After the Bust

I still do some business, but I’m not as active as I once was before the “bust.”  What I have seen in my limited sampling of the business world is a dramatic increase in slow pay no pay situations.  It seems like the guys who used to pay in 10 days are now paying their bills out at 45 days and the guys who did net 30 payments are paying in 90 days.  That affects me a bit, but I don’t have a huge number of invoices outstanding at any given time. 

The slow pay trend must be having a nasty impact on larger businesses with many outstanding  invoices.  If many companies are delaying their payments I could see how a slow pay trend could cause a great deal of pain.  This is kind of back to the “house of cards” argument that I talked about in some other posts on this site.  If enough companies start doing delayed payments, its could very well crash others by destroying their cash flow.

I guess that slow pay is better than “I.O.U. pay” that is planned, and may have started, in California.  Myu problem with their plan is that I can’t eat an I.O.U. and I can’t pay my grocery bill or power bill with an I.O.U. either.  I’m interested in seeing how the open market discounts California I.O.U.’s if they hit the street.  California gives you a paycheck for $ 3,000 and you sell the paper for what, fifty cents on the dollar?  Whatever the discount turns out to be, the people who receive them will still have to peddle the paper to buy groceries.

For all of the money that has been dumped into the economy of late by the government I’m not yet seeing a lot of it in circulation.  As discussed on this site, there is a lot of bank hoarding and investor hoarding of dollars.  I still think that it is just a matter of time and all of that money will start to chase hard assets.  We shall see.

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The auto industry in earlier times employed over 600,000 individuals and after the bust there may remain a force of only about 40,000 employed.  What does that mean for Michigan?  The State is looking at huge budget problems trying to meet the tax shortfall that will be created by the job losses.  Police, schools and emergency services may be hit hard.  Healthcare will suffer, retail sales will plumet, property values already down will become frozen and drop futher and a wide array of support jobs will vanish as the “multiplier effect” that comes into play when core jobs are created works in reverse as auto jobs are lost.

The liquidation of well over a million vehicles, in what has been a poor market for vehicle sales, will negatively impact Ford and foreign manufacturers.  Some have predicted that the sell off will cause massive layoffs as production is decreased, and that prices may increase on other vehicles in response to the disruption.

While no one knows just how bad things will get, it is clear that even under some of the most optomistic scenarios Michigan will be suffering over the next several years, and Michigan’s losses affect us all.  The black hole that will be created by primary and secondary job loss in Michigan will ripple through the State and adjoining states.  The job losses from the closure of hundreds of dealerships will hit many more states at a time when job retention is critical. 

There will be more waves in time as iron ore mining, steel, aluminum and parts manufacturing plants are hit.  Regardless of your ideology regarding the necessity for the market to allow such failures, expect the adjustment process will be painful for many.

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There are a lot of predictions regarding which businesses will survive the “bust” brought about by the recession and which ones will not. Difficult economic times usually act as a “business accelerant” that forces business operating at the margin over the cliff.

One of the businesses most often identified as being in trouble are the newspaper and magazines. The costs associated with producing their product is relatively high. Paper, ink, printing press equipment and relatively high labor costs have all contributed to their profitability problem, but the Internet has been the main culprit for their demise. There is so much free information on the Internet that is accessible in seconds that it is hard to compete with it via alternate media. Many of the newspapers and magazines have seen the light and started to transition their businesses to an Internet model.

Another example of a business in trouble is the pay phone business. Just about everyone is carrying around one or more cell phones. It’s tough to get into a car with another person and not have 2 phones at your disposal, yours and your passenger’s. When you consider just how cheap cell phones are becoming, with disposable phones and by-the-month plans, it’s hard to believe that there will be much use for the pay phone in the next few years.

How about some easy ones. . Television antenna manufacturers, arcades and the CRT Tube manufacturers. It’s hard to believe that antenna manufacturers will not be in trouble as we now transition to digital TV, and CRT’s have been on their way out for some time and there are few manufacturers still around. The prediction that arcade games are less popular since home gaming systems have improved is hard to argue with.

