July 2, 2013
Host: Ted Simons
Guests: Category: Business/Economy
- Auto sales are rebounding in the U.S. Economist Jim Rounds will talk about what’s leading to the increase in auto sales.
| Keywords: economy
Ted Simons: Good evening. Welcome to "Arizona Horizon." I'm Ted Simons. Arizona auto sales are expected to show a 12% increase in for June. That compares to 8% growth in the U.S. over all. Both numbers would represent the strongest showing for auto sales since the great recession. I'll talk to an economist about what's behind the spike in numbers for new car sales, but first producer Lorri Allen and photographer Scot Olson look at the used car market and how it correlates to the surge in auto sales.
Lorri Allen: Used car dealer Ace Christian analyzes the numbers. Sales are up about 15% this year. The bad news?
Ace Christian: The problem is the inventories are still short. It's going to take a long time, a real long time before they get to the levels they were five years ago.
Lorri Allen: Used vehicles are in short supply all over the state according to the independent dealers association.
Dave Warkentin: Folks that have even less inventory than we do over here, they are traveling over to Arizona buying cars and shipping them back to the east coast taking our cars out of inventory, so this is driving the price of cars up. We have dealers that are going to auction that can't believe how much they are having to pay for a car to have it in their inventory.
Lorri Allen: The demands for used cars has hiked their prices, but the rise in new car sales could help.
Ace Christian: What that means for me is that more vehicles are going to be traded in. Which means more supply at the auction.
Lorri Allen: So shoppers could have more from which to choose. And they may find a kinder, gentler used car sales staff. Christian says those who survived the recession are better dealers.
Ace Christian: They got better practices. One of their practices that I have heard over and over again is that they treat the consumer like they would want to be treated.
Lorri Allen: Sean says he liked the way he was treated. He just bought a Lincoln.
Sean Whitworth: The information that they provided to us was not just, hey, come get a car, bring this, this and this much money. It was more they did a great job explaining everything. It just showed a feeling of actually caring and not just about their bottom line but in actually helping us in obtaining another car.
Lorri Allen: Industry analysts predict more people are ready to obtain another car. Pent up demand remains a factor.
T Dave Warkentin: hey drove that car as long as they really feel comfortable with and are saying, I'm going to get a new car even if maybe nothing has changed for them. They are just saying okay, we're getting a new car or getting a replacing our car, trading it in is kind of the American way.
Ted Simons: And joining me to talk about why auto sales are increasing and how that growth impacts Arizona's economy is economist Jim Rounds of Elliott D. Pollack and company. Good to see you again.
Jim Rounds: Good to be here.
Ted Simons: What's happening?
Jim Rounds: We went through a period during the downturn where individuals were uncertain about their jobs. Their housing values dropped significantly. Their retirement portfolios fell off a cliff and they didn't feel comfortable buying a new car. It wasn't even about the current income, their paychecks, but their over all level of wealth. They felt things weren't as good, so we saw periods where we were declining on a month by month basis compared to the prior year by about 35%. What has turned around, people's stock market portfolios are in good shape. Housing values are up quite a bit over the last couple years.
Ted Simons: What about prices? Let's stick with new cars. Are prices up, down, making a difference here?
Jim Rounds: Prices are starting to go up. Looked at some data just released this past week where U.S. manufacturers are about 90% capacity in terms of their production, which is very high. The segment indicated that we might have a shortage of some of the used cars. Well, it's going to take a while for car manufacturers to ramp up to this new demand, so prices are going up but they are not going up to the point where it's going to dissuade buyers. The impact from the economic recovery will outweigh that, I believe.
Ted Simons: what about the impact of interest rates?
Jim Rounds: Interest rates are starting to go up. If you look at the different rates that put the loans together it varies a lot. Now, if a car loan goes up from % to percent, that's not that big of a deal. Add another 20 bucks to the payment maybe. But if it goes from three to 6%, which it could, that's like adding another $2,000 on to the price of the car. We probably won't see that impact, the sales as much. Probably another couple years at least.
Ted Simons: What are people buying?
Jim Rounds: A few years ago the SUVs were very popular an trucks. We're still America. We're still selling a lot of trucks but there's been a shift from the SUVs to the more fuel efficient cars. That's kind of continued. Gas prices have been somewhat stable. It's not like we went from three bucks to six bucks a gallon. The ratio of the small cars to the trucks has been relatively stable but we're seeing a little bit of movement towards the more fuel efficient cars.
Ted Simons: What about gas prices and the impact on auto sales?
Jim Rounds: If it goes up significantly and right now the forecast is for it to be relatively stable for a while, it could have an impact on shifting to some of the bigger cars again. The welt effect on the consumer so consume remembers buying more cars but you could see a dampening impact. There's a pent up demand and interest rates haven't quite hit that point where it's going to dissuade buyers.
