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Is A Frugal America Here To Stay?

I have to admit it; money used to burn a hole in my pocket. The more money I had in my wallet, the more likely I was to buy something I didn’t need or spend more money on something than I should have. Most of the time I would spend the money on smaller stuff like a DVD, a book, or an extra main dish at the Chinese take-out place. Sometimes it was on a bigger ticket item such as a high end snow blower even when a lower end model would easily do the job, or $300 of beer brewing equipment because I wanted to try making beer. It did not matter that I was paying for the items with a credit card because the money in my wallet made me feel richer. It is not that I was rich; I just had a relatively secure job and money in my pocket.

Recently, I seem to have overcome my excessive spending habits. I still go to the bank and take out the same amount of money, but the urge to spend just is not there. It has gotten so bad, that it affected my normal spending habits. My family has put off purchases that we probably would have already made.

To make matters worse, my new found frugal buying behavior is constantly being reinforced by the world around me. There are so many articles about people cutting back. Almost daily there is another poll or article about changes in buying habits and driving habits. Many news reports and articles, like the Retail Forward report titled, Women Limit Spending on Apparel; Shopping Behavior Likely To Endure, state with certainty that the buying habit changes are here to stay. I hope that in some cases they are correct, but I am not sure I totally agree. If I am an example of a typical consumer then I expect things to return to approximately what they were once the economy returns to “normal”.

A woman I work with is in the process of getting her house aluminum sided. One of the larger contractors in the area gave her a great deal. The homeowner is going to be spending about $4000 less then what she was quoted two years ago. It turns out that many contractors are forgoing most of their profit just so they can keep their crew busy. I almost wish that I had to replace my aluminum siding, I just know that in a couple of years when my siding really does need to be replaced the costs will be back to “normal”.

Since I am lucky enough to have a secure job, I wonder if I am doing the right thing by holding off on some purchases. Am I being frugal or is it that I am just creating more pent up demand? Would I be better off buying that new entry door or that new dining room table now? Maybe I will wake up tomorrow morning and realize that I will never get a better price on that dining room table and I will buy it. Hopefully I will not be alone in my realization.

So Where Are The Jobs Going?

The other morning I was watching MSNBC when a very disturbing graphic flashed onto the screen. The graphic was about domestic production percentages at GM. It seems that GM intends to shift some production of vehicles, which are intended for the domestic market, to low labor cost countries. A quick search online produced a great deal of information about this issue. One particular search result was a Washington Post article, Under Restructuring, GM To Build More Cars Overseas, which is a fair discussion of the issue. Even so, the shifting of production just does not sit well with me since the GM bailout was to save American jobs.

As a business, I could understand why a company would want to reduce costs. Why pay a U.S. autoworker $54 an hour, with benefits, when you can pay a South Korean worker $22 an hour, or a Mexican worker $10 an hour, or even a Chinese worker $3 an hour. Businesses need to remain competitive and to a consumer saving several thousand dollars might just be too attractive to pass up.

The fact that bothers me the most about the movement of production is that the rate change of foreign production increases at an alarming rate. GM expects that in 2010, the percentage of domestic production (U.S. and Canada) is 83.3%. In 2011, that percentage drops to 83.1%. This is only a .2% change, which is not so bad, but that rate of change jumps to 1.1% between 2011 and 2012. The rate then increases to 2.5% for 2012 to 2013 with a further increase to 3.0% for the 2013 to 2014 period. This means that the overall change in (U.S. and Canada) production goes from 83.3% in 2010 to 76.5% in 2014.

GM does indicate that although the percentage of U.S. sales of cars that are built in the U.S. will drop from 67% currently to about 61% in 2012 it will rebound to 66 percent by 2014. The difference between the two sets of numbers comes from a 23% reduction of production in Canada.

