Have Automakers Pushed Prices Too Far?

Surging loan delinquencies suggest many consumers can’t afford their loans.

Good Morning!

Here are today’s highlights:            

• On Dashboard, Gene Marks highlights two tax credits most business owners don’t know about.

• There’s a new benefit that is helping employers attract women job candidates.

• The former owners of a family business win a big judgment against PricewaterhouseCoopers.

• The owner of a California clothing store was shot and killed for displaying a Pride flag.

RETAIL

Shop openings are a bright spot in commercial real estate: “Retailers are on track to open 1,000 net new stores in the U.S. this year as retail availability hits record lows, in fresh signs of the sector’s resilience despite turmoil in commercial real estate. Landlords say demand for retail space has remained robust this year, defying inflation pressures, high interest rates, and liquidations, including Bed Bath & Beyond and Christmas Tree Shops. Retail’s strength is largely the result of a sharp drop in retail construction since the 2008-09 financial crisis, which allowed the oversupplied sector to digest its existing real estate. Retailers, meanwhile, started using online sales data and analytics technology to pinpoint locations for successful stores.”

• “Also, predictions that internet sales would wipe out physical retail failed to materialize. Digitally native companies are opening bricks-and-mortar locations after reaching the limits of online customer acquisition. Shoppers flocked back to stores and restaurants as pandemic restrictions eased.”

• “Shopping-center owners, particularly in the suburbs, have benefited from the rise of remote work since the onset of Covid-19 in 2020, as consumers visit local grocery stores and other shops more often during the workweek. In response, some fast-casual restaurants and other retailers have shifted from urban business districts to the suburbs.”

• “Older malls have fallen out of favor in areas that have lost population, said Jim Costello, chief economist for MSCI Real Assets. ‘The malls built in the ’60s and ’70s to sell polyester plants to manufacturing workers—when those manufacturing jobs go away, there’s no sales to support the malls,’ Costello said.” READ MORE

PRICING

Car prices might be unsustainable for buyers: “Five years ago, there were a dozen models of new cars that sold for less than $20,000. In 2023, there was only one: the spartan Mitsubishi Mirage hatchback, which accounted for about 5,300 of the 7.7 million new vehicles sold in the U.S. in the first half of the year. If you are willing to spend more than $100,000, you can choose from 32 models. For the average American, paying off a new car at current prices demands 42 weeks of income, according to data from Cox Automotive, up from around 33 before the pandemic. Bargains have been hard to come by on the used-car lot as well, where the average vehicle listed for about $27,000—up more than 30 percent from pre-pandemic levels, according to Cox’s data.”

• “Today’s average new car loan has a monthly payment north of $750, with an interest rate of 9.5 percent. For used cars, the average rate is above 13.7 percent, according to Cox. The average term for loans issued over the past three years is nearly six years, according to data from Experian.”

• “Seasonalized rates of severe delinquency for auto loans are the highest since at least 2006, but the jobs market is strong. ‘Usually you get the default spikes when unemployment spikes—it’s the biggest correlation in consumer credit,’ said Clayton Triick, a fund manager at fixed-income investor Angel Oak Capital Advisors. ‘To see them go up that much while unemployment is still low is not typical.’”

• “Automakers leaned into their pricing power during the pandemic, giving priority to selling more expensive vehicles and features as supply-chain issues constrained inventories and shoppers had more savings from pandemic stimulus packages. They have continued to boost prices.” READ MORE

THE ENTREPRENEURIAL LIFE

A founder offers some advice on becoming an entrepreneur: 

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21 HATS PODCAST: DASHBOARD

Why Business Owners Don’t Like This Economy: Gene Marks says that by almost any measure the economy continues to perform quite well. And yet, business owners don’t seem to believe it. Why is that? Gene says owners have some cause for concern. In fact, he expects a slight recession or slowdown in the next three to six months—of course he’s been saying that for more than a year now. “One of these days,” he says, “I’m going to be right.” Plus: Gene highlights two significant tax credits that he says most business owners don’t know about.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

HUMAN RESOURCES

If you’re looking to hire and retain women, there’s a new benefit to consider: “Symptoms associated with the transition to menopause, which can last a decade, are often a drag on women’s careers and arise at a time when they may be stepping into larger executive roles. A study by the Mayo Clinic published this year found that 15 percent of women either missed work or cut back on hours because of menopause symptoms, and that loss of productivity costs women an estimated $1.8 billion each year. Researchers in the U.K. also found that those who reported at least one disruptive menopausal symptom at age 50 were 43 percent more likely to have left their jobs by age 55.”

• “And so, in the same way that many companies looking to attract and retain talent have expanded their benefits packages to include fertility treatments, paid parental leave programs, and child care, some are now wrapping in menopause-specific care.”

• “These benefits can include virtual access to the small pool of roughly 1,000 certified specialists in the country, who can be difficult to find locally, and coverage for often expensive hormone treatments that may not be included in some insurance plans.”

• “In October, the health care benefits provider Maven launched a menopause product, which provides employees with app-based telehealth access to specialists and therapists as well as chat rooms to discuss their experiences and share resources.”

• “Within nine months, more than 150 companies had signed up, said Kate Ryder, its chief executive and founder. It has become ‘the fastest selling product,’ she added, ‘in the history of all Maven products.’” READ MORE

MANAGEMENT

The sixth-largest accounting firm in the U.S. is going ESOP: “According to published reports, the firm’s 860 partners voted on August 11 to approve the ESOP during a meeting in Orlando. BDO’s ESOP is believed to be the first such employee stock plan offered by a public accounting firm in the U.S. that is a part of a large global network. BDO leaders also say that the firm’s ESOP would be one of the largest in the country.”

