Why is the company stockpiling cash in case of a recession if they don’t see an imminent downturn?

by Mac Slavo of SHTFplan

Large automakers General Motors and Ford Motor Co. are bracing themselves for an upcoming global recession.  Both companies are preparing in advance just in case this insanely volatile economy takes a turn for the worse.

At the JPMorgan auto conference in New York City, executives from both automakers highlighted how they are preparing their companies for the potential of much slower economic growth and the resulting hit on auto demand, according to a report bySeeking AlphaBoth companies have cash portfolios that will assist in riding it out once the recession finally takes hold of the economy.

Ford has a cash position of $20 billion and GM has $18 billion in cash to get them through the rough times ahead. As automakers begin their preparations for the economic downturn, the rest of us should probably begin our preps to if we haven’t already.

GM has modeled both moderate and severe downturn scenarios similar to 2008-09 to get a sense of how it might affect profitability and cash flow at the automaker, Dhivya Suryadevara, the company’s finance head stated. “It’s something that we continually keep watching and updating to make sure that we’re all set for when the downturn does come,” Suryadevara said, adding that the company does not see an imminent downturn, according to Auto News. GM will also be deferring non-essential capital expenditures and considering a shift to lower-priced vehicles as part of its “downturn planning” to save costs.

We aren’t entirely sure why the company is stockpiling cash in case of a recession if they don’t see an imminent downturn, but the reasoning is irrelevant.  Both companies are concerned or they wouldn’t be preparing in advance, regardless of what those in higher levels at the automakers are saying to the media.

Meanwhile, Ford said that it was “proactively” evaluating its future moves as it works with economists to model the severity of a possible recession.

This all comes as the news of the auto industry’s problems continue. India’s auto sales in July were the worst in 19 years while the German economy shrunk on the woes of their own auto industry. Globally, the auto industry is suffering and sales just aren’t what they used to be despite people paying exorbitant monthly payments for their car loans. New-car buyers agreed to pay an average of $551 per month for 69 months as of January 2019, and those numbers cannot have improved much since then. Car debt has risen 75 percent since the Great Recession in 2009, reaching an all-time high of $1.2 trillion, according to the U.S. Public Interest Research Group.

It is clear that the Amerian consumer who is taking out loans on a new car is much more confident in this economy than the automakers are.