After record-setting sales years in 2015 and 2016, the US auto market appears to have plateaued. The past few months have seen year-over-year sales declines, so the boom could be shifting to a cyclical decline.
All three have posted steady profits for years, yet seen their stock prices languish (Ford and GM in particular, FCA less so because it’s only been trading since 2014).
Here’s what to look for this week, broken down by carmaker:
The largest US automaker crushed analysts expectation in the first quarter, but the stock barely moved. For the most part, Wall Street anticipates that a downturn will invariably lead to a loss of profitability for GM, despite the company’s assertion that it can break even in a market that craters to 11 million in annual sales, monumentally lower than the 17.5-million tally seen in the 2015 and 2016.
GM is likely to match or beat analysts’ expectations of $US1.72 per share, and the company is tracking to meet its own prediction of more than $US6 per share for the full year. But the flagging boom in US sales, especially of passenger cars, could weigh on GM’s results.
Counterbalancing that is the carmaker’s solid lineup of pickups, SUVs, and crossovers, which have been raking in the cash. The big question is whether GM can sustain its profits as the market flattens, obtains some compensation for the loss of US sales by expanding in China, manage a moribund Latin American situation, and continue to both manage its strong balance sheet while continuing to invest in new technologies and services.
GM’s management has been saying for some time now that Wall Street won’t properly reward the company until it sees how the current management team, led by CEO Mary Barra, handles a downturn. It’s nearly showtime for that event, so GM’s guidance for the rest of 2017 will be of interest to investors.
Ford’s stock has been hammered by investors, despite the carmaker’s steady profits. An impression that the number two US carmaker is overly dependent on truck and SUV sales has invited scepticism about its ability to sustain those profits into a downturn. Some Ford observers have argued that the company’s push into new technologies hasn’t kept pace, leading to the sacking of CEO Mark Fields earlier this year.
Fields was replaced by Jim Hackett, who will be on the hot seat for the first time this week. Analysts expect $US0.44 per share in profits, down from Q2 of 2016. Hackett’s job is to talk up Ford’s vision of the future — the transition to being a “mobility provider” — but in the short term, all eyes will be on the carmaker’s plan to bolster its SUV lineup to capture consumers who are increasingly gravitating toward those vehicles and away from passenger cars.
The bottom line for Ford is that analysts will have to listen to Hackett make his futuristic, high-tech case while waiting for more granular insight into how the company is preparing itself to ride out a sales slide.
Analysts are looking for $US0.61 per share, a slip from Q2 of 2016. FCA has been riding a wave of profits from its pickups and SUVs while simultaneously steeping away from passenger-car production in the US. The Alfa Romeo brand is also being re-introduced to the US market, and Maserati finally has an SUV to sell.
FCA under CEO Sergio Marchionne successfully spun off Ferrari in 2015 — the exotic manufacturer of sexy Italian supercars has outperformed all other public companies in the auto sector, including Tesla, in 2017 — and chatter is rampant that another brand could be headed in that direction.
Spinning off Jeep would create yet another rapid-growth investment opportunity and prepare Marchionne to step down as CEO of FCA.
However, Marchionne is in something of a race against the clock, as FCA’s balance sheet is less solid than GM’s or Ford’s. Marchionne is trying to reduce debt and FCA has benefitted from an extended truck-and-SUV-heavy sales cycle. For much of the past two years, he’s angled to merge FCA with another carmaker to better equip FCA to ride out a sales slump, but for now, it looks like FCA will have to go it alone.
Get the latest Ford stock price here.