US Markets
Monday, July 29th, 2024 12:59 pm EDT
Key Points
- Ford, GM, and Stellantis face significant challenges as the U.S. auto market normalizes with rising inventories and declining vehicle prices, causing notable stock declines and concerns about future profitability.
- Ford’s shares dropped significantly after missing earnings expectations, leading to a focus on dividends over share repurchases, with adjusted earnings expected to decrease in the second half of the year due to higher warranty costs and adjusted operational guidance.
- GM and Stellantis also struggle, with GM facing reduced growth prospects and higher costs for unprofitable EVs, and Stellantis dealing with sales declines in the U.S. and operational issues, yet both maintain optimistic financial targets with strategic adjustments and cost-cutting measures.
Shares of Ford Motor experienced a significant drop of more than 18% in a day, a decline reminiscent of the Great Recession period when the U.S. automotive industry was near bankruptcy. However, unlike in 2008-2009, Ford is not facing such a disaster, but the sharp fall in shares highlights the tough challenges automakers are up against for the rest of the year. The U.S. market, traditionally a major profit source, is returning to normal after years of high prices, low vehicle inventories, and strong demand. As inventories rise and vehicle prices slowly decline, the auto industry enters a cyclical down period, with Wall Street awaiting these conditions. Morgan Stanley analyst Adam Jonas noted that autos face significant challenges, including rising incentives, delinquencies, and competition, suggesting that mergers and acquisitions may increase.
Ford’s shares had their worst week since March 2020, plummeting 20% to $11.19, while GM and Stellantis also saw declines of 8.7% and 12.6%, respectively. For GM, concerns include reduced growth businesses, lower second-half earnings projections, and increasing production costs for electric vehicles (EVs), which remain unprofitable. GM forecasts second-half adjusted earnings between $4.7 billion and $6.7 billion, down from $8.3 billion in the first half. Despite strong cash flow and planned share repurchases, analysts are worried about GM’s ongoing losses in China, a significant market for the company.
Ford’s situation is different, with the company relying on dividends rather than share repurchases to reward investors, a decision influenced by the Ford family’s voting control. Ford expects adjusted earnings between $2 billion and $3 billion for the second half, down from $5.5 billion in the first half. The company cited unexpected warranty costs and adjusted its guidance for its traditional Ford Blue and commercial Ford Pro operations. Despite these challenges, Ford’s CFO emphasized the company’s disciplined capital management and focus on quality and cost improvements.
Stellantis faces the most daunting second half, particularly in its U.S. operations. CEO Carlos Tavares attributed many of the firm’s problems to “arrogant mistakes” in vehicle inventory levels and sales strategies. Stellantis was the only major U.S. automaker to report a sales decline in 2022, with first-half 2023 U.S. sales down about 16%. Despite these issues, Stellantis reconfirmed its 2024 guidance for double-digit adjusted operating income margin and significant capital returns to investors. Tavares remains optimistic, aiming to correct U.S. operations and launch 20 new models this year while not ruling out further job cuts to achieve targets.
Overall, the U.S. automotive industry faces a challenging period with declining vehicle prices, rising inventories, and significant competition. Automakers like Ford, GM, and Stellantis must navigate these obstacles while managing internal issues and external market pressures, with strategies including cost-cutting, new product launches, and adjusting financial guidance to maintain investor confidence and market position.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/07/29/ford-gm-stellantis-face-daunting-second-half.html
