Taking chances is not an option.
It's possible the booming sales years following the end of the Great Recession could be coming to an end, at least that's how General Motors and Ford see things. In a new Reuters report, the two American automotive giants are making contingency plans for a potential economic downturn fueled by the unresolved trade dispute between the US and China. Both companies believe this dispute over tariffs could possibly lead to yet another global recession.
The report goes on to claim Ford has already set aside a cash buffer of $200 billion in case things take a turn for the worst. GM, meanwhile, has stashed $18 billion in cash along with the potential to pay two years' worth of dividends. Because the US-China trade dispute is being taken very seriously here, GM has even created models showing both moderate and severe economic downturn scenarios.
Both are similar to the 2008-2009 economic meltdown in order to properly ascertain what could happen in terms of profitability and cash flow. "It's something that we continually keep watching and updating to make sure that we're all set for when the downturn does come," said GM Chief Financial Officer Dhivya Suryadevara. She also stated, however, that the company does not foresee an imminent economic downturn but, of course, that could change.
Remember, only a few sounded the alarm prior to the 2008 downturn and they were mostly ignored and ridiculed. Lessons have been learned since then. GM is also considering a shift towards lower-priced vehicles and deferring non-essential capital expenditure.
Ford is also working with economists to create models for every possible recession scenario. Working to make economic predictions like this is nothing new and corporations, including automakers, have done so for years. However, President Trump's announcement of new tariffs on China earlier this month sparked a greater urgency to come up with updated worst-case economic scenarios. You can never be too careful these days.
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