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Ford Is Preparing for the Fiscal Cliff

Consumer auto demand could fall 20% in a new recession


Ford GMWith politicians in Washington showing little progress in negotiations to avert the “fiscal cliff” of mandatory tax hikes and spending cuts that will kick in next year if a budget deal isn’t reached, Ford (NYSE:F) is making contingency plans for the worst.

Ford’s incoming chief operating officer, Mark Fields, said that the company was looking to maintain the right amount of liquidity to weather economic turbulence resulting from the fiscal cliff, and would adjust its manufacturing output to meet changing conditions, Bloomberg noted.

5 Ways to Turn a Fiscal Cliff Into an Investment Opportunity
5 Ways to Turn a Fiscal Cliff Into an Investment Opportunity

The economic impact of sharply higher tax rates, across all brackets, and slashed federal spending, would almost certainly cause consumers to slow vehicle purchases. 2012 was a good year for automakers with auto sales expected to reach an annualized rate of about 15 million vehicles. But if the country goes over the fiscal cliff, analysts warn that it could send the economy back into recession, slashing consumer demand for new cars by up to 20%.

Rival U.S. automaker General Motors (NYSE:GM) isn’t making specific plans to handle the fiscal cliff, should it materialize. However, the auto giant has reduced expenses and expects that it could handle a sharp drop in sales.

While Ford prospered in North America this year, earning $6.47 billion during the first three quarters, it predicts a $3 billion loss for its European operations.

Shares of both Ford and GM rose more than 1% in Thursday morning trading.

Article printed from InvestorPlace Media,

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