General Motors and Ford Motor Co. CEOs say they are watching for signs of a U.S. recession, despite demand for autos being strong.
Ford CFO John Lawler told attendees at a Deutsche Bank conference that an economic downturn is a real possibility and that the company is assessing the impacts of inflation and high gasoline prices on the economy. Interest rates may also factor in, as the Federal Reserve approved a 0.75 percentage point rate increase.
Higher commodity costs are also taking a toll on profitability in some areas, reported Lawler. Soaring material costs for electric batteries, for instance, wiped out the profit the automaker expected on its electric Mustang Mach-E.
Lawler also reported Ford Credit, the company’s financing arm, has seen an uptick in auto loan delinquencies. Ford is monitoring the situation closely, he said.
“We’re looking for every indication and every data point we can to get a read on where the consumer is, where they’re headed,” he said.
GM Finance Chief Paul Jacobson says the company plans to maintain flexibility when it comes to raising EV prices, as Ford has already done for the Mustang Mach-E.
“We don’t want to end up in a situation where a customer has ordered a vehicle two, three years out, and we don’t know where inflation is going,” he said.
Still, both CEOs report market dynamics remains automakers’ favor due to pent-up demand for vehicles and low vehicle inventory. However, inflated fuel costs and high inflation could restrain these purchases.
Both executives report they are modeling the outcomes of different recessionary scenarios. GM has increased its scrutiny into hiring decisions and prioritizing its spending on longer-term initiatives, such as in electric vehicles.
Both CEOs said the companies are better-positioned to weather a downturn than in the past. The automakers offer fewer profit-damaging discounts and have less unsold inventory.
“It’s a completely different environment heading into what could be a potential recession than anything I’ve seen in the past,” Lawler said.
Originally posted on Auto Dealer Today