Economy

[beetlespin]

I hope this doesn't degrade into a political debate but I was just wondering how everybody feels about the economy. I know it is having a significant impact on the industry segment we are in. A lot of my focus for the last 6 months has been in the automotive segment particularly with the Big three in Detroit. As many of you know, the automotive segment is in bad shape. US car builds were around 15 million in 2007. They are predicted to be down to 11-12 million in 2008 and possibly as low as 8-10 million in 2009. This is all the car builds and not just the big three. The big three will actually absorb a higher portion of the losses than the transplants though. My next door neighbor also works at a major chemical company for a different business unit. He said they normally ship 22 trucks a day and they are down to either 6 per day or 6 per week. We have seen some of our best customers stop buying at all in the past couple of weeks and the ones that remain are asking for huge price concessions.

I personally think this recession is going to be painfully long. The underlying problem is that people have spent beyond their means for several years and racked up huge debts. I was watching cnbc yesterday and the clueless politicians think the solution is to get more credit into the market so people can go farther in debt. I just don't see it. I think people need to start working their way out of debt and that will take several years. Thats why I think this thing will last several years as opposed to six months as we are used to. Th government has went out of its way to keep this false growth going for several years now. Get your history books out and read about the event that lead up to the great depression of the 1930's and you will see a lot of similarities. Particularly rampant speculation.

Lance

 

[Ronnie Garrison]

I agree the problem stems from people spending money they don't have. Heard a good comment the o ther day - we used to complain about the government borrowing and spending money it didn't have, now don't complain, we imitate it.

 

[foodsaver]

Lance,

I think you hit the nail on the head. It's amazing that people who make 50k a year live like they make 80k and then wonder why we are in the shape we are in. I think the days of easy credit are going to a thing of the past. Seems to me that the credit card companies may very well follow the mortgage industry.

 

[Guest]

I remember about a year or so a go that I would receive around 5 or 6 letters from different credit card companies a week in the mail, these were pre aproved from 5 to 10 thousand each, all I had to do was sign my name and the cards would be sent right away. I didn't bite on any but they kept coming, these companies wanted me to be in debt and they wanted their piece of the pie, now this year I can't remember getting the first application. I know some people personally who did take these companies up on their offers and are paying dearly right now to stay afloat. If a card gave you 10 thousand dollars of credit, some peole maxed them out and they did so not with one comapny but 2 or 3, I guess they were trying to keep up with the Jones's family down the road.</p>

</p>

The cell phone companies did almost the same, you see young kids, especially the girls going around with a cell phone in their hand, we all know how much these things cost per month, this is another way to keep up with the Jones's family, another bill to drain your income each month and really not many need these phones but it is a drain.</p>

</p>

Go to wallyworld or costco, target, etc. try to find a product there that is made in the USA, they are few and far between, almost everything is made in china, this is a drain on our economy, our USA dollars are leaving the USA at an alarming rate and we can't stop it, this is mostly from greed, our USA companies can't compete with the chineese on price so what happens? our USA companies go out of business but the stores are still making a good profit from buying tshirts or other items for pennies on the dollar and are still charging the same price for this item as if it was still made in the USA. For example if wallyworld came to a us clothes maker and said what will you sell us your Hanes tshirts for? The company would say something around a dollar each, wallyworld would say I can buy them in china for 10 cents each, wonder what happens to that USA company when they can't sell their products? They go out of business and their plants are empty and they probably are still paying on these buildings and they are forced into bankruptcy, wallyworld don't care, they are thinking about profits so they buy from the chineese. This is greed on wallyworld's part and they are just one of many companies doing this.</p>

</p>

Our car companies are next in line to go down the tolit, I don't have a clue what anyone can do to save them but if they fail, there will be millions of people that will lose their jobs from people who work directly for the car companies to the small parts suppliers and all these people have bills to pay just like you and me. In closing all I can say is this country is in one hell of a mess, God help us all.</p>

 

[beetlespin]

Agree Doc. Unfortunately, the big three automakers are so far down the wrong path that the government needs to let nature run its course. There will still be auto demand and someone will step in and fill the void. The government can't just keep giving out money to companies with bad business models.

