Could the impending “fiscal cliff” in the U.S. potentially harm the still-recovering auto industry? Detroit automakers worry it will.
The fiscal cliff refers to billions of dollars’ worth of automatic tax increases and spending cuts slated to go into effect Jan. 1, 2013. If the Obama administration and Congress fail to devise a plan to prevent the looming “cliff,” government analysts fear another recession could be on the horizon.
“It is vitally important for the economy that we work this out,” Ford Motor Co. Executive Chairman Bill Ford Jr. told Detroit News Monday. “We (Ford) are not isolated from what happens in the rest of the country.”
Sergio Marchionne, CEO of Fiat-Chrysler, had a similar view.
“I’ve been following this with much anxiety,” he said last week. “I’m relying on the wisdom of the political leadership to avoid this — for all of us.”
Analysts expect that a compromise will be reached to avoid many of the tax increases and cuts, though Edmunds.com’s Chief Economist Lacey Plache said that government inaction would “certainly impact car sales, but the likelihood that all these changes would occur is not high.”
In fact, Plache expects there to be no more than a 3% direct risk on sales, thanks in part to consumers being at a point where they can no longer put off buying a new vehicle, no matter their tax rate. “We still have millions of units of pent-up demand,” she said. “We’re [also] expecting there to be a surge in lease returns in 2013.”
Edmunds still anticipates 15 million units of new car sales in 2013.
Credit unions responded to the dearth of credit available in the consumer credit markets by offering financing for automobiles when banks and finance companies were running away from dealerships like a herd of deer being chased by hungry bears. When GM and Chrysler were on financial life support in bankruptcy awaiting a transfusion (or injection) of money from the US Government, credit unions were providing financing to consumers with low interest loans through dealers to keep the auto industry sales moving and the industry from collapsing. It will be very interesting to see if the auto industry and the dealership community will remember the credit unions that were there when things were tough and continue to build and sustain the relationships that were forged during the credit crisis. Credit unions still have the spirit and liquidity to lend, so let’s see how much the dealers will continue to support those credit unions now that the credit freeze is beginning to thaw and more banks and finance companies enter into the indirect lending markets.