For the automotive sector, a rise in interest rates is a double-whammy. As a capital-intensive industry, it is hugely dependent on debt. An increase in interest rates will weigh heavily across the supply chain. On the demand side, higher interest rates on car loans will hurt spending.
For Ford, the hike in interest rates would come at a time when is trying to pay down its massive debt, which totaled over $100 billion in 2010.The company cut debt by $2.6 billion in the second quarter. Reducing its leverage is crucial in order for the company to win an investment grade rating. But that goal might be farther from its reach in the event of a sovereign debt downgrade. Ford is already coping with a difficult operating environment as commodity costs have increased and the economic outlook appears weak. Ford reported revenue growth of 13% in the second quarter to $35.5 billion. Net income fell to $2.4 billion or 59 cents per share, lower than the year-ago quarter profit of $2.5 billion or 61 cents per share. The automaker said sales of light vehicles will likely come in the lower end of its 13 million to 13.5 million forecast.
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