Last week, 95 year-old Harry Read repeated the jump that he and his fellow parachutists had made as the advance party for the D-Day landings. He told ITV News in a video interview that before the 1944 jump, their Commanding Officer had explained in matter of fact terms that:
“50% of them would be casualties so the odds would be very much against their survival If you die in the process, you’ll be one of a lot who do so”
In fact, nearly 200 died as they landed, because the fields had been flooded by the enemy. Yet none had tried to turn back as they boarded the aircraft. And hundreds of thousands of young men and women made the same choice, in support of an objective they believed was worth this supreme sacrifice.
Contrast that history with the quality of leadership today and it is immediately obvious there are very few “leaders” today, particularly in the political sphere. Instead, our politicians believe in ‘leadership by focus group’, where members of the public are used to develop “talking points” for use in a 3 minute media interview.
Unsurprisingly, people often come to believe that the politicians themselves have no principles of their own. Unlike the leaders of the War such as Churchill, Roosevelt and de Gaulle, we increasingly have populists who believe in offering simple solutions to complex problems, and a media which highlights “excitement” over serious analysis.
The result is a collapse of confidence, as confirmed by the chart from the latest IPSOS Mori poll of “What Worries the World”. As I first discussed here in November 2016, most people in the world’s major economies believe that their country is heading in the wrong direction:
- Only China, Saudi Arabia, India, Malaysia, Mexico and Serbia have more than 50% of their populations believing that their country is headed in the right direction
- By comparison, 77% of French, 76% of Spanish, 73% of British, 67% of Germans, 64% of Japanese and Italians, and 63% of Americans, believe their country is headed in the wrong direction. And these numbers are generally getting worse
One can see the change in terms of what wasn’t said at the commemorations last week, and what was:
- At the 20th anniversary in 1965, former President Eisenhower (who had commanded the D Day troops as General Eisenhower) had argued, “These people gave us a chance, and they bought time for us, so that we can do better than we have before.” In spite of the Cold War and the Vietnam War, there was a sense that the world could and would become a better place in which to live
- On Thursday, the last leader to have taken part in the War effort made probably her last visit to the site of the landings. As 93-year old Queen Elizabeth II told the assembled veterans, “The wartime generation — my generation — is resilient, and I am delighted to be with you in Portsmouth today. It is with humility and pleasure, on behalf of the entire country — indeed the whole free world — that I say to you all, thank you.”
It is hard to escape the conclusion that we are reaching the end of an era
Many indicators are now pointing towards a global downturn in the economy, along with paradigm shifts in demand patterns. CEOs need to urgently build resilient business models to survive and prosper in this New Normal world, as I discuss in my 2019 Outlook and video interview with ICIS.
Global recession is the obvious risk as we start 2019. Last year’s hopes for a synchronised global recovery now seem just a distant memory. Instead, they have been replaced by fears of a synchronised global downturn.
Capacity Utilisation in the global chemical industry is the best leading indicator that we have for the global economy. And latest data from the American Chemistry Council confirms that the downtrend is now well-established. It is also clear that key areas for chemical demand and the global economy such as autos, housing and electronics moved into decline during the second half of 2018.
In addition, however, it seems likely that we are now seeing a generational change take place in demand patterns:
- From the 1980s onwards, the demand surge caused by the arrival of the BabyBoomers into the Wealth Creating 25 – 54 cohort led to the rise of globalisation, as companies focused on creating new sources of supply to meet their needs
- At the same time the collapse of fertility rates after 1970 led to the emergence of 2-income families for the first time, as women often chose to go back into the workforce after childbirth. In turn, this helped to create a new and highly profitable mid-market for “affordable luxury”
- Today, however, only the youngest Boomers are still in this critical generation for demand growth. Older Boomers have already moved into the lower-spending, lower-earning 55+ age group, whilst the younger millennials prefer to focus on “experiences” and don’t share their parents’ love of accumulating “stuff”
The real winners over the next few years will therefore be companies who not only survive the coming economic downturn, but also reposition themselves to meet these changing demand patterns. A more service-based chemical industry is likely to emerge as a result, with sustainability and affordability replacing globalisation and affordable luxury as the key drivers for revenue and profit growth.
Please click here to download the 2019 Outlook (no registration necessary) and click here to view the video interview.
President Trump’s auto trade tariffs are bad news for the US and global auto industry, as the chart highlights:
- It shows H1 sales in the 7 major markets, which account for 87% of global volume
- Sales in China have risen nearly 4x since 2007 from 3.1m to 11.8m this year
- Sales in the other 6 markets are almost unchanged at 23m versus 22.1m in 2007
Formerly high-flying growth markets such as Russia and Brazil have disappointed. Even after this year’s recovery, their H1 sales were still 35% – 39% below their 2011 peak.
