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The Club PUBlication 05/27/2019

5/27/2019

Mark Zuckerberg

Mark Zuckerberg, the founder of Facebook, in Palo Alto, Calif., April 11, 2019. Zuckerberg has conceded mistakes in how his company has handled misinformation.

Why does Facebook fail to fix itself? It's partly humans
By BARBARA ORTUTAY Associated Press

MAY 14, 2019 — 4:58PM

SAN FRANCISCO — The question comes up over and over, with extremist material, hate speech, election meddling and privacy invasions. Why can't Facebook just fix it?

It's complicated, with reasons that include Facebook's size, its business model and technical limitations, not to mention years of unchecked growth. Oh, and the element of human nature.

The latest revelation: Facebook is inadvertently creating celebratory videos using extremist content and auto-generating business pages for the likes of ISIS and Al Qaida. The company says it is working on solutions and the problems are getting better. That is true, but critics say better is not good enough when mass shootings are being live-streamed and online mobs are spreading rumors that lead to deadly violence.

"They have been frustratingly slow in dealing with everything from child sexual abuse to terrorism, white supremacy, bullying, nonconsensual porn" and things like allowing advertisers to target categories such as "Jew hater," simply because some users had listed the term as an "interest," said Hany Farid, a digital forensics expert at the University of California, Berkeley.

As new problems crop up, Facebook's formula has been to apologize and promise to make changes, sometimes also noting that it did not anticipate how malicious actors could so readily misuse its platform. More recently, the company has also emphasized just how much it is improving, both technically in its use of artificial intelligence to detect problems and in terms of focusing more money and effort on fixing them.

"After making heavy investments, we are detecting and removing terrorism content at a far higher success rate than even two years go," Facebook said Wednesday in response to the revelations about the auto-generated pages. "We don't claim to find everything, and we remain vigilant in our efforts against terrorist groups around the world."

It has seen some success. In late 2016, CEO Mark Zuckerberg infamously dismissed as "pretty crazy" the idea that fake news on his service could have swayed the election. He later backtracked, and since then the company has reduced the amount of misinformation shared on its service, as measured by several independent studies.

Zuckerberg has also, by and large, avoided similar gaffes by conceding mistakes and delivering apologies to the public and to lawmakers .

But even as the company bats down one problem, others pop up. The reason for that might be baked into its DNA. And that's not just because its business model relies on as many people as possible using it as much as possible, leaving behind personal details that can then be targeted by advertisers.

"Almost everything Facebook has designed has been designed for good people. People who are nice to each other, who have birthdays to celebrate, who have new puppies and generally like to treat others well," said Siva Vaidhyanathan, director of the Center for Media and Citizenship at the University of Virginia. "Basically Facebook is made for a better species than ours. If it were made for golden retrievers, everything would be great."
But if just 1% of the 2.4 billion people on Facebook want to do terrible things to others, that's 24 million people.

"Every couple of weeks, we hear about Facebook knocking down troublesome pages, making promises about hiring more people, building AI and so on," Vaidhyanathan said. "But at Facebook's scale, none of that will matter. We are basically stuck with all this garbage."

Chris Hughes, a co-founder of Facebook, called for a breakup of the social media giant in a Thursday op-ed. Vaidhyanathan also thinks strong government regulation could be the answer, such as laws that "limit companies' ability to suck up all our data and use it to target advertising."

"We really should be addressing the back end of Facebook," he said. "That's what you have to attack."

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The Club PUBlication 05/20/2019

5/20/2019

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BUSINESS 5096
42192
Polaris CEO says new China tariffs could be 'catastrophic' for company. Wine told CNBC that it would result in a loss of income and possible moving jobs to Mexico.

By Dee DePass Star Tribune

MAY 8, 2019 — 11:23AM

Polaris CEO Scott Wine told CNBC the company might need to move jobs to Mexico if President Donald Trump's latest tariff plan goes into effect.

Polaris Industries stock has dropped this week after Chief Executive Scott Wine said new Chinese tariffs would be potentially "catastrophic" to the Medina-based business.

Wine told CNBC that the 25% tariffs — which would go into effect Friday (May 10) if the Trump administration and China don't reach a new agreement — would erase one-third of the company's net income.

The maker of all-terrain vehicles, snowmobiles and motorcycles is seeking an exemption to the increases.

The company has factored $90 million in costs for 10% tariffs into its projections. He said if the tariffs go up to 25%, the costs would more than double and could go up to $200 million.

