Slivers of hope emerge
Jeanne Englehart, president of the Grand Rapids Area Chamber of Commerce, stood out as a rose among the thorns at a roundtable discussion on the economic recovery held at Grand Valley State University Wednesday.
Englehart struck a note of optimism as she talked with seven other panelists about the fundamental economic issues facing the nation and debated the best policies to lead the country on the path to recovery. Unprecedented times, she said, often create unprecedented opportunities.
“It’s really important for entrepreneurs to recognize the opportunities that come about through economic change,” Englehart said. “We believe that 2009 and beyond will present a massive platform for innovation and a watershed moment for business creation.”
Many great companies took root during poor economic times, including Disney, Hewlett Packard, FedEx and Microsoft, Englehart pointed out. She said two things have to happen for Michigan’s economic recovery to take place: structural reforms and spending cuts in state government. The state’s budget deficit is estimated at $1.5 billion so there’s no question cuts have to be made, she said. To reduce costs, Michigan could even go with part-time legislators, as many states have, she suggested.
Dan Giedeman, an associate professor of economics at GVSU, observed that the two main drivers of the economy — consumer spending and business investment — have both collapsed. On top of that, GDP growth is down, and unemployment is skyrocketing and is going to go higher.
Local Bank of America Vice President Tom Ranville said that despite all the bad news, he still knows a lot of companies in West Michigan that are doing well; they’re making money and still have cash. But for many other companies, the loan pickings are slim. Banks have been hammered with $1.31 trillion in loses and are still going through the process of rebuilding their balance sheets. Ranville said that given the current environment, it’s no surprise that the amount of due diligence banks are applying to loan applications is much higher than before, and that every loan applicant is being carefully scrutinized.
“Yes, deals are getting done but they are more expensive in terms of point spreads,” he added.
John Balbach, a business consultant with the Michigan Small Business and Technology Development Center, confirmed that access to liquidity for businesses has diminished, if not fallen off the table altogether. Startups are having a hard time obtaining the financing to get their businesses off the ground, and existing businesses are having similar difficulties lining up the credit they need to grow. Under normal circumstances, he said, a $500,000 loan to a high growth tech company would have been a slam dunk, but not today.
Mitch Stapley, chief investment officer for Fifth Third Asset Management, said that if banks are lending to each other, that’s a good sign, but if they’re not, they’re not going to lend to businesses and consumers either. But, he noted, some thawing has begun to occur in the financial market. Stapley stressed that the cost of the credit crisis marks the largest outlay of all big budget events in U.S. history.
Jim Gillette, director of financial services for automotive industry analyst CSM Worldwide, said 2009 is an extremely difficult year to forecast, but he took a shot at it: His company foresees Chrysler disappearing from the scene a year from now. There’s a high probability that General Motors will file for Chapter 11, he said, but it won’t fade away like Chrysler. Although Ford has been able to manage, Gillette believes Ford will eventually ask for a helping hand from the Fed.
“Recession periods for the auto industry tend to last a long time,” Gillette said. “We have a lot of suppliers and distributors that are not making any money. Somewhere between 12 percent and 25 percent of suppliers are going to cease to exist. Yes, there will be an auto industry in the U.S. but it’s going to look different.”
Balbach said he sees some hope for Michigan in the way of green technologies because of the federal stimulus package.