Publisher's Statement - January 2013
Fork in the financial road
While some worried about a Mayan astronomical projection that links solar-system rotation to survival crossroads on earth, pegged to a certain day, no less a financial crossroads looms ahead in the New Year, in part defined by access to capital and the competitive advantage it allows.
On the street where sales revenue is balanced against expense and investment, with supplemental lines-of-credit bridging the difference, the economic outlook grows increasingly challenging. Meanwhile, companies benefitting from centralized money attempt to redefine market opportunity at the expense of small, independent businesses.
As Main Street tightens further from consumer debt, uncertainty, weakening infrastructure, and record lack of employment, banks continue to refuse line-of-credit to a majority of small businesses. Without local and regional reservoirs of capital, small businesses are forced to either move toward a centralized source of capital, survive on sales cash flow, sell, or close.
This could finally be the year when small businesses and the associations that represent them realize the need to support alternatives to the parasitical practices of centralized, too-big-to-fail financial institutions affecting local and regional economies to the detriment of independently owned businesses.
Trends in the New Year
Polk President Tim Rogers returned to the AAIA Town Hall to report five trends expected to impact the industry. For one, light vehicle sales are on the rise. Polk expects new vehicle sales to surpass the 15-million mark in 2013. Meanwhile the vehicle population continues to age, as vehicles 11 years or older have increased by 19 million units over the last five years. More important to the independent repair community, perhaps, is that average length of ownership for new and used vehicles combined has also increased, to 58.2 months, and new vehicle ownership to 71.6 months.
Globalization of platforms is accelerating and 10 will comprise 24 percent of production this year. This should benefit the industry as the trend will reduce tooling and inventory expenditures. In addition, four-cylinder engines are gaining acceptance and popularity with manufacturers and consumers. Technologically advanced vehicles also offer increasing aftermarket opportunity. Polk reports OEM’s use of oil-indicator lights is up from 3 percent in 2003 to 56 percent in 2011, for example.
When reporting automotive trends, it doesn’t get any better than Polk this side of the unforeseen.
Growing trend of extended terms
Following the release of a study by KPMG, a global accounting and advisory firm, commissioned by MEMA to examine the impact of extended terms in the aftermarket, MEMA Executive Vice President and COO Steve Handschuh said the results raise a red flag. Extended terms of payment for some companies in the distribution channel have sharply escalated. This trend makes the aftermarket more sensitive to credit availability and threatens the industry’s historical resiliency.
Handschuh also said that a rise in interest rates, coupled with a lack of credit availability, could require the industry to reverse extended terms or come up with the capital to fund this “unusual business model.” A change in the credit cycle and the resulting movement of billions of dollars out of factoring programs’ balance sheets could significantly affect a large portion of the supplier community and the industry as a whole. The unprecedented level of extended terms for some channel players presents a “significant threat” to the entire industry and all channel players have a responsibility to promote practices that are in the best, long-term interests of the market and the participants within it, he said.