vital to one another, but when looking at each one separately they can seem almost unimportant. By this, I mean that the all of the minute measurements are only important when also paired with the information regarding the parts performance in a running engine. And the chemical break down of the surface is only important because you can use that information to explain changes and malfunctions with parts as they get worn down. The total affect of all of their research is to create supremely efficient and effective car parts to keep them ahead of their competitors and to keep their parts constantly improving and making automobile engines increase performance. Each small job at this Federal Mogul location, however, seemed someone minute and almost unimportant without looking at the purpose of the process holistically, such as the first person who we talked to that worked on the ceramic part of spark plugs and specifically the chemical composition of this part. This doesn’t seem integral to the well being of the Federal Mogul company but it is obviously very important that every part works in unison so that they can keep producing top of the line products. This process reminds me of a much more complicated version of the assembly line concept popularized by Henry Ford. Each job that we saw today did something small and technical, but together they accomplish something substantial.
Our first stop on the day was the ford museum and the Ford Rouge factory. In the Rouge factory we first saw two videos explaining the history and current purpose of the Rouge. The vertical integration that Henry Ford employed by opening the Rouge and constructing it to be its own supplier was genius and I like that they have kept many of the building that were used then while modernizing the processes. The Rouge plant had been used to build mustangs since their creation until 2000 when it switched to building F-150s. The assembly line was extremely interesting as we got to see first hand just how formulaic and machine like the assembly line works. Although it was extremely interesting, I couldn’t help but remember reading about the workers displeasure with the assembly line when it was first employed. Each job we saw them do was so simple and mind numbing I couldn’t imagine that being my career and my life. I felt bad for the workers in these jobs, but it didn’t seem like they were at all upset with their position.
We then moved on to the ford museum where they displayed tons of extremely interesting vintage cars along with some cars that are on the road today. I thought it was interesting to track the changing designs of cars over the years and see how we moved from the model T to the cars of today. The change in style is astounding. I also thought that it was interesting how the museum covered many more things than just cars. It essentially also displayed how culture has changed by showing guns over the years music over the years houses over the years and entertainment over the years. To me this shows how much cars are connected to culture and how synchronized the shifting of car styles and changes in other aspects of culture are.
After the museum, we went to ford headquarters and met with the head of purchases for all of ford, Hau Thai-Tang. He was extremely smart and seemed to have a well thought out and interesting response to every question we could think to ask him. His job at ford was to make decisions about not only what supplies to buy to put into their cars but also how to allocate all of the money that Ford spends on almost anything in a year. This include office supplies, computers, machinery, and transportation costs. This is obviously an extremely important job and we were very fortunate to be able to meet with him. One of the interesting things that he explained to us was how important every small change in price is for a company as large as ford, since he is purchasing parts for tens of millions of vehicles a 10 cent increase in price can cost the company millions of dollars. It was also very interesting to hear how Ford goes to suppliers and tells them essentially what they wants from the parts in their car and sees what supplier can give them that. This was especially interesting after meeting with federal mogul and hearing them explain how they go to their consumers with new technologies and see if they’re interested. It seems that both companies want to seem like they are in control. Also it was interesting to see that Ford is trying to expand to more parts of the driving experience to fill voids that other companies are currently filling such as uber and waze.
We started the day by visiting the Detroit Fed. The first stop on this trip was seeing all of the money that the fed keeps. I was astonished by both how much money was in their vault, billions of dollars, and by how intense the amount of security was. In fact, only drones even were allowed to enter the highly secure vaults. They explained that they give money to surrounding banks that need different quantities of certain bills, and they hold excess cash that banks in the area are holding above their capacity. We then spoke with two federal reserve workers that told us about the state of Detroit currently, and how it got into the position that it is in. This was very enlightening because for years I’ve heard about how poorly the city of Detroit had been doing but I had never heard why it was doing so badly or what the affects of its economic problems were. As we were told about how many people have flooded out of the metro Detroit area I kept thinking about how the city looked as we drove around it, essentially abandoned in parts. It is obvious that some neighborhoods have been deserted because of the economic downturn and these areas are now essentially useless. I really liked that the person who talked to us for the majority of the time was from Ohio, so he was unbiased towards the city and gave us what seemed to be a fair assumption about the direction the city was heading. He explained that many problems that plagued Detroit and led them into bankruptcy are still present today. He explained that in order to ensure the well-being of the city they must be able to connect more parts of the city with public transportation. They also must try to make the city much safer because people are afraid to start a family in Detroit because of the safety issues. He also mentioned that although the political corruption has lessened greatly, they must maintain strong leadership to keep the city healthy. He did not seem overly optimistic about the prospects of Detroit in the long run but he thinks they have a chance to be successful if their leadership can point them in the right direction.
After the fed, we went to UMTRI which is a University of Michigan run driving research facility. At this facility they run tests and give surveys for companies that pay them to test specific products. This can be anything from tires to cars. One thing that fascinated me about this talk was the discussion about autonomous cars. The speakers went into great depth regarding what problems faced autonomous driving systems still and what possible solutions might be, but I thought the most interesting part of the talk was Professor Smitka’s input regarding the largest roadblock for fully autonomous cars. The prof said that since producers are slowly adding more and more partial autonomy to their cars, the marginal cost of introducing full autonomy to cars is increasing while their marginal benefit is dropping dramatically. This means that even though we will be able to make fully autonomous cars we may not do this because the benefit of going to fully autonomous from mostly autonomous isn’t enough to make dealers produce them.
To start the day we visited a salvage yard. By doing this we were essentially seeing cars in their final stage of life which seemed fitting for our final day. We were told about the ins and out of the business, and what happens in his shop on a daily basis. We got to see an engine being taken a part and we saw many ware houses full of unsold equipment which they keep until it is needed. He also explained how the business went from being just a repair shop owned by his father to the large scale operation that he and his brother run today. This was very interesting because we had never even discussed what happens to cars after they are totaled.
From there we went to the Detroit Museum of Art where we saw many incredibly famous pieces from around the world. This museum was as incredible as any I’ve been in in my life and the diversity of works in the museum was very interesting to see. One piece in particular stuck out to me and it was a piece by Mark Rothko. It was extremely simple with just a solid orange background and yellow and brown squares in the middle. Although it was simple it was very strong and has stuck with me until now.
After the museum we went to the Heidelberg Project and talked to Tyree Guyton, who is the creator of the project. This installation was different than any other art I had seen in my life and talking to Tyree was almost more interesting because of his strong beliefs about his art and life as a whole. What he told us truly made me take a step back and evaluate my life and what I want to do when I grow up. Further than that it made me think about how I live my life moment by moment, and he showed me that there are different ways to view the world that we all see to be absolute. All in al the day was very eye opening.