'Perfect storm': Inflation is pummeling NM businesses - Albuquerque Journal

‘Perfect storm’: Inflation is pummeling NM businesses

Car Crafters owner Jim Guthrie pictured July 27 at his shop at 600 Montaño NE. The auto repair shop is facing steep increases in the cost of labor, parts and freight. (Adria Malcolm for the Journal)

Jim Guthrie knows his customers are more unhappy these days than usual — and considering that he’s in the auto repair industry, that’s saying something.

Guthrie, owner of Albuquerque-based Car Crafters, said he and his company are locked in a no-win situation. Inflation, coupled with the market forces spurring it on — problems with labor, shipping, manufacturing and more — is creating an atmosphere where it’s difficult to get repairs done, and even more difficult to get them done quickly.

“It sounds like doom and gloom, but you know, … we’re just really working way too hard for the return on our efforts,” he said.

Parts are more expensive and harder to find. “It’s not just one manufacturer, it’s all manufacturers,” Guthrie said.

Recently, Guthrie’s team ordered a new hood for a Ford Mustang. The hood came in at $150 — but the shipping cost $235.

Undamaged salvaged parts sit outside of Car Crafters’ repair shop on Montaño. (Adria Malcolm for the Journal)

“So the freight cost more than the hood,” Guthrie said.

In general, Guthrie said, freight has become both more costly and less reliable than in years past as shipping and trucking companies wrestle with the same labor and supply chain issues.

“I think freight overall is about three times higher than it used to be,” he said.

What that adds up to is delays. Waiting on a single simple but hard-to-find part often means the car can’t be returned to the customer.

“So the car sits and waits,” Guthrie said.

Meanwhile, Guthrie’s labor costs are going up. He’s doling out multiple dollar raises nearly across the board at his five automotive repair shops in an effort to hold onto his staff. He’s trying to fill multiple skilled labor positions. Some of those were left empty by employees who left during the heart of the pandemic last year after struggling to perform physically demanding work while masked and gloved in a shop that can reach 80 degrees.

Auto technician Luigi Truden works on the rear end bumper of a vehicle being repaired at Car Crafters’ Montaño location in Albuquerque in July. The auto repair shop is facing steep increases in the cost of labor, parts and freight. (Adria Malcolm/For the Journal)

Those still with Guthrie are facing a backlog of work like they’ve never seen before — and dealing with more than a few unhappy clients who want their cars back.

“Everybody is working harder than they’ve ever worked,” Guthrie said. “Harder and longer.”

Guthrie said it chafes him that people are out there making more staying home when he sees his staff pushing themselves so hard.

“It just seems unfair, that’s all,” he said.

To top it all off, Guthrie said he’s hamstrung by an inability to recoup those higher costs by passing them along to customers. More than 90% of his business comes through insurance companies, which Guthrie said are so far largely sticking to labor rates negotiated in a pre-COVID world.

Paintless dent repair technician Colin Shannon works on a vehicle with hail damage at Car Crafters on Montaño in July. (Adria Malcolm/For the Journal)

It’s not a sustainable situation, Guthrie.

“We’re definitely using up some of our earnings, our past earnings,” Guthrie said. “… When you’re super busy like this, you should be making money, not losing money.”

Guthrie isn’t the only New Mexican feeling the stress from rapidly changing economic conditions. Fueled by supply chain disruptions and resurgent demand for goods and services as restrictions related to the COVID-19 pandemic fade, prices for a wide variety of goods and services have shot up over the past year. The increased competition for labor has been another challenge for frustrated employers.

In July, the Consumer Price Index increased another 0.5% after rising nearly a full percentage point in June, according to the U.S. Bureau of Labor Statistics. The index, which tracks prices for a broad mix of goods and services nationwide, has increased 5.4% since last July, according to the BLS.

The Journal talked to a broad mix of New Mexico business owners about how the recent inflation is impacting their operations.

A year of highs

It’s been a year of historic highs at RAKS Building Supply, according to co-owner Richie Tabet.

