Moneybox
A blog about business and economics.

Jan. 21 2016 2:47 PM

General Motors Is Planning for a Future in Which People Don’t Buy Cars

Uber. Tesla. Zipcar. General Motors?

Unlikely as it may seem, the 107-year-old Detroit automaker is trying to position itself among the upstarts that are reshaping the automotive industry. And it's doing a surprisingly convincing job of it.

On Thursday, GM announced the launch of a new car-sharing service called Maven, a Zipcar-like concept that will allow drivers to pick up a Chevy at a designated parking spot and unlock it with their smartphones. Since all the cars will come with Apple CarPlay and Android Auto, their dashboards will be instantly personalized to the driver’s smartphone settings. The service, which will start in Ann Arbor, Michigan, will be free to join, and cars will cost $6 an hour. Customer service, interestingly, will be handled via WhatsApp.

The Maven news is just the latest of a flurry of future-focused moves by GM. In the past month, it has launched the all-electric Chevy Bolt, announced a partnership with Lyft to build driverless taxis, and bought Sidecar’s ride-sharing technology and remaining assets. It has also been ramping up its partnership with Mobileye, whose mapping technology it’s using in its autonomous driving systems.

All of a sudden, GM is a significant player in the four biggest trends that are upending its legacy business: electrification, automation, connectivity, and sharing. Rather than try to beat the forces arrayed against it, General Motors is joining them.

“We believe there will be more change in our industry over the next five years than there has been over the last 50,” GM President Dan Ammann told reporters on Wednesday. “We want to make sure we’re at the forefront of that.”

The company’s business, Ammann acknowledged, has been built on the “owner-driver” model that has historically dominated the industry. That model won’t disappear, he predicted. But already, “we do see a significant change in consumer behavior,” especially in cities, where people are eschewing ownership and hopping into Ubers and Zipcars when they need a ride.

Maven, the new car-sharing service, plays into that future in two ways. First, obviously, GM believes Zipcar-style car-sharing will continue to thrive alongside Uber-style ride-hailing. (The difference, in case it wasn’t clear: Car-sharing involves picking up a car at an appointed spot and driving it yourself, whereas ride-hailing means calling a car that’s driven by someone else.)

More importantly, Maven lays important groundwork for a future in which cars drive themselves, as Wired’s Alex Davies points out. For GM to succeed in that future, it will need not only a fleet of rentable vehicles, but a loyal customer base, an app that allows people to personalize their in-car experience—and, on a practical level, a bunch of parking spots equipped with electric charging stations. Maven could give it all of those things. It helps that the company is already a leader in connectivity, thanks to its OnStar in-car navigation and communication service.

Multinational giants are often tempted to go big when they launch something new, leveraging their brand and customer base to maximize the splash. But, in keeping with the startup mentality, GM is starting out small. Maven will launch with just 21 parking spots in Ann Arbor, targeting University of Michigan students and faculty, building on a pilot program already in place there. Early users will be able to communicate directly with members of GM’s 40-person Maven team by sending them messages on WhatsApp. In the coming months, the service will expand to take in existing pilot programs in New York City and Germany and will launch a residential car-share in Chicago, each of which will serve only several thousand users at first. (The New York City project is also a residential car-share, while the German one is a peer-to-peer sharing network.)

That might all sound insignificant in comparison with the scope of GM’s existing business. The advantage of starting locally, however, is that the company will have a chance to closely study user behavior and listen to feedback on an individual basis. Ultimately, that could allow it to build a service that succeeds on its own merits, rather than on the strength of the GM nameplate and PR machine.

Maybe a company as big as GM won’t be able to pull it off. Maybe it’s too deeply invested in what it calls the owner-driver model to lead the way in overthrowing it, especially after a handful of trendier, techier startups have gotten a substantial head start. But it’s certainly worth the relatively small cost to give it a try. And who knows? Starting small and local seemed to work pretty well for Uber, Tesla, and Zipcar.

