Business Update with Mark Lacter

Buy a car, start a business, help the economy

KPCC's business analyst Mark Lacter talks about how Southern Californians can help save the economy.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, you're here this morning with sage advice: We can help save the economy by buying a car. Is that what should be happening?

Mark Lacter: Actually, it's already happening, Steve - vehicle registrations in the L.A. area jumped 22 percent for the first five months of the year. That's a big increase, especially because it includes a weak sales month in May due to those supply disruptions connected with the Japanese earthquake. You had sales of American-made cars up a bit, sales of Japanese cars down a bit, but overall business has been quite good. And for the month of June, many of the supply disruptions have been smoothed out, which means inventory levels are holding their own...

Julian: And the cost of gasoline is coming down substantially...

Lacter: ...and that's often a motivator for people to buy cars. The research firm J.D. Power says that sales in June will be running at an annual rate of 12 million vehicles. To give you an idea of what that number means, car sales right before the recession were approaching 17 million. So there's quite a gap. But at least the 12 million is an increase from last year, and it does provide some sign that consumers are getting less afraid to make big-ticket purchases, as long as the deals and the financing are right. (The automakers come out with those June numbers on Friday.)

Julian: So to what do economists attribute the jump in car sales?

Lacter: A lot of them believe there has been pent-up demand over the last three months because consumers were too nervous about the economy to buy cars. Now that gas prices have come down billions of dollars have been freed up and that money presumably will be used this summer and early fall. Now, for that to really happen, a number of things have to work out right. Most importantly, gas prices can’t go back up anytime soon, there can't be some financial emergency, such as the U.S. defaulting on its debt because Congress couldn't raise the debt ceiling; and the stock market can't crash, either - that would make millions of individual investors feel a lot less comfortable about buying a car or much of anything. Assuming none of that bad stuff happens, consumer spending is likely to lead to more consumer confidence, which will lead to more consumer spending. Anyway, that's the idea.

Julian: There are other ways to help save the economy - like starting a small business...

Lacter: Yeah, this may surprise you Steve - maybe it'll even shock you - but between 2007 and 2009 (that's during the height of the recession), L.A. County actually added more than 14,000 businesses. Now, this was the result of small business formation - we're talking really small companies with four or fewer employees.

Julian: Started by people who got laid off, I wonder?

Lacter: Well, in part, yes, and I'll get to that in a second. The succeess of small businesses somewhat offsets medium- and large-sized companies that didn't do nearly as well - their numbers declined and so did their workforces.

Julian: Why?

Lacter: Well, small businesses are relatively easy to start; just think of all the people you know who have become computer consultants of one sort or another, or contractors, or caterers. All they have to do is put up a shingle on Facebook, and they're set. The problem is that many of them don't have the experience or frankly the capability in building up those businesses – it’s hard to deal with things like marketing and hiring and competition. Perhaps the government can encourage small business owners a little more - simple stuff like increasing the tax deduction for start-ups, or providing easier access to capital. More and more people are gravitating towards their own business, so it sure would be nice to make the process a little easier.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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