October 10, 2008
BIRMINGHAM, Ala. - With questions over the economy's future becoming more numerous by the day, the business, management and finance experts at the University of Alabama at Birmingham (UAB) School of Business are able to provide answers on a range of issues. Six UAB experts offer expert commentary on six topics connected to the country's economic crisis. All are available for print and broadcast interview.
ECONOMIC CRISIS AFFECTS PUBLIC SERVICES
The economic downturn will impact how fast neighborhood roads are paved, old streets signs are replaced and how many police officers are hired to protect local communities, said Bob Robicheaux, Ph.D., chairman of the Department of Marketing and Industrial Distribution in the UAB School of Business. The reason for the impact is the direct link between a city's services and the performance of retail stores in that city.
"The sales and ad valorem taxes along with business license fees paid by a community's retailers fund as much as 30 to 50 percent of community services, which include schools, police and fire departments and street services," Robicheaux said.
More than 34 percent of U.S. households said business conditions are bad, according to the September Consumer Confidence Survey, and the overwhelming majority of the country's major retailers reported declining revenue in the third quarter. Robicheaux said critical city services could be reduced or cut as a result.
"There is a direct correlation between the level and quality of city services and collected retail sales taxes," Robicheaux said. "If less tax money is being collected that could lead to less service at the municipal level."
Bob Robicheaux, Ph.D., has been recognized by the American Marketing Association as a 'Best Researcher' in Marketing. He has been a consultant to Mercedes-Benz, Alltell Wireless and Volvo. His research has been published in the Journal of Business Research among other scholarly publications.
ADAPTATION KEY FOR SMALL BUSINESS SURVIVAL
Small- and medium-sized business owners should look for ways to adapt to a changing economic climate and warn employees that workplace flexibility will be necessary to continue operations, said George Munchus, Ph.D., chairman of the Department of Management and Organization in the UAB School of Business.
"Small business will have to adapt, but they are set up to do that because they do not have the bureaucracy or the heavy layers of management of major corporations that can slow adaptation," Munchus said.
Munchus said businesses selling goods and services considered luxuries by the country's middle class will need to adapt the most, and more quickly than companies in other sectors.
"For example, if you own a toy shop. Many right now, with today's economy, may consider buying toys to be a luxury; so that shop owner will need to adapt to sell more schools supplies, kids clothing or other staples that people need whether or not the economy is bad," Munchus said.
"The reality is there is the potential for job losses, but many small businesses don't rely on credit to operate, because banks are cautious about loaning to them," Munchus said. "So with those businesses used to operating within their budgets and relying only on cash income, they have a better chance at weathering the financial credit storm."
George Munchus, Ph.D., has a research focus in human resource utilization and project management. He has been published in Entrepreneurship Policy Journal and Management Research News among other scholarly publications. Munchus' professional memberships include the National Black MBA Association and Academy of Management.
CREDIT CRISIS FORCES BENEFICIAL CHANGE
The credit crisis could propel the next U.S. generation to live within its means, leading to slowed, but more sustainable, long-term economic growth," said Andreas Rauterkus, Ph.D., assistant professor of finance in the UAB School of Business.
"This could be a positive time, because people are learning that if you can't afford something, you can't, no matter what a mortgage broker, banker or sales associate tells you," Rauterkus said.
Rauterkus said that statistically the United States is the world's most indebted country, posting a negative savings rate in 2006 with residents spending more than they earned. Rauterkus compares U.S. spending to China, where the government saves at a 40 percent rate, while the national debt in America doubled to $10 trillion from 2000 to 2008. Faced with the country's current financial crisis, U.S. citizens may buck their spending trends, saving future generations from a similar economic crash.
"Economic growth spurred on by purchases made with borrowed money can't be sustained, because eventually people can't meet all their debts and the economy collapses as it has now," Rauterkus said. "The country needs to learn to grow within its means, and if it takes a tough lesson like this economic crisis than that is what it takes to educate the public on the dangers of using credit to sustain a certain lifestyle."
Andreas Rauterkus, Ph.D., is a native of Frankfurt, Germany and has been trained in both Europe and the United States, providing him with a world view of finance. His research projects have been funded by the FDIC among others, and he has been published in the Commercial Lending Review and other scholarly publications.
BAILOUT'S TANGIBLE MAIN STREET EFFECTS
The recently passed $700 billion government bailout of Wall Street banks will have tangible benefits for current homeowners and investors but might make for more challenges for some new home-buyers," said Stephen Yoder, JD, assistant professor of Business Law and Corporate Governance in the UAB School of Business. Yoder said the most positive Main Street impact of the bill affects current homeowners, opening up more opportunities for those in mortgage trouble to renegotiate the terms of their unaffordable house payments.