 

[Guest]

Lance, I know what you are saying about the car companies but I sure would like to see the car jobs stay in the USA. I hope it don't come down to the chineese to start making and selling the cars and trucks we need here. These are USA jobs or at least some of them are, not all. We as a country need to keep these jobs here. We need to keep as many USA jobs as possible. The has been rich banking companies don't need to have a bail out, let em go under and as you say someone will take up the slack. I believe our local banks are in pretty good shape and I hope they stay that way.

 

[slo-ride]

Doc1 - 11/15/2008 1:48 PM

These are USA jobs or at least some of them are, not all. We as a country need to keep these jobs here. We need to keep as many USA jobs as possible. .

I agree, DOC..the trickle down effect of US automakers going bankrupt would be HUGE...there are alot of American businesses that supply the auto industry that may just go bankrupt or in the very least have big layoffs if there isn't a bailout.
As far as the banking...I wonder why the Canadian banks have such strong cash to debt ratios when compared to even the strongest American banks. I know they are a lot tighter with their money as far as "risky loans" are concerned.

 

[Bprice]

Everyone should listen to Dave Ramsey. Only acceptable debt is a mortgage... the american people need to live within their means.

 

[flip1up]

Bprice - 11/15/2008 1:37 PM Everyone should listen to Dave Ramsey. Only acceptable debt is a mortgage... the american people need to live within their means.

</p>

Thats right. I had this discussion with my 13 year old last night. Credit Card debt is a great way to ruin your life. Most people dont have the discipline to use them and keep no balance on them. If you can do that then you should just use cash.</p>

 

[beetlespin]

What I meant about the car companies was that other car manufacturers would fill the void with US production. It isn't economical to build cars elsewhere and ship them here. Even the Japanese cars made here get most of their parts here now. I honestly think the big 3 need to file chapter 11 bankruptcy and reorganize. If they can't reorganize they will have to liquidate. At that point other companies would step in and buy up the good assets and let the marginal assets go. It will stink for a couple of years if it happens but it will come out stronger in the long run.

 

[NRG]

I personally have been down the debt road .. credit cards and such .. I am the first to admit I have no business with a credit card .. too tempting for me .. I had no CC debt until I met my wife .. only thing I owed for was a car.. and that was a 2 yr loan. She had lots of Credit and credit cards ... we bought and bought stuff we dont have now nor do we no where most of it went .. but I can tell you I know what it cost to pay it back .. a whole lot more than we paid the retailer or restaurant for what we bought.

I have constantly been hammered by various people to go into debt for cars, trucks, boats etc .. these are friends , family, co-workers, etc not the credit companies .. I guess its like drinking alone no one wants to do it .. they want everyone to join in!

In the last few yrs our money coming in has been less each yr .. since my wife lost her job at Blue Cross , they did away with her and 10 other people positions in her office ( supposed to be a cost savings ) then they turned around and hired 10 people to do the same job, called it something else, and paid them 2x more .. no wonder my health insurance is going up and up.. any way since her losing her job .. our money has shrank each year .. Gas and other prices went up but our money and yours didn't ...

Last year we had 2 car payments, house payment and a bunch of CC debt.. this year we have no car payments paid off the wife's car, sold mine and bought me a used truck, and now gas is getting lower and lower .. YEA! and most of yall know about my boat .. actually Ive never gone into debt for a boat .. always paid cash for a boat, and some have been as my current boat a fixer upper.

My debt could be much worse .. Im a computer junky .. but have never borrowed money for that either , but working in the buis in the past helped with that one.. Our first house was a large part of our current debt .. it wasnt supposed to be a fixer .. but turned out to be a money pit.. and a pit we are still making payments to home depot on .. hope fully now that both cars are paid for the CC bills can be paid off this year.. by using the money from the car payments towards the CC debt.

The company I work for is staying busy , we do lots of automotive resistance welders for 2nd and 3rd tier suppliers to the big 3 and foreign owned companies, but we also do alot of work for other companies that are not automotive based, at the moment we have plenty of work , and more coming down the pipe line.. My job is probably as secure as any out there can be .. now or in the past so that I can be thankful for .. but over all we are ding better than we where a year ago, and next yr is looking positive so far ..

