Lower gas prices don't alleviate auto industry's pain

General Motors, Nissan and other automakers suffered through another dismal sales month in October in spite of rapidly declining gasoline prices, with overall U.S. sales dropping to their lowest levels since January 1992.

Combined sales of all auto manufacturers fell 32 percent compared with October 2007, led by General Motors Corp.'s startling drop of 45 percent.

Franklin-based Nissan North America Inc. said its sales were down 33 percent, while Chrysler LLC saw a 34.9 percent drop and Ford Motor Co. was off 32 percent.

"It was bad, but it was bad everywhere," Nissan spokesman Fred Standish said. "Trucks are still sluggish even though gasoline prices have come down. But our car sales actually were up 1.8 percent from last month."

Meanwhile, sales of the gas-sipping Nissan Versa subcompact rose 2.7 percent from October 2007, the flagship Maxima sedan was up 33 percent, and the compact Rogue crossover was up 10.8 percent. Overall Nissan truck sales were off 51.8 percent from a year earlier, and cars were down 18.3 percent, including both the Nissan and Infiniti brands.

The top two Japanese automakers fared slightly better, with Toyota Motor Sales USA down 23 percent and American Honda Motor Co. off 25.2 percent. Even Volks wagen, which had been fairly immune to negative sales numbers this year, reported a decline of 7.9 percent from October 2007.

"It was just a horrible month," said Jessica Caldwell, an industry analyst with the automotive Web site Edmunds.com.

"Showroom traffic in October was way down because of a lack of consumer confidence and some credit problems," she said. "A lot of people are worried about their jobs, their savings and their retirement, and that didn't put them in the mood to make a $30,000 vehicle purchase."

New incentives unveiled

Nashville was no exception, with dealers reporting extremely slow sales for the month.

"Like everybody else, our sales were way down," said Marty Horn, sales manager at Nashville's Crown Ford. "But we're still plugging away. Consumers need to know that it's OK to buy cars, and we do have lenders with plenty of money to finance them."

Despite a national credit crunch and the decision in early October by GMAC Financial Services to limit loans at GM dealers to only the most credit-worthy customers, Nashville-area dealers have plenty of financing options, said Gary Beeler, general manager of Neill-Sandler Buick Pontiac GMC in Murfreesboro.

"October was a tough month," Beeler said.

New incentive programs were being rolled out this week by most automakers, with Nissan offering zero-percent financing on five popular models, along with some special lease deals.

GM is starting its "red tag" sale, which gives consumers "supplier prices" on almost all new 2008 and 2009 models, along with large rebates on many vehicles. The supplier price is 4 percent over the employee price, and GM rebates range as high as $8,500.

Ford dealers were expecting to hear about the latest incentives on their vehicles today, Horn said. "We expect to see a little bit more money on the rebates."

GM's truck sales drop was 51 percent overall, with full-size pickups off 38.6 percent. But the popular new Malibu midsize sedan was up 82 percent, and the full-size Impala sedan up 6.3 percent for the month.

The new Spring Hill-built Chevrolet Traverse, which began trickling into dealers in October, accounted for 1,359 sales. But dealers had few of them to sell, GM said.

At Ford, cars were off 26.8 percent, trucks down 30.3, and sport utility vehicles 53.9 percent compared with a year ago. Even crossovers were down 38.8 percent despite Ford's introduction of the new seven-passenger Flex earlier this fall.

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Voting time isn't too costly for employers

Thanks to record early voting, many Nashville-area employers said they were spared a decrease in productivity that some feared would come with Tuesday's presidential election.

Fewer people than expected took the day off, and other companies gave employees enough time off during the workday to cast ballots.

"I don't think most of my employees were going to vote for John McCain like I did, but I wanted everybody to have the chance to vote that works for me," said Steve Richards, president of Richards & Richards, a records management company.

At the Bike Pedlar shop on West End Avenue, mechanic Adam Trapani joked: "We made the decision that (the boss) was going to give us two hours off to vote," adding that the boss was out of town this week anyway.

