BUOYANT US MARKET
Vehicle makers on track for better year
Leading global car brands predict good times rolling from Trump effect and lower fuel prices
Southfield — For a year in which vehicle makers are facing their first US sales decline since the recession, 2017 is off to an awfully auspicious start.
General Motors (GM) projected its fifth consecutive year of improving profit on Tuesday — not counting ignition switch recall costs — and heaped a $5bn share buyback plan on top of the $9bn it started repurchasing in 2015.
Hours later, Ford Motor added $200m cash to its regular first-quarter dividend — a sweetener for investors to begin a temporary one-year profit drop due to spending on robotic and electric cars.
Japanese and German car makers at this week’s Detroit car show joined the hometown players in expressing optimism. Nissan Motor, just two months removed from calling a US market peak, now sees the rise in consumer confidence after the election of president-elect Donald Trump as a harbinger of an even better 2017.
BMW pointed to the good times rolling on Wall Street as one reason luxury vehicle sales will be sustained.
"The auto industry has benefited from cheap and available credit and low fuel prices," said Maryann Keller, an independent analyst in Stamford, Connecticut. "All of that has worked in the industry’s favour and no one is saying that’s going to die."
The shares of US vehicle makers and suppliers have outpaced the Standard & Poor’s 500 index since the beginning of the year, with gains of 7.2% at GM and 5.9% at Ford. Fiat Chrysler, benefiting from a bet on shifting its line-up to light trucks, has surged 19% in part on speculation it is likely to get a pass from looser environmental laws under Trump.
GM is finding ways to boost revenue and profit by introducing new models, trimming costs and cashing in on a global shift to larger, more expensive vehicles. Car buyers are shifting to pricier SUVs and GM has three new models — the GMC Terrain and Chevy Equinox and Traverse — coming to market in 2017.
The largest US car maker’s net income should increase to $6-$6.50 a share this year, CEO Mary Barra said. When 2016 earnings are reported later in January, the company expects to hit the top of its guidance, she said. Standard & Poor’s lifted GM’s credit rating one level on Tuesday to BBB, the second step above junk.
"It’s very good guidance given a US market that has plateaued," said David Whiston, an analyst for Morningstar. It shows management is "not done making the company better".
After a strong 2016 for the North American market, "we see more of the same favourable environment", GM president Dan Ammann said.
He has company. Nissan chairman Carlos Ghosn said on Monday that US automotive sales may increase again in 2017, about two months after his co-CEO had said the market had peaked.
Ford, the second-largest US vehicle maker, will pay an additional $200m to shareholders beyond its regular first-quarter dividend and said its 2016 tax rate would be higher than previously forecast.
Even though Ford cut profit forecasts twice during the second half of 2016, a weaker market is not the culprit.
Big technology investments will cut slightly into the bottom line this year before profit rises again in 2018, the Dearborn, Michigan-based company reiterated on Tuesday.