By Mike Colias and Chester Dawson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 25, 2017).
Wall Street is finally rewarding Detroit's old guard auto
companies for the direction they are taking, leading them to garner
strong stock gains even as the car market is softening.
The industry developments Tuesday highlight a strategy shift
that is well under way in the Motor City. Caught off guard by rapid
developments and sizable investments in driverless cars and other
innovative transportation ideas coming from Silicon Valley tech
giants, including Alphabet Inc., Tesla Inc. and Uber Technologies
Inc., domestic auto companies have fought back by slimming down or
dumping old lines of business and focusing on efforts to reshape
the way people get from Point A to B.
On Tuesday, General Motors Co. recorded one of its worst
quarterly net-incomes since filing for bankruptcy in 2009, spilling
nearly $3 billion in red ink during the July through September
period. GM's performance is primarily due to decisions to dump its
unprofitable European operations and pare back on low-margin
businesses, such as passenger-car production and sales to rental
companies. A strong balance sheet, allows the company to plow
resources into autonomous driving and electric vehicles.
Delphi Automotive PLC, meanwhile, purchased a popular
driverless-car developer, the latest attempt to supercharge the
American auto-supply sector's role in reinventing personal
transportation.
Ahead of Ford Motor Co.'s third-quarter results Thursday. Chief
Executive Jim Hackett unveiled a management shake-up after five
months at the helm. Mr. Hackett has said he wants to speed decision
making and "attack" costs at Ford, targeting $14 billion in annual
savings within five years, aimed at streamlining the core business
so it can steer more investment toward driverless cars and electric
vehicles.
Fiat Chrysler Automobiles NV, meanwhile, reported a 50% increase
in net earnings, but sales and North American profit growth
flatlined over the summer. Still, the company maintained an
ambitious outlook and higher-than-expected cash inflows helped chip
away a debt load that is seen as a hurdle to the Italian-American
auto maker's pursuit of a merger partner.
Citi analyst Itay Michaeli said GM's ability to post an 8.3%
margin in North America amid a 26% production cut and
"downturn-like conditions," demonstrates the type of resiliency
that cyclical domestic car companies once lacked.
Revenue took hit, falling 12% to $33.6 billion. The shrinking
top line reflects GM Chief Executive Mary Barra's strategy to
pursue profits and game-changing tech over market share.
GM shares touched $46.76 Tuesday, with a $67.5 billion market
capitalization representing the highest value since its 2010
initial public offering and an $11 billion lead over Tesla, which
is under pressure to launch a mass-market electric car. GM Chief
Financial Officer Chuck Stevens said he was "pleased" investors are
rewarding progress on the core business and future technology
bets.
Mr. Stevens says he believes investors are rewarding "actions
we've been taking over the last number of years to build a
stronger, more resilient core business."
Meanwhile, Fiat Chrysler has benefited by doubling down on
production of popular SUVs and trucks. Chief Executive Sergio
Marchionne says the company will remain disciplined once it climbs
back to positive net cash.
"I don't want to chase rainbows," Mr. Marchionne told financial
analysts on a conference call, saying memories of being starved of
capital a decade ago after Chrysler emerged from bankruptcy are
still fresh. "The scars that this last crisis caused I still have,"
he said.
Shares in Fiat Chrysler closed $17.45 Tuesday, a 5.45% increase,
one of the highest points since the company's formation earlier in
the decade.
Ford's market value, which is roughly 25% lower than GM, has
barely budged during the short tenure of its new CEO. The shake-up
on Tuesday led to the surprise departure of John Casesa, a former
investment banker and star auto analyst who was charged with
running strategy in 2015 under ex-CEO Mark Fields. The heads of
marketing, quality and human resources all elected to leave the
company as well.
Ford's board installed Mr. Hackett in May after ousting Mr.
Fields amid questions about Ford's direction and culture. Earlier
this month, Mr. Hackett briefed investors on broad plans to
accelerate Ford's development of autonomous vehicles and electric
cars, though his outline left some wanting more specifics.
Delphi's $450 million acquisition of Boston-based NuTonomy Inc.
could help the Michigan-headquartered company bring autonomous
vehicles to market by the turn of the decade. This is a boost for
Detroit's car companies, which have deep ties with Delphi dating
back to the days when it was a subsidiary of GM.
Delphi acquired other startups in recent years, including its
2015 purchase of Carnegie Mellon University spinoff Ottomatika
Inc., another company that provides software for self-driving cars.
This further changes Delphi's profile in the industry from a
company that many analysts saw ripe for acquisition into a
potential power player.
The deal for NuTonomy -- a spinoff of MIT that attracted
attention with its public driverless-car tests in Singapore -- adds
top robotic talent to Delphi's growing stable of acquisitions and
partnerships as it looks to create an entire autonomous vehicle
system that it can sell to auto makers. For NuTonomy, Delphi's
scale provides leverage to hasten the industrialization of
self-driving technology, allowing it to put its stamp on software
installed in millions of future vehicles.
This is a win for the domestic auto-supply chain following the
recent acquisition of Harman International Industries by Korea's
Samsung Electronics, and the acquisition of Mobileye NV by Intel
Corp. earlier this year. Harman and Mobileye are considered
pioneers in the development of connected cars that can drive
themselves. Delphi wants to join with auto makers on speeding up
autonomous-car research and offer its own off-the-shelf solution
for car companies that don't have deep pockets.
--Tim Higgins contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com and Chester Dawson
at chester.dawson@wsj.com
(END) Dow Jones Newswires
October 25, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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