Consumers are waiting for deals

By John Cunniff

Associated Press

NEW YORK — Retailers and other business people worried that customers are loath to spend can take a tip from the automotive and housing industries: Give ‘em the store and they’ll beat a path to your door.

This may not be the most profitable way to do business, but it may clean the shelves of inventory and spur consumer confidence, which the surveys suggest is sagging right before the holidays.

But at the very same time, cars and houses, the two costliest items in the household budget, have built higher their already impressive sales figures and seem likely to continue doing so for a while.

Giving strength to these two markets are extreme circumstances, zero interest financing and rebates by carmakers, and low-rate mortgages and flexible financing for home buyers. Add smart consumers to the reasons why.

October sales of existing homes rose 5.5 percent to an annual rate of 5.17 million units, while car sales zoomed 26.4 percent, a remarkable jump in view of an already near-record year at showrooms.

The buyers are out there, as can be attested to by anyone caught in a shopping mall traffic jam, but they are a canny lot who recognize they have the seller in a noose and are coldhearted enough to tighten it.

They are supported by what could be overpublicized surveys claiming consumers are depressed about world events, their own personal financial situations and about warnings of tougher times to come.

But if this is so, at least to the degree claimed, it seems to be contradicted by those car and housing sales. What consumers may be testing is how great a deal they can squeeze from retailers. They lay in wait.

Admittedly, there are consequences in building current sales, since retailers have already gone beyond the conventional steps. Everything, every day, already seems to be on sale these days, and shoppers seek more.

As a result, economists warn of the possibility that even more extreme sales efforts might only be at the expense of profits. Merrill Lynch, for example, reported automakers spent an average of $2,261 per vehicle on incentives in October, an amount that can only cut into profits.

Such efforts might also be at the expense of next year’s sales, as buyers simply act a few months earlier than planned. And incentives to buy new rather than used have already depressed used-car sales, even of late models. You just don’t see beat-up commuter cars in suburban parking lots anymore.

But any negative impact of incentives on next year’s sales may be secondary to spurring people out of their lethargy and letting next year take care of itself. By next year, sellers can theorize, the various depressing statistical evidence of recession might be disappearing.

Moreover, those negative consumer surveys that feed on themselves may show more optimism next year. And, anyway, it might be realized that such surveys are mainly lagging rather than leading indicators.

That is, that they are more reflective of the past and negative news events than forecasters of the future. Giving buyers the store now might be costly, but it could return consumers to their old spending pattern.

Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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