4 New Myths of the Auto World

First Up 10/16/12

October 16, 2012

Retail Sales in U.S. Probably Rose in September on Auto Demand
Retail sales in the U.S. probably rose in September for a third month as demand for automobiles kept improving and discounters benefitted from a final rush of back-to-school shopping, economists said before in a report yesterday. According to Bloomberg BusinessWeek, the Thomson Reuters/University of Michigan preliminary October consumer sentiment index increased to 83.1, the highest level since September 2007, from 78.3 the prior month. The producer price index climbed 1.1 percent after a 1.7 percent gain the Labor Department reported today in Washington. Auto sales remain a bright spot as lower interest rates prompt Americans to replace older vehicles. Cars and light trucks sold at a 14.9 million annual pace in September, the most since March 2008. Excluding autos, retail sales probably increased 0.6 percent last month, according to the Bloomberg survey median. Payrolls rose 114,000 in September after a 142,000 increase the prior month, according to Labor Department figures. The unemployment rate dropped to a three-year low of 7.8 percent from 8.1 percent. Household purchases may have grown at a 1.9 percent annual rate in the third quarter after a 1.5 percent gain in the prior three months. Read more about how the auto sector is leading the economy here.

Martha Stewart Teams with Toyota for American Made Push
Martha Stewart and Toyota: a match made in America. According to Advertising Age, the Japanese automaker will launch a campaign this week as part of the DIY maven's American Made initiative, conceived by Ms. Stewart to promote American brands and U.S.-made products. The push, which promotes the Avalon, Toyota's first car designed, engineered, and assembled in America, comprises short video segments that feature Ms. Stewart receiving a behind-the-scenes tour of the Georgetown, Ky., plant and watching the complete assembly of the Avalon. When asked by Advertising Age, why she chose to partner with Toyota, she said, “I am fascinated with the process of car design from start to finish, and the Avalon is being assembled and designed totally in the U.S. I have always been fascinated with the assembly line and Henry Ford. I actually own his son's house in Maine. Toyota's Kentucky plant manufactures 500,000 cars a year and employees 7,000 people. This is a big company helping to support the community. It's nice to see the juxtaposition of small, just-starting businesses and the large, established companies and how they can both support local communities.” Click here to read about Toyota’s partnership with Martha Stewart’s American Made initiative.

VW Plans 2 New SUVs to Expand Appeal Beyond Tiguan
Volkswagen AG plans to expand its lineup of SUVs with two new models in the coming years as part of a goal of overtaking General Motors Co. and Toyota Motor Corp. in deliveries. One of the new models will be bigger than the Tiguan SUV to appeal to U.S. drivers and provide a seven-seat alternative to a minivan, said Peter Thul, a spokesman for the company. The other SUV will be a compact model smaller than the Tiguan, according to Thul, who was confirming comments made by development chief Ulrich Hackenberg in an interview with Automobilwoche, a sister publication of Automotive News. Smaller crossovers are among the fastest-growing light vehicle segments in North America as U.S. consumers seek enhanced fuel economy and greater functionality. Volkswagen is expanding its lineup to offset weak demand in Europe as it pursues its goal of becoming the world's largest automaker by 2018. Growth in China and the United States helped the company increase deliveries 9.7 percent to 6.71 million vehicles in the first nine months of 2012, even as demand in Europe is set to drop for the fifth straight year. Click here to read more about VW’s plans for its SUV lineup.

4 New Myths of the Auto World
According to CNN Money’s Alex Taylor III, we’ve recently gotten fresh analysis and new information that seriously undermine what has been considered the gospel truth in the auto business. The first misconception is that when the U.S. economy catches a cold, Detroit gets pneumonia. However, Tom Libby, North American forecasting lead analyst for R.L. Polk, says the performance of the car business is becoming increasingly detached from the state of the economy. The second myth Taylor attempts to debunk is that the world is running out of oil. He points out that because of higher prices and better technology, we keep finding more oil that we can extract. The third myth states that Americans will never buy small cars. However, these days small cars are selling big, and it isn't just because of fuel prices. Finally, the fourth myth: Auto companies suffer when they don't diversify into new markets. He points to Ford, which is at a disadvantage with investors because it has been slow to move into China and remains heavily focused on North America, which could be a good thing given tumbling Chinese sales and Europe’s debt woes. Read more on today’s auto reality here.

How Obama's Fuel Standards Are Shaping the Future of Transportation
Earlier this year the Obama Administration nearly doubled fuel efficiency standards in the United States, requiring that by 2025 all cars and SUVs sold nationwide get at least 54 miles per gallon on average for city and highway driving. Automaker and environmental groups alike have welcomed the changes for the most part, each claiming an incremental victory in the new regulation. According to Forbes, upgrades to improve efficiency will cost automakers roughly $1,800 per vehicle to comply, according to EPA estimates, and cut U.S. oil consumption by about 700 million barrels. But automakers will have to get creative in how they meet the new standard without sacrificing performance or drastically increasing prices. They’ll do things to lighten cars like use more carbon fiber throughout the body and cabin; sell more hybrid and pure-electric variants of existing models; and pare down engine sizes while using turbo-charge and direct-injection technology to keep up power levels despite reduced cylinders. Those are just some of the easiest changes consumers can expect to see in the future of transportation. There are plenty more. Click here to read more about them.

Real Value or “Paper” Value?
No matter how successful your business looks “on paper” from one day or one year to the next, its true value isn’t determined until you sell it or pass it on to the next generation. Without proper planning and in a worst- case situation, your business might sell at liquidation value. Your family and employees could lose everything if you were suddenly out of the picture. The value of your business may fluctuate significantly over time, so how can you ensure a successful transfer of your business regardless of the circumstances? Once you have determined who the next owner or owners will be—whether family members, business partner, or a key employee—the planning process generally includes three essential steps: determine the current full value of your business, lock in the full value with a solid buy-sell agreement, and lock in funding. Turning paper value into full value depends on how practical the funding is and the type of funding alternative chosen. Will your buyer have cash or savings available? Will you finance the buyer yourself by accepting installments, or will the buyer need to borrow from a lender? Or, perhaps life insurance would be the best alternative. Federated Insurance has evaluation tools available, at no cost or obligation to you, that can help answer those questions and offer insight as you plan. Call your Federated marketing representative to arrange a planning visit that could help preserve the real value of your business—for your future retirement and the financial security of your family and employees. To find your nearest representative, call 1-800-533-0472 or visit www.federatedinsurance.com.

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