Jan. 21 2016 1:23 PM

Two Ways That Low Oil Prices Are Very Clearly Hurting the Economy

Is cheap oil good for America?

For a while, the answer seemed like an obvious yes. When the price of crude drops, the U.S. spends less money importing it from abroad while families and businesses save money on gasoline and other energy costs, which they can then go spend elsewhere.

These days, the answer seems a little less obvious. The fracking boom turned the oil and gas industry into an noteworthy source of growth after the recession. Now that the price of oil is collapsing, drillers are cutting back by mothballing rigs and abandoning new projects. Some are worried that the bust is damaging the whole economy. 

A couple of the effects are obvious. First, employment in the fossil fuel industry has fallen significantly. Oil and gas companies, and the businesses that provide support services to them, have shed 114,000 jobs since January 2015.

oil_gas_jobs_fred

The oil rout has also hurt business investment by more than you might expect. Spending on mine and oil-well development fell significantly during 2015. In the third quarter, it shaved about one-third off the growth rate for all private fixed investment, which includes everything from new factory equipment to office buildings to housing to rigs. Oil might not be an enormous part of the U.S. economy. But thanks to the mad rush to frack every last bit of shale in the United States, it has been responsible for a decent chunk of our recent capital spending. Now, that growth engine has been shut off.

business_investment_bea

The oil industry's problems are also probably doing harm to the economy in ways that don't show up quite so clearly in government data. Banks have loaned lots of money to drillers that could be headed for bankruptcy, and if those debts go bad, they may lend less in general. Laid-off rig workers aren't spending at the mall. Manufacturers are seeing fewer orders for drilling equipment. These sorts of downstream effects are why some investors are nervous that an oil recession could balloon into an actual recession, especially as the industry continues to retrench this year.

But try to keep all of this in perspective. While the oil and gas industry might have shed 114,000 jobs last year, the economy still added 2.6 million. The slowdown in shale country might have hurt business spending, but at most it only shaved a few decimal points off of growth (that said, we'll see how the fourth quarter data look later this month). At the same time, small businesses seem to be investing more, thanks to their windfall from energy prices. And while consumers don't seem to have been spending their savings from gasoline, they could start to once it becomes clear the low prices will be around for a while. Immediate pain aside, cheap oil might well still be good for the country in the long term.

Jan. 20 2016 8:49 PM

A Simple Guide to Why the Stock Market Is Such an Unholy Mess This Year

The stock market has been a stumbling hot mess for most of 2016, and Wednesday was no exception. Shares plummeted early before staging an afternoon rally that erased most, though not all, of their losses, with the S&P 500 eventually settling at lows not seen in almost two years. It was wild. It was woolly. It was not a good day to contemplate your retirement account. And, of course, it’s not just the United States. Around the world, stocks are in a funk. As President Obama might say, the bear is loose.

Markets are always a little bit inscrutable, prone as they are to fear-driven herd behavior, but right now there are a handful of factors that are pretty obviously causing the tumult. Chief among them are problems in China and the collapsing price of oil, as well as the U.S. Federal Reserve’s restless desire to keep raising interest rates. “It’s something of a perfect storm,” Kristina Hooper, U.S. investment strategist for Allianz Global Investors, told me. “You’ve got multiple events occurring around the same time, all of which are contributing to nervousness.”

So what are these events, and why have they sent stocks careening? For simplicity’s sake, let’s run through the issues one by one, starting with a short prelude.

Stocks Got Expensive

The years following the Great Recession were incredibly kind to stocks, as loose monetary policy from central banks, especially the Federal Reserve, drove more money into them. But as share prices went up and up, they started looking pretty expensive by historical standards. Many began to wonder whether markets were due for a correction, and while problems in the global economy helped drive the S&P 500—which tracks most of the largest U.S. companies—down slightly last year, there’s still a pretty pervasive sense that stocks have further room to fall before they get back to their long-term averages.  