The recession has gone beyond causing the closure of real estate agencies, mortgage brokers and title insurance companies. I have seen the closure of many high-end food establishments as the recession has progressed. There are fewer $ 10 a Sundae ice cream stores, fewer $ 35 per steak restaurants and it seems to me that even branded restaurants with marginal locations are closing their doors. So it’s not just the businesses that have lost out because of modernization, changing trends and the real estate debacle, there are many meat and potatoes business that are also failing.

Survival of a business in the current economic climate has to do with consumer preferences. That’s why places like Wal-Mart and MacDonald’s are thriving. They are relatively cheap, well located, branded and offer necessity items (food and clothing).

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What does “green” mean?  Beyond the color the Merriam-Webster dictionary  notes that one definition of green is; “tending to preserve environmental quality (as by being recyclable, biodegradable, or nonpolluting).”

Our environmental problems are many and deep rooted and whether you want to accept them as real or not they are on their way to your doorstep, and they will arrive in the not so distant future.  ”The Limits to Growth,” the 1972 book that modeled possible economic growth outcomes pointed to potential global problems and more recently Al Gore’s “An Incontinent Truth” focused on humanly caused carbon dioxide increases that are the cause for Global Warming.

Our meager attempts to date to change direction on the use of fossil fuels and coal in the U.S. will likely have no effect on China or other developing countries that are ramping up their pollution outputs, but as the major environmental pollution abuser we need to lead by example. 

Adjusting to small, fuel efficient autos, significantly increased utility bills and being forced to reduce our consumption will be one of the most difficult adjustments that we as Americans will have to face over the next several years.  The fact that we, as a nation, are now recognizing that environmental problems exist instead of turning away as if they do not is a positive change. 

Most people have heard about the advent of “green” buildings but there are literally millions of products that are claiming to be “green,” and you can access a list by State and by Category at United States Green Products.  Another great source of information on the “green” revolution is Yahoo.  You can find their area dedicated to this topic at http://green.yahoo.com/. 

If you want to start buying “green” now, Treehugger.com provides a Buying Guide that offers a number of alternative products.  If all you can do at this point is make the right choices, this is a great place to start.  Sending a message to businesses that the environment is important will accelerate the development of “green” products and services.

I would like to also acknowledge Tim Willard’s “The Future is Green” blog, it is full of great posts that date back from 2003, and each post includes great information on a variety of “green” topics.  If you would like to read more about climate change, fossil fuel limits, alternative fuels and other articles on environmental topics his is a great source.

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The theory most often pointed to by economists displays big sine waves, and they note that “everything that goes down always goes back up.”  While the economic theory may be true under normal circumstances, when markets can adjust on their own, the depth of the damage to the housing markets, banking industry, stock market and employment base may not allow a swing back in the upward direction for some time. 

It has been predicted that home prices will continue to fall in 2009.  The banking industry is in a state of panic, and borrowing money has become one of the most difficult things that you can do.  The stock market has fallen so far that the charts on most businesses mirror the classic bankruptcy profile of the past, and various experts have predicted a 10% to 20% in further declines.  Finally, unemployment is headed for new highs and the 10.0% figure that many fear could easily be broken.

Government proposals like the abolishment of the home mortgage interest deduction and the government’s approval of cram downs could make things worse, not better. 

So what should a businessman expect?  It is likely that the slowdown will continue for everyone through 2009.   Getting through another year or more with poor economic conditions will be a challenge for almost everyone.  When the economy does begin to rebound, there should be some great business opportunities, simply because some competitors  may not survive the shakeout.

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Welcome to After the Bust.  If you are alive and breathing it is likely that you are in some way going to see changes occuring in your life over the next few years.  Some of the changes may not be pleasant ones, and others may improve your life.  This site looks to inform you about the changes and hopefully help you take advantage of the changes.  We look forward to your posts and contributions!

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