DAVID PHILLIPS

Sales outlook hangs on whether fiscal cliff is avoided

David Phillips is deputy managing editor of autonews.com.David Phillips is deputy managing editor of autonews.com.
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One big question down. One very big one on the near horizon.

To what extent can a re-elected President Obama work with a sharply divided Congress and resolve a fiscal crisis while keeping the feeble economy humming? The answer will play a major role in how strong the recovery in auto sales continues.

Without a comprehensive budget deficit plan, tax hikes and budget cuts worth billions of dollars loom, threatening consumer confidence and spending.

And Washington must decide whether to extend those Bush-era income tax cuts set to expire Dec. 31. The controversial cuts have provided a lift to the fragile recovery. An impasse could mean tax rates go up for everyone in 2013.

U.S. auto sales are up 14 percent through October and remain an economic beacon in an otherwise anemic recovery.

Mack McLarty, a prominent U.S. auto dealer who was chief of staff in the Clinton White House, told The Wall Street Journal that Tuesday's election tally was a "mandate for cooperation, middle ground" in Washington.

We'll see. Automakers are waiting for housing to bounce back, hiring to accelerate and pent-up demand to be unleashed.

What's unclear is how severe any austerity measures imposed by Congress will dent consumer and business spending. Just look at Europe, where the financial and debt crisis grows darker by the day.

Ford Motor Co. economist Jenny Lin said last week that some U.S. consumers and businesses are waiting for a resolution of the budget deficit talks before placing new-vehicle orders.

Nissan CEO Carlos Ghosn also is warning that the government's stalemate over the federal budget is harming the outlook for industry sales.

Wall Street traders -- fearing more gridlock in Washington after Tuesday's election results -- already weighed in by sending shares sharply lower today.

Without clarity in Washington, timid lawmakers and the divided American consumers who elected them are no sure tonic for the auto industry.

You can reach David Phillips at dphillips@crain.com.

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