The stock of the Medina-based maker of ATVs, motorcycles, snowmobiles and boats fell 2 percent to $91.11 Wednesday morning after Wine commented on Trump's surprise Tweets Tuesday.

The stock started falling after President Donald Trump tweeted on Sunday about the increase in tariffs on $200 billion worth of Chinese-made goods. His administration also announced tariffs on $325 billion worth of other Chinese-made goods.

Wine told CNBC that it sources a good number of its parts from China and assembles them in the U.S. He said the company might need to move work to Mexico if the tariffs go through.

Polaris earned $335 million on $6 billion in vehicle sales last year, so a hit of $200 million in tariffs would be a hard hit and "catastrophic" to the business.

Wine said the tariff shock could force the company to move production from the United States to Mexico, where Polaris has a factory in Monterrey. The company already started moving some European customer manufacturing from the U.S. to Poland in response to trade tariffs against European imports last year. That move, however was deemed small because it only affected customer orders for customers in Europe.

Future moves prompted by the new Chinese tariffs could be significantly larger, since a number of Polaris components are made in China and shipped to the United States, Wine said.

Polaris has manufacturing facilities in Roseau, Minnesota, Spirit Lake, Iowa, Osceola, Wisconsin and Alabama and is building a new distribution center in Nevada.

Dee DePass is a business reporter for the Star Tribune. She spent the last four years covering Minnesota's manufacturing and mining industries. She previously covered the economy, workplace issues and banking.

dee.depass@startribune.com
612-673-7725
DePassStrib

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The Club PUBlication 05/13/2019

5/13/2019

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Iconic VW Beetle going out of production

Recent sales have never reached the heights seen in the 1960s.

By Casey Williams Tribune News Service

MAY 8, 2019 — 12:34PM

The 2019 Beetle Final Edition. This is the last model year for the Bug and it’s available as a coupe or convertible.

Conceived as a populist vehicle to enable mass transport on German dictator Hitler's new Autobahns, the Volkswagen Beetle evolved through three generations over 80 years to become a beloved automotive icon.

The same car that put Germany on wheels carried American college kids to their first classes and took Elle Woods to court in "Legally Blonde." Barbie even drove one. But the Beetle will be discontinued after 2019.

"The Beetle is a premium-priced small car, and in today's market that's about as tough of a place to be as there is," said Jeremy Acevedo, an industry analyst for Edmunds. "As Americans make the shift to SUVs, demand for cars tumbled. Sales of the Beetle have steadily declined, and in 2018, accounted for just 4.1 percent of Volkswagen sales."

It is a very different world from the one in which the Beetle was born.

Hitler and Henry Ford were admirers of each other. Hitler wanted his own Model T, a people's car for working class Germans. So, Hitler tapped Ferdinand Porsche to engineer a rear-engine car. Pre-production models were on German streets by 1936. Citizens said they looked like beetles.

Initially driven by a 25 horsepower four-cylinder air-cooled engine, it topped out at 62 miles per hour. Despite the Allies' effort to destroy the VW plant, cars began arriving in the U.S. during 1949. By the late 1960s, a 40-horsepower version could reach 71 mph, smoke 0-62 mph in 27.5 seconds, and achieve 36 miles per gallon.

Late 1960s flower power Beetle.

Neither fast nor stylish, it nevertheless became a hippie totem. Beetles were cheap, reliable, counterculture alternatives to the hulking V8-powered Detroit iron their parents drove. Disney's "Herbie the Love Bug" movie and clever ads by Doyle Dane Bernbach with headlines like "Think small" and "Ugly is only skin-deep" resonated.

"It's got personality," Acevedo said. "That distinctive shape makes it recognizable from a mile away; the perfect fit for TV and movies, or games of Punch Buggy or Slug Bug, which all contribute to the Beetle's place in pop culture."

Only two Beetles were sold stateside during 1949, but the car reached its sales peak during 1968 with nearly 400,000 cars. On Feb. 17, 1972, VW produced its 15,007,034th Beetle, finally exceeding the Model T (it eventually sold 21,529,464 worldwide). By the mid-70s, the Beetle was no longer competitive with Japanese compacts, prompting VW to introduce the front-drive Golf in 1974. U.S. sales ceased in 1979.

