October | 2017 | JMGshortcuts

Recently, the Ford Motor Co.’s new CEO outlined plans to aggressively cut costs and funnel the savings to electric, self -driving cars. The company plans on increasing its production of profitable trucks and SUVs, while de-emphasizing less profitable cars and sedans.

What a difference a few years makes in the fast-changing automobile business. Car companies all have big plans to transform from mere sellers of vehicles to businesses that touch all aspects of mobility.

There are now multiple sources of innovation in an industry that has seen relatively little change. For over a century, the business model was how many vehicles a firm sold. Now companies are looking at how to reconcile disruptive innovations with traditional products and services.

The transformation is being driven by a succession of innovations — the Internet, the cloud, big data, 3-D printing, robotics, machine learning, artificial intelligence, autonomous vehicles, connectivity, the internet of things, electric vehicle power trains, and shared mobility, as well as changing car ownership preferences. Each reinforces the others and accelerates disruption.

China, the United Kingdom, and France are talking about banning the internal combustion engine by 2030. Moreover, China’s government has implemented aggressive incentives for electric vehicles that favor local companies, which could give Chinese firms significant advantages and economies of scale in the world’s largest consumer market.

These innovations are causing automakers to rethink the way they do business. Given how central the automobile is to the economy and to people’s daily lives, it’s not a stretch to suggest that these innovations will change how Americans live.

In addition to traditional automakers, changes in mobility will impact industries such as energy, insurance, retail, public transit, and health care. For example, the National Highway Traffic Safety Administration reported earlier this month that total traffic deaths on U.S. highways rose 5.6 percent in 2016 to a decade high of 37,461. This is roughly the same number who die from breast cancer, gun deaths and opioid overdoses combined. The Centers for Disease Control and Prevention estimated that in 2010-2011 there were an average of 3.9 million annual emergency room visits caused by motor vehicle traffic injuries.

Driverless technology creates a potentially accident-free future with drivers exiled to old-fashioned leisure trips on Sunday afternoons. What are the implications for reducing health care costs as emergency rooms lose millions of patients each year and hospitals have hundred of thousands fewer patients who need to stay overnight?

Automakers face a number of existential threats. Besides traditional rivals, a wide range of players have been racing to get in on the action, including tech companies, ride hailing firms, logistics companies and auto parts suppliers. Tech companies view the car as a platform, like a cell phone body. They see the vehicle of the future as software on wheels, enabling drivers and passengers to devote their time to personal activities. As Elon Musk once said: “Tesla is a sophisticated computer on wheels.”

On the other hand, automobile companies think of it as a car with extra software. The only certainty is that it is uncertain who will come out on top: Traditional players or new entrants? The hardware or the software folksguys? Western or Asian firms? Product or service companies?

Automobile companies are making big strategic bets on autonomous technology, electric cars, and transportation services. Financial decisions have to be made in light of the need to serve two worlds; the traditional automobile industry and disruptive technology-driven trends that will ultimately take over the mobility industry. Defining the right balance will be critical.

In a pervasive modern view, the past is a burden that must be shed to give way to a new kind of life. This is the fundamental challenge facing so many industries that are being disrupted by a succession of innovations. While it is debatable when driverless cars will be available to the masses, there is no doubt that a driverless future will profoundly change society, even in ways we are not yet even considering.

Originally Published: Oct 28, 2017

Just when you think nothing can surprise you when it comes to corporate incompetence, along comes the massive data breach at the credit reporting agency Equifax.

The breach may have given hackers the names, birth dates, driver’s license numbers, Social Security numbers and other personal, intimate data of 145.5 million Americans, about half the country’s adult population. This data is what allows people to buy or rent homes, get auto loans and have credit cards.

Failing to secure consumer information puts Americans at risk of identity theft, tax return scams, and financial fraud for the rest of their lives. The extent of the pain and expense people will endure as a result of the breach is yet not fully understood.

Equifax is one of three primary national credit reporting bureaus. The firm collects, processes, maintains and sells the sensitive and personal data of more than 820 million consumers worldwide. Simply put, they harvest your information, sell it without your permission to companies who want to sell you stuff, and they do not pay you. Consumers are not the clients under this business model, they are the product, so the firm has no incentive to prioritize them.

By relying on an open source code that it knew was subject to hacking, Equifax left data exposed beginning at least on March 7, 2017. Free patches to the vulnerable software were available and well known to the firm by that date. The following day, the Department of Homeland Security alerted Equifax that its software was vulnerable to hackers, but the company failed to take precautions that would have protected the personal data of millions of people.

As a result, information was compromised between May 12 and July 30. The company learned of the breach on July 29 and “rushed” to get the word out to the public – six weeks later. They did not notify each consumer affected by the hack, so individuals learned that their information was stolen long after the crime occurred.

The firm initially asked consumers to provide the last six numbers of their Social Security numbers to gain access to an unworkable website. While Equifax may have been unsure about whether a consumer was victimized, it was clear that everyone could sign up for a supposedly free credit monitoring service that required customers to provide credit card numbers.

After a year, Equifax could start charging unless consumers cancelled the service. Those who signed up for credit monitoring were also asked to give up their rights to sue the company.

The firm, victims were being asked to pay for protection, was the same one that could not protect their information in the first place. Equifax’s senior managers must be graduates of Trump University. The firm changed the terms after the media attacked the story like white blood cells ganging up on a diseased organ.

Consumer anger has been further intensified by the actions of three senior Equifax executives, including the chief financial officer, who sold shares worth $1.8 million in the days after the breach was discovered, according to Bloomberg. The firm said the executives were unaware of the breach when they sold the stock. This does not pass the smell test.

The miscreants being punished and doing time in the near future is about as likely as finding a clean politician in New Jersey. Richard F. Smith stepped down as CEO and won’t get the $5.2 million in severance he would otherwise have received, but he will collect a lavish pension estimated at $18.4 million. Compare that to the tens of millions of victims who may be haunted by the breach for the rest of their lives.

Equifax’s senior management was criminally negligent. They put the firm’s self-interest before their duty to the public, betrayed the public trust with impunity and displayed contempt for consumers.

Once again, a big financial institution screws up. The CEO walks away with a golden parachute and millions of Americans are left holding the bag.

Originally Published: October 14, 2017