"I … left work at 10:45 a.m. to go vote and it took about 45 minutes to travel to the polls and back. Luckily for us, we were slow today," Trapani said.

Under Tennessee law, employers must give workers up to three hours to vote under most circumstances.

Kendell Poole, director of the governor's highway safety office in Tennessee's Department of Transportation, said he voted on his lunch hour.

"I was right back to work," he said.

"We've seen no disruption in our work flow whatsoever. Most of our employees took the opportunity to vote early."

Nationwide, some companies had braced for a drop in productivity amid predictions that nearly 65 percent of eligible voters would go to the polls to vote in the presidential race this year, the highest voter turnout in a century, according to the Brookings Institution.

At some Nashville workplaces, though, employers were glad Tuesday had finally come and gone.

Bobby Joslin, owner of Joslin and Son Signs, said the lengthy campaign caused a drag on productivity overall. And with employees of the Nashville-based company evenly split between Republican candidate McCain and Democrat Barack Obama, some workers debated differences during work hours.

"(Today), productivity will still be off because half of them are going to be happy and the other half are going to be sad," Joslin said.

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Beware of office gossip, but use the grapevine wisely

Many companies discourage talk of politics and religion around the office because of the high potential for disagreements among co-workers or the possibility of offending an office mate.

But there are other topics — in addition to those two hot-button categories — that are considered taboo or at least too risky to tackle with colleagues and clients. Here are a few rules of the road:

Avoid conversations that focus on a pending divorce, someone's home foreclosure, speculating about an affair, salary levels, or any confidential information about the company, its products or clients. These are taboo not just in the office but also in the marketplace. They will take you nowhere.

And medical information is never a topic for in-depth office conversation — whether about yourself or a family member. If you need to discuss a medical secret or any other important life event, find a supportive friend outside of your circle of professionals.

A valuable source of info

The grapevine, however, is inevitable and can be a valuable source of information about the "real" company policies (not just those mentioned in the employee handbook), the current level of service in the customer service department, or who is next in line for an important promotion.

The grapevine can also alert managers to a plan that may not have merit; for instance, a new procedure that may have flaws only front-line workers can assess.

Smart, high-level executives and board members many times have "ears" in the company who can tell them the issues of the day. High-level professionals don't wait for the news to come to them because they rightly believe that if they do, the news not only will be old, but also will have been embellished beyond recognition.

All in all, the grapevine is a necessary tool that should be used judiciously. Keep in mind that if you become overly sympathetic to a co-worker's poor performance review, or get too close to the office "gossip," it may come back to haunt you or hurt your career.

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Sumner Regional Medical Center plans 90 layoffs

The parent of Sumner Regional Medical Center in Gallatin said it would lay off 90 employees this week and cut the hours of almost two dozen others, citing a challenging operating environment for hospitals.

Most of those losing jobs were in nonmedical administrative or management jobs. Cuts will be made at the not-for-profit system's corporate offices; its flagship hospital in Gallatin; Riverview Regional Medical Center in Carthage, Tenn.; and Sumner Homecare and Hospice, officials said.

Some services will be affected. A center in Gallatin that offered lifestyle counseling to people with diabetes is closing and its operations will be folded into a similar center in Carthage, said David Wilhoite, interim chief financial officer for Sumner Regional Health Systems.

"It's a tough time for all businesses, but also especially health care," he said.

A total of 22 employees will see their work hours reduced in addition to the layoffs, the not-for-profit said.

Wilhoite said cuts in government reimbursements, slow payments by private insurers, lost revenue to competitors such as outpatient surgery centers, higher costs of supplies and reduced income from investments were factors.

"As a result, we must improve operations and reduce expenses to stabilize our financial performance," he said.

Bernie O'Neil, a managing director at turnaround consulting firm FTI Cambio in Brentwood, agreed with Sumner Regional officials that hospitals are facing harsh new economic realities.

"If they're not clinical folks, those are safer staff types to deal with because they're not laying hands on patients on a day-to-day basis," he said of the hospital's cuts.

