Ford and General Motors focus on demand during results

DETROIT – Let’s talk about the power of price.

At least, General Motors and Ford engine Wall Street will likely do so this week when it releases fourth-quarter results and guidance for 2023, watching for signs of weakening consumer demand and a tight pricing landscape.

Any problems mean lower profits this year for automakers, which are expected to report relatively strong fourth-quarter results from lower revenues a year ago. According to Refinitiv Consensus Estimates, GM is expected to post fourth-quarter earnings per share of $1.69, up 25% from a year earlier, while Ford is expected to post EPS of 62 cents, more than double the 26 cents posted a year ago. .

Automakers have achieved record results in recent years amid a shortage of new vehicles and steady consumer demand. They were hoping to avoid steep discounts or incentives to move vehicles, banking on steady increased demand as inventory levels normalized.

But this scenario is slowly neutralizing itself. This allows for changes in the price and benefits of new vehicles.

Detroit automakers have some of the highest inventory levels in the industry, noting that vehicle numbers vary significantly among brands, Cox Automotive reported. Also, incentives are growing slowly.

Amid fears of a recession and affordability issues stemming from rising interest rates and record new car prices averaging $50,000, there are fears that unsustainable demand has weakened significantly.

Ford dropped starting prices for the electric Mustang Mach-E on Monday, just weeks after the electric vehicle industry leader. You are here lowers its price.

Duncan Aldred, GM’s GMC brand manager, expects the truck and SUV brand to continue increasing its average transaction price, which he said reached a new record high of more than 63,405. $ in the fourth quarter.

Those transaction price increases are due in part to the release of redesigned pickup trucks and the Hummer electric SUV, which costs more than $110,000. GM began production of the SUV at its Detroit plant this week, the company announced Monday during a media roundtable.

GM is due to release earnings before markets open on Tuesday, and Ford after the bell on Thursday.

Wall Street has been bracing for a “demand-elimination” scenario for the past few quarters, meaning much of it this week will be focused on automakers’ forecasts for 2023.

Goldman Sachs said it expected the outlook to be below consensus “due to pricing and mix, as well as lower financials.”

GM expects full-year 2023 adjusted earnings per share to decline by about 20%, according to Refinitiv estimates. Ford’s 2023 EPS is expected to decline by nearly 16% from 2022.

“We believe that GM and Ford’s profitability will likely decline significantly this year, as earnings are likely to be weighed down by lower vehicle prices and costs from the growth of electric vehicles,” Deutsche Bank analyst Emmanuel Rosner wrote in an earlier note to investors. this month.

Rosner said directional risk is already well priced and shouldn’t hurt stocks.

Morgan Stanley’s Adam Jonas said in a note to investors last week that he expects worsening pricing, low-cost car lineups and a decline in earnings from automakers’ financial arms, allowing them to “start restructuring and cut back on ‘special projects.'”

Amid lingering recession fears, automakers have yet to announce the kind of significant layoffs or cost cuts that have hit other sectors, particularly technology. Wall Street will be looking forward to an update on these fronts this week.

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

GM and Ford have said they will continue to invest in electric vehicles despite macroeconomic factors. Any changes to these plans will also be important to investors.

— CNBC Michael Bloom contributed to this report.