Why Ford, GM Shares Disappointed Even as Auto Sales Soared – TheStreet.com

Posted: Thursday, December 31, 2015

The U.S. auto industry is headed for a record year as the sixth straight year of growth in auto sales — a key economic indicator — comes to a close. Projections are for higher sales in 2016.

Yet, shares of Ford (FGet Report) and GM (GMGet Report) are both down for the year. As of Wednesday’s close, Ford traded at $14.17, down 9% for the year, while GM traded at $34.33, down 2% in 2015. In fact, both Ford and GM shares are lower today than they were when trading opened in 2014, when Ford stood at $15.42 and GM stood at $40.68.

Efraim Levy, automotive analyst at S&P Capital IQ, said 2016 will be the year when investors finally recognize the two automakers’ strong domestic performance.
Levy thought Ford and GM shared would do better in 2015. “I thought they would perform better [than they did] based on expected strength in North American and international growth,” he said in an interview. “Obviously there were some regions that were disappointing, including Russia and South America, and other commodity dependent markets.”

Once again in 2016, Levy expects another record year for U.S. light vehicle sales; he projects a 1% sales gain to 17.6 million. For 2015, he said, sales will jump 6% to 17.4 million, eclipsing the record of 17.35 million set in 2000.

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Auto sales, like the U.S. economy, have been steadily improving since 2009, when they stood at 10.3 million, a 27-year low. That July, GM emerged from bankruptcy. The new GM went public in 2010 at $33 a share.

As for the 2015 share price disappointment, Levy said that besides having concerns about Russia and South America, investors may have perceived that U.S. sales had peaked, or they may have been worried about the slowdown in China even though GM, China’s largest automaker, has weathered the storm there surprisingly well.

GM shares have, however, been hurt by the delayed recall of 2.6 million cars for ignition switch defects, which has already led to a $900 million Justice Department settlement and charges of $575 million to settle claims.

Ford missed third-quarter estimates and a new labor contract will boost costs. But executives said in October that the automaker would produce strong fourth quarter results. Ford’s net income of $4.7 billion for the first nine months was better than the $3.2 billion it earned in all of 2014.

So the diminished share price “is ultimately a puzzle to me,” Levy said. He has strong buy ratings on Ford, GM and Toyota (TMGet Report) .


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