Mixed messages

Sep 1, 2010

If the economy reportedly has slowed so much and consumers are holding back again on major purchasers, why is GM reporting a net second-quarter profit of $1.3 billion – its largest since 2004 and the bulk of which appears to be from its U.S. sales operations (a 14% jump)?

And if the economy is stalled, why would GM ready itself just weeks ago for what looks like a pre-election IPO of potentially as much as $16 billion? (By the way, do two consecutive quarters of profitability after a five-year net loss of almost $100 billion an IPO make? Ford has had five consecutive profitable quarters.)

Speaking of Ford, if the economy is so sluggish, why for the same April-June 2010 period did it net $2.6 billion, beating GM’s much reported and touted profit?

And if practically every carmaker has been reporting such a good second – and first – quarter how could the economy be applying the brakes?

There have been incentives, also called spiffs, that spurred consumer sales. Often we see those spiffs as rebates, low-interest finance rates, dealer incentives, lease discounts, etc. Some vehicle models have offered generous incentives, others little to none. Even spiffs for used cars. Lots of incentives mean more buyers, which equals money pulsing through the economy’s veins.

Fleet sales, too, have increased, as higher-mileage, higher-maintenance-cost vehicles now are getting replaced. Chrysler and GM especially have seen rental car fleet sales figures reportedly double (GM) and even quadruple (Chrysler). Rental car firms had been holding back on new-car purchases, allowing their fleets to rack up more miles before turning them over to the used-car market.

Light truck sales, as well, have proven positive.

Good indicators all.

So if automakers say their profits are up, they’re back in production (even if not at the levels seen pre-2008 recession) and are once again hiring/re-hiring autoworkers, what’s going on? How can the auto industry – one of those economic indicators – say it’s doing well, improving each quarter this year and predicting this third quarter we’re now in to be a good one, yet at the same time we’re told the economy is slowing, after we’ve been told it’s been growing, even if slowly? (An arrested economy? Let’s mention here this year’s already billions of dollars in profits reported by every U.S. oil company.)

Show me the math; all I have is my $5 calculator.

Of course the numbers don’t add up. Of course it’s no longer “As GM goes, so goes the nation.” …Then again.  …And the Feds, with their it’s-good-but-it’s-not-good-enough caveat, don’t help.

The unrestrained behavior of the past decade that played so fast and so loosely with not just America’s but the world’s economy (from the dot.coms and the telecommunications and energy industries, through the sub-prime housing mortgages, over-inflated assets, excessive debt levels, and into Ponzi schemes and record trade deficits) continues to thwart a quicker economic recovery; the wounds were too big to completely heal as rapidly as we wanted. But they are healing; they always do.

The mixed economic messages perhaps come too quickly in this iPhone, iPad, iWantItNow instant messaging age, which can manipulate both our business and personal actions. Those of us who’ve weathered the worst of the recession and modified our businesses to operate leaner, hopefully more efficiently, certainly with more deliberation and determination, have come to understand how to move beyond those mixed messages and get to the business at hand.