By Mike Colias
General Motors Co. and Ford Motor Co. provided tepid outlooks
that give little optimism for the year ahead to investors who are
increasingly betting on electric-vehicle maker Tesla Inc. as the
car company of the future.
Both Detroit giants are dealing with weakening demand and rising
labor costs. On Wednesday, GM said earnings last year were dinged
by a crippling 40-day strike that idled dozens of U.S. factories
last fall, and said it didn't expect operating profits to grow in
2020 due in part to anticipated slowdowns in the U.S. and Chinese
car markets.
Rival Ford, meanwhile, reported Tuesday that it barely broke
even last year and presented an even grimmer outlook, releasing
earnings guidance for 2020 that fell short of Wall Street's
expectations. Ford's stock fell more than 9% on Wednesday.
The downbeat forecasts follow nearly a decade of steady sales
growth and stout profits globally for Detroit's auto makers. While
that run helped put the once-vulnerable companies on firm financial
footing, it has failed to translate into higher share prices.
Instead, investors are gravitating to upstarts like Tesla, whose
valuation soared in recent days to more than $130 billion -- higher
than that of GM, Ford and Fiat Chrysler Automobiles NV
combined.
Now the Detroit giants are girding for tougher times. Analysts
and industry executives predict China's once-booming car market
will continue to contract this year and the U.S. auto industry
could see its first significant decline in a decade.
The auto makers must manage the slowdown at the same time that
they invest billions in electric and self-driving cars -- which
offer them scant profitability in the near term -- to tap the
growth potential that has enticed Tesla investors.
Even as GM and Ford highlight these future bets to investors,
they continue to face challenges in their old-world manufacturing
business -- obstacles that are only poised to grow if vehicle
demand globally softens further in coming years, as expected.
GM said Wednesday its operating profit in the
October-to-December period plunged 96% to $105 million, reflecting
lost production in October as workers continued to picket its U.S.
plants after the company and union failed to reach a new labor
contract in September.
For the full year, the Detroit auto-making giant posted a $6.7
billion net profit as it commanded higher prices on pickup trucks
and SUVs and squeezed costs in North America.
Ford's profits last year were dented in part by warranty costs
to fix problems on vehicles engineered and built many years ago.
The Dearborn, Mich., car company also struggled with manufacturing
problems related to new-vehicle launches and continued losses in
its overseas business.
Both Ford and GM face higher U.S. labor costs in coming years
from fresh United Auto Worker contracts signed last fall, after the
strike that drained GM of $3.6 billion in operating profit. And
both have engine factories that could become costly burdens over
time if the market shifts to electric cars, analysts say.
While Tesla's workforce isn't unionized, it faces the same
challenge in churning out defect-free vehicles on a large scale.
Tesla has faced quality complaints and Chief Executive Elon Musk
has missed production targets over the years.
But for now, Wall Street is wagering that Tesla's head start in
electric cars will help it fend off bigger players, said Brad
Cornell, managing director at Berkeley Research Group.
"The market has got to be thinking that electric cars are a
relatively new wave of the future," he said. "And that competition
has to be so tardy and inadequate that Tesla can get a dominant
position in the market."
In her seventh year leading GM, Chief Executive Mary Barra has
struggled to translate the company's success across many parts of
the business into share-price growth. GM's shares rose 1.9% on
Wednesday and are trading only slightly above the IPO price of
nearly a decade ago.
Ms. Barra and other GM executives outlined their strategy in a
three-hour presentation Wednesday to investors in New York. They
highlighted aggressive plans for electric and autonomous cars,
including a new electric-vehicle system that will be used across as
many as a dozen models.
The company also said it would expand across more models its
Super Cruise system, which enables hands-free driving on highways.
Tesla's semiautonomous system is a key selling point for
customers.
Finance chief Dhivya Suryadevara said GM has "unique
positioning" in electric and driverless technology and expressed
confidence that investors eventually will reward that.
"From a share-price standpoint, we're very bullish on the
future," she told reporters ahead of the presentation. "What we're
going to do is put those proof points on the board to make sure
that that's clear to all investors."
Even with the hit from the strike, GM's results show it has
solidified its profitability lead over Ford.
Ford posted net income of only $47 million, its earnings dented
by a multiyear, overseas restructuring that has yet to return the
company to profit growth. It missed fourth-quarter profit
forecasts.
"The 2020 guidance...makes it hard for us to see why investors
should get excited about owning Ford stock now," Morningstar
analyst David Whiston wrote in a note.
Ford executives have said the company has new models coming this
year, including a new F-150 pickup, that will help lift its bottom
line. Asked about Tesla's valuation, Chief Executive Jim Hackett
pointed to new electrified offerings in the works that he said
would give eventually give Ford a bigger lineup than "the other
guy."
--Ben Foldy contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
February 05, 2020 17:28 ET (22:28 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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