The United States could be headed toward a recession. Or maybe it’s not.
Some economists are arguing both ways over it.
Here are some facts: Yesterday, the financial markets flashed a warning signal that normally precedes a recession. The yield on longer-term bonds began paying less than a shorter-term bond. This happened at 6:08 am eastern time and the last time this happened was 12 years ago.
This is exactly opposite of how things normally work. And when this happens, we in the U.S. normally go into a recession. Anyone reading this column has been through a recession. If it happens, it will be my seventh recession and we’ve had by most counts 47 recessions since the late 1700s.
But we’re not alone. This week brought some other hints of what could lie ahead for the world: Germany’s second-quarter GDP contracted. And China’s industrial growth hit a 17-year low. This is obviously bad because it means the country is making less stuff and often, it’s stuff U.S. companies put in orders to have China make.
If a recession happens in the U.S., it likely will occur within the next 18 months, and probably sooner rather than later. Based on historical records, most recessions last about 10 months, some more than a year.
There is at least one prominent voice who doesn’t think we’re going into a recession. In a Fox Business Network interview yesterday, former Federal Reserve Chairman Janet Yellen said, “I think the answer is most likely no. I think the U.S. economy has enough strength to avoid that, but the odds have clearly risen and they’re higher than I’m frankly comfortable with.”
Some other data points worth considering. The Federal Reserve Bank of New York released data Tuesday that said U.S. credit card balances grew to $868 billion in the second quarter. And more of those credit card balances are seriously past due.
What’s all this mean to us in the automotive aftermarket? It likely means that consumers who have put off repairing their vehicles will continue to do so, unless absolutely necessary. For most people I know, credit cards are the way they pay for vehicle repairs and if more people are up against the wall with their bills, repairs, even vital ones, may remain undone.
Miles driven will likely trend downward. People fearful to spend money because the future is unclear tend not to drive as much.
One potential positive for the aftermarket is that fewer people will buy new vehicles and continue to rely on vehicles that if they eventually repair them, the money will go to the aftermarket.
Recently, O’Reilly Auto Parts and Advance Auto Parts posted weaker-than-expected numbers, mostly in the DIY segment. On Tuesday, Advance President and CEO Tom Greco told analysts during the earnings call, “May was an extremely difficult month, at least for us. I think the whole industry, certainly in those northern geographies. We saw double-digit declines in refrigerants and appearance — the big categories that are impacted by rain. It was a very rainy month and a lot cooler than last year. Once we got past that, we started to see improvement.”
Greco noted that the DIFM segment did much better. “The professional business is much more smooth and much less impacted by swings in seasonal weather trends. The DIY business is much more impacted. For sure, we’ve seen improvement into July and into the third quarter. So we feel it’s back on to the normal pattern we would expect.”
In light of the talk of recession, what should you do?
1. Tell your story
Depending on where you work in the automotive aftermarket, continue to project your company’s value proposition to your customers.
2. Continue to advertise and market your products and services.
Don’t stop advertising and marketing activities. That’s often the first thing to get cut and it’s the worst thing to do. In past recessions, companies who did this often get forgotten and forgotten quickly.
3. Keep moving
Stay visible, stay agile, invest smartly in your businesses and help each other out. I would also suggest collaborating and making partnerships with other companies.
Recessions have happened before and if it happens again, we will get through this.
For the latest news and information on the global automotive aftermarket industry, visit https://aftermarketintel.com.