Other steps are in works

Sumner Regional is taking other steps to improve its financial performance in addition to the job cuts, which will affect about 6 percent of the system's overall work force of 1,600 people, Wilhoite said. Those include stepping up efforts to collect hospital bills and minimizing "nonessential" expenses and capital investments, he said.

Lately, Sumner Regional had been in an expansion mode. This year alone, it added a medical office tower, parking facility and outpatient diagnostic center. Last month, Sumner Regional told its bond trustee that it needed more time to file financial statements as required under terms of its $150 million bond issue.

Wilhoite said the request isn't unusual given a transition in the chief financial officer post. The health system is simply reviewing its financial statements with its independent auditor, and plans to make the required filing by year's end, he said.

Wilhoite, who joined Sumner Regional in July from hospital consulting firm QHR of Brentwood, said the system had a small net loss from operations for the previous fiscal year and is finalizing results for its fiscal year that ended May 31.

"You're seeing a lot of organizations across the country dealing with similar issues," he said. "You can't ever stop paying attention to your financial performance."

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Dickerson Pike tries to reinvent itself

It started as a bit of whimsy that somehow began to make sense.

Michael Douglas and his then-girlfriend, now wife, Tina, were on a date when they passed by the horse sculptures on Belle Meade Boulevard. Why, Tina asked, couldn't something like that greet drivers as they passed by Douglas' business on Dickerson Pike?

Early next year, Dickerson Pike will have a bit of statuary like those horses — in this case, a herd of eight life-size buffalo statues standing sentry over the junction of Dickerson and North First Street.

"What it's going to do is continue to bring around the idea that Dickerson Road is not the old Dickerson Road," said Douglas, the owner of Charlie Bob's Restaurant & Catering. "We've brought so many positive changes into this area."

Long touted as an area on the upswing, Dickerson Pike is putting the finishing touches on its coming-out party with a $1.9 million project to fix its broken sidewalks, beautify key intersections and re-brand itself.

The buffalo statues, which like the rest of the project will be paid for with grants, are meant to tell the world that long before Dickerson was known as a neighborhood plagued by crime and vice, it was an important commercial route. The hope is that it can become so once again.

"We just need a little kick start," Douglas said.

Better mix sought

Organizers hope coffee shops, florists, office supply stores and banks will fill in the vacant lots that dot Dickerson, and complement the car lots and auto shops that have come to dominate the area.

But the trick will be to create an environment that encourages both sorts of businesses to thrive, business owners in the area say. As property values rise, some businesses may decide to move out of the area, but few envision a transformation from low-heel to upscale overnight.

"We would like to keep the mix of businesses here," said Marty Lang, president of The Transmission Store and vice president of the Dickerson Road Merchants Association.

The latest planned improvements will take place along five blocks at Dickerson's southernmost end. Much of the money will be concentrated at three intersections, the junctions between Dickerson and First Street, Cleveland Street and Douglas Avenue.

Plans call for upgrading the sidewalks and landscaping at Cleveland and Douglas to encourage more people to walk through the area. Those intersections will also be beautified with colored pavement to create a sense of a neighborhood center.

Down the street, the buffalo statues will be installed in the median in the "scissors intersection" where First merges into Dickerson. The steel-and-concrete sculptures, which will be produced by an Arizona firm that specializes in creating lifelike animals, are meant to remind passers-by of Dickerson's origin as a buffalo trail connecting Fort Nashborough with Mansker's Fort in Sumner County.

That trail was later turned into a pay turnpike — hence its official name of Dickerson Pike — and became the city's first highway and its first paved road, organizers of the improvement project said.

"This is the oldest road in Nashville," Lang said

Effort spans a decade

The improvements cap a 10-year effort to resurrect Dickerson Pike by driving out the crime and vice with which the road had become sadly synonymous.

That push has included cracking down on codes violations among local businesses, the renovation of the Sam Levy public housing development, and a project to promote homeownership in the residential area to the east of Dickerson.

