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16 Apr 2014

With the end of the second quarter upon us today, thursday morning’s announced revisions to first-quarter GDP are old news. Yet they are interesting in light of the differences between the story they tell and today’s other news. As has been the case for some time, the strength in GDP was driven by the consumer. In fact, 3.53 of the 5.6 percentage points of GDP growth were due to increased personal consumption expenditures epb system.

Against this backdrop, Advanced Auto Parts ( AAP ) saw its shares plunge as much as 20% early Thursday as the No. 2 U.S. parts retailer slashed its second-quarter profit forecast, citing the impact of soaring gas prices and rising interest rates on customer spending. According to CEO and Chairman Mike Coppola:

We believe that macroeconomic factors, including higher energy prices, ever-higher interest rates, and higher required credit-card payments are further reducing discretionary income for our lower- and middle-income customers and has unfavorably impacted customer traffic. The weakness also affected other companies in the industry Autel MaxiSys, including our Watch List component Autozone ( AZO ).

Consumers most likely to be buying their own auto parts tend to be those at the lower end of the income spectrum, where higher interest rates and gas prices hurt the most. Yet buyers of new cars are also stepping back, as the New York Times reports .

The pattern was set last summer when General Motors ( GM ) introduced employee-discount pricing for everyone. Ford ( F ) and Chrysler (DCX) followed suit, buyers flocked to dealerships and sales soared.

That cleared a lot of inventory off dealer lots. But sales slumped once the deals were gone, taking Detroit’s market share to the lowest level in history.

With inventories bulging again and Asian companies making record sales, Detroit automakers are now seeing that they must offer another eye-popping round of promotions to clear out all the cars and trucks that have been sitting too long on dealer lots.

It’s a habit the Detroit auto companies, which lost billions of dollars last year in North America, would like desperately to break so they could earn a profit in their primary business.

Despite all of Detroit’s claims to having abandoned the fire-sale mentality of the past, the companies’ actions suggest otherwise. While the article does note that Asian brands continue to do well, and many of those vehicles are produced in the US, some of those models are imports and higher sales of them acts as a drag on GDP. In the first quarter of 2006, auto and auto parts production accounted for 0.60 percentage points of growth.

The death of the consumer has been predicted for some time, and has repeatedly been wrong. For all we know, it may never happen. But today’s indications from the automotive group, which is one of the larger consumer spending areas, are worth noting. And it is easy to measure the impact. If the consumer merely continues to spend the same amount - not even cutting back but just not spending more - GDP growth would be cut by more than half. So if you are making the bet that consumer spending will continue to be strong, be sure to keep in mind what that means.

Source: Auto Industry Points to Mixed Signals for U.S. Consumers (AAP) William Trent ( 30 ) SA autel maxisys pro ms908p.Pages.Article.Follow.init('william-trent'); if (SA.Data.Cookies.get('author_slug')=='william-trent') $('article_top_info').down('.author_desc').update(" Click here to add your Contributor Mini Bio in this spot "); $('follow_btn2').observe('click', function(event) if(this.className == 'link follow') Mone.event("auth_follow", "article_bottom", "follow_author"); else if (this.className == 'link unfollow') Mone.event("auth_follow", "article_bottom", "stop_follow_author"); ); Seeking Alpha PRO helps fund managers: Research new investment ideas Reduce risk Find out if PRO is right for you: Full Name Work Email Phone Fund Name Contact Me We only use your contact details to reply to your request for more information. We do not sell the personal contact data you submit to anyone else.

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