Thursday 21 October 2021

Ford calls an end to US auto boom, rivals bet other way

DETROIT, July 29, 2016

Ford Motor Co on Thursday declared the US auto industry's long recovery is at an end, sending its stock and those of rival auto companies tumbling.

"The growth is over," Ford chief financial officer Robert Shanks told Reuters in an interview. Shanks earlier forecast US light vehicle sales would fall in 2016 from the record of 17.47 million last year, and fall again in 2017.

Pent-up demand built during the last recession has been satisfied, and lower used car prices are drawing some buyers away from new vehicles, he said, adding however, "We’re not talking about a collapse."

Ford's warning put at centre stage a debate that has been running for months in Detroit about how much further the long bull market in US vehicle sales has to run.

The debate has consequences. Based on its forecasts, Ford said it will accelerate cost cutting and cut North American production in the second half of the year. That could affect workers' paychecks, payments to suppliers and service vendors, and investment plans.

Ford shares skidded 8.2 per cent on Thursday. General Motors Co stock fell 3.2 per cent and Fiat Chrysler Automobiles NV shares closed down nearly 4.8 per cent.

Mike Jackson, the head of AutoNation Inc, the largest US auto dealership chain, has warned for much of the year that US vehicle demand is hitting a plateau, and has called on automakers to rein in production to avoid overstocking vehicles, particularly small cars. AutoNation reports second quarter results Friday.

GM and Fiat Chrysler, however, are taking more positive stands, forecasting continued strength in US and North American vehicle demand.

GM last week raised its outlook for full-year results and reported stronger margins in its North American operations. Chief executive Mary Barra told analysts last week average prices for GM vehicles were up $1,500 in the second quarter from a year ago. She predicted "continued momentum" in the second half as the company launches new models and increases production of trucks and sport utility vehicles.

Fiat Chrysler said earlier this week it expects North American demand to "remain strong" and Chief Executive Sergio Marchionne predicted "positive pricing going forward" in the market.

However, Marchionne warned that unless the company can negotiate more competitive labour deals with the United Auto Workers, it will stop building sedans and compact cars in the US. The slump in Fiat Chrysler's sedan sales reflects a broader shift - no longer is consumer demand strong across all market segments and body styles.

The call on the North American vehicle market matters to investors because US sales of light trucks and SUVs generate the bulk of global profits for GM, Fiat Chrysler and Ford.

Ford said it expects the US economy to grow 1.9 per cent to 2.3 per cent this year, lower than Ford's previous expectation of 2.1 per cent to 2.6 per cent growth.

The Federal Reserve last month trimmed its forecast for US economic growth to 2 per cent from 2.2 per cent in March. - Reuters

Tags: | US | Ford | rivals |

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