Tabet said that since the pandemic began last year, the building supply company, which operates five locations in New Mexico, has seen prices for lumber increase beyond anything he’s seen before.

“It’s been a year to experience to say the least, because we went to record highs that no one ever believed (could be reached for lumber prices),” he said.

Tabet said that prices increased by 300% and at the height of the price increase he was paying $175,000 for a load of lumber.

Since prices have started to decrease, Tabet now pays $60,000 for the same amount of lumber.

“It’s coming down now, but not in all areas,” he said. “Your steel goods are still very expensive and hard to get.”

The decrease in prices comes with its own set of issues, since Tabet still has to make a profit on the lumber he purchased at a premium price.

He said that he has been averaging out the cost of lumber when setting prices.

“No one wants to get caught with high lumber and I did, but I’m not trying to penalize my customers so I’m trying to average it down,” Tabet said.

In addition to price increases for materials, labor costs have also increased.

Tabet said he is paying employees around 20% more than he did pre-pandemic just so he can keep people on staff, since other companies have also increased wages in an effort to attract new employees.

Materials, parts, shipping

Astronomical price hikes for raw materials, components, and shipping are burning through the bottom line for solar companies across the board.

Workers with Affordable Solar install a system on the roof of a Los Lunas home in 2014. (Marla Brose/Albuquerque Journal).

Skyrocketing costs for steel and aluminum in particular — used to manufacture everything from solar panels and racking structures to components like electricity inverters and sun-tracking systems — are squeezing margins for companies that make solar-related products and the firms that buy and install those systems. Add in supply-chain bottlenecks and an unprecedented rise in shipping costs and the inflationary spiral is making 2021 one of the industry’s most difficult years on record, said Ryan Centerwall, CEO of Affordable Solar, Albuquerque’s largest solar installation firm serving residential, commercial and utility-scale customers.

“It’s the hardest year I’ve seen in this industry,” Centerwall told the Journal. “It’s driven by a combination of inflation and supply-chain challenges, which hit our industry particularly hard because we rely on products from all over the world.”

Albuquerque-based Unirac Inc., which makes mounting platforms for solar systems, raised its prices two times this year by 20% to 30%, said company CEO Peter Lorenz.

“Steel costs have gone up by 300% since last year, and aluminum by 70%,” Lorenz told the Journal. “Supply-chain problems and logistics have also pushed up shipping costs about three-fold.”

Companies that manage large-scale projects are hit hardest, because it’s difficult to plan against inflation with long-term jobs, Centerwall said.

“Overall, we’ve seen about a 25% increase in project costs,” he said. “Many projects are getting delayed as a result.”

Residential system installers who manage shorter-term projects can respond more rapidly to price hikes. And many have managed to absorb costs, including about a 10% hike in solar-panels prices, said New Mexico Solar Group President and CEO Nick Kadlec.

“So far, we’ve absorbed additional costs without passing them onto customers,” Kadlec told the Journal. “But if this continues for much longer, we’ll have to adjust our prices upward.”

‘Perfect storm’

Supply line shortages, shipping delays and higher-than-usual demand are driving costs higher at Desert Greens Equipment, a John Deere dealership with locations in Albuquerque and Belen, according to husband and wife Adam and Jennifer Cherry.

“(It’s) kind of like a little perfect storm, as far as just, you had a lot of things working together in order to create a situation where the economics are going to determine that the prices are going to increase,” said Adam, the dealership’s general manager.

Even so, however, consumers — especially locals who’ve spent more time at home than ever in the last year — seem somewhat undeterred. They want their lawnmowers, and they’re willing to put their money down now.

“Even with the inflation in our industry, it’s not stopping people from buying,” said Jennifer, the company’s president. “We have equipment sold out that is not coming in until next March, March of 2022. People are putting deposits on it.”

It’s an aberration for the company, Jennifer added.

“Salesmen will tell them, ‘Hey, you can’t get it until next spring,'” she said. “And they’re like, ‘That’s fine. I’ll put my name on it.'”

In addition to costs passed along from the manufacturer, the Cherries said labor prices are higher, as well as general office supplies. While sales aren’t suffering, the couple said there have been other impacts on their business. They’ve held off on renovations and facility improvements because of the cost of supplies.