China Is Slowing Down

But what finally caused investors to sell, sell, sell? First and foremost, problems in China, which has been the most important driver of global growth for years now and is disconcertingly slowing down. This week, the Chinese government announced that its economy expanded by 6.9 percent in 2015, the worst pace in 25 years. This spells trouble for the many developing and emerging countries that keep their own economies afloat by selling commodities like oil, coal, beef, and soy beans to the People's Republic. And given that developing and emerging markets are responsible for more than 70 percent of global growth, their problems darken the outlook for all sorts of industries, and thus, the stock market.

The tricky part with pinning all of our hopes and economic dreams on China is that nobody entirely trusts its official growth statistics. Therefore investors have to look for proxies that might tell them what's really going on in the country. That's why Wall Street panics when the stock market crashes in Shanghai, even if the plunge is really due to an ill-conceived bureaucratic scheme rather than any sort of economic fundamentals. Likewise, it’s part of the reason why markets get nervous when Beijing allows its currency to devalue, since it could be a sign that the government is worried about growth and wants to boost exports by cheapening the yuan. (Some also fret that a falling redback could set off a damaging currency war in Asia, but that’s a whole other complicated issue.) Bottom line, investors are trying desperately to read China’s tea leaves, and at times they may overreact a bit to what they see—or think they see.

The Price of Oil Is Crashing

That brings us to oil. Thanks in part to American fracking and Saudi Arabia’s refusal to cut back on its own pumping, the world is now producing more crude than it needs, and the price of a barrel has crashed to around $28. Intuitively, that doesn’t sound like such a problem. After all, low oil prices are usually associated with stronger economic growth, since they let families spend money on things other than gasoline.

But investors are spooked. Some seem to be treating oil’s price as another sign that growth in China and the rest of the world is weakening.1 Aside from that, energy companies are getting thrashed, which has hurt corporate profits. And scariest of all, many observers now think that cheap crude may be hurting the United States more than helping it. Consumers don’t seem to be spending the cash they're saving at the pump, while oil companies have been forced to shut down rigs and fire workers. The industry's retrenchment, which has already taken a bit out of U.S. GDP and job growth, could get worse if more oil companies find themselves forced into bankruptcy.  

The worst-case scenario—which, seriously, is totally speculative—is that regional problems in Texas or Louisiana start to sap the whole economy, making a recession in the oil patch go national.

The Fed Wants to Hike Interest Rates

The Federal Reserve is also contributing to the sense of dread. In December, the central bank finally hiked interest rates up from near zero for the first time since 2008. The increase was tiny, but it signaled that the days of easy money that fueled the post-recession bull market were officially drawing to a close. Some are concerned that if the Fed continues to tighten its monetary policy, it could also slow the economy substantially.  

The Fed is also contributing to another source of worry for the markets—the strength of the U.S. dollar. When things go bad in the world economy, investors turn to good old American assets as a safe haven, driving up the value of the dollar. When the Fed raises interest rates, that too attracts more investment to the U.S., driving up the value of the dollar. When the world is on fire and the Fed is hiking interest rates, the value of the dollar is almost sure to rise quite a bit. And indeed, the greenback has appreciated over the past few months. That's a problem for U.S. exports, which are getting more expensive. It's also bad for foreign companies that borrow in dollars and see the cost of their debts rise. And it's helped drive down oil prices, since crude is priced in dollars.

The U.S. Consumer Might Be Wobbling 

As if China, oil, and the Fed weren't enough to make markets jittery, U.S. shoppers are looking a tad unwell. Retail sales declined slightly in December, which is a pretty significant danger sign since consumer spending has basically carried the American economy of late. If the holiday-season sales figures are a sign of things to come, we might be in trouble.

So, welcome to the winter of investor discontent. It’s cold and gloomy out there. Bundle up.  

1This seems a little misguided since demand for oil has in fact risen. Supply has just risen faster.

