When you read and listen to the news, and the reports that are dwelling on new housing starts, growth in the GDP, prime and discount interest rates and all of the regulations and new laws being proposed by politicians, it is usually met with an urge to either roll your eyes and thank your stars that you are not in finance, construction, or banking. (Hopefully no one reading this is a politician or federal regulator, but if they are, they are hopefully exploring future employment options). But the economic news, particularly new housing and industrial construction starts are directly related to your business in the commercial vehicle parts and repair industry.
Last January I was in a session at HD Aftermarket Week, an industry conference in Vegas, and the speaker Mitch Javidi from a consulting company called Catevo made an observation. Standing on the stage in a huge convention center, Mitch stopped in the middle of a discussion on logistics and stated, “Look around you, at everything in this building, or in this entire city, for that matter. Every single brick, girder, rivet, welding rod, electrical and heating system part—all of it—every single piece came here on a truck. In fact, all the parts used to make up that truck were delivered by truck.”
Now, Dr. Mitch is not a truck guy; he is a supply chain guru. Mitch’s statement gave everyone a moment of pause. Our industry is partly responsible for almost all of the economic expansion that has occurred in this country. Our freight system in this nation is the envy of the entire world for its effectiveness. Almost 80 percent of all goods in the country move by truck. In a $13 trillion+ annual economy, that is a lot of stuff.
You might ask “What does this all mean?” It means that a one percent slowdown in the economy is over a $130 billion drop in goods and services. There are entire countries in the world that don’t produce $130 billion in total GDP. If the economy slows down, miles driven by trucks slows down, wear on all of the parts slows down, and so do the sales of new trucks and replacement parts, and the need for service. It means that you need to prepare for any trend, up or down. Housing starts alone were responsible for a big drop in the amount of freight hauled in the past year. If your business slowed down a little, don’t look too much further than that for a major factor. The series of rate increases at the Federal Reserve basically killed the golden goose that was the housing boom of the last few years.
When President Reagan used the term “trickle-down economics” he was derided and ridiculed for simple thought. “He is an actor, why would we listen to him on something as sophisticated as economics?” said the chattering class. “The rich get richer and the poor get poorer, the trickle-down theory is wrong”, said the political opposition. Of course, the journalists and lawyer/politicians are usually not economists either. But Reagan was absolutely correct. When a part of our economy does well, the rest of it eventually does well also, a proven fact. When the bankers at the Federal Reserve think someone is having too much fun, though, they pull the rug out from under them with interest rate hikes. This is what happened with housing starts, and it is what happened to the boom in business we all saw in the truck parts and service industry. EPA regulations killed the truck build in 2007, but the Fed did the rest.
Many are predicting a recession to occur soon, and that will affect our industry greatly.
Recessions are pretty easy to predict: Even a stopped clock is right twice a day. Booms are always eventually followed by a slow-down.
Prepare to run lean in your operation. Stay lean in how you do everything and prepare for up and down-turns by watching the leading indicators. If housing starts pick up significantly, that is the time to buy a new piece of equipment, (or a bass boat). When it drops off, that is the time to plan to run your business like my mom used to run her household—not a penny spent on anything that wasn’t needed in the next three days.