By Gary Coon
As I pen this article, US government deficits are running 10 percent of GDP, and our national debt and GDP are neck and neck at about $15 trillion (USD). Loose monetary policy and the ’shadow banking system’ that brought us mortgage-backed securities, collateralized debt obligations and structured investment vehicles have wreaked havoc on housing prices, stock portfolios and 401Ks. The result? Both the private and the public sectors will have to deleverage (retire debt) in order to pave the way to prosperity. As bad as this may sound to those of us selling water treatment systems, this cloud has a silver lining. And the silver lining has to do with the concepts of debt and deleveraging, and how they play into the mindset of today’s overleveraged buyers.
To use the issue of debt to our advantage, we need to be mindful of varying types of debt. There is good debt and bad debt. And within the categories of good and bad debt there is formalized debt (meaning debt from money borrowed), and debt resulting from operating costs.
In discussing good and bad debt, we need look no further than the US Congress, which is the maven of bad debt. For instance, according to the Congressional Research Service, in 2010, the US gave China $27.2 million in foreign aid. China currently holds north of $1.1 trillion in US Treasury securities. And because China is one of our largest creditors, there is a good chance that the money we gave them came from the money we borrowed from them. This is bad debt personified, and it’s why every time stuff like this gets reported, our heads want to explode and the makers of Xanax declare a dividend.
Good debt, on the other hand, could come from borrowing money to improve our nation’s deteriorating infrastructure (roads, bridges, energy pipelines, etc.), which would boost commerce, create jobs and increase GDP along with government revenues. This kind of debt pays for itself and yields a tidy return on investment (ROI) to boot.
For households, debt is formalized debt (which could be either good or bad) and household operating expenses, which are always bad if they are unnecessarily high. For example, financing a car (formalized debt) is a good thing because it provides transportation to and from work. It becomes bad debt, however, if the car sucks gas and is too small to accommodate the family. For instance, a two-seater sports car that gets 13 mph is clearly a bad choice for a growing family on a tight budget, especially if it’s their only mode of transportation.
Operating expenses, on the other hand, appear as good debt on our balance sheets only if they are kept as low as possible relative to the operations they support. If you cool your home in the summertime with Electric Company A, for less money than using Electric Company B, you are a paladin of good debt. The opposite…well, you get the picture. Okay, now that we are experts on debt and deleveraging, let’s make some money. You’ve just asked for the order and you get the following:
Prospects: Given the state of the economy, Gary, we’re trying to get out of debt, and we are not prepared to take on any more at this time.
Gary: Well, of course you’re not. But let me ask you a question, all indebtedness aside, do you like the idea of having clean water in your home?
Prospects: Yes, of course.
Gary: Great. But, just to clarify my thinking, when you say you’re not comfortable taking on any more debt, is it because, as good stewards of your family finances, your ultimate goal is to rid yourself of all unnecessary debt and put as much money back in your family’s coffers as possible, or is it that your financial condition makes it impossible to acquire any more debt, or is it something else?
Prospects: Given today’s economy, it’s just not a good idea to take on any more debt than is necessary.
Gary: Makes sense. But, Mr. and Mrs. Prospect, if debt were not the issue, would there be any other reason why you wouldn’t accept my offer this evening?
Prospects: Oh no, we like your product; we just don’t want to take on any more debt at this time.
Gary: Mr. and Mrs. Prospect, if you could convince yourself that the only way, once and for all , to retire some of your indebtedness was to treat your family to conditioned water, would you do it?
Prospects: What do you mean?
Gary: Well, if I could wave a magic wand and exchange some of your indebtedness for good water, would you do it?
Prospects: Well, put that way, I suppose we would.
Gary: Okay. Mr. and Mrs. Prospect, there are two types of debt: good and bad. And both either take the form of formalized debt, money that you borrow for things like your home, or operating expenses, the money you spend on insurance, electricity, groceries, gasoline and the like. Let’s focus on the bad debt visited upon you by operating expenses. For example, the most annoying operating expense for many of us is driven by the price of oil. And by that I mean gas prices. Talk about bad debt, nothing can eat into your disposable income like out-of-control gas prices. There are only two ways you can save yourself from the escalating debt due to high gas prices. One is to cut back on your driving, but I suspect most of us have made that sacrifice already. The other way is to buy a car that gets much better gas mileage than the one we currently drive. For discussion sake, let’s say you were driving a car that gets 25 mpg, and the price at the pump was costing you $500 a month to operate it. There are hybrid cars on the market that get over 50 mpg, but you’d have to trade in your car and borrow the rest. But let’s say that if you traded in your car, you could get the higher-mileage car for a payment of $250 per month. At twice the gas mileage, you’d be saving $250 per month at the pump, so your checkbook really wouldn’t notice the difference. $500 goes in, $500 goes out. Make sense?
Prospects: Yeah, so?
Gary: What I’m getting at is this: $500 a month goes into your account and the same goes out, but only until the car is paid off. Once you’ve retired the $250 car payment, your checkbook begins to grow by the $250 you save on gasoline each and every month. And for discussion sake, let’s assume that this is the car you always wanted. Does it make sound economic sense to buy this car?
Prospect: Well, when you review the numbers, it does.
Gary: Certainly the numbers do make sense. But Mr. Prospect, I submit to you that this is exactly the case to be made for having conditioned water in your home. The only way to retire the bad debt visited upon you by excessive soap expenses, wasted energy, bottled water and the wear and tear on your plumbing and water-using appliances is to do something about your water. And Mr. and Mrs. Prospect, in the short term, your checkbook won’t notice the difference, but the day will come when the system is paid for and the savings will begin to mount. So, all that remains is your willingness to forsake debt for prosperity with the certain knowledge that you’ll be treating your family to cleaner clothes, soap-free skin, and a decent drink of water straight from the tap. Shall I have the installers here first thing tomorrow morning, or does tomorrow afternoon work better for you?
Good economies, like bad economies, come and go. But a convincing case for conditioned water can be made whichever way the economic winds blow. Even with 20-percent unemployment, 80 percent of the people are working and they all use water. Most of us are familiar with the old saying, “When the world gives you lemons, make lemonade.” It’s wisdom that has always served me well, but, then again, I’ve always believed that conditioned water made the best lemonade. Good luck, good selling, and, above all, have a great day.
About the author
Gary Coon, a 16-year veteran of the water conditioning industry, has successfully trained hundreds of water treatment sales professionals. His seminars, ‘What They Mean by What They Say’ and ‘The Theater of Selling Water’ offer instruction in closing methodologies and presentation techniques. Learn more by visiting www.theonecallclose.com