Neither minister of finance, nor the CEOs of central banks are able to fully comprehend present situation. What’s worse, modern economists do not understand economy which they view as a group of mathematic equations which may be solved with data from the last 10 years. This is what Hermann Simon, one of the most influential management advisors in German speaking countries believes.
“As a matter of fact no one really knows how the present crisis develops. Neither do I’, the guru adds.
Simon, who is the founder of Simon-Kucher & Partners consulting company which specializes in price management, expects prices to increase after a short period of deflation.
“This is obvious because governments are pumping lots of money into the economy”, Hermann Simon said.
In his opinion, the reason for the crisis is that the US government have for many years applied this method. That’s why US dollar value has shed 85 percent since 1970ies.
“Earlier, the dollar was strong because it was backed in gold. In 1970, it all changed. Since then, the dollar has shed 96 percent of its value against the gold, 77 percent against Swiss franc, and 80 percent against McDonald’s burger”, professor Simon enumerated.
Despite this, he also believes that European governments should pump substantial amounts of money into their economies. For example, in the automotive sector.
“German government wonders whether to help Opel. In my opinion, you cannot help one company in the sector only. That’s why I suggest that the government pays dealers EUR 5,000 to every car sold. This will be an incentive and sales will rebound although they had dropped 30 percent in October”, Hermann Simon believed.
In his opinion, other European countries should apply the same method at the same time while the subsidy should depend on how the market slowed down.
But the subsidies are not enough for a longer term. That’s why the producers of durable goods must cut production.
“It’s better to cut production than prices. Steel sector companies understand it very well but TV sets producers don’t get it at all. People don’t buy not because the price is too high but because they fear the future and prefer to put aside some cash. That’s why we advise our clients to accept 20 percent production cut because it’s better than cutting price by one fifth”, the head of Simon-Kucher & Partners said.
But to a producer of luxury boats for example, he advised to offer a discount: six boats in price of five ones.
“We also encourage companies to increase the level of their services. In
recent years, everybody focused on production while the client was neglected.
Now, you may shift people from the company to the sales department. We advised
the boat producer to take part in fairs in Dubai because money are still there”,
professor Simon said.