Publisher's Statement - November 2012

Hesitation blues

It’s time for the various industry segments to meet and confer about what’s on tap for the coming year.  Tens of thousands of attendees come in search of new product and brand alignment, vendor/customer agreements, networking opportunities, training, association meetings, and a resulting sense of the industry’s well-being and new directions.

 

Admittedly, there are uncertainties inside the industry and, to a greater extent, in the general economy.  For many with whom we have recently visited, aging vehicle demographics and the prospect of deferred maintenance just isn’t cutting it anymore.

 

For most, the industry measuring stick is always miles driven.  With volatile gasoline prices and consumer confidence sliding again even Las Vegas may not be enough to overcome some hesitation when planning ahead.

 

Meanwhile, continued customer relation management, marketing and advertising, and realigning resources to priorities and new opportunities should continue.

 

Measuring mood and momentum

Every year we attend the annual fall trade shows and conventions to measure the mood, message, and momentum of the industry.  No matter what the mood heading in, the demonstrated size and strength of the industry, in all its various segments, always restores and revitalizes the spirit of those attending.

 

Industry association surveys continue to reveal more confidence, by industry participants, in the industry’s prospects than the general economy. 

 

Customers and cash flow

Industry participants, for the most part, are confident the industry will move forward but do have concerns.  Will renewed consumer confidence rebound?  Historically, the industry can benefit from short-term recessions when cautious consumers hold on to and maintain their vehicles.  Surging new car sales in 2012, driven in part by “subprime” auto loans, have changed the dynamics some.  But, for now, the vehicle count and aging demographics remain strong.

 

The second concern, small business cash flow, remains a problem.  Most realize the election will not change much.  Everything short term is already baked into the cake.  Reductions in federal employment, increases in overhead expenses and taxes, and volatile energy costs will take a bite out of the domestic, economic status quo.

 

QE3, not for you or me

The money supply on the street remains as low, or lower, as when Quantitative Easing (QE) began in late 2008.  The Fed’s announcement on September 13, 2012 that it is embarking on a third round of QE was seen, by some, as creating too much money chasing too few goods, forcing prices up.  Not yet it won’t.

 

The money created by the Fed will go straight to the big bank reserve accounts and banks cannot lend from their reserves, except to each other. The Fed plan is to buy mortgage-backed securities (MBS) from the banks.  The banks will get the dollars and the Fed will get the MBS but bank balance sheets and the circulating money supply will remain the same.  Reserve balances don’t finance lending or add any “fuel” to the economy.

 

QE3 will not reduce unemployment, put money in consumers’ pockets, restore the money supply, allow pricing power, or lower interest rates for homeowners.  It will not get money to businesses or consumers on Main St.  It will cash out MBS and cover derivatives as long as QE continues. 

 

As the money supply channels ever more vertically, without local and regional reservoirs for local lending, it’s no surprise most small to medium sized businesses will move closer to that money flow.  The surprise will be the reconfiguration and affects on small businesses, local communities, and, on a larger scale, the often disruptive consolidations that result.

Parts & People

Parts & People is published monthly by Automotive Counseling and Publishing Company, Inc., a Colorado corporation, P.O. Box 18731 Denver, CO 80203, 303-765-4664. President-Lance Buchner. Founded by Lance Buchner and Dave Lucia.