Ted Simons: We heard about pent up demand in the package as well. How much was out there? We had cash for clunkers program, other ideas to push people to buy cars. We heard at the time if you push them to buy cars now they won't buy them later. Sounds like they bought them later.
Jim Rounds: Well, they did. The cash for clunkers was really interesting. It caused a huge spike in sales. You could see it in historical data, then followed by a trough. That wasn't the best program. We got a lot of people during the downturn that couldn't afford a new car we convinced them to buy a new car. That wasn't a good plan. People have been hanging on to that car and they are ready to buy. That growth in Arizona was around 12%, it will slow a little bit. But if the long term average is around 6% but the next couple years we go up 10, 9, 8 that's still above average.
Ted Simons: Are dealers ready to sell? Have they changed their tactics, their formulas? When you go to a car lot, are you seeing a different kind of car sale?
Jim Rounds: Dealers were very willing to work with the buyer the last two or three or four years. Now that they are seeing extra demand and seeing car manufacturers hitting 90% utilization of their factories it's more difficult to get those cars, they are going to be able to negotiate on their side a little bit more and get higher prices. Their lots are not completely filled, they will be soon. Economics is wonderful. Everything adjusts within a short period of time. So these kinks will work themselves out but expect growth to continue the next couple three years.
Ted Simons: Tell us about the impact of the auto sales numbers on Arizona's economy over all. We'll stick with Arizona here. Bit of an indicator. Which direction and how much?
Jim Rounds: 12% in terms of the rate of growth for sales from the prior year. I'm expecting that to be the same this year. Then if it falls it will maybe fall to then down to eight. Probably 20, 15--20, 16 before we see things at more normal levels, but it's adding to the community sales tax collections, to state sales tax collections, so it's benefiting the state as a whole. It's still a nice signal that things are moving in the right direction and is consistent with the other economic data that we saw.
Ted Simons: It seems as though the auto industry may be more resilient than other sectors. True?
Jim Rounds: They doing well now. We have seen significant bankruptcies before. I was trying to figure out where everybody stood in terms of paying off the bailout monies. It was difficult to put together. But most of the manufacturers have paid off the bailout money. I think Ford was listed as one of the more problematic companies in terms of paying it off but everything is working out. I'm not a big fan of government bailouts but in this particular case I don't know if it was the wrong thing to do.
Ted Simons: It's interesting. You wonder where we would be and could you still find that new car if the bailout hadn't happened. You're looking at % this year, obviously a bit of easing off. It looks like it's going to be stable for a while at least.
Jim Rounds: Yes. We're going to see decent growth. It's going to match a lot of the other economic data we're talking about, so we're moving in the right direction whether it be autos or other sales.
Ted Simons: Jim, good to have you here.
Jim Rounds: Thank you.
AZ Giving & Leading: Waste Not
- Waste Not is a Scottsdale-based organization that collects excess food from restaurants, resorts, caterers, grocers and others six days a week. That food, which would normally be tossed into the garbage, is taken to schools, daycare centers, senior facilities and other organizations to feed the hungry. Waste Not Executive Director Dee Mitten will tell us about her organization.
- Dee Mitten - Executive Director, Waste Not
| Keywords: waste not
Ted Simons: Tonight in our look at Arizona Giving and Leading we focus on Waste Not, an organization that delivers food from restaurants and grocery stores to the hungry. Executive Director Dee Mitten joins us now to tell us more. It's good to see you again.
Dee Mitten: Thank you.
Ted Simons: Last time you were winning all sorts of awards. Everyone was finally recognizing what you were doing. What are you doing? What is Waste Not?
Dee Mitten: We are feeding the hungry. Collect excess food from restaurants, resorts, Caterers, grocers and we currently deliver it to more than 100 agencies and organizations that feed the hungry. Very, very diverse group of people. Schools, after school programs, senior facilities, daycares, transition homes, some homeless shelters. Everyone that needs a helping hands.
Ted Simons: This is excess food not food that I didn't finish at my meal but food that wasn't presented?
Dee Mitten: Exactly. It's excess food that has been properly maintained. Give you an example. If there's a dinner for 500 people and only 400 attend, 100 extra dinners. If that food has not been placed on the table, not plated, but has been held in the kitchen, there's 100 dinners that are going to waste. Going to go to waste. That's the type of food that we rescue.
Ted Simons: As far as how Waste Not got started, give us a little history here of the was the original goal X, now it's turned into Y?
Dee Mitten: We have had our entire history, which is more than 25 years, singular mission. We take excess food from people who don't want or need it and give it to those that do. That's what we still do today. We're very good at it. We're very precise. We're not a food bank.
Ted Simons: Compare. Compare yourself to a food bank.
