NEWSLETTER NO. 16 – NOVEMBER 11, 2016

The Black Elephant…

Languages are living, flexible and adaptable expressions of the fluidity of a culture and quickly reflect societal themes that flow through peoples’ lives – none more so than the English language.

I was therefore impressed with how quickly commentators began referring to the stunning victory at the polls by President Elect Donald Trump as a ‘Black Elephant’ event.

This phase is a creative amalgam of two modern clichés – unexpected and un-forecast economic or business events like the GFC which economists now term ‘Black Swans’, and the unmentionable issue that sits in a meeting room but no one wants to discuss – the ‘Elephant in The Room’.

The Black Elephant exists and we need to try to understand what this election result might mean for our businesses in the next 90 days, and then over the next four years.

Here’s my take on it after reading the consensus views from commentators around the globe.

90 Day Outlook

Not much will change. President Elect Trump will not be inaugurated until January 2017.

In the meantime, the well-established transitional protocols will kick in. These limit the actions that either President Obama or President Elect Trump can take between now and the inauguration.

The President Elect will be fully occupied staffing up his administration and deciding on the many presidential appointees he is required to nominate once he takes office. These include key Cabinet posts like the Secretary of Defense, the Attorney General and Secretary of State.

He will begin prosecuting his agenda in the next ninety days, but for Australian businesses, including ours, it should be a relatively stable trading environment. We will definitely continue to see volatility in the financial markets as the hedge funds and brokers react to every nuance coming out of the Beltway during the transitional period.

For most of our buyers this is largely irrelevant, if a little unsettling.

Longer Term

The major imponderables centre around the staggering differences between Donald Trump’s policy statements as a candidate and the implications of his ultra-inclusive victory speech as President Elect.

Most modern Presidents have had little real power to act decisively on key issues. From Truman to Obama they have in the main had to contend with a Legislature and a Judiciary that often has been politically at odds with their reform agendas.

President Elect Trump will have the advantage of a Republican controlled Congress and impending Supreme Court appointments that he can significantly influence. This suggests he will be able to deliver more of his political agenda than has been the norm for presidents since WWII – provided he can forge a coalition with the Republican leaders in the House and Senate – who, remember, repudiated his policies during the campaign.

There will be some good old fashioned horse trading!

For Australia, the negatives probably include America exiting the Trans Pacific Partnership which is frankly more symbolic than real – the TPP could sustain itself without the US. A more isolationist foreign policy and insistence by America that its allies share more of the costs of ‘global policing’ actions might be more significant for us.

On the plus side, President Elect Trump continues to signal clearly an intent to rebuild America’s infrastructure – he intends to be a big-spending President. This can be good for Australian companies with significant US operations like Westfield, Pratt Industries and BHP-Billiton. Their revenue growth can trickle down into more car sales locally.

In our industry, we have already effectively moved to a tariff free environment – if you overlook the ridiculous non-tariff import barrier called LCT. The FTA with the US is unlikely to change in the Trump era so trade related impacts on our businesses are probably not much of a concern.

That said, 100% of cars sold from 2018 onwards will be fully imported. This means currency will continue to be a key factor in vehicle and parts pricing and owner affordability.

With so much uncertainty around President Elect Trump’s actual agenda (no, he will not build a wall!) cross-rate currency volatility could be a challenging factor for importers attempting to hedge the AUD to provide pricing and margin stability.

Let me close by observing how disappointing it is to see Australian and global media commentators writing articles impugning the right of the American people to elect whomever they choose.

It’s how democracy works – you can’t just resign from the system because you don’t like the result. The people have spoken and we all, even the ‘elites’ who do not seem to get it, must accept the democratic outcome.

Donald Trump is the new normal – at least for the next four years.

The key for Australian businesses is to maintain flexibility around investment plans and to watch trade-exposed prices and margins carefully, and manage accordingly.

Good Luck and Good Selling.

 

David Blackhall
Chief Executive Officer
Australian Automotive Dealer Association Ltd

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