Jan. 20 2016 12:32 PM

The Annual Performance Review Is Insulting, Ineffective, and Outdated. Let It Die.

This post originally appeared in Inc.

One of the last sacred cows in businesses—from startup to mature organizations—is the ineffective, poorly timed annual performance appraisal. It's hated by both employees and managers. The process creates fear and is demotivating. According to Society for Human Resource Management, 95 percent of employees are dissatisfied with their company's appraisal process. What's more, 90 percent don't believe the process provides accurate information.

How can such a critical part of employment become such a meaningless task? In a new e-book about replacing the performance appraisal from 15Five's CEO, David Hassell, explains that its roots date back to the 1900s when employees were treated as replaceable cogs in the business wheel. Labor was viewed as a nuisance needed to achieve business outcomes. The original performance appraisal was a management tool intended to control workers "too stupid to understand what they were doing."

It is time that we all agree that we need to, for once and for all, kill the annual performance appraisal.

The insulting perspective about people that initiated the now defunct management tool is no longer relevant. Today's knowledge workers expect autonomy, purpose, and mastery to be part of their work life, according to Hassell: "These are table stakes [for any leader] to motivate people intrinsically." Hassell believes that the "table stakes" are what inspire passion in employees, bringing out their talents and strengths. When employees are treated as cogs in the corporate machinery, their talents and strengths are barely used or often go undiscovered. Business results are mediocre.

"The concept of manager as boss is antiquated," Hassell says emphatically. Today's leaders need to be coaches. The startup CEO goes on to explain that today's leaders need to understand each person's skill and morale levels, and goals. The leader's role today is to unlock people's potential. It's not to control people.

Leaders are stewards. They have no control over people. Instead stewards have responsibility to care for those whom they lead.

If the performance appraisal is antiquated, what should replace it? According to Hassell there are some key elements to a modern appraisal approach.

  • Hold a predictable cadence of weekly and quarterly conversations with employees
  • Check the pulse weekly on the morale of employees; understand their engagement levels
  • Give employees time throughout the quarter to reflect on performance to improve it
  • Have a formal performance conversation quarterly.
  • Decouple compensation conversations from performance conversations
  • Connect employees to a shared purpose to illuminate why their work matters

I would add that a modern performance appraisal philosophy should focus on helping people solve problems important to them and useful to the business rather than vague conversations about career goals.

Part of the transition away from the appraisal process is a mindset shift. First, it's not a process. It's a conversation. The intention is to help employees become a better version of who they are. It's not to complete documentation required by HR.

Sixty-five percent of employees say that the current performance appraisal process interferes with their productivity. Sixty-five percent say the information isn't relevant to their work. These are but a few of the trends leading the way to the annual performance appraisal's demise.

As businesses refine their employee experience, they will need to modernize how they evaluate each employee's performance. It's no longer about pushing paper or a process that positions a leader as commander. As Hassell explains, the performance discussion needs to empower employees to improve month over month, not year over year. "No one would invent the appraisal today," Hassell astutely observes.

Jan. 20 2016 11:33 AM

The Economy Kind of Sucks for People Who Don’t Drive

Right now, it’s a great time to be a driver.

Oil prices have fallen through the floor, crashing the price of gasoline below $2 a gallon. That's taken pressure off family budgets, allowing Americans to spend less on fueling their cars while saving a bit more of their paychecks. It's also kept inflation low. On Wednesday, the Department of Labor reported that thanks mostly to tumbling energy costs, the consumer price index declined slightly in December, and only edged up a modest 0.7 percent for all of 2015. And low inflation has translated into fairly strong real wage gains, as pay has risen faster than prices.

All of this is lovely. You, and your Honda Civic, have had a pretty good year. But as a subway-commuting New Yorker, I do feel compelled to point out that the economy is slightly less rosy for those who don't own a vehicle. Nondrivers don't spend on gas. And aside from fuel, the cost of living is going up at a fairly normal pace. The core consumer price index, which subtracts out the effects of energy and food, rose 2.1 percent over the past 12 months, enough to eclipse most wage gains nationally (average hourly earnings for private-sector workers rose 2.5 percent over 2015.)