"The bailout bill should cause a fundamental change in attitudes toward renegotiating the terms of bad loans, and we are likely to see kinder, gentler reactions to struggling homeowners from banks and mortgage service companies," Yoder said. "That will give homeowners breathing room, encouraging them to take control of their finances rather than file for bankruptcy and cause major damage to their finances and the bank's finances."
The bailout package's increase of FDIC bank deposit insurance to $250,000 until December 2009 also directly benefits Main Street, offering a safe haven to shaken investors that want to protect their savings from an uneasy stock market.
"The increased federal government protection is a critical security blanket, assuring people their savings are covered and offering a sense of control to those that have worked hard to save," Yoder said.
Yoder did acknowledge one drawback of the bailout for Main Street, and that is stricter loan practices for the country's future home-buyers.
"The bailout does not specifically restrict loan offerings, but it sets the table for future legislation that could set tougher minimum loan requirements and stiffer standards that could cause some would-be home-buyers to defer their home purchase until their credit worthiness improves," Yoder said.
Stephen Yoder, J.D., has earned degrees from Northwestern University and Duke University. His areas of research and instructional focus are the legal environment of business and corporate governance. Beyond academia, Yoder is a partner at Balch & Bingham, LLP in Birmingham. He is admitted to the bar in Alabama, Pennsylvania and California.
BAILOUT ALTERNATIVES WITH POTENTIAL BENEFITS
Talk of a second multi-hundred million dollar federal government bailout, this time targeting struggling homeowners, offers benefits and should be considered, but such a bailout plan could cost taxpayers millions and prove to be difficult to implement, said Stephanie Rauterkus, Ph.D., assistant professor of finance in the UAB School of Business.
"A separate bailout of the country's struggling mortgage payers is an option to be considered, because what people want is something with a more immediate impact that directly affects them and their financial struggles," Rauterkus said.
The mortgage-payer bailout, as economists and politicians from both sides of the aisle have proposed, would refinance homes to current market prices, creating more affordable payments for owners that are facing foreclosure as a result of excessive monthly mortgage rates. Rauterkus said any kind of proposal to bailout struggling homeowners could also benefit the banks that have funded the faltering mortgages.
"Banks want to get paid back, but in the current economic climate there is no sure thing for the banks," Rauterkus said. "So the lenders would rather renegotiate to a lower loan rate and receive a lower monthly payment rather than getting nothing at all."
Rauterkus said the challenge of a mortgage payer bailout is the industry practice of concentrating troubled mortgages into securities that are sold by the original mortgage lenders to other companies. Finding out just who owns some of the country's bad mortgages so that terms can be renegotiated could prove challenging and be a roadblock to any bailout plan. She also said the prices at which the government buys the bad mortgages would weigh on the effectiveness of any plan, because buying mortgages for more than their refinanced price would cost taxpayers the difference.
Stephanie Rauterkus, Ph.D., has a research focus in specific innovations aimed at making housing more affordable for moderate and low income families as well as other personal finance areas. She has been published in Financial Management and The Journal of Economics and Finance Education among other scholarly publications.
MARKETING IN AN ECONOMIC DOWNTURN
The economic crisis and potential for multi-quarter recession may lead to a shift in marketing and advertising strategies to emphasize the quality and value of products versus a product's luxury or the indulgence attached to its purchase, said Lauren Skinner, Ph.D., assistant professor of marketing.
"Companies must look to prove the annual savings provided by their products and apply dollar amounts to those savings," Skinner said. "You have to show that a water filter for the tap in a kitchen sink may have a seemingly high up-front expense, but it will be significantly less expensive after a few months compared to buying a case of bottled water every week."
Skinner said an economic downturn is the time brand name companies must press advertising and marketing campaigns because there is a real risk of losing customers to cheaper, lesser known brands.
Skinner said the emphasis on advertising could pay off for companies, as consumers' financial guilt or worries could actually lead them to purchase big ticket items.
"People will be staying home more, not going out to the movies or out to eat," Skinner said. "While they make these self-perceived sacrifices, consumers may look to buy that new television set, the latest DVD or that tub of well-known ice cream because they'll want to make their increased time at home more enjoyable or less of a seeming sacrifice," Skinner said.
Lauren Skinner, Ph.D., has extensive business experience, working as an assistant buyer for Parisian and in customer development for Saks Inc. Skinner's research focus areas are supply chain management and retail supply chains. She has been published in the Journal of Business Research and the Journal of Personal Selling and Sales Management among other scholarly publications.