"I'm pleased with what they're doing," said Marc Colson, president of Colson's Auto Auctions off Dickerson.

"You just see a big change."

Money for the redevelopment is coming from state and federal grants administered by the Metropolitan Development and Housing Agency.

The agency is in the process of awarding contracts for the project, and work is expected to start early next year.

"Infrastructure improvements like this encourage people to make an investment in commercial operations," said Phil Ryan, MDHA's executive director.

Dickerson merchants believe the improvements will drive home the point that their neighborhood has improved.

After years of talking about reductions in crime and an upturn in business prospects, they say the city needs to see tangible evidence of stability.

New sidewalks, prettier intersections and, yes, the buffalo will do just that, they say.

"Five years this has been in the planning stage," Lang said. "We want concrete."

Optimism reigns that Nashville will weather recession

In past economic slumps, the Nashville area's Goldilocks economy — never overheated, but not too cold either — has usually experienced shorter dives and quicker recoveries than the nation as a whole because of the region's diverse economy and well-educated work force.

That history has left many forecasters and business leaders here optimistic that a national recession triggered by a widespread housing meltdown will deal a much softer — and shorter-lived — blow to Music City business owners and job hunters than to the country as a whole.

"We've got our issues and problems, but it looks like we're in a very positive position right now," said Ron Samuels, chairman of the Nashville Area Chamber of Commerce. "We've got the fundamentals still strong to weather this downturn."

A recent report by Garrett Harper, the chamber's research director, shows that Nashville's economy may stumble when the nation's does, but it generally rebounds faster coming out of an economic slump, with stronger job growth about a year after a U.S. recession ends.

"Nashville may enter recessions a bit earlier, but (it) also recovers quickly and much more robustly than the nation in many instances," said Harper, who studied economic data from the early 1970s until the present day to reach his conclusions.

Other experts caution that every recession is different. And they add that a prolonged housing and credit crisis, as well as poor auto sales that could slow vehicle production at manufacturing plants in Middle Tennessee, might delay a local recovery.

But Harper and other economic observers insist there are a number of reasons for hopefulness, among them:

• While home sales are down in the Nashville area, as in the rest of the nation, local prices have remained relatively stable. The median price of a single-family home was just under $170,000 here in September, down 7 percent from a year earlier but far from the double-digit declines seen in many harder-hit cities.

• A shift away from overdependence on manufacturing jobs in the past 30 years makes the eight-county Middle Tennessee region less prone to economic downturns. Diversity of jobs is key to the area's resilience. Manufacturing employs about 10 percent of the area's work force, down from 14.1 percent in 2000.

• The presence of numerous universities in and around Nashville gives the area another source of highly skilled workers, even if it doesn't always lead directly to local job growth.

• One in five Nashville-area workers are self-employed, and that generally helps speed economic recoveries. Others who lose corporate jobs start their own businesses, and that helps as well, said Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University.

Owners stay upbeat

Many Nashville-area business owners say they've weathered the economic downturn pretty well.

Bobby Campbell, owner of Campbell Glass of Brentwood, said he hasn't seen a sharp drop in his firm's work installing interior shower doors and insulated windows for homeowners.

"I'm in a good place," he said, adding that residents in neighborhoods such as Bellevue, Crieve Hall, Green Hills and the northern parts of Franklin in Williamson Country are still remodeling homes.

Bobby Joslin, owner of sign manufacturer Joslin and Sons Signs, said lower gas prices could be a key to rekindling consumer spending and aiding the economic recovery.

"If they can get fuel prices steady in the low $2 range, that's a built-in stimulus that will accelerate us coming out of this downturn," Joslin said.

Other business owners remain cautious, though, saying past resilience in the Nashville economy doesn't guarantee a quick recovery this time.

Consumer confidence is at a historic low locally and nationwide. That's based on the most recent local poll by Middle Tennessee State University, which gauges consumer sentiment in Davidson, Rutherford and Williamson counties.

