Boardroom insanities

Two things I read today make absolutely no sense:

First is that Sears wants to spin off the Land’s End brand to shareholders; thus creating its own brand and relinquishing control.

Looking at this in a timeline view, we first see that Sears begins a partnership with K-Mart. I’m not sure what the strategy was supposed to be, but Sears was seen as a premium brand throughout the heartland of our country. But K-Mart was seen as something lower than Wal-Mart; something that was the brand of ‘cheap and you get what you pay for’. Let’s take a physical example – you bought a bike from Sears in the 50’s and 60’s, it was a pretty solid bike, comparable to a Schwinn. If you bought a bike from K-Mart, it was a cheap thing from some third-world country, and you could expect ugly stuff to happen to it like the wheels going rusty in a couple years.

So really, what brilliant mind came up with the idea in the first place to combine these two brands?

Sears Craftsman tools were the best; after this merger, the Craftsman name got applied to all kinds of cheap, third-world-made junk – and by doing so, they polluted the brand so badly that the Craftsman name no longer means anything.

So NOW they’re going to spin off the Land’s End brand.

I mean, really … ?

.

Second, ADM is the owner of most of the ethanol plants in the United States. They’re currently wringing their hands over the coming (we all know it’s going to happen) cut in the biofuels mandate. This mandate from the EPA requires that a certain amount of ethanol be blended into motor fuels.

So far, it’s been a license to print money for ADM.

And ADM, in a wondrous display of finite wisdom, wants the mandate to continue as-is. There are a few problems with that:

  • The maximum amount of ethanol that may be blended into motor fuel is 15%, resulting in the motor fuel we know at the pump as E85.
  • Not all vehicles can burn E85.
  • The preponderance of vehicles now on the road cannot tolerate ethanol levels greater than 10%; which is our current blending level.
  • Manufacturers will void warranties for average vehicles burning an ethanol concentration greater than 10%.
  • Manufacturers refuse to build vehicles to run on ethanol blends greater than 15%, because ethanol is corrosive to fuel system parts, and ethanol-tolerant fuel systems, due to the exotic materials which much be used, are extremely expensive.
  • Consumers will not buy vehicles rated for E85, due to the premium required for the specialized fuel system. Two otherwise identical vehicles will sell for one to two thousand dollars’ difference, and consumers will not pay it.
  • Those of us who have small engines (gas trimmers, chain saws, and the like) know that ethanol ruins the fuel systems over a period of time, turning an expensive tool into junk. The only real work-around is to buy the canned fuel from the hardware store. And that stuff is EXPENSIVE. Thanks, ADM!
  • Ethanol also spoils. Yes, it goes bad after a certain (VERY) short period of time. It begins to absorb water (hygroscopic) from even the small amount of air in a fuel tank.
  • Ethanol has a lower energy density, which means you get worse mileage when burning an ethanol blend.

This provides the background for the bigger issues which are being ignored here:

  • Automobiles are becoming on average much more fuel-efficient.
  • There is an upper limit to how much motor fuel will be consumed. And that limit is lowering, year by year.
  • You cannot blend in more than 10% ethanol. (Yes, I’m repeating myself, but just to get all the facts in one place.)
  • Therefore, there will be an upper limit to the amount of ethanol you can sell.

This is called the blend wall.

Yet ADM continues to press to allow more ethanol to be blended into motor fuel, thereby allowing them to sell more of it.

If farmers are smart enough (and I would never bet against them), they will soon be looking to other crops than corn. We will soon be hitting the limit on how much corn can be sold to ADM.

Regardless of their blindness to the blend wall.

I mean, really … ?

Look, I’m just an average guy, but geez, I can see this stuff coming. And these people have far loftier degrees than I do.

But perhaps they don’t teach common sense in school any more. Oh, right. Budget cuts at the business schools…

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