JUST PLAIN TALK: Businesses have different responses to pandemic
Growing up, Labor Day meant schools opening, which I was decidedly ambivalent, and football season kicking off, which I eagerly anticipated. In addition to disrupting these two annual events, 2020 ended another fall rite, blowout discounts offered by automobile dealers. Historically, to clear out older inventory, buyers could expect better deals during the fall but not this year.
Compared with 2019, this year’s auto sales are off over 15 percent, dropping from 17 million units sold last year to just over 14 million in 2020 projected sales. Despite overall numbers down, prices remain strong; in fact, they have soared to new highs. Don’t be surprised. The two-month shutdown in auto production led to lower supply, and with limited inventory, there is less pressure on prices.
COVID-19 interrupted worldwide supply chains, so any attempt to maintain domestic production would have been futile in addition to putting workers at risk. Record prices are not merely due to tightened supply. Cheap financing plays a role. According to Edmunds.com, the average interest rate on new car loans is less than 4.5%. Lower gas prices lead consumers to purchase bigger, more expensive SUVs and trucks. In place of air travel, consumers are more inclined to take road trips or spend time outdoors. The head of Toyota’s North American sales, Bob Carter, gleefully noted, “I’m building all the 4Runners, Highlanders, RAV4s, Tacomas and Tundras I possibly can.”
Longer-term auto loans, which allow relatively low monthly payments, also spur demand. Higher cost luxury vehicles prop up the average price as well. Prices adjust to supply and demand, which is all I want to say since an Ag Economics professor told our class it was not unusual to see Ph.D. candidates stumble in oral presentations over elasticity of demand.
2020 has seen a surge in demand for hand-held power tools as many homeowners with time on their hands started home improvement projects. Stanley, Black and Decker reported record sales in Q2 2020, and its CEO, James Loree, expects revenue to beat earlier expectations for the year. Fortunately, Stanley invested heavily in autonomous robots months before the pandemic. The machines, known as cobots, are designed to operate in conjunction with human workers. The notion was the company could cut costs and boost output to compete with cheaper overseas manufacturers. When COVID-19 hit, a South Carolina production facility remained open since cobots don’t get sick and spread the virus, plus workers could easily maintain physical distancing. Sometimes you get the bear, and sometimes the bear gets you.
Automation has wiped out many manufacturing jobs; it’s a welcome surprise to see automation saving them occasionally. In our moribund economy, anyone who can afford a new car is doing well. Millions of people are trying to hold on to the one they already own.
You can’t always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by, masked, 2050 West County Highway 30A, M1 Suite 230.