Nationwide, confidence plunged in October and new data released last week showed consumer spending dropped 3.1 percent — the first decline in 17 years and the biggest drop in 28 years. Much of the dip in spending was in big-ticket categories such as cars, home furnishings and appliances.

"You've got a lot of people whose 401(k) has become a 201(k) and their IRAs have become an IOU because of stocks being down," said Bill Ford, a professor of finance at Middle Tennessee State and a former Federal Reserve Bank president.

"History is worth looking at, but it's a much different recessionary environment than any of us has seen in 25 years or more," said Tony Heard, a principal in NMG Advisers, a Nashville-based consulting firm.

"It's unprecedented since the Depression to have so many major U.S. corporations in financial crisis," he said. Heard expects lending standards of major banks to remain strict over the next six months as the banks anticipate more losses on real estate loans nationally.

Alexander Miron, an assistant economist with Moody's Economy.com in West Chester, Pa., expects Nashville to see job growth again in the second half of 2009, although in the short run there could be an increase in local layoffs.

Car dealers are among those who hope that area consumers start spending again. Sales at Neill-Sandler Buick Pontiac GMC in Murfreesboro have dropped 20 percent over the past six months, said Gary Beeler, the general manager.

"This is the most challenging time I've ever seen in the car business," Beeler said.

"If consumers keep pulling back, I think we're looking at really rough waters coming up," said David Penn, director of Middle Tennessee State University's Business and Economic Research Center.

Home data offer hope

Consultant Edsel Charles of the MarketGraphics research firm studies real estate for a living. And from what he sees in tracking new home sales across 21 states, Nashville hasn't entered a housing recession.

"We're selling more houses than we're starting," he said, citing more families moving into new homes here compared with building permits pulled.

Across 21 states, Charles said, the inventory of new homes has fallen from a 13-month supply to an 11-month supply, and that's a positive sign. The Nashville area has seen a similar freeze in new home construction, and that has allowed sales to catch up a bit here as well.

Excess inventory must be absorbed before more new homes can be built. Charles said he expects the area's market to improve by late spring to early summer 2009.

Downtown developer Tony Giarratana, meanwhile, sees recovery in Nashville's broader real estate market starting by next year's second quarter. He said it could take several quarters after that for credit and housing markets to fully stabilize.

A recovery in the housing market is critical to a broader economic turnaround because the impact of that sector stretches from banks to construction companies to homeowners and finally to retail stores that sell furniture and other products for the home.

"To the consumer, it's also an asset," said economist Bill Fox of the University of Tennessee in Knoxville. "When prices of our homes don't grow for some time, return on that asset goes down."

'Made for recession'

Sometimes, business creativity is sparked by tough times.

That was true for Jack's Bar-B-Que, whose founder recalls adding $5 barbecue plates to his catering menu after a slowdown 20 years ago weakened demand for pricier items.

Today, Jack Cawthon said, he's investing in his business, including spending $100,000 on new barbecue pits and adding space to one of his two restaurants.

"We're comfort food; it's kind of made for recession," Cawthon said, adding that sales are holding their own. "People can eat barbeque and comfort food and feel like they've gotten value, a good meal and they're happy."

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Lower gas prices won't lower food prices just yet

A sinking global economy is helping drive down gasoline and diesel prices, providing welcome relief at the pump for many businesses and consumers.

But consumers will have to wait a while longer to see lower prices on everything from flour at the grocery store to pizza at the local fast-food shop. Many business owners who raised prices on products while fuel costs raged higher over the past year say they aren't planning to lower prices just yet.

That's because the overall cost of doing business remains higher for a lot of companies than it was a year ago, and while commodity prices are declining, the cost of many other raw materials remains stubbornly high. Stores are also seeing weaker sales volumes.

"We are still behind the eight ball," said Scott Hunt, the executive manager of family-owned Hunt Brothers Pizza in Nashville, which makes and delivers pizza to convenience stores.

