Ford Motor Co., the second-largest U.S. automaker, is making contingency plans should the nation’s economy falter if President Barack Obama and Congress go over the fiscal cliff. Its main domestic rivals aren’t.
“We want to be able to adjust our production appropriately and make sure we have the right amount of liquidity,” Mark Fields, Ford’s Americas chief who becomes chief operating officer Dec. 1, told reporters yesterday 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 auto recovery picks up speed, the administration that saved the industry now could bring it to a screeching halt. Auto demand would plunge as much as 20 percent if Washington can’t find a solution to avoid a lethal combination of tax hikes and spending cuts coming at the end of the year, said Lacey Plache, chief economist of auto researcher Edmunds.com.
“I’d rather deal with certainty of misery than the misery of uncertainty,” Reid Bigland, Chrysler Group LLC’s sales chief, said in an interview yesterday. The sooner there’s “a deal made where consumers know what their taxes are going to be, what their social-program payments are going to be, the better, because it has a tendency to put the whole country on edge.”
Failure to avoid the fiscal cliff could reduce sales to 12 million to 13.5 million, instead of the 15 million Edmunds is forecasting, said Plache, who added that the outcome is unlikely. The economy would sink back into recession that would last until the end of 2013 before rebounding more strongly, she said.
“It would be a pretty painful year for auto sales, especially after the recovery we’ve had,” Plache said yesterday in an interview.
Through 10 months, the industry has reported almost 12 million sales in the U.S., up 14 percent from a year earlier. From 2000 through 2007, the industry averaged 16.8 million deliveries.
Unlikely as it may be, Ford is wise to brace for the worst, Plache said.
“You have to plan for it,” she said. “It’s a low probability event, but you don’t want to be caught short.”
General Motors Co. isn’t making specific contingency plans, because it has lowered its costs enough to withstand a significant drop in sales, said Mark Reuss, the automaker’s North American chief.
“We’ve already made those contingency plans, which is a breakeven around 11 million units,” Reuss told reporters yesterday at the Los Angeles Auto Show.
A budget-induced sales plunge would disrupt the auto recovery, which rebounded strongly this month after Hurricane Sandy cost the industry sales in October, Fields said.
“November is going to be a very strong and solid month for the industry,” Fields said. “We wouldn’t be surprised to see an industry selling rate with a 15 in front of it,” he said, referring to an annualized selling rate of 15 million vehicles or more.
The most likely solution to the fiscal showdown is tax increases for individuals making more than $1 million a year and possibly for those making more than $250,000, Plache said. Those tax increases wouldn’t have a “huge impact” on auto sales, she said.
“I’m sure I’m going to pay higher taxes next year,” Reuss said.
Fields’ upcoming promotion puts him in line to become chief executive officer of a company thriving in North America as it struggles overseas. Ford earned a record $6.47 billion in North America in 2012’s first nine months and had an operating profit margin of 11.2 percent. The automaker has said it will lose $3 billion in Europe this year and next and it has less than 3 percent share in China, the world’s largest auto market.
“Fields has got to prove he’s a man of substance and that he’s CEO material,” said Michelle Krebs, senior analyst with automotive researcher Edmunds.com. “He’s had a lot of success in North America, but if he can get things turned around in Europe, he’ll be a real hero.”
Fields, 51, in charge of Ford’s North American and South American operations since 2005, previously ran Ford of Europe and was CEO of Mazda Motor Corp. from 2000 to 2002, when Ford had a controlling stake in the Japanese automaker. A 23-year Ford veteran, Fields led a transformation of its North American operations from record losses in 2008 to record profits now.
CEO Alan Mulally, 67, will remain at the automaker through 2014 and continue to guide Fields as he takes a broader role, Ford has said. Mulally, who came to Ford from Boeing Co. in 2006, is credited with saving the Dearborn, Michigan-based automaker without a bailout or bankruptcy.
Fields said that as COO he mostly wants to continue what Mulally started.
“The first priority is continuing to deliver the same plan,” Fields said. “The second priority is to realize opportunities in all regions of the world.”
Fields said he is “so glad that Alan is going to be staying around.”
Mulally will focus on “long-term strategic development” of the strategy he introduced at Ford in 2006, as well as “mentoring” senior executives, Fields said.
“In my role as the COO, I’ll be leading the operating performance, the business units, the skill teams, to deliver on our objectives on a day-to-day basis,” Fields said.
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