Perhaps low fuel costs have kept public transit cheaper? No such luck. The Department of Labor reports that the cost of “intracity mass transit” rose 2.8 percent this year. Bus fares are still heading up.

The one consolation I can find is that pay does seem to be rising slightly faster in the East Coast cities where we car-less few tend to be clustered. In the New York metro area, for instance, average weekly earnings were on pace for a roughly 3 percent increase in 2015. But given the absurd cost of living in dense coastal cities, we can use whatever wage growth we can get. So please, have some sympathy for the pedestrian.

Jan. 19 2016 5:16 PM

Iran Is About to “Drown” the World In Oil

Say what you will about the geopolitical merits of the Iran nuclear deal: It's probably going to guarantee your gasoline will be dirt cheap for the foreseeable future. So says the International Energy Agency, which on Tuesday predicted that “unless something changes, the oil market could drown in over-supply” in 2016.

In a way, that’s sort of an understatement; markets have been gagging on hydrocarbons for a while now, as global production has grown way, way faster than demand. The world's swelling glut of crude has already driven prices down to about $28-to-$29 a barrel this year, which should in turn lead to a bit less drilling—the IEA expects that, outside OPEC, the world is eventually going to pump 600,000 fewer barrels a day. But the agency also writes that “this will inevitably be largely offset by higher production from Iran,” which is promising to immediately jack up its oil output by 500,000 barrels per day now that it's been freed of sanctions. Assuming the overall oil output ultimately stays roughly steady, the world could find itself producing 1.5 million more barrels of oil per day than it needs in the first half of the year, leading to bigger crude stockpiles and even lower prices.  

So, great news for drivers. Terrible for North Dakota and Russia and Venezuela.

This brings up a big question: Is cheap oil actually still a net positive for the U.S.? When prices started plummeting back in 2014, economists expected savings on gasoline would translate into higher consumer spending elsewhere in the economy, thus acting as a minor stimulus. But that upside hasn't really materialized, as families appear to have been pocketing their savings in the form of, well, savings. Meanwhile, jobs in the oil industry have disappeared as frackers have shuttered rigs. Bankrupt energy companies have also been wreaking havoc on the junk-bond market, which adds the specter of financial instability to this whole mess.

I'd argue that lower oil (and therefore gasoline) prices are good for Americans’ well-being, even if they haven't been especially great for America's GDP, since most households are probably grateful for the opportunity to save a bit more cash. If you agree, well, that's one more point in favor of the Iran deal.

Jan. 15 2016 11:13 AM

Every Chipotle Location Is Shutting Down for One Day

Chipotle will close all of its stores on Feb. 8 for a much-needed collective check-in. The Chicago Tribune reports that the restaurants will be shut down nationwide “for a few hours next month to talk about food safety.” This comes in the wake of a series of foodborne illness traced to the restaurant that has diners fleeing to other establishments.

Citing a Bloomberg story, Vox’s Matthew Yglesias suggests that the chain likely expanded too fast for its own good, leaving it unable to maintain its own safety standards. Its current crisis, though, isn’t just about its actual safety record; it’s also about the company’s inability to live up to its own image. Having spent years selling itself as a place of purity and health—sometimes by way of deeply dubious claims—Chipotle unintentionally emphasizes the unhealthy impurities that have found their way into its restaurants. What’s more, as Rachel Gross recently noted in Slate, some of Chipotle’s problems may actually be a consequence of its commitment to organic, direct-from-the-farm goods. Either way, this is as much a problem of public relations as it is one of public health.