I had a point but gee .. after all that I forgot lol ... I guess I just felt the urge to respond lol
Well one point is like flip said .. pay cash .. if you need it , and find another way to get it if you dont have the cash .. barter , trade, etc etc .. we may all be bartering soon if the economy turns downward further.

 

[slo-ride]

beetlespin - 11/15/2008 2:45 PM

What I meant about the car companies was that other car manufacturers would fill the void with US production. It isn't economical to build cars elsewhere and ship them here. Even the Japanese cars made here get most of their parts here now. I honestly think the big 3 need to file chapter 11 bankruptcy and reorganize. If they can't reorganize they will have to liquidate. At that point other companies would step in and buy up the good assets and let the marginal assets go. It will stink for a couple of years if it happens but it will come out stronger in the long run.

I'd agree with that if our economy was showing a bit of life right now....If GM defaults on it's obligations, it would be a huge nail at this point. They owe a bunch of $$$ to a bunch of suppliers that would go down the pipes as well.

re-org or baiout...we'll all pay the price.

 

[Davo]

I see this constantly when selling houses. Young newlyweds want to have the same kind of house their parents have. They just don't want to wait the 25 years that their parents did to get it. Just because you can squeak by with a payment doesn't necessarily mean you should. Bad decisions and bad choices should have bad consequences. I don't really want to see the Big Three go under, but no one says that there really has to be a Big Three. Many of them have factories in other countries anyway, Mexico and Canada.....so they aren't really domestic vehicles.

The financial issues in this country will continue until some sense of personal accountability comes into play. Basically, if you can't afford it don't buy it.....and if you did, well that was your bad decision and now you have to live with the consequences. I think that the same thing should apply to businesses, I read where GM is losing $3.1 million and hour!!! Naturally, these companies going under would cause a huge ripple effect among other industries so something will need to be done for sure, but a flat out bail out so that they can keep on doing what they have been doing won't work.

 

[Fishin Fool]

I know that as a small business owner I have seen revenues drop almost 30% over this time last year. Each year for the past 15 years I have seen modest growth of around 3 to 5%. I employ 4 people and may soon be forced to cut back to 2 or 3. That ripple effect, while small regarding me, is going on more and more with small business across the country.

I personally agree with almost everything that has been said here. The reasons for all this are varied and numerous. Everyone has made great points.

Credit cards are a sure way to destroy your credit and life. They offer easy credit until they get you on the wheel and then it is round and round, payments to them, charges to buy things that you can no longer afford to pay cash for because you are making payments to them. In all that is the huge interest rate that most of them charge. With Universal Default, they have it made. Run one day late on one and ALL of them can increase rates to 29% or better. Not to mention late charges and over the limit fees. Americans have gotten so used to the idea of easy credit that they no average 20,000 or more per household in Credit Card debt, which, as someone said, is a bomb waiting to explode. Right now the default rate is high but I predict it will increase another 30% in the upcoming year. American Express (one of the worst in my opinion) asked on Monday to become a holding bank, and on Wed asked for 3.5 Billion in bailouts! I can't believe we are beginning to bail these greedy bandits out. Watch and see. They'll be a bunch more with their hands held out.

China is our adversary in my opinion. They are flooding our market with cheap products and like idiots we bought tons of it in the last couple of decades making them rich, and in return allowing their people to buy cars, which in turn made the cost of oil sky rocket. We are between a rock and a hard place now because with the economic conditions even those of us that prefer American made can't afford to pay a little more for it. We have to shop where it is cheap and that is Walmart, China's best friend in the USA. China is buying our debt at a rate not seen ever by a developed country. They now own, by some estimates, 4 Trillion dollars in US debt. They have increased military spending and continue to build more war machinery with out dollars. This depression (yes I said it) has hurt them BUT go to the CIA World Facts page and look. They have more money in reserve than the USA can even think of. We have none. My business is directly effected with bootlegs and cheap copies of products. We have laws agaisnt it but try getting them enforced. I can invest $1000 in real products only to find cheap Chinese copies on the street for $100. If we don't pay attention this cruel and ruthless government will overtake us as a world power very soon.