Their current fear is that the market will quickly reset and demand will drop.

“So the scary part is you’re going to get a bunch of inventory. The market is going to reset. You’re going to have stuff just sitting on your lot gaining interest,” Adam said. “… It reminds us kind of like the housing market … (where) you end up having some type of a housing bubble that eventually collapses.”

Unexpected boom

Costs to operate hot air balloons have also, well, inflated.

A propane storage tank at the Rainbow Ryders building in Albuquerque. The company has seen price increases in fuel, as well as in labor and insurance premiums. (Liam DeBonis/For the Journal)

According to Scott Appelman, founder and president of Rainbow Ryders, it’s costing more now to pay for the propane that makes the balloons go and gasoline for the chase cars. The chase cars themselves are far more expensive, insurance premiums on balloons and cars have gone up significantly, and labor costs have risen as well. As of late July, Appelman, whose fleet includes 43 balloons, hadn’t seen an increase in the cost costs of balloon manufacturing, but he said he expects it to appear eventually. The energy and labor costs have been major factors in the company raising prices for rides between 7% and 15% over the last year.

But while the costs are worrisome, Appelman said customers are lining up like never before — and haven’t seemed to mind the price hikes.

“How’s business? The best it’s ever been,” he said. “… I’ve never seen anything like it. Our sales are up over 2019 by 100%.”

It’s not at all what Appelman first thought the pandemic fallout would be. For about three weeks last spring, he said he barely slept. About 90% of his customers were tourists. But after the initial shock wore off, Appelman said, he and his team were able to start looking at the opportunities. One of those was to start marketing directly to locals — many of whom had lived for years under balloon-dotted skies without ever booking their own ride.

“All of a sudden, the locals came out because it was something to do,” Appelman said.

He also started seeing more younger customers, drawn in part by the made-for-social media views from the balloons — and perhaps by the pandemic-fueled realization that life is short.

All that isn’t to say there aren’t struggles.

Burners attached to a balloon gondola at Rainbow Ryders’ Albuquerque building. (Liam DeBonis/For the Journal)

Costs of vehicles for the chase fleet, in particular, are troubling — the Manheim Used Vehicle Value Index, which tracks the price of used vehicles, was up 23.6% in July compared to July 2020.

“It’s like, holy mackerel,” Appelman said.

Labor is worrisome as well. Rainbow Riders operates in Albuquerque, as well as in metro Phoenix and in Colorado Springs, Colorado. Of the three locations, hiring has been most difficult in Albuquerque, Appelman said.

“We don’t hire people at minimum wage, I mean, that’s not a fair wage for people,” he said. “… We’re still having some challenges there.”

Food costs

Inflation can even be felt for new restaurants that opened during the pandemic.

Tako Ten owners Joshua Gomez and Michelle Waterson in April. (Adolphe Pierre-Louis/Journal)

Joshua Gomez, co-owner of Tako Ten, Thai Street, and Refresh at Bridges on Tramway, said he has noticed prices inch up on food items and restaurant equipment since opening Tako Ten in August of 2020.

Thai Street and Refresh open this month.

He said that one of the items he has noticed a price increase in is chicken, though prices for most food items have increased by around 3% across the board.

Though he did not have a figure for how much the meat had increased, he said it was enough that he has considered pulling chicken wings from the menu at Tako Ten.

For now, Gomez said he will continue with both of his restaurants and think creatively to cope with higher costs like potentially removing menu items and figuring out new ways to save money and move product around.

In addition to increased food costs, Gomez said he ran into higher costs for equipment as he prepared to open the two new restaurant concepts, Thai Street and Refresh.

He said he is thankful that the restaurant’s location at Tramway and Candelaria has provided a steady group of customers, but ultimately the price increases mean that margins are even thinner.

Local supply chain

Unlike many other companies and businesses, Los Poblanos Historic Inn and Organic Farm has largely been shielded from some of the effects of the pandemic like inflation, according to executive director Matt Rembe.