With its companywide shutdown, then, Chipotle is attempting something akin to a hard reset. It’s a bit like turning off your computer when your browser starts to run slowly—a possibly extreme action that just might clear things up. There are smaller steps you could take—dumping your browser cache or closing a few memory intensive programs—but sometimes the nuclear option is the best one. It also may be the smartest course of action under the circumstances, since, as Gross pointed out, it’s still not clear where or how some of the pathogenic ingredients entered Chipotle’s supply chain. While it doesn’t sound like the restaurant will be undergoing some total overhaul—the Tribune’s reporting suggests that the closure will mostly serve as an information session for employees—shutting down may still provide a much needed refresh.

Chipotle’s actions also aren’t unprecedented in the business world: In December, the Wall Street Journal wrote that some experts were suggesting Chipotle should follow the model of Johnson & Johnson, which pulled every bottle of Tylenol from store shelves after a cyanide scare in 1982. That move proved wise, helping restore and even amplify consumer confidence in the embattled pharmaceutical company. One observer cited in the Journal proposed that Chipotle shut down “for a week in a symbolic gesture to show customers that it is doing everything it can,” which is a far cry from closing for a few hours for an all-hands meeting. Nevertheless, even this smaller approach is likely a wise move, and maybe even one that actually will make the restaurant a little safer than it already is.

Despite, or perhaps because of, obvious concerns, Chipotle may be the safest place you could eat right now, as Gross wrote this week. “Post-scandal,” Gross observed, “Chipotle is likely now on its best behavior to avoid another outbreak.” This one-day closure is both a symptom of that and a way of signaling it. So, if you have to pass on your Feb. 8 burrito, remember that it’s not because Chipotle’s dirty; it’s because the chain wants you to know that it’s getting clean. Given the hit that the company’s sales have taken since its troubles began, it better hope that consumers get the message.

Jan. 14 2016 11:45 PM

Watch Marco Rubio Make Ted Cruz Look Silly for Promising to Abolish the IRS

From the day he started running for president, Sen. Ted Cruz has been promising to “abolish the IRS.” On its face, this is a fairly silly idea, since even in a Republican utopia of low, low, low taxes, someone has to collect that money. Cruz has since clarified that what he really wants to do is move collections to a “much smaller division” of the Treasury Department, which would supposedly be feasible once he passes a simple flat tax that families can fill out on a postcard. This is still a fairly silly idea, because Cruz is simultaneously proposing a “business flat tax,” otherwise known as a value-added tax, otherwise known as a national sales tax. Pretty much everyone realizes it would take an enormous amount of manpower to collect such a levy.

So it was satisfying to see Sen. Marco Rubio hold out a thin reed of sanity to the American people during Thursday’s Republican debate and point out that Cruz's plan is absurd:

You may rename the IRS, but you're not going to abolish the IRS, because there has to be some agency that's going to collect your VAT tax. Someone's going to be collecting this tax. In fact, when Ronald Reagan's treasury looked at the VAT tax, you know what they found? That they were going to have to hire 20,000 new IRS agents to collect it.

Point, Rubio. You cannot abolish the IRS.

On a slightly more wonkish note, Rubio also argued that a VAT would disproportionately hurt seniors on fixed incomes, because they would effectively be getting whacked with a sales tax without getting much of an income-tax break to balance it out. You can argue the fine points of this—Cruz's variation on a VAT isn't imposed directly on sales but on total corporate revenue (minus cost of goods), and he's simultaneously eliminating the current corporate income tax, so it's not totally clear how much of his tax would be passed on to consumers in the form of higher prices, blah blah blah. But in a world in which Cruz is king, prices on consumer goods probably would go up for most. And telling retirees that Cruz wants to raise the cost of their groceries strikes me as a pretty effective tactic in a Republican primary.