I am not sure what will happen in 2015. Does GM intend to stop shifting manufacturing overseas after 2014? Will they continue to shift production from Canada to the U.S.? For every 1% of U.S production moved overseas, GM would have to shift approximately 3.4% of the Canadian production to the U.S. to keep the U.S. production percentage at 66%. At some point it will not be practical to shift production from Canada to the U.S. in order to compensate for the production shift overseas. What will happen then?

Many things can, and will, affect what will eventually happen. The UAW might make significant concessions in contract negotiations. Healthcare reform could be enacted that reduces the overall benefit package cost of U.S. workers. The Canadian government might get involved with incentives to keep production in Canada.

The shifting of production just makes it more important for people to truly understand where vehicles are manufactured. Just because a vehicle was manufacture in the U.S. this year there is a chance that it will not be next year. This is even truer for Canada.

The Best Selling Car In America

As I drive down my block in my two year old Ford Escape Hybrid, I notice a car sitting on the lawn of my neighbor’s house. I could tell immediately that it was the same make car as the one I bought my son fifteen years earlier. It even had the same color scheme.

My family got a great deal of use out of that car. Even though it was originally bought for my son, when my daughter was old enough, she used it also. Then one day it was stolen from in front of our house. My kids reacted much better about the loss then I did. They just started suggesting replacement vehicles. I then realized that my kids had out grown that first car. I knew very well that it would keep working for many more years. I silently hoped that the family of whoever stole the car got as much use out of it as my family did.

If you have not guessed by now, that car we bought our son was a Cozy Coupe. Even back when I bought my son that Cozy Coupe, I looked to see where it was made. I was somewhat surprised, and delighted to find that it was made in America. At that time I thought that everything plastic was made in China. I was happily proven wrong.

After seeing that Cozy Coupe on my neighbor’s lawn, I decided to see where the Cozy Coupe was now being made. So I went to the Little Tikes website and saw that most of their products are made in America. They even have a navigation link so visitors can limit their search to only American made product, http://www.littletikes.com/toys/made-in-the-usa-toys.aspx.

In researching the Cozy Coupe, I found out that for many years it was the number one selling car in America. Well it would have been if it was a real car and it would still rank in the top five today.

What makes the popularity of the Cozy Coupe impressive is that it is a high quality item in a competitive market that is made in America. Toy sales are not like real car sales. I have spoken to many people who would buy only American made cars, but never ran into anyone who would buy only American made toys.

Little Tikes has been making the Cozy Coupe in America for the past 30 years. Although the company opened up manufacturing plants in foreign markets, they still make products here in America. This is because American made products can compete with foreign products even without a domestic bias.

Do We Have the Energy to Innovate?

In my previous post I wrote about electric vehicles (EVs). As I mentioned in that post, EVs will put a demand on our domestic electricity production and distribution systems due to the higher demand for electricity. As I recall the past problems our nation had with the power grid, I started to look into the “smart grid” that is being hyped. What I found was somewhat encouraging.

Many areas of the country are already involved in “smart grid” projects. From California, which I expected, to Texas, which is probably the last place I expected, “smart grid” initiatives have already taken place. It seems that it does not matter whether you are from a liberal state that needs a great deal of energy or you are from a conservative state that has a great deal of energy, there is probably “smart grid” project going on in your area.

I just so happened that an associate of mine was scheduled to conduct an interview with Steven W. Pullins, President of the Horizon Energy Group. Mr. Pullins currently leads the nation’s Modern Grid Strategy for the National Energy Technology Laboratory. My associate agreed to use several of my questions during the interview even though she was questioning Mr. Pullins concerning security aspects of the “smart grid”.

There are several issues about the “smart grid” that I wanted to know about: Is the support for EV’s being included in the overall design and implementation of the “smart grid, how long would it take for the “smart grid” to be able to support any significant number of EVs, and would the a large adoption of EVs adversely affect energy costs. This last point is the most important since it affect the manufacturing.

