Ford, GM and Stellantis face a difficult second half of 2024

DETROIT – The last shares of Ford Motor When prices plummeted greater than 18 percent in someday, as they did last week, the U.S. auto industry teetered getting ready to bankruptcy through the Great Recession.

Ford, which avoided bankruptcy in 2008 and 2009, is much from such a disaster, however the free fall of its stock after the corporate missed Wall Street’s earnings expectations is the very best example of the uphill battle that automakers face for the remainder of the 12 months.

The U.S. market – a profit engine for many automakers – is normalizing after years of record-high prices, low vehicle inventories and stable demand. Inventories, especially at Detroit automakers, are rising and vehicle prices are slowly declining.

Wall Street has been waiting for such circumstances for a while, because the cyclical nature of the automotive industry heralds a downturn.

“Investors who believe autos can outperform due to better-than-expected earnings growth and buybacks should think again. Auto industry fundamentals may have peaked (see rising incentives and delinquencies). Ultimately, this may lead to lower spending and mergers and acquisitions,” Morgan Stanley analyst Adam Jonas said in an investor note on Friday.

Jonas’ comments got here after the corporate downgraded GM to “equal weight” from “overweight” this week, adding: “The auto industry remains one of the world’s most challenged industries in terms of competition, excess capacity, and cyclical and secular risks.”

Adding to the challenges facing the industry are the person problems of every automaker, in addition to the uncertainty surrounding the introduction of pure electric vehicles, by which automakers have invested billions of dollars and which remain largely unprofitable.

Ford shares had their worst week since March 2020, losing 20% ​​to $11.19 on Friday. GM lost 8.7% to $44.12 last week. Stellantis lost 12.6% to $17.66 last week.

According to Wall Street analysts, investors were wary of GM’s setbacks in growth businesses and a slowdown within the second half of the 12 months. They also fear that the automaker’s profitability has passed its peak.

Higher sales of electrical vehicles is one reason why GM, which has raised its financial forecast twice this 12 months, expects the second half of the 12 months to be worse than the primary. The company expects second-half adjusted earnings of between $4.7 billion and $6.7 billion, or $3.82 billion to $4.82 billion adjusted per share. In the primary half, earnings were $8.3 billion, or $5.68 adjusted per share.

The automaker also forecasts a 1 to 1.5 percent drop in vehicle prices and $1 billion in additional spending – including $400 million in additional marketing costs to support the vehicle launch. GM wants to extend production of loss-making electric cars to make the vehicles profitable on a production or contribution margin basis by year-end.

Analysts are also concerned about GM’s continued losses in China, which has historically been a profit engine for the corporate. The automaker’s Chinese operations posted an equity lack of $104 million – the second consecutive quarterly loss after the unit hit a roughly 20-year low in 2023.

“We have taken steps to reduce our inventories, adjust our production to meet demand, protect our 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 on Tuesday through the Conference call on the corporate’s quarterly results. “We expect the rest of the year to continue to be challenging.”

The automaker remains to be expected to deliver strong leads to the second half of the 12 months, construct on its strong money flow position and conduct billions of dollars in share buybacks to return money to investors.

The same can’t be said of GM’s biggest competitor, Ford, which resisted a share buyback and as a substitute relied on the corporate’s dividend to reward its investors.

Several Wall Street analysts identified the differences within the two corporations’ share buybacks, citing the Ford family’s voting rights on the board of directors and special shares.

“Given the high cash levels, there was hope for a special dividend or even a share buyback. In hindsight, this was probably just investor pressure versus GM’s policy. But Ford does not seem to want to back down from its stance,” UBS analyst Joseph Spak said in a note to investors on Thursday.

Ford expects adjusted earnings of between $2 billion and $3 billion for the second half of the 12 months. This is lower than the adjusted earnings of $5.5 billion in the primary half of the 12 months.

The company confirmed its forecast for 2024 although earnings per share were a whopping 21 cents below expectations for the second quarter. The automaker reported additional unexpected warranty costs of $800 million in comparison with the previous quarter.

To reach the second-half results, Ford Chief Financial Officer John Lawler revised the corporate’s forecast for the ultimate six months of the 12 months for the standard Ford Blue business and the industrial Ford Pro business. Full-year EBIT expectations have increased to a spread of $9 billion to $10 billion for Ford Pro, reflecting continued growth and favorable product mix. However, the forecast for the corporate’s Ford Blue segment has decreased to a spread of $6 billion to $6.5 billion, reflecting higher warranty costs.

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

Transatlantic automaker Stellantis is facing what’s more likely to be its most difficult second half of the 12 months, particularly with regard to its US business.

Speaking to the media, Stellantis CEO Carlos Tavares said most of the company’s problems stem from its US operations, which he said were hampered by “arrogant mistakes” in vehicle inventory levels, manufacturing and sales strategies.

Stellantis was the one major U.S. automaker last 12 months to report a decline in sales in comparison with 2022.

In the primary half of this 12 months, the corporate’s sales within the USA fell by around 16 percent. Its market share in North America was 8.2 percent, a decline of 1.8 percentage points.

Despite the continued problems, Stellantis reiterated its 2024 forecast, which calls for a double-digit adjusted operating profit margin, positive industrial free money flow and a return of capital of a minimum of €7.7 billion to investors in the shape of dividends and buybacks.

In the primary half of the 12 months, Stellantis’ adjusted operating margin was 10%. Free money flow was minus €392 million and return on capital was €6.65 billion.

Tavares expects to realize those goals by introducing 20 recent models this 12 months, fixing problems within the U.S. and making additional price cuts to spice up sales. He also didn’t rule out further job cuts.

“This is a very tough industry, a very tough time, and everyone has to fight to perform,” Tavares said. “We’re going to have to work hard to deliver that performance.”

– CNBC’s Michael Bloom contributed to this report.