US automakers again struggled with market share losses and intense pricing pressure in the spring, but, according to the Associated Press (AP), analysts say they’re still likely to post good results when they begin reporting second-quarter earnings next week, though the third quarter could be another story.
Go deeper with GlobalData
Burnham Securities analyst David Healy told the news agency that results for the April-June period at General Motors, Ford and DaimlerChrysler’s Chrysler Group likely will reflect the tug-of-war between conflicting trends in the critical North American market.
On the one hand, the Big Three’s US market share fell to 59% through June from 60% a year ago, even as consumer incentives reached all-time highs, AP said, adding that June in particular was a tough month for GM and Ford as they both posted unexpectedly large double-digit sales declines.
But there have been positives, Healy and other industry observers reportedly say – skyrocketing petrol prices in the spring seemed to have little effect on new car and truck sales, and many buyers took advantage of cash rebates and financing deals to buy more expensive models.
“Second-quarter earnings across the automotive sector should be fairly robust,” Chris Ceraso, who tracks the industry for Credit Suisse First Boston, told the Associated Press. “A key driver of the healthy earnings outlook is the fact the Big Three resisted the urge to cut production, despite inventories that ran well above normal throughout the quarter.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCeraso reportedly said in a research report that he expects a median year-over-year earnings improvement of roughly 8.5% in the second quarter for major automotive companies and suppliers, driven in part by steady production and a weak dollar.
Among the Big Three, Healy predicts GM to earn $US2.63 a share, well above last year’s $1.58 and the current Wall Street consensus of $2.24, he expects Ford to earn 56 cents a share versus 23 cents a year ago and the consensus of 50 cents and his prediction for DaimlerChrysler is earnings of 75 cents a share versus 12 cents a year ago and the consensus of 93 cents, AP said.
The report said that Prudential Equity Group’s Michael Bruynesteyn predicts earnings of $2.26 a share at GM, 50 cents at Ford and 83 cents at DaimlerChrysler.
Ford is scheduled to report results on Tuesday, GM on Wednesday and DaimlerChrysler on July 29, AP said.
However, analysts told the news agency that results may not be so rosy in the third quarter – Ceraso said Big Three production for the July-September period in North America is scheduled to be at the lowest level in 10 years to help clear out a glut of new cars and trucks.
That review was reflected by parts maker Delphi which on Friday reported higher second quarter earnings but warned that it could report a loss in the third quarter due to production cuts by the major automakers (see: Delphi posts higher Q2 profit, warns of possible Q3 loss).
The Associated Press said the production cuts are significant because automakers consider a vehicle sold when it is shipped from the manufacturing plant to a dealer, not when the dealer reaches an agreement with a buyer – as a result, diminishing production can reduce an automaker’s profits.
“While limiting incentive increases and holding second-quarter production schedules steady will be good for second-quarter earnings, the ugly by-product has been surging dealer inventory levels,” Ceraso reportedly said, adding: “To address the inventory issue, we’ll see both an increase to incentives and a decrease to production schedules in the third quarter, which could weigh on earnings throughout the sector.”
According to AP, Deutsche Bank’s Rod Lache said: “While we believe Ford and GM will meet second quarter expectations, investors aren’t likely to come away feeling better about the outlook. … We believe the earnings impact of production cuts could be greater than people expect.”