But it wasn't over. In the early '90s, VW's stylists desired a dramatic way to showcase hybrid technology. They could have created a sleek lozenge, but J. Mays and Freeman Thomas had another idea: Wrap it in a futuristic shape as familiar as Mickey Mouse. The Concept One, looking like a modern Beetle, debuted at the 1994 Detroit Auto Show. Four years later, Ferdinand Piech, VW chairman and Ferdinand Porsche's grandson, launched the New Beetle.

With the song "Dream the Same Dream" playing in the background, Piech recounted how focus group participants smiled, then reached out to the car as if to hug it. A large speedometer, rear seat grab straps and steering wheel coverings echoing the original's vinyl seats were instantly familiar.

Contrasting the classic Beetle, the New Beetle was built on the front-drive, Jetta/Golf platform. The base engine was a 115-horsepower four-cylinder that rolled 0-60 mph in 9.8 seconds; a 170-horsepower five-cylinder and 180-horsepower Turbo S came later.

Volkswagen overhauled the Beetle for 2012 with a more vertical windshield, "kaferfach" upper glove box and alloy wheels with hubcaps that recalled early Beetles. The 2019 Final Edition, starting at $23,045, is available with diamond-stitched leather seats, 19-inch white alloy wheels and Fender audio.

Recent sales have never reached the heights seen in the 1960s. The New Beetle racked up over 50,000 sales in its first year, but the recent peak was 43,134 cars in 2013. Just 14,411 were sold in the U.S. in 2018. Still, enthusiasts can become emotional about the weird little car.

"With its unique body lines, the Beetle is the most recognizable car in the world," said Amanda Robbins, a member of the Circle City VW Club in Indianapolis. "It was fun, cheap and marketed to be a car that anyone could work on. They've been ratted out, souped up, chopped up, drag-raced, lowered, lifted and turned into dune buggies."
Beetles run in her family.

"My dad has a VolksRod, my stepdad has a VolksRod and my stepmom has a 1979 convertible Beetle," said Robbins. "I own a 2015 Beetle Classic, customized to be more retro with 17-inch wheels and a plaid interior."

Robbins says everyone has a Beetle story, it seems.

"Someone is always stopping us to tell us about how their first car was a Beetle, their parents had a Beetle, they got in trouble doing something stupid in a Beetle. ... So many people hold a special place in their hearts for this iconic car. We'll always see them on the road."

Even given diminishing car sales, it's strange that VW would discontinue its famous car.
"The Beetle is synonymous with VW," Acevedo said. "However, Volkswagen's reputation as a small-car specialist hasn't done the brand any favors in today's SUV-intent market. So if the Beetle is Mickey Mouse, think of the Tiguan and Atlas as Marvel and Star Wars — highly profitable growth drivers aimed at today's shoppers."

It seems as though VW could have developed the Beetle into a compact crossover, something like the Fiat 500X. If history is indication, it's not over.

"Volkswagen did all it could to salvage this run of the Beetle," Acevedo said. "I do think the Beetle may re-emerge as an EV [electric vehicle]. The I.D. Buzz concept, based on the Microbus, makes it look like the brand is aiming to infuse their upcoming EVs with some Volkswagen heritage."

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The Club PUBlication 05/06/2019

5/6/2019

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ACA bet becomes a winner for Medica
Health insurers that weathered the storm are starting to make money
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By CHRISTOPHER SNOWBECK csnowbeck@startribune.com

In spring 2017, as health insurers across the country were fleeing new health exchange markets due to mounting financial losses, Minnetonka-based Medica stayed the course.

Despite talk at the time that markets under the Affordable Care Act (ACA) were so troubled that even having a monopoly could be a bad thing, Medica opted to remain as the only carrier selling coverage for 2018 on the health exchanges in Iowa and Nebraska.

Two years later, the business decision is looking pretty good.

Regulatory filings this spring show Medica saw about $125 million in operating income last year across the two states, part of an emerging story where insurers that weathered the storm during the ACA’s early years are now starting to make money.

“2018 is the first year where insurers are broadly earning a profit on the individual market under the ACA,” said Larry Levitt, a senior vice president with the California-based Kaiser Family Foundation, which researches health insurance markets.

“No one sheds tears for insurance companies, but the ACA is built on the idea of a competitive private insurance market,” Levitt said. “You can’t have that unless insurers are making money.”

The federal Affordable Care Act brought sweeping changes to the market where individuals buy health insurance.

It’s always been a small slice of the health insurance world, since most people are covered through employer or government plans. But the market for individual coverage has been particularly important for self-employed people as well as those going through transitions such as a job change.

