2 actions to avoid as US auto sales forecasts collapse
The global semiconductor shortage is expected to continue to negatively affect automotive industry production and sales this year. Given the industry’s gloomy growth expectations, it might be prudent to avoid stocks such as General Motors (GM) and Ford Motor Company (F), which are expected to see a significant drop in sales in the third quarter.
Auto manufacturing has declined sharply, thanks to restrictions brought about by the COVID-19 pandemic and a drop in demand for new vehicles. And even as major economies are gradually returning to pre-pandemic activity levels, the auto manufacturing industry continues to be hit by a global semiconductor chip shortage. According to forecasts from Cox Automotive, Edmunds and JD Power / LMC Automotive, vehicle sales from July to September fell 13% to 14% year-on-year.
The shortage of semiconductors is far from being resolved, several players are forced to reduce their production and temporarily close factories. The semiconductor chip shortage is forecast to cost the global automotive market $ 210 billion in revenue in 2021.
General Motors Company (GM) and Ford Motor Company (F) are expected to experience the biggest sales drops in the third quarter, so it’s best to avoid these actions now.
General Motors Company (DG)
GM designs, manufactures and sells automobiles, trucks, crossovers and components around the world. The company operates through four segments: GM North America; GM International; Cruise; and GM Financial. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Holden, Baojun and Wuling brands.
Last month, Bragar Eagel & Squire, PC, a nationally recognized shareholder rights law firm, began investigating potential claims against GM on behalf of its investors. The purpose of the investigation is to determine whether the company has violated federal securities laws and / or participated in other illegal business activities.
According to Edmunds’ US auto sales forecast, GM is expected to see a third quarter sales decline of 31.5%, which is expected to be released on Friday.
For the second quarter ended June 30, 2021, GM’s net cash used in investing activities was $ 7.01 billion. The company’s EPS is expected to decline 72.4% in the current quarter and 40.4% in the next quarter. The stock has fallen 8.5% in the past three months and 6.6% in the past six months.
GM’s POWR ratings are consistent with this grim outlook. POWR scores are calculated by considering 118 different factors, each factor being weighted to an optimal degree.
GM has a C rating for stability, sentiment and growth. Within the D-rated automaker and vehicle industry, it is ranked # 27 out of 63 stocks.
To see additional ratings for value, quality and momentum for GM, click here.
Click here to view our Automotive Industry Report for 2021
Ford Motor Company (F)
F is a global automotive manufacturer engaged in the design, manufacture, marketing and service of Ford trucks, automobiles, sport utility vehicles, electric vehicles and Lincoln luxury vehicles. Automotive; Mobility; and Ford Credit are the three operating segments of the company. In addition, F has a strategic collaboration with ARB Corporation Limited to develop a line of aftermarket products for the new Ford Bronco.
According to Edmunds’ US car sales projections, F is expected to see a 29.3% decline in sales in the third quarter.
In the second quarter ended June 30, 2021, F’s costs and expenses increased 21% year-over-year to $ 26.77 billion. Its operating loss amounted to $ 22 million over this period. The company’s net income declined 49.8% from last year’s value to $ 561 million. Its EPS fell 50% from the previous year’s quarter to $ 0.14.
Analysts expect F’s EPS to decline 58.5% in the current quarter and 11.8% in the next quarter. The stock has lost 3.9% in the past three months.
F’s poor outlook is also apparent in his POWR ratings. It has a D rating for stability and a C for feeling and growth. F is ranked # 31 in the same industry.
Click here to see the additional notes for F (Quality, Momentum and Value).
GM shares were trading at $ 54.13 per share on Tuesday afternoon, up $ 0.15 (+ 0.28%). Year-to-date, GM has gained 30.00%, compared with a 17.52% increase in the benchmark S&P 500 over the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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