Growth in the mature markets of the USA, Europe and Japan has only been achieved via $tns of stimulus programmes, which have left all 3 areas with vast debt burdens. Now, of course, higher interest rates are causing sales to slow again.
Only China – and India, with its very young population and relatively cheap prices – has seen steady sales growth.
Equally important is the global nature of the auto industry supply chain, where parts manufacture is as important as final assembly. And as the New York Times reports:
“General Motors now sells many more cars in China than it does in the United States, and the largest exporter of cars from the United States by value is not an American brand, but BMW. By some calculations, the car with the highest proportion of United States and Canadian-made content is the Honda Odyssey — and even that includes roughly a quarter of foreign-made parts.”
The sanctions couldn’t have come at a worse time for the US industry, where domestic steel and aluminium users are already suing the Administration over Trump’s earlier tariff decisions. Higher prices will only accelerate the current decline in domestic auto demand, which is being hit by 2 major negative trends.
THE AVERAGE AMERICAN IS NO LONGER DRIVING MORE MILES EACH YEAR
The second chart highlights the key longer-term issue, that Americans are driving less each year:
- It shows annual US vehicle miles/adult versus the $/gallon gasoline price since 1970
- Historically, Americans tended to drive more each year, unless gasoline prices rose sharply
- Average miles driven rose from 8k miles in the 1970s to 11k miles in the 1980s, and 13k in the 1990s
- The BabyBoomers (born 1946-64) were moving out to the suburbs and having children – so the “automobile was king”
- Higher prices during the 1973-5 and 1980-85 oil crises slowed the trend, but didn’t change it
But in 2001, the oldest Boomers became 55, when people leave the Wealth Creator 25 – 54 age group which drives economic growth. Average miles per adult peaked in 2004 at 13.3k miles and have since fallen by 1k to the current 12.3k level. Mileage is back at 2011 levels, when gasoline prices were a third higher at nearly $4/gal.
The issue is that the ageing Boomers no longer have to drive to work each day, or provide a taxi service for their children. And car ownership is no longer a key “rite of passage” for younger Millennials. New business models (eg Uber/Lyft services and car-sharing) are far more affordable, given the high costs of car purchase and insurance.
USED CAR SALES ARE SET TO GAIN, WITH AUTO DEBT AT NEAR-RECORD LEVELS AND INTEREST RATES RISING
The third chart confirms how US auto sales have become dependent on rising levels of debt:
- It shows average auto loans based on the total over-16 age population (most Americans can drive from 16)
- The average loan was already rising in the Boomer-led SuperCycle, with each peak higher than before
- But the Fed’s subprime and QE bubbles have caused it to accelerate
- In 2006, it averaged $4k at the height of subprime bubble; since the crash, it has risen back to $3.8k
The QE bubble was great news for US auto sales at the time, as was subprime. But now. interest rates are rising again.
Unsurprisingly, used-car sales are now increasing. They were 3.4m in July versus 3.2m in June and the tariffs mean they have a growing price advantage versus new cars. As the PureCars CEO noted:
“Prices for new cars are on the rise, and as leasing continues to grow in popularity, prices continue to go down in the used car market. Put simply, used cars are often the most realistic purchase for car shoppers.
TRUMP’S AUTO TRADE WAR WON’T SOLVE THE DEMOGRAPHIC AND DEBT ISSUES
President Trump’s trade wars confirm his transactional approach to complex issues. As he told Fox News last month:
“You know, the cars are the big one. We can talk steel, we talk everything. The big thing is cars.”
But tariffs are not a “silver bullet” and cannot solve the two key issues facing the US auto industry:
- The “demographic dividend” of the SuperCycle has been replaced by a “demographic deficit”. Ageing Boomers are not suddenly going to start driving more, whilst affordability issues mean younger Millennials cannot “fill the gap”
- Rising debt levels only gave the economy a “sugar high”, which is now ending as interest rates rise
As with the stimulus programmes, they will instead simply make it more difficult to develop the new policies needed for success in today’s New Normal world.
The blog has now been running for 11 years since the first post was written from Thailand at the end of June 2007. And quite a lot has happened since then:
Sadly, although central banks and commentators have since begun to reference the impact of demographics on the economy, they have not changed their basic belief that the right combination of tax and spending policies can always create growth.
As a result, the world has become a much more complex and confusing place. None of us can be sure what will happen over the next 12 months, given today’s rising geo-political tensions.
