Economic Outlook

For the past seven years the United States has been in one of the greatest business expansions by historical standards, culminating in an economic backdrop of low unemployment, low interest rates, low inflation, and stable growth.  The average wage increases in the United States were 3.2% annually. The increase in consumer confidence and income certainly has aided the Timeshare/Travel industry, resulting in worldwide vacation ownership sales of six billion dollars ($6,000,000,000) as of December 31, 1997.  The continued growth and success in the Timeshare/Travel industry is not contingent upon historical data, but rather what will happen in the future. 

Recent economic data released in August, 1998, is indicative of a possible mature business cycle that could develop into a stagnant economy.  Real output has dropped to a mere .2%. These indications are of economic conditions we haven’t had to consider in an extended period of time.  The slowing of the U.S. business cycle is not a possibility, we suggest that within the next few months it will be a reality.  To combat a maturing economy, the Federal Reserve Board may consider raising short-term interest rates, to provide more liquidity to the banking institutions.  An increase in the cost of capital will result in companies being forced to operate based upon their own profitability.  Companies will look to increase their ability to meet their fixed expenses by reducing operating costs.  Our contention is that companies and employees should be prepared to see cut backs in operating programs and personnel being laid-off, thereby increasing the unemployment rate. 

It is our contention that this industry (Timeshare/Travel) will face different and more difficult times in the years ahead.  Wall Street is currently adjusting the pricing of travel and leisure stocks in the timeshare market which, in some instance, has reduced their capitalization value by 50%.  Consumers can be expected to hold on to the discretionary dollars that were used to purchase  luxury items.  It has been recently reported that consumer credit debt is still running extremely high as a proportion to the consumers’ income.  As the timeshare resort development companies grow so does their loan portfolios.  The ultimate performance and profitability of a development company is contingent on the credit performance of its portfolio.  A slowing economy will result in a higher delinquency and default rate which will reduce a company’s working capital.  Resort developers with foresight will provide their prospects an initial offering with a vehicle that adds additional security to consumers, ensuring that their investment in vacation ownership has certain guarantees.
 

Economic Impact – Major Businesses and Consumers

In the above paragraph we discussed the potential “chain reaction” resulting from an inflationary condition due to major businesses raising prices on their products to offset the increases in wages that aren’t matched by productivity growth.  The offshoot of this, however, is potentially a “slowing economy;” the problem becomes how is this situation going to be handled by Corporate America.  It is our contention that a slowing economy, that is widespread as opposed to segmented, could result in the following developments by early 1999 or sooner:
 
 

VacationGuarantee-Today and Tomorrow 

It is this last point of the five outlined above that may be the key to consumers and their recognition of the VacationGuarantee program.  In a tightening economy with slower growth and rising unemployment, involuntary termination becomes the biggest fear an employee has, which translates directly to how disposable income is spent as a consumer.  This condition of involuntary termination is addressed in our VacationGuarantee program, thus solving the problem of the timeshare owner who might incur a: being laid-off, involuntary job loss, lockout, strike or in a labor dispute and therefore unable to continue the mortgage payment on his/her vacation timeshare.  We will make the payment on the owner’s behalf, and continue to do so per the terms and conditions of the policy.  Aside from involuntary termination, the program provides loan payment in the event of either death or disability on the part of the timeshare owner(s).   As it pertains to disability, statistically, incidents of claim for this type of work-related injury increase during times of a slowing economy or rising unemployment.  In the event a timeshare owner incurs a disability resulting from a work-related injury, through VacationGuarantee we will continue to make the monthly mortgage payment per the terms and conditions of the policy.  With this added security to the property owner’s investment, VacationGuarantee is a product that will not only aid sales in an expansionary condition, but also continue to allow for strong sales growth in a tightening economy.
 

VacationGuarantee – Benefits to the Resort Developer

The overall benefits to the Resort Developer under the VacationGuarantee program are as follows:
 

Conclusion

The economic environment is not the same today as it was one year ago, and it won’t be the same one year from now.  There are indications on the horizon that this economy will be tightening and it’s better to be proactive.  VacationGuarantee is a program that can offer a multitude of benefits under both expanding and contracting economic conditions.  By adopting VacationGuarantee as a program, you will not only be realizing it’s importance as a product, but also taking the lead in protecting your portfolio and your members’ investments for what uncertainties lie ahead.