Economic Climate - Durable Goods
Durable goods like cars, refrigerators, televisions and washing machines wear out over time. People plan to replace them periodically, but right now many customers are delaying those purchases. They will likely still buy these big ticket items in the future, but right now they are waiting to see what happens with our economy.
We will likely see stores close and in the auto sector there will likely be mergers and buyouts of local dealerships, but that isn’t always to be blamed on the local business. National chains or parent companies may have overextended themselves, there could be oversaturation in the market in general, or since there is a change in consumer buying habits during this time, their shops could become too niche specific for the market.
The good news here is, manufacturers need to move their inventory so stores are getting items for less and pass savings on to you. If you have money set aside it’s a good time to buy. But if you don’t have the money set aside, be careful of credit debt. Don’t over extend yourself! Many retailers and experts have said that over the past few years, people were splurging and buying well over their means. In this challenging economic time that is the worst thing that can happen. Be wise when making this personal decision…ask yourself first “can I afford it?”
We met with regional representatives including Mike Mangold from the auto industry and Paul Sherman from the durable goods sector to find out what they are dealing with right now. We also talked with our partnering economics professor from Bradley University Dr. Joshua Lewer and The Heartland Partnership CEO Jim McConoughey on the subject.
“The Economic Situation:
A National Overview and Local Update”
AUTO
Mike Mangold, Mangold Ford Mercury in Eureka, said 2008 was indeed a challenging year. He said while this economic situation brings with it a lot of bad news, there may be a positive outcome because it caused his company, like many others, to look in the mirror and see what they could do to make themselves better. Rod Dixon agrees saying "We have seen a slight bit of a downturn recently in auto sales. Credit is tighter than before and the lenders are requiring that the buyers have some skin in the game."
Mangold believes every business has the same goal in mind which is to make a profit, but in these challenging times there are fewer customers actually making purchases. That has taught him to tweak things to make his business better. “We have to find a way to set ourselves apart from other shops because people are cutting back on their spending and we have to differentiate ourselves and give them a reason to shop with us.” Mangold says this is forcing him to be more competitive.
Mangold admits that business is slower right now and some of his customers have shown some apprehension, asking if he will be forced to close up shop like many others across the nation. Mangold says his company will survive and he is using this time to send the message of stability to customers. “Our region is known for conservative business practices and that has helped us in the way we do business. We don’t make risky deals, we take care of our customers and we can handle the ups and downs of the economy.”
As for the Big 3 automakers, Mangold says they will survive too. It is a difficult period, but they have put out some incredible products over the years and there is no reason to think they won’t do so again in the future. He said “The common thought is the industry as a whole is not good and that is a misconception! The auto industry is not about to blow up, it’s not going to shut down.” Dixon says while there is competition, nobody wants to see any manufacturer go bankrupt. "It would be bad for the entire industry and suppliers for all makes. The 'Big 3' must take steps to be competittive in the market with good products and better asset management. We will survive!"
DURABLE GOODS
Paul Sherman with Sherman’s in Peoria said his big ticket item sales have been hurt a bit by the economy but he feels our region is faring better than the rest of the nation. Sherman said “The summer of 2007 to the summer of 2008 was the best we’ve ever had. We started seeing weakness towards the end of last summer and then the last quarter of 2008 we saw even more weakness. But it’s nothing compared to what other regions are going through.”
Sherman told us his business was down single digits during the latter part of 2008 and he says it was due to conservatism on part of customers. “Traffic still up, people are shopping but they’re changing their buying habits.” Last year this time Sherman said people were asking for the top of the line products and purchasing all the add-ons, but now shoppers are buying the middle or lower end models and they’re getting the basic packages.
Sherman’s is opening a new warehouse in Peoria and a new store in Peru in the coming months, he said this decision was made before the economic downturn, but because of conservative business practices his company is able to withstand the economic issues and proceed with plans. Sherman admits profitability is not where it could be but that’s not stopping them. “We should scale back a bit but we are in anticipation in further growth when things bounce back, so we’re moving ahead.”
A message from Dr. Joshua J. Lewer
As we begin the New Year, we can cumulatively look back and say, “Good bye 2008…and good riddance.” There is no doubt that the economy dropped off a cliff in the second half of 2008. Now the question becomes, “Will 2009 play out any better?”
While the nation is in the midst of what will likely be the longest (but not the deepest) recession since WWI, most economists project that the economy and the housing sector may begin to recover in the second half of 2009. Even with the Obama’s fiscal stimulus plan, economic growth for the year is still projected to be negative for the year. For more details see the Federal Reserve of Chicago’s consensus forecast at (http://www.chicagofed.org/publications/fedletter/cflfebruary2009_259.pdf).
Unfortunately for the automobile industry and those selling durable goods (i.e. goods that last for three or more years), the economic environment does not bode well for sales, at least in the near term. Factors that generally promote auto and durable good sales include: (1) income growth, (2) a sense of job security, (3) availability of credit, and (4) overall economic stability. These factors will need to improve (and as mentioned above are expected to in the second half of this year) before we will see significant improvements in these sectors.
Jim McConoughey, The Heartland Partnership:
Dr. Joshua Lewer, Bradley University:
Paul Sherman, Sherman's:
Mike Mangold, Mangold Ford Mercury:
January 19, 2009