In times of short-term uncertainly, it can be useful to take a longer-term view. It is therefore perhaps helpful to look back at Chapter 4 of Boom, Gloom, which gave “Our 10 predictions for how the world would look from 2021:
- “A major shake-out will have occurred in Western consumer markets.
- Consumers will look for value-for-money and sustainable solutions.
- Young and old will focus on ‘needs’ rather than ‘wants’.
- Housing will no longer be seen as an investment.
- Investors will focus on ‘return of capital’ rather than ‘return on capital’.
- The term ‘middle-class’ when used in emerging economies will be recognised as having no relevance to Western income levels.
- Trade patterns and markets will have become more regional.
- Western countries will have increased the retirement age beyond 65 to reduce unsustainable pension liabilities.
- Taxation will have been increased to tackle the public debt issue.
- Social unrest will have become a more regular part of the landscape.
“The transition to the New Normal will be a difficult time. The world will be less comfortable and less assured for many millions of Westerners. The wider population will find itself following the model of the ageing boomers, consuming less and saving more. Rather than expecting their assets to grow magically in value every year, they may find themselves struggling to pay-down debt left over from the credit binge.
“Companies will need to refocus their creativity and resources on real needs. This will require a renewed focus on basic research. Industry and public service, rather than finance, will need to become the destination of choice for talented people, if the challenges posed by the megatrends are to be solved. Politicians with real vision will need to explain to voters that they can no longer expect all their wants to be met via endless ‘fixes’ of increased debt.
“We could instead decide to ignore all of this potential unpleasantness.
“But doing nothing is not a solution. It will mean we miss the opportunity to create a new wave of global growth from the megatrends. And we will instead end up with even more uncomfortable outcomes.”
Most of these forecasts are now well on the way to becoming reality, and the pace of change is accelerating all the time. It may therefore be helpful to include them in your planning processes for the 2019 – 2021 period, to test how your business (and your personal life) might be impacted if they become real.
THANK YOU FOR YOUR SUPPORT OVER THE PAST 11 YEARS
It is a great privilege to write the blog, and to be able to meet many readers at speaking events and conferences around the world. Thank you for all your support.
Consumers are starting to reject the use of single-use plastics, as this Financial Times letter from leading supermarket and business CEOs highlights. Business as usual is no longer an option for plastics producers, as I discussed on Monday.
Sir, The UK’s retailers make a vital contribution to the economy. With revenues of more than £380bn, the sector employs 4.6m people in the UK. Over the past decade Britain’s retailers have in the main focused on recycling in a bid to reduce the environmental impact of the plastic waste they produce. But we have to accept that this isn’t enough — by recycling plastic, we are merely recycling the problem.
Unlike materials such as aluminium and glass, plastic packaging cannot be recycled ad infinitum. Most plastic packaging items can only be recycled twice before becoming unusable. Regardless of how much is invested in Britain’s recycling infrastructure, virtually all plastic packaging will reach landfill or the bottom of the ocean sooner or later. It is therefore essential that retailers and packaging manufacturers work together to turn off the tap of throwaway packaging. Retailers should take advantage of the raft of zero-plastic packaging solutions that provide a real alternative to conventional plastic.
Campaign group A Plastic Planet believes supermarkets can drive a shift away from throwaway packaging by introducing a plastic-free aisle in their stores. We agree. A plastic-free aisle would be good for business. With at least a third of consumers saying that they base their purchasing decisions on the social and environmental impact of the products they buy, a plastic-free aisle would help supermarkets win over this growing band of informed consumers.
We call on the UK’s retailers to support this imaginative initiative, and help us to secure a better future for our children and grandchildren.
Former CEO, Asda
Sir Ian Cheshire
Lord Rose of Monewden
Former CEO, Argos; former Chairman and CEO, Marks and Spencer
Lord MacLaurin of Knebworth
Former Chairman, Tesco
Lord Stone of Blackheath
Former Managing Director, Marks and Spencer
Lord Jones of Birmingham
Former Chief Executive, British Soft Drinks Association
Lord Cameron of Dillington
Former National President, Country Land and Business Association
Baroness Scott of Needham Market
Former Board Member, Lloyds Register; Party President, Liberal Democrats
Former Co-Secretary and Legal Director, Kingfisher
Lord Foster of Bath
Associate, Global Partners Governance
Lord Hodgson of Astley Abbotts
Former Director, Marston’s
Former Attorney General
Former Director, Oxfam
Baroness Miller of Chilthorne Domer
Unicef Board Member
Lord Rees of Ludlow
Baroness Lister of Burtersett
Author and Professor
Managing Director, Weleda UK