I recently sat down with “Mike”, aged in his mid 80s who owned and operated more than a dozen car dealerships in the Northeast before selling those dealerships to his son.
“How did you get started in the car business?” I asked.
“I was about 27 years old selling used cars after my stint in the Navy,” Mike said. “Someone who knew someone got a representative from Volkswagen to meet with me about opening a dealership in my community. They painted this picture where I would build a $300,000 building – a lot of money back in the early 1960s. I would build the building, purchase inventory and hire mechanics, sales staff and support personnel.”
“That sounds like a lot of money, even now. In today’s dollars it was probably a couple million dollars or more,” I noted. “Did you have a stash of cash? Inheritance?”
“I didn’t have two nickels in my pocket,” Mike chuckled. “I had another friend from the Navy whose father was the bank President. He loaned me the money. At first, I was nervous because they wanted me to personally sign for all this money. But then I visited a friend who had a thriving business. He asked me what I had to lose! I was judgment proof, really. If I defaulted there wasn’t anything for the bank to get other than the business. So I did it.”
The rest was history. Mike went on to build several dealerships that sold cars, employed hundreds of people and served communities.
Later that evening I thought a lot about Mike and how he made himself such a success. I also thought about how impossible building that business would be today for someone in a similar circumstance.
Bank regulators would never allow a bank to loan significant amounts even to an ambitious twenty-something without collateral or a co-signor. Purchasing property and obtaining all of the necessary permits to build a car dealership complete with environmentally hazardous materials such as used oil would likely cost multiples of what was necessary back in 1960. Hiring workers entails not only salary costs, but also the remittance of state and federal taxes and compliance costs associated with laws and regulations governing employers, including employer social security matching, Medicare matching, health insurance, disability insurance and others.
So is replicating Mike’s success even possible today?
I don’t know the answer. It is evident that while government plays an important role in regulating business such that the consumer, environment and employees are all treated properly, I question whether we’ve also choked off the American dream in many ways. Has government taken too large of a role in our lives? Where should we draw that line as a society?
Government regulation isn’t the only constraint today. Most businesses compete not only with those down the highway or across the street, but from across the globe. Going back to the car example, how much money would a new dealership have to invest in a web presence and Internet capabilities in order to attract customers, quote prices and close deals?
Obviously the car business isn’t the only one affected by these factors. All of those in business share these obstacles. Are they the right obstacles? Are they too many? Have we over-regulated to the determent of young, ambitious people who don’t have access to capital?
Somehow making money and even our economic system called capitalism have become taboo in our society. That’s too bad because capitalism was named by its enemies, including Karl Marx. The true definition of capitalism according to Austrian economist Friedrich Hayek (1899-1992) “is an ever increasing system of cooperation among strangers.” No other economy in the world works as well as capitalism in creating value and wealth for its citizens.
Less advanced economic systems fail because they require a centralized system of management consisting of individuals who are part of a family, clan, tribe or party. Those outside don’t benefit. Those inside benefit greatly. It’s only when you have a society that is governed by the rule of law rather than the whims of a man or a group can it engage in an economic system capable of producing remarkable results.
When you withdraw money from an ATM machine that is not your banking institution, think about how successful cooperation amongst strangers must be in order for that transaction to occur. In Europe I used ATM machines to withdraw local currency from my checking account here in Fort Myers. Without the reliance among strangers in the economic system, that wouldn’t be possible.
We may all want to take time to consider how today’s young generation is going to make a go of it so that we all continue to prosper.
©2023 Craig R. Hersch