As Americans we have lived far beyond what we can afford, but one of the things that is KILLING our businesses, including the automotive business is health care. The cost for even a small company is unbelieveable. Before I dropped group insurance at my business we were paying almost the same amount for health insurance as we were paying for leasing th building. We simply could not afford it any longer. GM, Ford, and Chrysler have very good health care plans that have become bloomed into billions upon billions of dollars of debt. Some of them have begun to operate their own health care divisions but still see the cost increasing. I went to see a specialist the other day for kidney stones. He walked in, spoke with me for 5 minutes, wrote a RX, and said good luck and come back in two weeks. The cost: $409. Had I followed through with the treatment he wanted (a CT scan) the cost to me, out of pocket, would have been around $1000 in addition to his $409, even with BCBS coverage. Before any of you young and healthy folks pile on, remember you'll be older one day and may have a chronic disease. If that happens and God forbid it does, you'll have a lot more sympathy with the 47 million uninsured and those of us that ARE insured but can't afford to pay the deductibles and the 20% copay. The auto makers and other businesses can't continue to pay these rates and compete with Japan and China. We have to find a solution to these high health care costs.

Greed and "keeping up with the Jones" is also driving this crisis. But while I give a lot of the blame to the big spenders I think a HUGE portion of the blame should go to the people that have made massive profits on chancy loans to chancy people. They knew what they were doing. They did it anyway and most of that profit is sitting offshore. Unfortunately everyone is going to pay for this now

I DO think we need to bailout the auto makers. There is a vast difference in my mind with bailing them out and bailing out a bank or credit card company. The ripple effect if they go under will be the last nail in the coffin and bad won't even come close to describing how things will be. I could care less about the investment banks or the credit card companies.

 

[slo-ride]

great post , FF!

I know some folks with a combined 100k income that are living "hand to mouth",,,,easy credit is not making things any easier for these folks. There are VAST numbers of the population that will take the "carrot" if offered. I've known more than a few folks that refinanced mortgages in the last several years that were offered more than home value to "payoff bills". Loose and predatory lending has finally shown it's ugly face. I, in part, blame the CRA ( Community Reinvestment Act) for a lot of our problems....it may have been a good idea, but was poorly regulated and abused.

long read:
http://en.wikipedia.org/wiki/Community_Reinvestment_Act

 

[Guest]

Well said Terry, in my opinion credit or easy credit is most of the culprit. I hope the credit card companies have to shut down, I can get by without them and I think most everyone else can too. The housing market is another thing, most people owe more on their houses than they are worth, in other words if they wanted to sell their houses they couldn't, their only way out is bankruptcy. If I was a bank or loan institution I would like something to be coming in each month instead of nothing on these forclosed homes.

 

[beetlespin]

Good points guys. If only congress had this much common sense....

 

[Dropshot]

I agree Lance. On this bailout, the banks want money, american express wants money, the auto industry wants money, and now mayors from Atlanta, Philadelphia, and Phoenix are demanding bailout money as well. When will it end?

 

[MrWiskers]

My wife was a real estate agent a couple of years back and I got into checking out housing prices, neighborhoods, etc. It was amazing to me the number of $250K and above houses in the Chattanooga area. Way more than the number of jobs that could support this number of houses. The more amazing thing was you could drive into these neighborhoods and see $30K and above cars in the driveway and 2-3 kids playing in the yard. The people that bought these homes were not middle age people with equity, these are people in their late 20's and 30'sand have very little or no equity. So lets do the math:</p>

</p>

House $250K = Monthly Payment at 30 years and 6% = $1800 (includes escrow)</p>

Car payments (assume 2new cars, or 1 car/1 boat, etc)= $800 + 100 insurance = $900</p>

Utilities month = $500 (includes electric, phone, water, cable etc, probably lowball)</p>

