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Editor's Notebook

The New Frugality: Consumer Withdrawal Runs Deep, May Last the Decade

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The last tumultuous decade was the 1980s, which open­ed with hyper-inflation, high unemployment and astronomical interest rates, and closed as the “Me Decade” when dollars flowed easy and greed was good.

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The decade we just laid to rest – The Aughts – by contrast, will likely be remembered as the “Decade of Benign Neglect.” Coming out of the Comfortable 1990s, everyone – from the pols in D.C. to the regulators on Wall Street to the public at large – turned a blind eye to virtually everything. That begat a series of failures so severe that we now question everything we thought we knew. Or felt comfortable about.

Now we have entered what I suspect will become known as the Age of New Frugality. Not quite the skinflintiness exhibited by our Depression-era grandparents, but pretty darn close.

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People are scared. Household budgets are squeaky tight, and for many Americans there simply is no discretionary spending. Or even jobs.

And it’s not just the poor and middle class. The more affluent have shown clear signs of fear, lying awake on their 800-thread-count sheets sweating their jobs and investment portfolios. Whereas they went all-in for a new Bimmer every year, even the wealthiest among them has pulled back.

Economists and analysts are concerned this thriftiness points to a broader – even permanent – shift in spending.

“The economy appears to have begun recovering after the worst recession in half a century,” a recent Wall Street Journal story read. “But businesses ranging from shoemakers to financial services to luxury hotels don’t expect American consumers to return to their spendthrift ways anytime soon. They see consumers emerging from the punishing downturn with a new mind-set: careful, practical, more socially conscious and embarrassed by flashy shows of wealth.”

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From “value menus” at chain restaurants to in-store “instant price drops” to more sympathetic advertising, company after company have reacted to the Great Recession and America’s new desire to save a few bucks.

Most analysts feel the economic crash-n-burn has had a profound impact on the psyche of the American consumer. They point to the impact the Great Depression had on consumer attitudes and habits. “We seem to be at a cultural inflection point that we haven’t seen since World War II,” Jim Taylor, vice chairman of market researcher the Harrison Group, told the WSJ. “People are getting used to being careful, and I don’t know how you undo that.”

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Uncertain about their futures, Americans are certainly saving more – 4.4% of their disposable income in October 2009, according to a Commerce Department report, well above the average annual savings rate of 2.7% over the prior 10 years. That cuts into necessary expenditures, and most certainly discretionary spending.

Now, a minority of corporate chiefs aren’t convinced that today’s penny-pinching will last, unsure of our ability to resist retail temptations even as the economy improves. They remind that the Great Depression lasted for close to 15 years, a significant period of time that would firmly imprint frugality on a generation that lost everything and grew up with nothing.

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By contrast, the Great Recession has barely lasted 15 months, and today’s tight purse strings, they say, will end up being a mere blip on the retail radar screen. Once the economy moves closer to “normal” (whatever that will be), Americans will return to their profligate ways, they say.

A renewal of any significant, meaningful retail boost may be a ways off. New predictions from economists and government bodies say that the U.S. GDP will grow at less than 2% per annum over the next decade, barely treading water. Painfully high unemployment may linger for years, they say.

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So, expect your customers to be looking for real value in the products and services you offer. Real value, not BS. As one man told the WSJ for its story, “It’s about what you can get for your money. All that stuff we thought was important isn’t. I don’t need flash anymore.”

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Couple of changes to tell you about. First, we’ve added a new feature to our Web site – a regular blog on Social Media. This new blog, developed specifically for Tire Review by national social media experts at Fahlgren Mortine Public Relations, will deliver real-world info on how tire dealers can successfully leverage Facebook, Twitter, YouTube and others to build sales and customer retention.

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In another change, our regular Tire Tech column has undergone a shift. We’ve recruited some of the best and brightest tire developers to give you greater insight into today’s tire technology. From intelligent tires to low rolling resistance to alternative tire compounds, we’ll dig deeper into the hot tech topics of the day. Enjoy!

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