INDUSTRY RESEARCH

Dealernews Research

By Dr. Paul Leinberger

REVIVAL OF THE ROARING TWENTIES

Have We Hit An Inflection Point?

Federal Reserve Chair Jerome H. Powell said recently (“60 Minutes” broadcast interview, April 11, 2021) that the U.S. economy is “at an inflection point” and poised for an extended period of strong growth and hiring. The Dow Jones industrial average is at record highs, 916,000 jobs were added to the economy in March, and unemployment edged down to 6% from 6.2% in February. “This growth that we’re expecting in the second half of the year is going to be very strong. And job creation, I would expect to be very strong,” said Powell.

On the other hand, consumers remain cautious. A majority of Americans expect that it will be at least a year before life returns to the way it was pre-COVID (Pew Research, conducted March 1-7, 2021). Nearly six-in-ten (57%) believe it will be a year or more before things get back to “normal” including 14% who expect that it will take more than two years.

Consumers are also pessimistic about job prospects. Almost eight-in-ten say they expect it will take one to two years (46%) or more than two years (35%) for jobs to return to pre-pandemic levels. Only 19% believe the job situation will recover in less than a year. Since consumer spending represents over two-thirds of the nation’s economy, consumer attitudes and behavior will be critical to the nation’s recovery.

What do you think? Are we headed into a boom or will the recovery be slow? Either way, what does it mean for the future of your dealership?

If you ask venture capitalists – who make their money by betting on the future – they will tell you that the future looks bright. For example, the highly successful venture firm Sequoia told its clients (on March 18, 2021): “The U.S. is poised for stronger economic growth in the second half of 2021 than we’ve seen in decades (bold and italics not in original). Now is the time to start stepping on the gas. COVID accelerated the future: Now seize it.”

Pent-up demand is driving much of the optimism. Many VC firms expect consumer spending to explode in the coming months. As consumers emerge from their cocoons, VC firms expect consumers to “let loose this summer.” Many VCs believe we are about to experience the next “Roaring Twenties.”

Others in the financial community share their enthusiasm. The Wall Street Journal foresees the best era for manufacturing since the 1990s, the Financial Times projects “a once-in-a-century boom,” and even the staid Economist sees “a new period of economic dynamism.” Happy days are here again…

Or are they? In mid-January, the World Bank released a forecast suggesting that the 2020s might end up being a “lost decade,” with annual growth rates averaging just 1.9%. “If history is any guide,” the report said, “unless there are substantial and effective reforms, the global economy is heading for a decade of disappointing growth outcomes.”

Rising inequality (according to Fed data, the top 1% holds 15 times as much wealth as the bottom half combined and the gap continues to grow), a growing rural-urban divide, seemingly endless political gridlock, and predictions of a financial bubble forming, all point to potential trouble ahead.

None of us can foresee the future. However, we can be prepared. Previous moments like this have taught us one important lesson: nobody ever regrets making fast and decisive adjustments to changing circumstances. Darwin was correct: those who survive “are not the strongest or most intelligent, but the most adaptable to change.”

In the months ahead, the economy will begin to give us signs of where it is headed. Employment numbers will go up – or down. COVID numbers will continue to fall – or not. Consumer optimism will grow – or decline. Taken together, they will give us a clear picture of whether or

not we have reached an inflection point. Either way, what is most important is to focus on the numbers that reflect on how your core business is doing (in the context of the larger changes taking place in the economy) and then act decisively as circumstances change.

If you are doing better than you did during the same period in 2020, ask yourself why. It’s important to understand the “why” because 2021 is NOT like 2020 and you can’t keep doing what you did in 2020 and expect similar results. Conversely, if you are not doing better than you did during the same period in 2020, it is critically important that you understand what has changed. Remember that in downturns, revenue and cash levels always fall faster than expenses.

If the economy rebounds sharply – some economists are predicting a “J”-shaped rebound (where the bottom loop of the “J” represents where we are now and the vertical line of the “J” reflects what will happen next – a dramatic expansion of the economy) – there is a danger that consumer spending might shift away from powersports and towards categories where pent-up demand is the strongest – like travel, restaurants, bars, nightclubs, live entertainment, fashion and selected retail. I am not predicting such a scenario, but if the data suggests a shift in that direction, you need to be ready to take decisive action. Alternatively, if the economy expands dramatically and powersports sales follow suit, you need to be sure that the supply chain issues that developed in 2020 will never happen again.

Whatever the future brings, the message remains the same: change brings opportunity if you are ready to act decisively when circumstances change.

A perennial keynote speaker for the Motorcycle Industry Council's annual Communications Symposium, Dr. Paul Leinberger has become the powersports industry's de facto futurist/strategist. Dr. Leinberger is an expert in market/brand strategy and research with more than two decades of social trend forecasting, market strategy and strategic planning. Prior to joining TTD, he was Senior VP of GfK NOP, where he ran the company’s flagship consumer trend services, Roper Reports, as well as the company’s groundbreaking Global Visual Database. His client list reads like a Who’s Who of corporate America: Hewlett-Packard, Apple, Disney, Nordstrom, Microsoft, Levi Strauss, E.& J. Gallo Winery and Toyota, among many others. Prior to his global responsibilities at GfK NOP, Dr. Leinberger was the Corporate Manager in the Product Planning and Market Strategy department at Nissan North America. Dr. Leinberger holds a Ph.D. in organizational and social psychology and a Masters of Urban Planning (Highest Honors). He lives in Irvine, California, and his work can be seen at www.dennyleinbergerstrategy.com APRIL 2021 29