Monday, October 27, 2008

What’s Going On In The Parts Market?

At this year’s conference we talked about what 2008 & 2009 were going to look like. Except for Ag, it was pretty bleak (and now Ag has its problems with falling grain prices). Well, that hurricane moved from the middle of the Caribbean, got a name (“recession”) and has moved on-shore. Early on we saw the big issues being fuel prices, tough middle class economy, and customer confidence. The problem now has much harder edges. The market crash pushed worries about gas prices down a few notches, where the big issues are more clearly focused on fears for job losses and worries about the health of investments. This is profound. Customer aggravation over high fuel prices was something we could all cope with in our business planning sessions.

We could anticipate oil, again, going well below $100 a barrel, resulting in lower fuel oil costs for winter heating, and lower vehicle operating costs. Our coping mechanisms might have been OK if it were just oil prices causing the economic disruptions we’ve been seeing. The consumer market is way beyond simple fear and lack of confidence. The market has real fears that are fed daily by a near perfect dissemination of world news. People who try to buy new vehicles have experienced difficulty accessing financing.

They understand that this is a bigger issue than buying a car or truck. They see their 401K and understand they have to cut back. They understand that “cutting back” means fewer goods produced. Fewer goods produced means fewer jobs … all the dots are connected, and that’s why this “job loss” fear falls just behind their negative investment numbers, which they see several times a day when they access their Fidelity account.

So, do gas prices falling below $3 a gallon signal a return to happy days? Probably not. A year ago “cutting back” really meant cutting back on fuel consumption so that it did not pinch so much on other areas of disposable income. Now, “cutting back” means that customers have to (1) re-build their investment portfolios again, and (2) save for a rainy day in case they lose their jobs. These are not just muffled fears that are easy to dispel. They now have about $700 billion worth of hard edges. So, how do you cut back? Look for the simple stuff. Delay the next vehicle purchase, delay maintenance, pocket the insurance check for the fender-bender, and stop going to dealers because “they are more expensive than the independents.” That’s why parts sales are down. And, that’s why parts sales will be down in 2009 if we don’t fix some things.