Ford Motor (ticker: F) is set to announce its second-quarter results, but investors in the automotive industry have concerns that may keep the stock from rising, even with a beat-and-raise quarter.
Wall Street analysts are predicting that Ford will report earnings per share (EPS) of 54 cents and an operating profit of $3.2 billion from sales of $43.2 billion. This would be a decrease from the second quarter of 2022, where Ford reported EPS of 68 cents and an operating profit of $3.7 billion from sales of $39.4 billion.
Likely Solid Performance
Despite the potential decrease in numbers, there are reasons to believe that Ford will still deliver solid results. The company’s performance in the first quarter is one key factor. In May, Ford beat Wall Street expectations and maintained its full-year operating profit guidance. CFO John Lawler explained that keeping guidance unchanged was a decision based on the remaining months of the year.
Wall Street analysts currently expect Ford to achieve a full-year operating profit of $10.8 billion.
General Motors’ Influence
General Motors (GM) also plays a role in setting expectations for Ford’s quarter. Recently, GM announced better-than-expected earnings and raised its full-year guidance for operating profit. Despite this positive news, GM’s stock still dropped by approximately 3.5%, indicating that current numbers are not the primary focus for investors.
Instead of current performance, investors in the automotive industry are preoccupied with various issues that may impact sentiment. Factors such as interest rates, pricing strategies, and labor relations are contributing to the cautious outlook.
As Ford prepares to release its second-quarter results, it faces these challenges that may overshadow its solid performance expectations.
The Growing Challenges for the US Auto Industry
The US auto industry is currently facing several significant challenges that are impacting both car buyers and automakers. Two key issues contributing to the rising cost of cars are higher interest rates and escalating prices.
Soaring Car Payments
According to recent data, an alarming 17.1% of new car buyers in the US who financed their vehicles had monthly payments exceeding $1,000 in the second quarter. This is a substantial increase from the 4.3% reported in the same period in 2019, before the pandemic hit.
Reasons Behind the Soaring Costs
One major factor driving these soaring costs is the higher interest rates. Additionally, the average transaction price of a new car in the US has risen significantly. In June, it stood at approximately $49,000 compared to $37,000 in June 2019, representing a considerable hike.
Signs of Pricing Weakness
However, there are indications that pricing strength is weakening. Incentives for new car buyers have been on the rise, with June seeing incentives amounting to around $2,000 per unit. This marks the ninth consecutive month of increased incentives and the highest figure since October 2021.
Investors remain cautious regarding falling prices, as they can have adverse effects on the industry. Analysts also acknowledge the potential risk of price moderation heading into 2024. Deutsche Bank analyst Emmanuel Rosner stated, “Vehicle pricing has driven much of GM’s outperformance thus far and could remain a potential source of upside over the rest of the year.” However, he added that there is potential for price moderation.
Labor negotiations with the United Auto Workers union are causing some unease among investors. The current labor deal with major automakers General Motors (GM), Ford, and Stellantis (STLA) is set to expire in September.
Ford is a company currently grappling with these challenges. Investors and analysts are eagerly awaiting the upcoming conference call scheduled for 5 p.m. Eastern time, where Ford management will address these issues.
Over the past year, Ford shares have experienced a modest 4% increase, while the S&P 500 and Dow Jones Industrial Average have seen gains of approximately 14% and 10%, respectively.
The US auto industry faces numerous hurdles that are affecting both consumers and automakers. Addressing these challenges will be crucial to sustaining a thriving industry in the years to come.