Dee Mitten: That's why it's harder for people to get their arms around us because we're behind the scenes. We're a mobile operation out there working behind the scenes. The primary differences between Waste Not and a food bank are we don't warehouse food. It's easy for people to go to a food bank and participate in a mission. But with Waste Not we're behind the scenes very lean, efficient. Our team of five drivers are on routes. They pick the food up in the morning and are distributing it throughout the day. That is one primary difference. The other is that we do collect food from restaurants, caterers.
Ted Simons: So Ted's Restaurant figures out we had a special on meatloaf and I don't think we'll be able to sell all of it. By, what, 6:00, 7:00, 8:00 I call you?
Dee Mitten: Absolutely.
Ted Simons: I say we're doing a special on meatloaf I may have some extra?
Dee Mitten: Give us notification. As much as you can. That's all there is to it. It's very -- we're so easy, so flexible. We just want people to be aware of us. The need for food, Ted, is overwhelming. My gosh, it's devastatingly hot out. People are hungry. When you think about one in four kids going to bed in our community hungry every night we all need to step up to the plate. If there is excess food or you know of it, certainly call Waste Not.
Ted Simons: You deliver to schools, senior centers, all points in between. Homeless she shelters?
Dee Mitten: Yes, we do transition homes, rehab centers. Homeless shelters much currently more than 100 organizations.
Ted Simons: Your relationship with restaurants, Caterers, were people raising eyebrows and how difficult is it to get a restaurant to say, okay, let's do it?
Dee Mitten: Well, that is our strong suit is establishing great relationships with our donor barns. That's the life blood. That is our life blood. Without our donors People are going to go hungry. We spend a lot of time. We cultivate that relationship. They need to know they can depend upon us. We can depend upon them. Here's the thing. We don't know every day exactly what we're going to receive. We don't. That's another facet of it. Our drivers are constantly making decisions as to how, what food can best be used where. So it's a logistics marvel out there behind the scenes.
Ted Simons: What are your greatest challenges? The challenge is the heat. Our vehicles, we have been in a circumstance that's very unusual, we had two trucks down. I will tell you when we can't deliver food, first of all the people that are donating food are depending on us to pick it up. So when our trucks are down the people that are receiving food, it's devastating for our drivers to have to tell them that we have got the heat has gotten to our vehicles and that's exactly what's happened. But we are through that. So those are expenses that come along that you don't anticipate in the summer. People that need food that weren't served, so those are ongoing challenges.
Ted Simons: Last question. What's next for Waste Not?
Dee Mitten: Well, we are in the process of creating another route. We will be. A little bit further on into the summer and the fall. It's -- I'll put it this way. We never have to look for people that are hungry. They find us. But we are seeking new food donors, new opportunities, new relationships, so anyone that could work with us in that regard we would be very pleased to talk with.
Ted Simons: You're doing fantastic work. Continued success. Thank you so much.
Dee Mitten: Thank you, Ted.
Legislative City Issues
- The state legislature made big changes to the state’s sales tax system, changes that will affect cities. Ken Strobeck, Executive Director of the Arizona League of Cities and Towns, will talk about the sales tax changes and other legislative issues that impacted cities.
- Ken Strobeck - Executive Director, Arizona League of Cities and Towns
| Keywords: legislative
, sales tax
Ted Simons: The state legislature made big changes to Arizona's sales tax collection system last session. Changes that will impact Arizona municipalities. I recently talked about it with Ken Strobeck, of the Arizona league of cities and towns. Thank you for joining us.
Ken Strobeck: You bet.
Ted Simons: Biggest issue to cities and towns this session.
Ken Strobeck: Well, it was by far the issue regarding tax simplification. That's so important to cities and towns because the sales taxis our primary source of revenue. Over % of the typical city's revenue comes from local sales tax and there were some major changes proposed to that whole system.
Ted Simons: What were the original concerns and how were those concerns addressed and were they addressed to your satisfaction?
Ken Strobeck: Well, very good question. There was a task force Governor Brewer appointed about a year ago. It met for about six months and came out in 2012 with some recommendations. The original bill had some fundamental changes to the system including elimination of self-collecting cities, 19 of the largest cities collecting their own sales tax. It eliminated the city auditing of businesses and also eliminated the prime construction tax in favor of a tax on materials at the retail sale. Those would have made huge changes in the way cities operate and the revenue streams that come in. We negotiated during the entire course of the session appeared we got some compromise language at the end that I would say will make it work for us but it wasn't the ideal as far as we're concerned.
Ted Simons: The contracting issue seems like the big sticking point. It is complicated. If you build a home in Maricopa or Fountain Hills, explain how those sales taxes are collected now and how they either will change or would have changed.
