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Finding the Sweet Spot

March 10, 2009

This past weekend I went to opening day for my nephew’s Little League baseball team. This was his second year, and let me tell you, I hadn’t seen a crowd like that since my playing days at that park back in the ‘80s.

Granted, the bases-clearing double my nephew hit might be playing into my sentiment here, but I really think this recession is going to remind us of the little things that made life fun. I mean, for about 45 minutes (games are shorter on opening day) all I could see were parents cheering on their kids or selling snacks to help raise money for the league.

In our rush to have everything, we’ve forgotten about the little things in life. Unfortunately, this recession is providing a nice reminder of those little things.

Don’t get me wrong, I was jumping out of my chair when I heard about today’s rally on Wall Street, especially since it was led by companies impacting our industry -- Citigroup, which saw its shares jump 38 percent, Wells Fargo, Bank of America, and JPMorgan Chase. However, as several market analysts said, one day doesn’t make for a trend.

I often think back to Amy Martin’s comment at the AFSA (American Financial Services Association)’s 2008 Vehicle Finance Conference in San Francisco. The director of structured finance ratings for Standard & Poor’s Corporation said: “I think [the correction is] going to be felt across the board … the consumer is going to feel it, the dealer and the finance company. That’s what happens when you go through a correction …”

I’m not sure Martin knew how bad things would get when she made those comments more than a year ago. Her point, however, was that we’re kidding ourselves if we think we’re going to get through this period pain-free. The truth is – and it’s something I think we’ve forgotten – we’re all in this together.

It’d be nice if some revered economist or financial expert could tell us that things are going to be OK. Unfortunately, even those people don’t know what to make of things.

Yesterday, Warren Buffett likened the crisis to our economy falling off of a cliff, saying during his appearance on CNBC that President Obama is in essence a wartime president given the severity of the economic downturn.

“We’re in a big war, and we’re going to use money to fight it,” he said.

Then there was the comment from Nigel Gault in response to the jobless rate hitting 8.1 percent in February, the highest since 1983. “There is no light at the end of the tunnel with these numbers,” said the economist for IHS Global Insight.

As bad as that sounds, I do believe consumers are just waiting for someone to tell them it’s OK to spend again, which is actually being supported by recent data. True, the unemployment rate was definitely a shot to the stomach, but there was also a consumer spending report that offered some good news.

Retail sales in January rose 1 percent, while consumer spending and income rose 0.6 percent and 0.4 percent, respectively. I know that’s not a lot, but as one economist said, spending will be a key indicator of our return to normalcy. Heck, consumers went out and spent after the 2001 terrorist attacks and the 1987 stock market crash, as people could only keep their pent-up demand bottled up for so long.

“I think we are close to where the intensity of the recession starts to back off,” said Ken Goldstein, an economist at the Conference Board, who believes March payroll losses to be below 600,000, the first time in about four months.

And apparently many of you in our industry believe the same thing, at least according to results from a survey conducted by the Small Business Research Board (SBRB) in the fourth quarter of 2008. The results said 40 percent of owners and managers of automotive-related businesses expected the general economy to improve over the next 12 months, which was a 12-point increase over the second quarter of 2008.

Think about those results for a second. Even during what was one of the worst quarters in our industry’s history, dealers still could see the light at the end of the tunnel.

Look, I don’t claim to know what’s going to happen. All I know is I felt pretty good about things at my nephew’s game. Not once did I think about the repairs my car needs, the property taxes I owe this year or the credit card I still need to pay off.

However, when those thoughts do start to overwhelm me, I think back to a quote I picked up from John William Snow, chairman of Cerberus Capital Management LP, during the 2008 Vehicle Finance Conference. “Don’t panic, we’ve been through credit cycles like this before. If we build strong habits, adapt best practices, we should be able to build a good foundation for the future.”


  1. 1. Chuck Lopez [ March 11, 2009 @ 07:54PM ]

    Great article Greg. The way you blended your nephew's ball playing into a story that makes even the most hardened pessimist amongst us forget for a little while about our unfortunate economic situation is worthy of a continuing number of similar articles. Anyone else up to weaving heartfelt stories into uplifting moments that help us all recognize the true important things in life?

  2. 2. Asim [ March 12, 2009 @ 03:37PM ]

    As a father of 5, I can definitely see your motivations in writing this article. And right you are, it is the little things in life that make life what it is. How does the saying go? "The best things in life are free!"

    As you mention we are in this together, and together we must realize that we have been living high and mighty for way to long! I was born in the seventies, and apparently the average car loan in that era that time was something like 24 months in length! I would be willing to bet there was no such thing as buying a house without 20% cash down payment. People saved a portion of their income for a rainy day.

    Oddly enough, I think that there are many good things that may come out of the economic issues that the entire country is facing today. Examples could include the realization that the best things in life are free, or that the era of the common man buying a $40,000+ car as a daily driver is gone, or returning to a requirement to financially invest in real estate to be able to obtain a mortgage on a property.

    The saying, "all good things must come to an end," sort of comes to mind. But alas, the freewheeling, will nilly consumerism and spending of the last couple of decades was not really a 'good thing,' and we all will be paying the price.

  3. 3. Julie [ March 14, 2009 @ 12:06PM ]

    Very good food for thought Greg. And I agree, I am not sure the worst is over yet either. I must say it has been like watching a runaway rollacoaster the past few years in F&I. There were many times I would work with a customer who had mountains of credit card debt, and I wanted to counsel them into buying half the car they wanted and use their saved money towards eliminating all the debt they were carrying at 18 plus percent APR. No, I did my job, got them their approval, sold them all the goodies I could fit on the menu, and then congratulated them as handed them the pen to sign for it all. I almost feel like a "doom economy enabler"... many days I would leave my office sort of shaking my head but the heat was on daily to push for $1200 plus per car and steering people to less costly perhaps wiser for the long run options would have steered me to the door. I am sure I am not the only F&I person who has felt this way.

    There still is one more banking hurdle to clear before we know the worst if over, and that is outstanding revolving credit card debt. Hopefully all the people I am currently not getting approved for car loans due "excessive obligations" will pay those excessive obligations. The banks can't even call that debt "under water", we're talking like 20,000 leagues under the sea. At least they can try to recover costs with sale of a home or car, but how do you get back dry cleaning services, dinners at Appleby's, trips to the movies? I hate to still see more potential trouble, but its reality. We shall see and we shall also soon see with it a standard of living that doesn't revolve around 12 year olds having cell phones, 16 year olds carrying $800 purses, and 22 year old buying $30000 SUV's. Hopefully its not too late, or I might begin to think the Mayans and Nostradamus are right...its all over in 2012. Till then, I'll be eating out less, knitting more, and reading your blog.

  4. 4. Lealand Welsh [ April 07, 2009 @ 03:37PM ]

    We in the automobile business are just as bad as the people who put mortages together for people who had little or no down payment. We have been rolling negitive equitity into new car loans for quite sometime. I am glad to see now to get someone approved they have to have equitity. We have to learn from the past to make it in the future.

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