• “Allan Koltin, CEO of Koltin Consulting Group, who has advised BDO on many of its acquisitions of smaller accounting firms through the years, called the firm’s ESOP a ‘truly groundbreaking event for BDO and the profession.’”

• “Partners and client-facing employees will accumulate shares based on their compensation and how long they stay with the firm. The retirement benefit is in addition to the firm’s 401(k) retirement plan and will replace future pension payments for current partners, Berson told Bloomberg Tax.”

• “According to Bloomberg Tax, the trust BDO set up will own a nearly 43-percent stake in the firm once the new retirement plan is up and running at the end of this month. Over time, the trust will acquire 100 percent ownership of BDO, Berson said.” READ MORE

LITIGATION

The former owners of a family business prevail in a lawsuit with PricewaterhouseCoopers: “A Multnomah County jury this week returned a $65.5 million damages verdict against PricewaterhouseCoopers, finding the accounting giant was negligent in its advice to the owners of a Portland-area firm. After four hours of deliberation on Monday, the circuit court jury returned a unanimous verdict in favor of Karen Marshall and Patsy Marshall, the widows of brothers John Marshall and Richard (Dick) Marshall, who didn’t live to see the outcome after decades of legal and financial ups and downs, including the ill-fated sale of the family construction company in 2003.”

• “The Marshall brothers founded Marshall Associated Contractors in 1965 out of Dick’s Happy Valley garage, later moving the headquarters to Tualatin. MAC, as it was called, specialized in heavy construction, such as dirt moving, trench digging, and rock crushing. It laid sewer pipe all around the Portland metro area for decades.”

• “MAC was tangled up in a legal dispute with the bureau for 18 years and incurred substantial losses. In 1999, Dick Marshall suffered a debilitating stroke and died about 15 years later. John Marshall died at age 82 last year. The Marshalls were vindicated in 2002, when the Department of Interior Board of Contract Appeals ruled in their favor and awarded them $40 million.”

• “The Marshalls, who were in their 60s and ready to retire, sought advice from PwC about the tax consequences of the $40 million award, according to their lawsuit, which was filed in 2017. They received an offer by a San Francisco-based company called Fortrend, which proposed to purchase all of MAC’s stock and assume all of its liabilities, including the expected taxes.”

• “PwC identified potential risks as ‘minimal’ and recommended that the Marshalls go forward with the transaction, according to the complaint.” READ MORE

STARTUPS

An adaptive clothing company, No Limbits, is shooting for a million dollars in revenue: “Distribution and supply chain issues have been major headaches over the last year, [Erica] Cole said. Covid disrupted the supply chain, and that continued into 2022. She had to find manufacturers that could keep shipping products as her company grew. No Limbits now has outsourced manufacturing to Turkey, Portugal, El Salvador, and a small amount in China, she said. The other change for the company has been the addition of new product lines. No Limbits introduced clothing for people with sensory issues and leggings for people with limited dexterity. And it is set to launch a coat with magnets instead of buttons and a hoodie for people with sensory issues.”

• “The company was founded in St. Louis, but Cole relocated to Richmond after participating in the Lighthouse Labs accelerator.”

• “She does not believe her company is too limited in the adaptive clothing market. The global market for adaptive clothing is expected to grow to $400 billion worldwide by 2026.” READ MORE

OBITUARY

In California, Laura Ann Carleton, a business owner and mother of nine, was shot for displaying a Pride flag: “When a clothing store opened in Cedar Glen, Calif., in the summer of 2021, the owner hung a Pride flag at the entrance, her friends recalled. Whenever someone would tear down the flag, owner Laura Carleton would raise another one. But after someone complained about the flag on Friday, the encounter turned deadly. A man arrived at the store, Mag.pi, around 5 p.m. and criticized Carleton’s Pride flag before he shot her, according to the San Bernardino County Sheriff’s Department. Carleton, 66, was pronounced dead at the scene.”

• “Carleton, who went by Lauri, began working in fashion as a teenager at her family’s business, Fred Segal in Los Angeles, according to Mag.pi’s website. After graduating from the ArtCenter College of Design in Pasadena, Calif., Carleton worked at a retail store before joining Kenneth Cole in the 1980s. Carleton worked for the fashion company for more than 15 years as an executive.”

• “In 2013, Carleton founded her clothing store, Mag.pi, on Ventura Boulevard in Studio City, Calif. She added a second store in Cedar Glen in 2021. While she built her career, Carleton married her husband and took pride in their blended family of nine children, her store’s website says.”

• “Carleton’s friend Paul Feig, known for creating the TV show ‘Freaks and Geeks’ and directing the film ‘Bridesmaids,’ wrote on Instagram that he was ‘devastated’ for Carleton’s family.”

• “‘Anyone using hateful language against the LGBTQ+ community has to realize their words matter, that their words can inspire violence against innocent loving people,’ Feig wrote. ‘Let’s all keep moving forward with tolerance and love. Let’s not let Lauri’s tragic death be in vain.’” READ MORE

THE 21 HATS PODCAST

When Business Owners Burn Out: This week, Shawn Busse and Jay Goltz discuss a recent Business Journal report that a lot of business owners are feeling burned out. Why is that, and what can owners do to avoid it? And have either Shawn or Jay been there? Plus: Shawn brings us up to date on the leadership transition he’s initiated, and—believe it or not—Jay has had another revelation about ESOPs. Also, do business owners need better regulation or no regulation? And which regulations are annoying Shawn and Jay the most right now? For Shawn it’s the nightmare of having employees in multiple states and having to figure out and comply with the various rules of each of those states.

• “I don't know that any of us have recovered from 2008. I mean, I know my business never really did, so I'm not saying it's not difficult out there. I'm just suggesting there are still some core basic things that people still aren't doing that would make their life easier.”

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren