NEWS ANALYSIS: Ford gears up for fiscal cliff fall
FORD Motor, the second-largest US vehicle maker, is making contingency plans should the country’s economy falter if President Barack Obama and Congress go over the fiscal cliff. Its main domestic rivals are not.
"We want to be able to adjust our production appropriately and make sure we have the right amount of liquidity," Ford Americas chief Mark Fields — who becomes chief operating officer tomorrow — said at the Los Angeles Auto Show. "It is encouraging to see that the administration is working with the Congress in a bipartisan way."
The looming fiscal cliff has Detroit unnerved. Just as the vehicle recovery picks up speed, the administration that saved the industry now could bring it to a screeching halt. Vehicle demand would plunge as much as 20% if Washington cannot find a solution to avoid a lethal combination of tax hikes and spending cuts at the end of the year, said Lacey Plache, chief economist of vehicle researcher Edmunds.com.
"I’d rather deal with (the) certainty of misery than the misery of uncertainty," Chrysler Group sales chief Reid Bigland said on Wednesday. The sooner there is "a deal made where consumers know what their taxes are going to be, what their social-programme payments are going to be, the better, because it has a tendency to put the whole country on edge", he said.
Failure to avoid the fiscal cliff could reduce sales to between 12-million and 13.5million, instead of the 15-million Edmunds is forecasting, said Ms Plache, who added that the outcome is unlikely. The economy would sink back into a recession that would last until the end of next year, before rebounding more strongly, she said.
"It would be a pretty painful year for auto sales, especially after the recovery we’ve had."
Through 10 months, the industry has reported almost 12-million sales in the US, up 14% from a year earlier. From 2000 to end-2007, the industry averaged 16.8-million deliveries.
Unlikely as it may be, Ford is wise to brace for the worst, Ms Plache said. " It’s a low probability event, but you don’t want to be caught short."
General Motors is not making specific contingency plans because it has lowered its costs enough to withstand a significant drop in sales, said North American chief Mark Reuss.
"We’ve already made those contingency plans, which is a breakeven around 11-million units," Mr Reuss said at the Los Angeles Auto Show.
A budget-induced sales plunge would disrupt the vehicle recovery, which rebounded strongly this month after Hurricane Sandy last month cost the industry sales, Mr Fields said. "November is going to be a very strong and solid month for the industry. We wouldn’t be surprised to see an industry selling rate with a 15 in front of it," he said, referring to an annualised selling rate of 15million vehicles or more.
The most likely solution to the fiscal showdown is tax increases for individuals making more than $1m a year and possibly for those making more than $250,000, Ms Plache said. Those tax increases would not have a "huge impact" on auto sales, she said.
Mr Fields’s promotion puts him in line to become CEO of a company thriving in North America as it struggles overseas. Ford earned a record $6.47bn in North America in the first nine months of the year and had an operating profit margin of 11.2%. It has said it will lose $3bn in Europe this year and next.