The ACA prohibited health insurers from denying coverage to individuals based on pre-existing health problems. It also created tax credits for people at certain income levels to reduce out-of-pocket spending on premiums. Finally, the law created new health insurance exchanges, which are government-run websites where shoppers can both buy coverage and qualify for the tax credits.

When the health law got rolling in 2014, many health insurers saw the changes as an opportunity to gain market share. But many started pulling back by 2016 as financial losses grew.

Medica at the time was facing the prospect of more competition in Minnesota, said John Naylor, the chief executive of Medica. By that point, it was clear that a long-delayed change in the state’s Medicare market was finally coming, with the elimination of Medicare Cost health plans likely drawing new rivals. So, with about 2,000 employees and contractors, Medica sought to secure its future with growth in other states, Naylor said.

In 2016, Medica expanded beyond its base in Minnesota, North Dakota and Wisconsin by offering products on the government-run exchanges in Iowa and Nebraska. For 2017, the insurer added Kansas.

A Star Tribune analysis of regulatory filings shows that Medica during the first three years of the ACA lost about $85 million in the individual market on about $518 million in revenue. Even as losses continued in 2017, the insurance company didn’t ditch its plan.

“Risky, but it was the right thing to do,” Naylor said.

Medica stood out during spring 2017 as one of the few health insurers that agreed to stay for the following year in counties that otherwise were abandoned by all other carriers, said Katherine Hempstead, a researcher who follows the ACA markets for the New Jersey-based Robert Wood Johnson Foundation.

The share of counties in the U.S. with just one health insurer surged from 5% in 2016 to 33% in 2017, Hempstead said. In 2018, it jumped to 50%. Consumers access ACA tax credits by purchasing individual coverage from a private insurer, so there were concerns consumers in some counties wouldn’t be able to tap subsidies due to a lack of participation by private insurers.

“I think that’s one of the reasons for the revitalization of the idea of the ‘public option,’ ” Hempstead said, referring to an idea floated by President Barack Obama while developing the ACA that the government should offer a health plan that competed on the exchanges against private coverage.

“People started to say: Well, gee, what would you do if you had a completely bare county?” she said. “It never came to pass because various things got worked out in all these different states. … Medica played a roll, too.”

Last year, Medica’s individual market enrollment across its six states grew from 94,000 people to more than 168,000 enrollees, due largely to growth in Iowa and Nebraska. In 2018, Medica saw an operating profit in the individual market overall, with Kansas being the only state where the carrier saw a loss. The results drove overall net income at Medica of $300 million last year on $4.4 billion in revenue — its best annual results in five years.

The individual market was better from a business perspective, Naylor said, because the population seeking care stabilized along with their financial risk. He also credited cooperative agreements between Medica and health care systems in Iowa and Nebraska to coordinate care for patients in ways that better manage costs.

Another factor is that insurers, in general, hiked premiums last year, said Levitt of the Kaiser Family Foundation. In Iowa, for example, federal data show Medica increased individual market premiums an average of anywhere from 44% to 57%.

“In many cases, insurers increased premiums so much in 2018 that they just — they didn’t need further increases in 2019,” Levitt said. “So, on average, premiums actually fell a bit in 2019 and were generally quite stable.”

“What I think some insurers have found is that being a monopoly does allow you to more easily increase premiums and restore profitability,” he said. “And we certainly have seen premiums rise more in areas with limited competition, particularly in rural areas.”

Medica’s margin in the market last year was about 10%, which is “very strong,” said Deep Banerjee, a director at S&P Global Ratings. He added: “We would expect a moderation in rate hikes going forward and margins for the longer term to be lower than what we saw in 2018.”

This year, Medica remains the only carrier selling health exchange coverage in Nebraska. In Iowa, there’s now a second health insurer in the market. Medica has expanded for 2019 into part of Missouri and all of Oklahoma, as well.

Naylor, the CEO, said his company doesn’t plan to enter new states for the individual market business in 2020. Instead, Medica expects to expand its Medicare business in some of the new states beyond Minnesota.

“We are very focused right now on making sure in those states that we’re in, that we’re serving them well,” Naylor said. “Medicare is next. We did enter a few counties in [2019] in Nebraska and Iowa, but we will be entering many more counties with more products in 2020.”

Christopher Snowbeck covers health insurers, including Minnetonka-based UnitedHealth Group, and the business of running hospitals and clinics.

chris.snowbeck@startribune.com ChrisSnowbeck

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