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Short Term Thinking

Posted on   January 20, 2015 5:39 pm by  Shaun Mannix  No Comments

Sales of relatively low mpg SUVs and light trucks are way up now that gas prices are plummeting with no end to the falling prices in sight. As I write this, such vehicles are now more than 50% of new vehicle sales. This seems to show that people have no memory of how gas prices fluctuate. They’ve forgotten that what goes down rapidly has risen just as rapidly in years past.

This got me thinking about how such an event leads to immediate behavior without any thought about what might happen in years, or perhaps even months, to come. It provoked me to look at some information about vehicle ownership and its implications for future fuel costs.

The average age of a car on the road today is over 10 years. The majority of people own a car for over 4 years. As cars continue to improve while car owners continue to be nervous about their economic prospects, they keep their cars even longer.

I have no more idea of how low gas prices will go or the likelihood of these low prices continuing for years to come than you, or these new vehicle buyers, do. What I do know, as do you and all these new vehicle buyers, is that prices fluctuate wildly and often rapidly based on many things beyond anyone’s control. Oil prices are particularly dependent on unplanned and unforeseen events.

Think of the impact if the current fighting in the Middle East turns into a full scale regional war drawing in the numerous oil producing countries of the area. On a smaller scale, what if one of the major US refineries catches fire as has happened in the past, and is out of commission for an extended time? And what if these two things happen at the same time?

Without any long term thinking a large number of people have rushed out to use some of their savings from low gas prices to buy vehicles that use more fuel. In other words, they’ve taken some of their gas savings and put it into…buying more gas for the same number of miles.

If two years from now gas prices have returned more or less to where they were before the drop began, they’ve just bought a vehicle that will cause them to use more gas and so spend even more of their income on fuel than with their previous more fuel efficient vehicle.

Two years, less than half the time most people own their car. Two years, 20% of the time of average age of cars on the road age.

Car purchase: a decision made with short term views begging for long term considerations.

The implications of this type of decision making don’t worry me much when we’re talking about someone buying a car. What does worry me is that these are the same people making business decisions on a regular basis. Do they carry this short term decision making over into issues requiring long term considerations where the decision will impact both their organizations and ours? What are the implications for our business and how do I incorporate my knowledge of this into my thinking and planning?

The ability to delay gratification is at the core of successful long-term thinking. It’s at the core of a lot of things which increase the odds of success. We all wrestle with this at work and at home.

Our company’s structure has provided fertile ground for some good long-term thinking over the years. Sure, we track sales, operational and financial data weekly and monthly. But decisions which occasionally drive unhappy numbers at the quarterly level have often led to much happier results a year or two later.

There is no silver bullet here. But we do remain alert to the trappings of in-the-moment decisions. It’s hard to do but we just completed our 51st year of business. On towards 100.

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