Groceries and gas = $1000 month est (assume family of 4, $200 per week groceries/food, $50 week gas, again probably lowball)</p>

Total = $4200 month</p>

(Note: thecost of living in Chattis average to lower than most of the US)</p>

</p>

This equates to a total household salary of around $80K and does not include anything for savings, entertainment, boats/jet skies (which many of them had), health bills, home repair, school fees, college funds, clothing, daycare,retirement, etc. To support this house hold properly I would estimate a house hold income of $100-120K or more would be needed. If you don't believe it, drive around and go into some of these neighborhoods. Most of them have 200+ houses per neighborhood with the average sale price of $250-$350K. I know of at least 10 neighborhoods like this in the Chatt area. Where are the jobs to support 2000 household incomes of $100K or more in Chatt? This does not even scratch the surface of all the neighborhoods they have $400-$750K homes. How many golf course neighborhoods and lake front homesare in Chatt? A lot more than you think.</p>

</p>

How many households in the Chatt area have an income of $100K or more? </p>

</p>

I make damn good money but even I would not go into this kind of debt. We always wondered how people were paying for all of this stuff. Keep in mind I used $250K for an averge home price, the real numbers are from $250 up to $400 for an averge in most of these neighborhoods. Unreal. Think of Chatt and try to list the number of companies were a person could make more than $50k per year. Not many. The other amazing thing was 3-4 years ago they were selling houses in this price range faster than they could build them. Even in my neighborhood housing prices reached almost $200k for new construction before the wheels fell off. I bought mine for $112k back in 1999, which is not much less that what I could get for it today. Chatt is somewhat luck as two of the primary employers are health care and insurance. Image if our local economy were based on manufacturing or automotive? A co-worker of mine moved down from Ohio a couple of years ago and even then he could not give his house away. Imagine what is must be like now. </p>

</p>

What does this mean?</p>

</p>

The housing market and credit cards are the primary drives for the economy taking a nose dive. If you are 100% maxed out with a house payment, a house you cannot sell due owing more than you can get for it, then you have 0 money left over to buy things like tv's, cars, clothes, etc. Even with credit cards, which I agree 100% has propped up our economy for the past 5-10 years, people have no more credit to purchase things. The economy is screwed and it will get a whole lot worse before it gets better. </p>

</p>

The goverment bail outs will not fix the personal credit crunch. People buy goods and services which support the economy, not the big banks or the big three. All the goverment bail outs will do is put off the eventual fall of most of these institutions and drive the US into even more debt. Could we see the US goverment go bankrupt? I don't think it is outside the realm of possibility. A lot of our largest cities are on the verge of shutting down due to the decrease of tax dollars. Huge debt + no income = bankruptcy.</p>

</p>

How do we fix it? Good question. I can see the average standard of living dropping for the US. I don't think as a whole the US economy can support the standard of living that most of us enjoy. Moving jobs off shore will have to stop as well. As the world becomes more and more a global economy you will see a leveling of the standard of living through out the world. We are currently the highest, or near the highest, and if we do see a leveling then we have nowhere to go but down.</p>

</p>

But I plan to do my part and spend, spend, spend as much as possible. The worst thing that can happen is the people that can spend stop out of fear which would only drive down the economy faster. If the economy falls, having money in the bank will be worthless. </p>

</p>

I will not even talk about the stock market or the myth of the 401k or social security. I will save this for another thread.</p>

 

[churly]

I dont want to bail the car companies out, and I dont wont my grand children paying for it either. I think if anyone is going to bailout the auto manufacturers it should be the oil companies (i.e. Exxon Mobil) for several reasons. The auto industry is what fules the need for petroleum in the U.S. If the number of auto owners shrinks, so does the demand for fuel.


Also, as far as the economy as a whole goes, I am in debt I owe on a house, boat, truck, and college loans. But as long as I keep my job, I can afford it. The only way I can loose this stuff is to loose my job. And as every day goes by, I get closer and closer to paying everything off. Now these Blue nose upity type that have bazillions tied up in stocks and other investments, stand to loose alot more than I do, and hey thats how the cookie crumbles. But dont fret...Obama gonna save us!!