Maxfield Bervig, left, and Gabriel Calvo harvest lavender at Los Poblanos Ranch in June 2020. (Jim Thompson/Journal)

Rembe said that despite ongoing challenges, Los Poblanos has been fortunate since inflation has caused the company to rethink its typical business model by switching to a model that largely caters to locals instead of tourists and visitors.

“We changed our business model to really try to attract more locals and people regionally,” he said. “And so we have changed our business dramatically during COVID.”

He said Los Poblanos has taken care not to pass the rising costs in retail, agriculture and manufacturing on to customers, something that has been made slightly easier due to the nature of the business.

“I think while most businesses’ first instinct is to pass on this cost to the customer, which is understandable in some cases because you have to remain viable, we’ve been careful not to do that because we think some of these might be temporary,” he said.

As a business that encompasses agriculture, manufacturing and retail, Rembe said the supply chain is largely controlled so there are fewer opportunities for inflation to dramatically affect the business, and items that have increased in price since the pandemic, like bottles and caps, can be kept in check.

“We actually have a pretty good control of our supply chain here in the United States, so we’ve been somewhat fortunate,” he said.

At Campo, a fine dining restaurant located on the property, rising food costs have not impacted business significantly since the restaurant sources mainly from local producers.

“We kind of think that eating locally and seasonally may typically cost a little more, but right now it may be the best value you can have because you’re not paying those premiums for the disruption that the global supply chain challenges are creating,” Rembe said. “… That’s helped our business be a little bit more resilient.”

But other expenses have increased and are adding up, he said.

For example, maintenance on the historic buildings can’t be delayed even if materials to do repairs are more difficult to get.

Other ancillary supplies like toilet paper and paper goods needed to run a business have also increased in price.

“All those little things add up and increase your costs at a time where we’re all trying to conserve and build up our cash reserves after a year of depleting them so it’s certainly a challenging environment,” Rembe said.

However, Rembe said he believes that many of the increases are only temporary so the company made the decision to not increase prices.

‘Sweating bullets’

Janet Jarratt, a lifelong farmer and owner of Shady Dale Farms south of Los Lunas, said she has never experienced a year like this last one.

“It’s two black swan events in one year,” she said, referencing the duel crises of the COVID-19 pandemic and a historic drought sweeping through New Mexico and much of the country.

Jarratt, who raises cattle and goats for slaughter, said the price increases over the last year have been “unbelievable.”

At first, she said, it started out with an increase in the cost of shipping for repair parts and then the cost of the repair parts themselves.

With the state lacking manufacturing facilities for farming equipment, almost all her replacement equipment and supplies were sourced from out-of-state dealers — which only increased prices further.

And since her farm uses older equipment with parts that frequently break, she had no choice but to continue to purchase parts for much higher rates.

“When you’re dealing with equipment, you’re dealing in metal parts,” she said. “… The prices have just gone crazy.”

Other increases in commodities like gravel and concrete have also added to the amount of money Jarratt needs to spend to keep her farm operational.

The drought, both in New Mexico and globally, has also affected her costs.

Jarratt said she typically grows hay for her animals but was unable to do so this year due to a lack of water for irrigation which meant she had to borrow money to purchase hay and feed for her livestock — something she hopes to never have to do again.

“That’s a hole that’s going to take me years to dig myself out of, because I just couldn’t get irrigation water,” she said.

Despite her production costs increasing, Jarratt said she is unable to increase the cost of her cattle and goats since prices for meat are determined by packing plants in advance. That means she is spending more to raise her livestock without bringing in extra money.

“It doesn’t matter how much it costs me to produce my meat, I still get (the pre-determined) price for it. I can’t raise my price to meet additional costs.”

With higher costs on the bottom line and a lack of increase for the price of cattle, Jarratt said she has resorted to doing most of the work herself and even without having to pay for extra help she is living below the poverty line.

“I wake up at three o’clock in the morning sweating bullets about how I’m gonna pay for everything,” she said.

Prices for gas, other necessities soar as consumer demand rebounds

What even is inflation, and why is it happening?

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