Terex CEO Ron DeFeo says bailout doesn't go far enough
— -- Few shareholders should be more happy with the stimulus package than those of Terex, a Fortune 500 company that manufactures heavy equipment for mining, refining and other big-ticket projects such as bridge and road construction. Yet, Terex stock TEX fell 31% on Thursday when the company reported a loss and said it will soon violate the contractual terms of a loan. CEO Ron DeFeo, 56, spoke to USA TODAY management reporter Del Jones about why the infrastructure portion of the $787 billion package is a good start but is only a tiny percentage of what is needed to make the country competitive. Following are excerpts, edited for clarity and space.
Q: The stimulus isn't enough to create jobs and steer the economy toward recovery?
A: I'm delighted that we have $150 billion for infrastructure. But it's a reaction, and we need a broader vision for the country's prosperity. We have spent so much effort on the information superhighway that we have forgotten that what we do on the information highway in large part still has to be moved on the real highway. We tolerate congestion. If you combine technology with the hardware of an economy, the ports, waterways, roads, energy infrastructure, you are going to end up with a stronger economy.
Q: There are two arguments regarding the stimulus package. One, it's a lifeline for the economy. Two, the debt creates a long-term anchor. What's your view?
A: I don't think it's an anchor, because we have roads, bridges, highways that have been crumbling. But we've failed to make the argument that America's prosperity is dependent on its infrastructure investment, and therein lies the challenge for leadership. We need ideas like when the Erie Canal was put in place, and the railroad connected East and West. We could have commerce corridors that just move freight at high speed, a high-speed rail to move freight between California and North Carolina at 150 miles per hour. We'd (make) the Panama Canal (obsolete), with a commerce corridor between China and Europe that we could charge for. I want people to laugh at ideas because with that will come creativity and vision that will figure out how to make it work.
Q: More likely, they would choke on the cost. You're talking trillions of dollars.
A: If $1 trillion produces $2 trillion of returns, that's what will get prosperity working. You think the Panama Canal doesn't produce a return? Our ports produce returns, but our ports are obsolete. Do you think China is putting in ports to put workers to work? Or do you think they're investing? We have to stop thinking of this as pork and start thinking of it as business decisions.
Q: That requires long-term planning. Won't much of the infrastructure spending in the stimulus bill be hurriedly wasted or spent down the road when it will kick in too late and may contribute to inflation?
A: Again, it's necessary, but the infrastructure spending doesn't solve the problem. We have been neglecting our infrastructure for 30 to 40 years. The 18-cent gasoline tax was last raised in 1993. Inflation-adjusted, the effective rate is about 11 cents a gallon today, so it's been cut in half, and the cost of repairing roads and bridges has dramatically gone up. We react when a bridge falls into the water.
Q: We have so many needs, like health care.
A: Infrastructure is just a piece, but it would make the country economically viable. An economically viable country can do a better job with health care and education issues.
Q: Any time the government spends a lot of money on anything, including Medicare, corruption and fraud are close behind. There are billions of dollars missing in Iraq. Won't a lot of dishonest people get rich?
A: I'm with you. That's why I would put it in the hands of public/private partnerships with boards of directors, approved projects, rates of returns that are audited. There is always fraud, but I think there is a way of managing it. I accept waiting at LaGuardia Airport 45 minutes on the runway. Everybody accepts it, but there is a huge cost. We tend to accept delays and congestion, but we can control congestion.
Q: What kinds of jobs are created by infrastructure spending? Will they be largely blue collar?
A: It's not just the construction worker digging a hole. That is the tip of the sword. It begins with ideas, and jobs are created in banking, in architecture, at all the suppliers. The conventional wisdom is that for every $1 billion in infrastructure spending, 28,000 jobs are created. More than that, infrastructure unlocks the opportunity to access markets. A new road goes in, and a lot of services crop up. It's axiomatic. When you invest in infrastructure, people and jobs follow.
Q: Remember the Big Dig in Boston, the poster child of infrastructure projects? How do we keep from starting projects that balloon in cost? How do we prevent bridges to nowhere?
A: That's the fear of the American people, that we will do projects for the pride and legacy and not for the economic success. A bridge to nowhere is a bad bridge, and they're all over the place. We must look at the projects and ask, what is the economic return and what is the environmental impact? We've got to be disciplined. Sometimes, you can never imagine the possibilities of something until you begin to unlock them. That spirit is lost in this country. It's not there. I don't want people to think: "We've got infrastructure done. Let's cross it off our list."
Q: With all this infrastructure spending coming down the pike, why has the stock of Terex fallen?
A: Infrastructure spending is good news long-term. But the stimulus bill has been built in for a long time, and the current economic conditions are outweighing it. Globally, we've cut 5,000 of 21,000 jobs. Some more cuts are coming.
Q: What should other companies unrelated to infrastructure projects be doing to position themselves in the next six to 12 months?
A: Manage your business for cash. The predictability of future earnings is hard; survivability is the key. Eliminate waste. Waste comes disguised as productive work.