Mr. Pullins seemed very passionate when it came to discussing EVs. Mr. Pullins noted that EVs are being accounted for in the development of the “smart grid”. In fact, EVs have a role in the “smart grid” as they are seen as both an energy consumer and a potential energy supplier to the “smart grid”.

As for being able to support EVs, Mr. Pullins feels that it will be 5 – 10 years before the grid is able to handle the demand from a society that has switched to EVs. This timeframe is fine since it will also take about 5 – 10 years before our society switches to EVs in any significant amount. This gives the utilities and the transmission “smart grid” time to ramp up to meet the demand. Mr. Pullins did point out that the energy industry needs, and intends to use, a coordinated strategy between the growth and development of the grid and the growth and development of EVs.

We all know that EVs are more efficient then gasoline automobiles. The amount of power generated by one gallon of gas, at about $2.25 per gallon, is equal to the power generated by $0.75 – $1.00 worth of electricity. The problem is that most of the electricity in the US is produced by methods other then petroleum. In 2006, only about 3.0% of our nation’s electricity was produced by petroleum. Petroleum is one of the more expensive sources of electrical power and is not a practical source for supplying the additional electricity needed.

My concern is that this added demand from EVs will cause the overall cost of electricity to spike. Since energy costs are a significant cost for manufacturing, any spike in prices due to supply and demand issues could cripple domestic manufacturing. Mr. Pullins indicated that no matter what we do, the cost of electricity will go up. I salient point is that if we make the switch to a “smart grid” the overall cost of electricity will increase by a smaller percentage.

Mr. Pullins used the example of Denmark. In 1985 electricity cost in Denmark was $0.15/kWh. That year, Denmark switched their grid to a cellular architecture (Denmark’s equivalent of the “smart grid”). At the rate they had been going, electricity was expected to cost $1/kw hr within 20 years. Because they switched to cellular architecture, their electricity now costs $0.20 /kWh. He compared it with America where energy costs grow 3% – 8% annually.

From some additional research and the answers from Mr. Pullins, I now have a slightly different opinion of EVs. I still feel the same as I did after the previous post, I now more fully appreciate that they are more of a driver of innovation then I initially thought. If just the thought of supporting EVs helps get the “smart grid” in place sooner and, as Mr. Pullins predicts, the “smart grid” reduces the cost of energy then we all win. Most importantly, our manufacturers win with reliable and more economical energy for decades to come.

Electric Vehicles Can Power Manufacturing

The other day I read an article on electric vehicles (EVs) concerning investments. (http://seekingalpha.com/article/130742-electric-car-initiatives-heat-up-implications-for-investors?source=yahoo). The thing that struck me most about the article was that it indirectly indicated that EVs are good for America and American manufacturing.

EVs are good for America on several counts; they are more energy efficient, they produce much less pollution, and they are good for domestic manufacturing. Better energy efficiency reduces the amount of energy we have to consume, which translates into less oil we have to import. The higher energy efficiency can potentially save the consumer money.

Even if you do not believe in global warming, switching to green technologies to produce energy is good for both the economy and the environment. Less pollution means less pollution related health issues and less pollution related corrosion of our infrastructure.

EVs also add to our manufacturing economy by having domestic production of the EVs. A further benefit is that the EV can be powered by electricity from wind, solar, natural gas, nuclear, coal, etc. That energy will need to be generated domestically. There might be less gasoline stations, but is that a bad thing?

We are already seeing investments in battery makers, both domestic and abroad, in a ramp up to EV, and increased hybrid, production. There are already projects, both public and private, to add to our domestic wind and solar energy production levels. Wind energy manufacturing companies are needed to provide wind turbines, turbine towers, control systems and much more. Solar power has similar needs.

When looking at the benefits of EVs, one needs to look at the overall impact on the economy and not just the EV in isolation. Only time will tell if an EV directly saves the owner money. Even if it does not, it helps domestic manufacturing, reduce indirect social costs, and help our overall economy. All of these things help everyone.