Diesel prices — now about $3.40 a gallon in the Nashville area —are about 10 percent higher than a year ago, according to AAA South, although the price continues to drop rapidly. The average price in Nashville fell by another nickel a gallon for diesel on Friday alone, a survey of area gas stations found.

The price of unleaded gasoline has also fallen more than $1.40 a gallon here in the past month, reaching about $2.46 a gallon on Friday morning, according to AAA South.

Natural gas, electric up

Those sorts of numbers have shaved about $52 a day off the cost of gasoline consumption for Aaron Bray, whose Chesley the Cleaner business picks up dirty laundry at area homes and takes it to his Nashville dry-cleaning plant.

But that's little comfort for Bray and other small-business owners, who say they still face dampened consumer demand and higher prices for electricity and natural gas. One bright spot came this week when TVA officials said fuel adjustment charges should drop in January, although they're not sure by how much.

Still, in March, Bray shut down his plant one day a week so he could trim his natural gas and electricity bill after those costs shot up. Now, he has reduced his natural gas and electricity usage by roughly one-third, but his bill has stayed roughly the same at $10,000 a month.

"I had a few profound words when I saw the bill,'' Bray said.

He raised prices for the first time in two years this spring by about 10 percent. He has no plans to reduce them at this point.

Elsewhere, while the cost of cheese, an important ingredient for Hunt Brothers Pizza, has fallen from a record high in late May of $2.29 per pound on the Chicago Mercantile Exchange — to about $1.64 last week — it's still up to 40 cents a pound more expensive than the average from previous years, said Alan Levitt, publisher of Daily Dairy Report, an industry newsletter.

"We're not getting across-the-board price drops," Hunt said.

So, Hunt Brothers Pizza has no plans to lower its $9.49 suggested retail price for a 12-inch pizza, a product that went up in price by 50 cents this summer.

Grain costs remain high

Crude oil prices on the world market have fallen nearly 60 percent in the past three months after reaching a high of nearly $150 a barrel on July 11.

FedEx Corp., which reported dwindling profits and rising fuel prices in its most recent quarter, told its customers it was raising overall prices for FedEx Express by an average of 6.9 percent in the U.S., effective Jan. 5, even while reducing its fuel surcharge by 2 percentage points.

The Pasta Shoppe also raised prices earlier this year when the cost of wheat flour, a key ingredient, rose dramatically. Prices went up 50 cents per pound on the Nashville business's themed pasta packages, which include such treats as University of Tennessee orange pasta in the shape of little T's and turkey-shaped pasta for Thanksgiving.

John Aron, who owns the business, said that although the price of wheat flour has fallen 38 percent from a high in December of last year, he still is paying $40 per 100 pounds, more than double what he paid in spring 2007.

Global demand for grain, including ethanol subsidies that encouraged farmers to plant corn instead of wheat, helped push prices sky high. And wheat flour is growing in importance in Aron's budget.

Wheat flour has grown to consuming 24 percent of Aron's revenue, up from
15 percent a year ago. That's far above the average 12 percent of revenue that shipping costs now take.

Aron expects a global slowdown in the economy to push prices for commodities lower, but slower demand isn't good for his business, either. He is particularly worried that consumer confidence fell in October to its lowest level in 41 years, according to The Conference Board, a national business group.

"We will be very cautious with how we close the end of this year,'' Aron said. "We know that the consumer is overburdened."

Oil isn't the only factor

Bill Ingram, a Lipscomb University economics and finance professor, said there is generally a lag time when businesses can start reducing prices for their products because of declining oil prices and a softening economy.

"Oil is an important price but it's not the only price," Ingram said.

Inflation, which reached 4.9 percent in September over a year ago, is likely to moderate in the months ahead, he said.

But longer-term, in the next year or so, rising inflation will become a bigger threat, Ingram predicted. That's because interest rates are so low, money is so cheap to borrow and the federal government is pumping money into the financial system in an attempt to head off a deeper financial crisis, he said.

"At some point, something has to give,'' Ingram said. "If the economy doesn't expand rapidly, at some point, inflation has to occur."

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