Ford, GM, Stellantis face challenging second half of 2024

DETROIT – Last Share Ford Engine down more than 18% in one day, as they did last weekThe US auto industry was on the brink of bankruptcy during the Great Depression.

Ford, which avoided bankruptcy in 2008-2009, was not such a disaster, but the drop in its stock price after the company went bankrupt Wall Street earnings expectations is a prime example of the uphill battle automakers face for the rest of the year.

The US market – the profit engine for most automakers – is normalizing After years of record prices, inventories are low and demand is recovering. Inventories, especially for Detroit automakers, are rising and prices are falling.

Wall Street has been waiting for this situation for a while, as the cyclical nature of the auto industry signals a downturn.

“Investors who think autos could outperform on +earnings and acquisitions should think again. Auto fundamentals may be peaking (see rising incentives and payment deferrals). Ultimately, this could drive lower spending and” mergers and acquisitions, Morgan Stanley analyst Adam Jonas said in a note to investors Friday.

Jonas’s comments came after GM downgrade company from overweight to balanced last week, adding that “the auto industry remains one of the most challenged industries in the world in terms of competition, excess capacity, cyclical risks and long-term risks.”

The industry’s challenges add to each automaker’s own problems as well as uncertainty surrounding the adoption of all-electric vehicles, in which automakers have invested billions of dollars but remain largely unprofitable.

Ford shares had their worst week since March 2020, falling 20% ​​to close Friday at $11.19. GM fell 8.7% last week to $44.12. Stellantis fell 12.6% last week to $17.66.

Because Automobile CorporationInvestors are concerned about a slowdown in growth businesses, waning momentum in the second half of the year and concerns that the automaker’s earnings power has peaked, according to Wall Street analysts.

Selling more electric vehicles is one reason GM, which has raised its annual financial guidance twice this year, is expecting a weaker second half than the first. The company expects adjusted earnings in the second half to be between $4.7 billion and $6.7 billion, or an adjusted $3.82 to $4.82 per share. That compares with $8.3 billion, or an adjusted $5.68 per share. in the first half of the year.

The automaker also forecasts a 1% to 1.5% price cut as well as $1 billion in additional costs — including $400 million in additional marketing costs to support the launch. GM is looking to increase production electric car lossbecause the company’s goal is to make vehicles that are profitable in terms of production or contribution margin at the end of the year.

Analysts are also concerned about GM’s continued losses in China, which has historically been the company’s profit engine. The automaker’s China operations posted an equity loss of $104 million — the unit’s second straight quarterly loss after hitting a record high of $1.4 billion. lowest in about 20 years in 2023.

“We have taken steps to reduce inventories, align production with demand, protect prices and reduce fixed costs. But it is clear that the steps we have taken, while significant, are not enough,” GM CEO Mary Barra said Tuesday in a statement. company earnings call. “We expect the rest of the year to remain challenging.”

The automaker is still expected to post strong results in the second half of the year, building on its strong cash position and billions of dollars in share buybacks to return to investors.

Some Wall Street analysts have noted differences in stock buybacks between companies, citing Ford family voting control of the board of directors and special shares.

“With the cash balance so high, one would expect a special dividend or even a share buyback. In hindsight, this was probably just investor pressure versus GM policy. But Ford doesn’t seem to be changing its stance,” UBS analyst Joseph Spak said in a note to investors Thursday.

Ford expects adjusted profit in the second half of the year to be between $2 billion and $3 billion, down from $5.5 billion in the first half.

Company reaffirms its 2024 guidance despite missing adjusted earnings per share expectations by 21 cents in the second quarter. The automaker reported an additional $800 million in unexpected warranty costs compared to the previous quarter.

In the wake of the second-half results, Ford CFO John Lawler revised the company’s guidance for the second half of the year for its traditional Ford Blue and commercial Ford Pro operations. Full-year EBIT expectations for Ford Pro were increased to between $9 billion and $10 billion, driven by further growth and a favorable product mix. However, guidance was lowered for the company’s Ford Blue segment to between $6 billion and $6.5 billion, reflecting higher warranty costs.

“We are disciplined with capital, we have the right product portfolio and we are generating consistent cash flows to reward our shareholders,” Lawler told investors on Wednesday. “We are constantly looking for new ways to improve our business and remain focused on driving improvements in both quality and cost.”

Speaking to the media, Stellantis CEO Carlos Tavares said many of the company’s problems stemmed from its U.S. operations, which he has previously said were plagued by “silly mistakes” in vehicle inventory levels, production and sales strategies.

Last year, Stellantis was the only major U.S. automaker to report a sales decline compared to 2022.

The company’s sales in the United States fell about 16 percent in the first half of the year. Its North American market share was 8.2 percent, down 1.8 percentage points.

Despite the ongoing issues, Stellantis reaffirmed its 2024 guidance for double-digit adjusted operating margins, positive industrial free cash flow and at least €7.7 billion in capital returns to investors in the form of dividends and share buybacks.

Stellantis’ adjusted operating margin was 10% in the first half. The company’s free cash flow was negative €392 million and its capital gain was €6.65 billion.

Tavares hopes to meet those goals with the help of 20 new models launching this year, fixing problems in the U.S. and further price cuts to boost sales. He also did not rule out further job cuts.

“This is a very difficult industry, a very difficult period, and everyone is struggling to get performance,” Tavares said. “We are going to have to work hard to get that performance.”

– CNBC Michael Bloom contributed to this report.