‘We Told You So’: Owners, CEOs Slash Plans
November 29 2012 by Dale Buss
Companies large and small, including franchise owners, announced a post-election wave of layoffs, price increases and holding actions that are meant to cope with the looming cost increases of Obamacare, with the dreadful prospects created by the “fiscal cliff,” and with the overall gloom that they see lingering over the American economy and U.S. consumers over the next few months and possibly beyond.
Or, as the Wall Street Journal put it recently, “U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.” Half of the nation’s 40 biggest publicly traded corporate spenders, the newspaper said, have announced plans to curtail capital expenditures this year or next in securities filings.
One of them is GE Medical. It said last week that it would trim 2 percent of the jobs at its major operations in Wisconsin, citing “tough decisions in the current economic climate.” GE CEO Jeffrey Immelt was an advisor to President Obama during his first term.
Similarly, for example, Virgin Airlines cut an order for Airbus jets by two-thirds and delayed delivery dates of newer models as it curbed expansion plans in large part as a reaction to “a modest economic growth climate in the U.S.,” CEO David Cush told Bloomberg.
Clearly, many CEOs and business owners are reacting to the prospect that policymakers in Washington either won’t resolve the tangle of tax and spending issues that has become known as the fiscal cliff, or fear that any agreement reached by the January 2 deadline will be ineffectual.
“Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits,” the Journal said.
But other concerns clearly are afoot. If only the fiscal cliff were of concern, companies could merely stall cutback actions for a few weeks to await the outcome of negotiations in Washington. The problem goes beyond concerns about the immediate fiscal deadline to longer-term worries about the course and strength of the U.S. economic recovery.
And a huge group of SME owners and CEOs also are focused on one particular impediment: the costs of Obamacare. As many had been warning before the presidential elections, restaurant owners, especially, have reacted to the post-Election Day certainty of the imposition of national health care by announcing a variety of actions meant to counter the extra costs they’ll face.
Papa John’s CEO John Schnatter has been the most outspoken. The Mitt Romney backer now has said that he’ll raise the price of a pizza by 10 cents to 14 cents as well as slash employee hours because of the costs of Obamacare.
And a Denny’s franchisee in Florida, John Metz, said that he plans to add a five-percent surcharge to the bills of customers at his 40 locations and also to reduce his employees’ hours.
There are cries of “corporate blackmail” by critics, and some wag has challenged the specifics of whether Papa John’s will have to raise prices by all of 10 to 14 cents. But no one can say they didn’t see this coming.
“Many of our franchisees will struggle with how to reconcile the financial implications [of Obamacare] and will likely take other measures two reduce costs,” Steven Wiborg, president of Burger King’s North American division, said in August, according to the Journal.
The question now is whether such actions continue to cascade into the economic cement mixer and the U.S. economy grinds more slowly overall, or whether they’re only the result of Republican business owners and executives making a point about short-term actions they would have taken anyway.