HOW LONG WILL THE CURRENT ECONOMIC BOOM last? Can the industry continue to improve upon record-setting sales year after year?
These are the questions the media continuously are asking industry analysts and auto companies' economists.
Their answers usually go something like this: "We expect the current trend (increased sales) to continue, unless something happens to change the momentum."
The follow-up question is, "What could change the momentum?"
Answer? "Well, if interest rates go up to a point where they start to impact the APR on vehicle loans or gas prices go up too high, we could see the beginning of a downturn in sales."
If this is the case, we in the auto industry might want to take a deep breath and have a seat before reading the morning newspaper.
Interest rates are on the rise as the Federal Reserve Board tries to keep the economic growth of the country from levels that might cause inflation. So far, it hasn't hampered vehicle sales.
Fuel prices, particularly in the Midwest, are rising faster than a bottle rocket on the Fourth of July. In late June, the price of regular gas was well over $2 per gallon. Still, dealers report sales as usual.
My question to the industry is how long will consumers be willing to pay more in monthly payments and at the pump before they decide to wait before getting a new car or truck?
To his credit, Alan Greenspan's strategy of upping the prime interest rate slowly enough to avoid inflation - yet not fast enough to stall growth completely - has worked so far.
And the fuel situation is being blamed on an increase in crude-oil prices, tight inventories due to a broken pipeline and high demand for gasoline. In other words, it's a temporary situation.
But what if these news items become a trend? What if interest rates actually keep people from buying and leasing new vehicles? What if gas prices get up to $3 per gallon or worse, up to European levels?
You'd better prepare for the worst, just in case.
Another bit of news coming out of Dearborn has some dealers and their technicians up in arms.
Ford Motor Co. has decided to adjust the number of technician labor hours it will pay dealers for warranty work.
Transmission replacement on a Taurus with a 3-liter engine, for example, goes from seven to five hours. Water pump replacement on a Mercury Mystique goes from 3.2 hours to less than an hour.
This could be a major blow to Ford dealers and their technicians.
With about half of dealer profits coming from their service and parts operations, retailers see the company narrowing yet another margin. They're also concerned that they run the risk of losing valuable technicians because they won't be able to pay them as much as they had been.
That's a very real concern since the U.S. Bureau of Labor statistics estimates a shortage of some 60,000 technicians in this country.
A Ford technician in California, Joe M. Young, opened a web site www.flatratetech.com to voice his displeasure with the action.
Ford's perspective is it's trying to control warranty costs, a huge expense for every automaker. A few years ago, manufacturers convinced component and system suppliers to sign on to help defray warranty costs associated with the parts they make. This is just an extension of that.
Most dealers are upset about Ford cutting into service margins. At least one understands why the cutbacks were done.
"As a dealer, yeah, I'll miss the money," says the retailer. "But I think Ford has been very generous with payments and now they'll be more normal.It's painful, because we were used to the excess."
So, Ford dealers got used to Ford's "generous" warranty payments and became reliant on them for a good percentage of their profitability.
The rest of us shouldn't become too reliant on record vehicle sales. Because you never know what will be in the newspaper tomorrow that could start the industry's long-anticipated downturn.
Tim Keenan is senior editor of Ward's Dealer Business. He can be reached at [email protected]