Ken Strobeck: The way it was done before is a contract on a home was taxed at 65% of the total value of the contract. The presumption was that 35% of what you're doing is labor and that's not taxed. Then 65% is materials, overhead, profit, et cetera, and that was taxed. It's taxed at the point where you're actually building the house. So the city would get a portion of that tax and the state would get a portion of that tax because the filing would happen where you're actually doing the construction. The proposal was eliminate that entirely and only tax materials, which is far less than 65%, and then only tax materials where you buy the materials. So you may buy them out of state, you may buy them in Phoenix, somewhere and then build somewhere else. The way the bill finally came down is the prime contracting tax stays exactly the same for homebuilders but it changes for what's called service contractors. Basically we call it the handyman rule. If somebody is coming to do a replacement or something that is simply repairing something that's broken, they will go to this sales tax at the point of sale system and will not have to file taxes with the city where they are actually doing the work anymore.
Ted Simons: I think representative less company said it changes where service contractors would help cities.
Ken Strobeck: We don't believe it will. In fact the JOBC estimate shows cities will still lose revenue off this system because remember we were talking about taxing at 65% of the total value of those contracts, now it's estimated that materials are about 21% of what the service contractors do. That's a pretty big tax cut and we're not going to recoup that through retail sales.
Ted Simons: Prime contractors return how much to cities? Isn't there a general pool where the 20% comes from?
Ken Strobeck: No, you're talking about the share revenue. That's the state part of it. I'm talking about the local part.
Ted Simons: Talk about the state part of it. I think some people say the cities will not be quite as bad off as maybe some of the cities had said.
Ken Strobeck: The 21% that will be taxed now approximately 21% on materials will go into the shared revenue system with the state shares with cities and towns. That's shared at a rate that's higher than the prime contracting shared revenue. So I don't want to get too far off into the weeds. A bigger percentage but a smaller piece of the pie to begin with, so we don’t think it's going to make up all of the lost revenue.
Ted Simons: With the change to service contractors how does it backed things like city planning?
Ken Strobeck: The sense we are able to retain the prime contracting on new home construction and on major remodel and those kinds of things, we don't think it's going to be nearly as impacting as it would have been had we had to go to the entire system where everything was changed to just a point of sale retail. So the estimate of JOBC is from one to $15 million impact statewide initially. We'll see how that shakes out. There's a lot of assumptions that are built into that projection, so we'll have to see how it actually works.
Ted Simons: There will be a fight among municipalities to build a Home Depot or Lowes in every town. A little cleanup action on this?
Ken Strobeck: Last year there was a bill passed that said all city elections have to move if they are in the spring cycle they have to move to the fall cycle of even numbered years. Over cities and towns held their municipal elections in the spring cycle. They had the primary in March and the general election in May. That's when mayors and council members were elected. That's being changed to the fall of even numbered years. So we had some issues that had to be cleaned up as a result of that legislation passing. One had to do with length of term. You were elected in the spring, your two or four years is up in the spring. We had the legislature give us permission through statute that says we can extend those terms until the next election comes up for those people. They could be extended from six months to a year and a half. Then the other issue was home rule.
Ted Simons: I want to get to that in a second but why is it important to cities to have these elections in off times? Why was it not good to consolidate these?
Ken Strobeck: We opposed that bill because there's a bit of a attention given to city elections we are worried it will get lost in the shuffle. You'll competing against Congress, against state legislators, judges, school boards. Those will all be on one ballot in the fall. Instead of being able to focus a little more on the city elections in the spring cycle we're concerned they are going to get lost in the shuffle.
Ted Simons: Proponents say it saves money. Valid?
Ken Strobeck: Perhaps. The counties usually run those elections and there was usually a fee that went with those to cities but the total number of dollars was rather small when you look at the cost of a city budget. We think the value was there to be able to have some focus on those local elections.
Ted Simons: I think those who are supporting this bill also said that because you would have them you would have more turnout so more eyes on the ballots.
Ken Strobeck: Perhaps, but again you'll be having so many issues including propositions, all the candidates at all levels, schools, judges as I mentioned, at the tail ends of the ballot you're going to have a lot of drop-off. People will vote the top part of the ballot and drop them in the mail there are 14 cities and towns that would have lost the authority to spend revenue they have been collecting because they have to go out every four years for home rule option. That would have expired. The constitution says you have to hold these home rule elections at the same time you elect candidates. Those would have expired in the spring. They would have had that period of time between the spring and the fall cycle when they couldn't have spend the money even that they have collected already. So the legislature did finally the very last bill that passed out of the Senate has waived the penalties for those 14 cities and towns if they exceed their home rule expenditure provided they put that on the ballot next election.
Ted Simons: Highway user fund and lottery funds. Are they still swept?
Ken Strobeck: Still swept. It's at the same level of last year. The impact is about $36 million to cities and towns, money we think should be put back into streets and roads. People have the expectation when they buy gas that that's where their money is going to go.
Ted Simons: That will probably be addressed next session.
Ken Strobeck: That's on our agenda. Thanks.