Top management at General Motors (GM) and Ford Motor (F) have reaffirmed that demand for their cars and trucks remains strong. Both U.S.-based auto giants expressed their confidence despite the Federal Reserve’s biggest-ever rate hike since 1994 and skyrocketing oil and gas prices.
However, at a Deutsche Bank conference held yesterday, both automakers cautioned investors that they are keeping a close watch on any possible signs of a recession in the U.S. in the wake of rising interest rates and inflation, coupled with record-high gas prices.
GM shares gained over 3% following positive management commentary at the Deutsche Bank Global Auto Industry Conference, while Ford shares remained almost flat.
General Motors’ Take
GM’s management is holding an extremely cautious stance overall and evaluating its capital expenditure decisions.
While the company will execute its long-term, revenue-driving investments in electric vehicles, software, and other new technology, it will remain conservative in adding headcount.
Positively, GM reaffirmed its previously guided outlook of increasing vehicle production by 25% to 30% year-over-year for 2022.
The company stated that they have been able to negate the effects of higher supply chain costs by $5 billion through price increases and cost-cutting measures, and by maintaining a low level of unsold cars and trucks.
GM’s CFO commented, “We obviously have long-term investments that we have to make. We have short-term targets that we have to hit. And in order to respond to this rapidly changing environment, we’ve got to be ready to act, and part of that is what are those signs that we’re going to be looking for.”
The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 12 Buys, two Holds, and one Sell. The average General Motors price target of $56.93 implies 66.56% upside potential to current levels.
GM scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Ford is Keeping a Close Watch
Ford CFO, John Lawler, also reiterated that demand remains consistent despite the looming macro uncertainty.
However, higher commodity prices, especially for electric-vehicle batteries for its EV Mustang Mach-E, have negatively impacted profitability despite increased pricing.
Moreover, Ford’s credit segment is witnessing a rise in loan delinquencies for auto loans, which remained low during the pandemic years. Though not a red flag yet, the company is keeping a close watch.
The Street is cautiously optimistic about Ford with a Moderate Buy consensus rating, based on six Buys, 10 Holds, and one Sell. The average Ford price target of $18.63 implies 51.83% upside potential to current levels.
It was reassuring to hear positive comments from both GM and Ford regarding the robust demand and overall momentum. However, both automakers are closely monitoring the current situation.
They are better equipped to handle any possible downturn to safeguard their interests, including priority on spending on longer-term initiatives and keeping low inventories, thereby avoiding deep discounts to sell old models in case of a severe recession.