GM and Ford Are Nowhere Near Pushing the Panic Button Yet

General Motors and Ford sell millions of vehicles a year. They also have financing arms, GM Financial and Ford Credit, which lend money to their customers and potential customers who want to buy their products.

The two car giants are therefore an important barometer for investors seeking to know if we are in recession ...

or if the difficulties of households are getting worse while the financial markets are in panic mode in the face of record-breaking inflation.   

Leaders of the two companies have just sent mixed signals. On the one hand they say they are preparing for an economic downturn and on the other GM and Ford ensure that the demand for their vehicles is not weakening. 

“We’re very lean on inventories. We have an order bank that’s significant at over 300,000 units. Incentives are in the low single digits," Ford chief financial officer John Lawler said at Deutsche Bank's annual automotive conference .

"So it’s a completely different environment heading into what could be a potential recession than anything I’ve seen in the past. We’ve modeled it through. We know what we need to do." 

In the months leading up to the 2008 financial crisis followed in 2009 by the bankruptcy of GM and Chrysler, automakers had found themselves with colossal inventories and were offering steep discounts to liquidate those stocks.  

Currently, the situation is rather favorable: order books are full, stocks are low, which causes long delivery times. Automakers have even had to increase their prices, especially for SUVs and pickups/trucks...

to preserve their margins in the face of supply chain disruptions caused by the Covid-19 pandemic, the shortage of microchips and soaring prices raw materials.