Jan. 14 2016 3:42 PM

Gas Prices Just Fell Below $2 a Gallon

Gas! It’s cheap these days. And getting cheaper. The Energy Information Administration reports that this week the average price of regular gasoline fell below $2 a gallon for the first time since 2009. At $1.996, granted, it barely crossed the mark. But considering that this time two years ago gas cost more than $3 a gallon, this is a milestone.1

eia_2_dollar_gas_1

Adjusting for inflation, fuel is still more expensive than during the 1990s, but with oil's continued collapse, it's not inconceivable that we could eventually return to those rock-bottom prices. If your idea of a good time involves burning extravagant quantities of fossil fuels, it's a great moment to be alive.

eia_real_gas_prices

It is becoming traditional in these sorts of posts to mock Republican politicians like Newt Gingrich, who during his 2012 presidential campaign promised to bring the price of fuel alllllll the way down to $2.50 a gallon, or Utah Sen. Mike Lee, who predicted (based on some flimsy arithmetic) that President Obama's re-election would send gas to $6.60 a gallon. I would never stoop so low.

But since we're in the middle of a presidential election season, you may still be wondering: What's the best possible way to turn these prices into a convenient political talking point?

If you're a liberal: Insofar as President Obama is contributing directly to today's prices, it's due to his nuclear deal with Iran, which will allow Tehran to start selling crude normally on the international market, and thus help ensure the world is oversupplied with oil for a good long while. You could also note that pipeline politics aside, he hasn't really done anything to stand in the way of U.S. shale development, which has forced Saudi Arabia into the oil price war that is now making it so cheap to fill up your Honda.

If you're a conservative: Point out that oil (and thus gasoline) is cheap in large part because the global economy is in shabby shape and China is slowing down. This comes with the disadvantage of indirectly highlighting America's relatively robust economy, but it may create a general sense of unease about the fact that, hey, the world could be on some sort of awful precipice. You might also point out that Republicans in Congress forced through legislation allowing the U.S. to export oil for the first time in 40 years, which is probably going to weigh down prices in international markets slightly. (But just slightly. On the list of reasons why oil and gasoline are cheap right now, that probably ranks, like, 49th).

If you're generally irritated by politics: Point out that just a few years ago, virtually nobody foresaw the current state of affairs, which is a sign that you generally shouldn't trust elected officials making promises about hydrocarbons. Credit where it's due: In his 2013 book The Power Surge, Michael Levi of the Council on Foreign Relations specifically outlined the possibility that excess oil capacity would lead to a worldwide competition for market share and a price war. Kudos to Levi, who is obviously a better person to consult on these issues than Mike Lee.

1AAA said gas prices crossed the $2 mark last month, but EIA is the more important authority.

Jan. 14 2016 2:57 PM

So Is It Safe to Eat at Chipotle Again?

Life is about accepting risk. Each time you step outside your door, you face the very real possibility of being hit by a bus, stung by a bee, attacked by a chainsaw-wielding psychopath, or handed the wrong beverage by your Starbucks barista. Some risks, obviously, are worse than others. So if you value your generally diarrhea- and vomit-free existence, the idea of getting lunch at Chipotle might seem like too big a risk to stomach. 

At first glance, the numbers sound pretty bad. Since last summer, more than 500 people in Boston and on the West Coast have been struck ill by E. coli, salmonella, or norovirus after eating at the once-beloved Mexican fast-casual chain. Perhaps worse, in most of the outbreaks, the guilty ingredient remains a mystery. On Wednesday, Chipotle announced it had been served a federal grand jury subpoena related to a criminal investigation over its norovirus outbreak in Boston. Customers are reacting in about the way you’d expect: by eating elsewhere. Sales at Chipotle restaurants open for at least a year were down 14.6 percent during the fourth quarter.

But how worried should you be, really?

First, it’s important to understand that there’s more than one boogeyman here: For the most part, these outbreaks all had different sources of contamination. Three of the outbreaks were bacterial, stemming from salmonella and two different strains of E. coli. That means the ingredients in question were contaminated either in the fields or somewhere along the distribution line—far before the food got to your burrito bar. In December, Chipotle acknowledged that its supply chain may have had some shortcomings. The company announced that it had partnered with food safety testing and consulting company IEH Laboratories and its founder, renowned food safety expert Mansour Samadpour, to institute “some changes to our previous protocols” including safety testing, ingredient handling, and crew training.

