The Word on the Real Street

One thing is certain; there’s been just a slew of negative economic news lately. Worth considering, however, is that much of this news has been driven by government reports and statistics that released only months ago, have already been disproved. Then too, said news may shock us most because it flouts years of relentless, optimistic and misleading statements broadcast by Wall Street’s masters of the universe.

On untold numbers of TV business programs, the "journalists" conducting such "expert" interviews never seriously question anything their guests asserts; instead, most often they proceed to add positive spin to the guest’s already questionable statements. It’s almost as if they’re preparing for their next career moves hosting 3 a.m. infomercials for the next generation of Ron Popeil’s pocket fisherman.

Consider the Source!

The question that everyone should ask is why would the media continue to rely so much on Wall Street’s CEOs and analysts for "absolute" information and judgment on what’s transpiring in the American economy, when they’ve clearly been busted over and over again? Just months ago the CEOs of some recently failed firms were bragging on camera that the worst of the nation’s financial problems were past – and in any case, their companies’ financial condition was beyond reproach: Their credibility is obviously now below zero.

But besides that, Wall Street firms’ vested interests are very different from the average investor’s. In this decade the Street hasn’t encouraged investments into much other than their own vaunted financial "innovations" – which, as former Fed chairman, Paul Volcker, told a banker’s convention in Canada two weeks ago, have all failed completely.

It’s long been known that Wall Street, in dismissing the print media as something of a dinosaur, has in turn driven down the stocks of some of America’s finest media companies, which in turn has caused unwarranted hardship for news gatherers. Yet these same analysts have long touted Google as the wave of the future – coincidentally driving its market cap to $141 billion.

Ultimately, both the print media and Google are in the same business: information. But as frequently as I use the Google search engine, I get far more real news and information from the daily online editions of the world’s most respected newspapers. If Google disappeared tomorrow, our world wouldn’t feel the impact. I couldn’t say the same if just a small number of the world’s great newspapers disappeared, so Wall Street is wrong on this issue too: The print media, including their online editions, are the last great source of information on stories we need to know. Their value to an open society is far greater than that of a search engine, even one that works extremely well.

Its zero credibility aside, I never view economic news through Wall Street’s eyes because there’s a much nearer and more accurate source. Go stand in the showroom of any auto dealership in any American city for a week, and you will find out more about the region’s economy than you could by watching every business show on TV in a year. On any given street with a dealership is where the real economy lives.

This Industry Touches Everything

Each working day in America enough automobiles and trucks are purchased that, parked bumper to bumper, they would form a solid line from downtown Fort Worth to downtown Austin. Further, unlike most items sold in America, a car is considered a durable goods item. It’s a big purchase, and the system that supplies the auto industry from raw materials to production to financing for its retail owner is big, too – and far more interwoven than anyone might think.

The automobile industry is the No.1 buyer of glass in the world, and the same can be said regarding rubber and cold rolled steel. And in three years, as we witness a huge surge in the sales of hybrid or pure electric cars, this industry could easily surpass computer makers as the largest user of lithium. And yes, commodity prices can rise and fall based on the health of automobile production.

Another industry’s health hinges on car buyers. Unlike when they buy Chinese-made trinkets and the week’s groceries at Wal-Mart, each week American consumers borrow close to $4 billion to finance new automobiles. And that figure doesn’t include loans made on the 42 million used car sales made annually. Interest income means jobs, too.

You might never have thought of it this way, but if you went out to buy a new Ford Fusion tomorrow, your vehicle’s purchase price would include monies set aside for mining operations for the iron to make steel; the cost of rubber production from plantations overseas and of cargo ships to bring those goods to America; the train system to get the commodities to their respective factories, assembly costs and wages, truck manufacturer’s and truckers’ incomes to take the finished vehicles to the local dealership, profits to those who created the fuels to move everything from place to place, incomes for those who prepared your vehicle for delivery … and so on.

And your buying it creates demand for hundreds of other jobs. Wall Street doesn’t push automobile manufacturing firms any more than it does newspapers, but this seems counterproductive in good automotive earnings years. When you consider all the auxiliary jobs that an automobile purchase creates, automobile production is responsible for nearly 10 percent of all employment in the United States.

Likewise, one can track where the economy is heading by watching the traffic and sales at new car dealerships. It’s a reliable indicator: Before the housing boom imploded, sales of pickup trucks had already started slipping. But the sure-fire way to tell whether America is sliding into a recession is to watch the big rigs — sales for 18-wheel trucks always collapse before a recession. Likewise, increasing sales of big trucks foretell a coming upturn in the economy. The reason is obvious: Fewer big rigs are needed when economic factors turn down, while the trucking industry picks up on economic improvements immediately – long before any other so-called economic benchmarks used by government statisticians do.

If you had been around the auto industry for the last 30 years you could easily have charted the rise and fall of the sub-prime lending industry. Three decades ago, if you had bad credit or had suffered through a bankruptcy, only 30 percent down in cash would qualify you for a new car loan. Twenty years ago, if remarkable circumstances had soured your credit (serious medical problems was the top reason) but you’d gotten back on your feet, credit institutions were more amenable to giving you a second chance. Ten years ago came the new sub-prime loan business that would supplant the used car "tote the note" lots of previous decades. It seems to shock many, but Dallas Fort Worth has the worst average credit score of any major metropolitan area (yes, even worse than Detroit’s) – and yet ours may be one of the top two healthiest car markets in the country.

Pavement-Level Perspective

Car dealers see the reality of the American economy each and every day. One can gauge what is really going on by the amount of showroom traffic, or by the occupations of those coming in to purchase a new car. Tarrant County’s car dealers knew about the prosperity being created by the Barnett Shale long before Chesapeake hired Tommy Lee Jones to explain it to the rest of us.

Dealers can see who is stretched financially far better and faster than anyone at the Federal Reserve. Because their funding sources supply the information on their dealership’s delinquency reports, dealers see firsthand how those who have bought cars from them are faring money-wise. Likewise, when the graduating college students in any given year find obtaining their first employment as adults particularly easy, it’s the car dealers of America that first see a surge in sales to the under-30 group.

Yes, if you want to know about international finance, commodities, manufacturing, advertising, sales, personal incomes, credit scores, employment in any given industry or loan delinquencies – that is, a virtual snapshot of the American economy right now – just ask a car dealer or his managers.

Sure, there are those who still say that this is no longer true: "America has been through a seven-year economic expansion, but without the benefit of increasing car sales" – but we know now that "economic expansion" was simply a fantasy. Family incomes are virtually the same today as they were in 1999, hence the lack of momentum in new car sales. No, it was mainly the financial markets’ profits that expanded, not the rest of the economy – and yet the government bailouts of $1.6 trillion total more than all of Wall Street has made over the past seven years.

This expansion was nothing more than a mirage. Wall Street and Washington misled us, believing that foolish optimism would make the mirage real.

If you want to know when the negative news will get better, watch for improved big rig truck or new car sales. I’d bet they’ll turn around before the housing/financial crisis recovers fully.

© 2008 Ed Wallace

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Society. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day, contributes articles to BusinessWeek Online and hosts the talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF. E-mail: wheels570@sbcglobal.net