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U.S. Auto Boom to End Soon says Ford while Rivals Bet Otherwise


07/29/2016


U.S. Auto Boom to End Soon says Ford while Rivals Bet Otherwise
The stocks of Ford Motors and those of its rival auto companies tumbled after the US auto maker declared that the U.S. auto industry's long recovery is at an end.
 
"The growth is over," Ford Chief Financial Officer Robert Shanks told Reuters in an interview. From the record of 17.47 million last year, U.S. light vehicle sales would fall in 2016 and fall again in 2017, Shanks had forecast earlier.

He said that lower used car prices are drawing some buyers away from new vehicles and pent-up demand built during the last recession has been satisfied.
 
"We’re not talking about a collapse," he however added.
 
A debate about how much further the long bull market in U.S. vehicle sales has to run has been running for months in Detroit and Ford's warning put the debate at center stage.
 
But there are consequences of the debate. North American production would be cut by Ford in the second half of the year and it will accelerate cost cutting based on its forecasts. Investment plans, payments to suppliers and service vendors, and investment plans and workers' paychecks would be affected by that.
 
On Thursday, Ford shares skidded 8.2 percent. On the other hand while Fiat Chrysler Automobiles NV shares closed down nearly 4.8 percent, General Motors Co stock fell 3.2 percent.
 
To avoid overstocking vehicles, particularly small cars, automaker have been advised to rein in production by Mike Jackson, the head of AutoNation Inc, the largest U.S. auto dealership chain, because according to him, U.S. vehicle demand is hitting a plateau for much of the year.
 
However, forecasting continued strength in U.S. and North American vehicle demand, GM and Fiat Chrysler, are taking more positive stands.

Stronger margins in its North American operations and outlook for full-year results were raised by GM last week. The average prices for GM vehicles were up $1,500 in the second quarter from a year ago, its Chief Executive Mary Barra told analysts last week. As the company launches new models and increases production of trucks and sport utility vehicles, she predicted "continued momentum" in the second half.
 
Chief Executive of Fiat Chrysler Sergio Marchionne predicted "positive pricing going forward" in the market as the company said earlier this week it expects North American demand to "remain strong". However the company will stop building sedans and compact cars in the United States unless it can negotiate more competitive labor deals with the United Auto Workers, Marchionne warned. A broader shift - no longer is consumer demand strong across all market segments and body styles, is reflected by the slump in Fiat Chrysler's sedan sales.
 
Since U.S. sales of light trucks and SUVs generate the bulk of global profits for GM, Fiat Chrysler and Ford, the call on the North American vehicle market matters to investors.
 
Noting a lower than Ford's previous expectation of 2.1 percent to 2.6 percent growth, the company said it expects the U.S. economy to grow 1.9 percent to 2.3 percent this year. Forecast for U.S. economic growth was lowered to 2 percent from 2.2 percent in March by the Federal Reserve last month.
 
(Source:www.reuters.com)