Bacterial pathogens thrive on produce that hasn’t been properly washed or refrigerated. So if you’d really like to significantly reduce your odds of encountering E. coli or salmonella, you could avoid ordering produce in your lunch. “If you eat any raw vegetables, there is a risk of E. coli,” says Sangwei Lu, an adjunct professor of infectious disease at the University of California at Berkeley's School of Public Health. “You can never make sure that raw lettuce, tomato, or any raw vegetables are completely pathogen-free." In that sense, you might be better off avoiding a salad chain like Chop’t (which uses a lot of raw ingredients) than boycotting Chipotle (which uses only some, like shreds of lettuce)—and an even better bet may be ordering French fries at McDonalds, which have been doused in pathogen-killing oil to the point of sterility.

Meanwhile, the other two outbreaks were norovirus, which is transmitted by infected people. Those didn’t come from farms; they likely came from poor management and employee hygiene. “No system is perfect,” says Haley Oliver, a food scientist at Purdue University who assesses food safety risks in grocery stores. “But five in one year and the fact that there’s five different organisms causing it—that’s pretty surprising.”

If you’re worried about norovirus, then, yeah, you might want to reconsider Chipotle. You might also want to avoid any fast food chain where workers might forget to wash their hands and contaminate your food—in other words, all of them. No matter what precautions you take with the food beforehand, any dish can be infected with norovirus once it’s touched by an infected worker. It’s no wonder that this virus is by far the most common source of foodborne illness, causing 19 million to 21 million sickenings a year. (It’s worth mentioning, however, that while norovirus is way more common, E. coli and salmonella are far more deadly.)

But let’s say that—YOLO!—you just have to have your Chipotle burrito. Now the question becomes: What’s the least risky dish to order? According to Oliver: “If you really wanted to manage your risk, you’d eat a hot burrito. You’d make sure it was hot when you received it.” Again, you’re going to want to avoid raw produce, namely lettuce. If you do insist on raw vegetables, you’d better nuke your burrito in the microwave: Heating your food up to 150 degrees Fahrenheit will kill any lurking salmonella, E. coli, and norovirus. What about pico de gallo? Yes, it has raw onions, cilantro, and tomatoes. But go ahead and live a little: Salsa is relatively safe, because its high acidity makes it harder for bacterial pathogens to thrive, says Oliver.

Chipotle has always acknowledged that its risk of an outbreak might be somewhat higher than other chains. It’s fresh, local image is a double-edged sword: “We may be at a higher risk for food-borne illness outbreaks than some competitors due to our use of fresh produce and meats rather than frozen,” the company wrote in its 2013 annual report. And while the chain prides itself on sourcing from local and regional farmers, that means there are a lot more moving parts, less oversight, and thus potentially a higher risk for contamination from any one of those local vendors, says Oliver.

At the same time, the outbreaks that have happened at Chipotle could, in theory, happen anywhere. As Oliver puts it: “We move through the world expecting there to be zero risk. We expect everything we eat to be safe. That’s completely unrealistic.”

For germaphobes and hypochondriacs, there is a silver lining. Post-scandal, Chipotle is likely now on its best behavior to avoid another outbreak. Which, for the customer, is great news. “Chipotle may now be paradoxically among the safest places to eat in this country,” says William Schaffner, a professor in Vanderbilt University School of Medicine’s division of infectious diseases. “Would I eat in Chipotle this afternoon if I were invited to lunch? Yes.” Lu agrees: “I bet they are testing their food a lot more now,” she says. “It doesn’t guarantee that no one will ever get sick from Chipotle again, but my bet is that the food would be much safer than it was before,” she says.

So go ahead, live a little! But don’t forget to nuke that lettuce.

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