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Ford, General Motors demand in focus during earnings




Attendees look at a Ford Mustang Mach-E GT during the opening day of the 2022 New York International Auto Show (NYIAS) in New York, Friday 15 April 2022.

Jeenah Moon | Bloomberg | Getty Images

DETROIT – Let’s talk about pricing power.

At least, General Motors and Ford Motor is likely to do so this week as it reports fourth-quarter results and 2023 guidance, with Wall Street watching for signs of weakening consumer demand and a tougher price landscape.

Both issues will mean lower profits this year for automakers, which are expected to report relatively solid results for the fourth quarter compared to low earnings a year ago. GM is expected to report fourth-quarter earnings per share of $1.69, up 25% from a year earlier, while Ford is expected to report EPS of 62 cents, more than double the 26 cents it posted a year earlier, according to Refinitiv consensus estimates.

Automakers have reported record earnings in recent years amid a tight supply of new vehicles and robust consumer demand. They have bet on continued pent-up demand as inventory levels normalize, hoping to avoid deep discounts or incentives to move vehicles.

But that scenario is slowly neutralizing. And that means that the prices of new vehicles and the profits change.

Cox Automotive reports that Detroit automakers have among the highest inventory levels, noting that vehicle numbers vary greatly from brand to brand. In addition, incentives are increasing slowly.

There is general concern that pent-up demand was largely eroded by recession fears and affordability issues brought on by rising interest rates and record prices of nearly $50,000 on average for a new vehicle.

Ford cut the starting prices of its electric Mustang Mach-E on Monday, weeks after the EV industry leader Tesla cut its own prices.

Duncan Aldred, head of GM’s GMC brand, signaled that the truck and SUV brand expects to continue increasing its average transaction price, which he said hit a new record of more than $63,405 during the fourth quarter.

The rising transaction prices are due in part to redesigned pickup trucks and the launch of the electric Hummer SUV, which tops out at more than $110,000. GM started production of that SUV this week at a Detroit plant, the company said during a media roundtable Monday.

GM is scheduled to report its results on Tuesday before markets open, followed by Ford after midnight on Thursday.

‘Demand destruction’ watch

Wall Street has been bracing for a “demand destruction” scenario in recent quarters, meaning much of Wall Street’s focus this week will be on automakers’ 2023 guidance.

Goldman Sachs expects forecasts to be below consensus, “driven by price and mix as well as lower financial services profits.”

GM is expected to guide toward a roughly 20% decline in adjusted earnings per share for the full year 2023, according to Refinitiv estimates. Ford’s 2023 EPS is expected to fall nearly 16% compared to 2022.

“We estimate that GM and Ford could see a noticeable decline in profitability this year, as earnings could be weighed down by declining car prices and losses from growing EV volumes,” Deutsche Bank analyst Emmanuel Rosner wrote in an investor note earlier this month.

Rosner said the guidance risk is already well-anticipated and should not dent stocks, however.

Morgan Stanley’s Adam Jonas expects the worsening pricing, cheaper vehicle mix and falling earnings from the automakers’ financial arms “to potentially trigger restructuring and cut ‘special projects’ to defend the bottom line,” he said in a note to investors last week.

Amid persistent recession fears, automakers have yet to announce significant layoffs or cost cuts similar to those that have hit other sectors, especially technology, hard. Wall Street will be eager for an update on these fronts this week.

Ford reportedly plans to cut up to 3,200 jobs across Europe and move some product development work to the United States, German trade union IG Metall said last week. GM, which sold its European operations in 2017, has not announced any such actions.

GM and Ford have said they will continue to invest in electric vehicles regardless of macroeconomic factors. Any change in these plans will also be noteworthy to investors.

– CNBC Michael Bloom contributed to this report.



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