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Auto Stock Roundup: GM to Replace Cadillac Sedans, F & VLKAY to Form Alliance

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U.S. customers have recently shown a distinct shift in the preference for trucks and sports utility vehicles (SUVs), shunning the traditional sedans. Automakers have already started to reorient their programs and strategies in response to the new situation, where the demand for conventional compact and midsize cars has declined while increased for SUVs and pickup trucks.

The recent decision of General Motors Company (GM - Free Report) to abandon three Cadillac sedans and replacing them with two new ones over the next three and a half years vindicates this trend. In 2012, shares of traditional passenger cars were more than 50% of new-vehicle sales in the United States but, it dropped to less than 37% in 2017.

In addition to General Motors’ decision to dump the sedans, the week also saw other important developments. Two auto giants, Ford Motor Company (F - Free Report) and Volkswagen AG (VLKAY - Free Report) are exploring an alliance on a wide range of activities, including the development of commercial vehicles. In the past week, Winnebago Industries Inc. (WGO - Free Report) reported strong earnings results, surpassing both the Zacks Consensus Estimate as well as the prior-year quarter figure.

(Read the previous roundup here: Auto Stock Roundup for Jun 14, 2018)

Recap of the Week’s Most Important Stories

1.    Per Associated Press, General Motors is dumping three Cadillac sedans and replacing them with two new ones over the next three and a half years. This auto giant has announced that it is going to invest $175 million to update a plant in Lansing, MI, to manufacture replacement models for ATS compact, CTS midsize and XTS full-size cars.

Sedan models have struggled in the United States market as consumers are increasingly abandoning those in favor of larger, spacious SUVs and pickup trucks. In 2012, shares of traditional passenger cars were more than 50% of new-vehicle sales in the United States but, it dropped to less than 37% in 2017. In 2017, ATS sales declined 39% while CTS and XTS sales dropped 35% and 27%, respectively.

The new cars will enter the market by the end of 2021 and further details would be released later. However, there will be no change in the workforce of the Lansing Grand River factory. (Read more: General Motors to Get Rid of 3 Cadillac Sedans, Invests $175M)

General Motors currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

2.    Ford and Volkswagen are mulling over forming an alliance on a range of activities, including the development of commercial vehicles, per Reuters. The alliance would aid both the companies to compete effectively in the global market, which is increasingly demanding high-tech and efficient lower-emission vehicles.

Thomas Sedran, the head of the German automaker Volkswagen’s strategy division, noted that the two companies have “strong and complementary positions in different commercial vehicle segments already.” Moreover, the U.S. auto giant, Ford is a dominant player in the medium-duty truck market in the United States and its F-series pickup has been the best-selling vehicle in the country for decades. On the other hand, Volkswagen, which owns MAN and Scania truck brands in Europe, formed a commercial-vehicle alliance with the Japanese truckmaker, Hino Motors Ltd in early 2018.

In order to adapt to the challenging environment, it is important to explore alliances. In fact, several automakers have collaborated on various big projects. This particular alliance discussion is an addition to this trend. (Read more: Ford, Volkswagen Explore Alliance for Commercial Vehicles)

Currently, both Ford and Volkswagen carry a Zacks Rank #3.

3.    Magna International Inc. (MGA - Free Report) announced its decision to set up two new joint ventures (JVs) with Beijing Electric Vehicle Co. Ltd (BJEV), a subsidiary of BAIC Group, dedicated for electric vehicles (EVs). The JV will engage in developing premium EVs and complete vehicle manufacturing. Additionally, the JVs will also offer engineering and complete-vehicle production capacity to probable customers.

The production of the first batch of vehicles is anticipated to start in 2020. An existing facility of BAIC Group at Zhenjiang, Jiangsu Province, will be used to engineer and manufacture vehicles for the JVs. The facility can manufacture approximately 80,000 vehicles per year.

These two JVs mark Magna’s first collaboration to provide vehicles, developed and manufactured outside its manufacturing hub at Graz, Austria. Per management, the JVs will help Magna to produce cars — enabled with conventional, hybrid and electric powertrains — for the Chinese customers. (Read more: Magna Forms JVs to Engineer & Manufacture EVs for China)

Magna currently carries a Zacks Rank #2 (Buy).

4.    Winnebago registered earnings of $1.02 per share in the third quarter of fiscal 2018 (ended May 28, 2018), beating the Zacks Consensus Estimate of 91 cents. In the year-ago period, earnings were 61 cents per share. Net income soared 67.7% to $32.5 million.

Revenues in the reported quarter surged 18% to $562.3 million from $476.4 million in the prior-year quarter. The figure outpaced the Zacks Consensus Estimate of $542.4 million. This upside in the top line was driven by continued growth in the Towable segment.

Operating income in the quarter under review rose 38.5% to $48.3 million from $34.9 million in the year-ago quarter. Gross profit improved to $85.5 million, increasing from $70.8 million a year ago. (Read more: Winnebago Q3 Earnings, Revenues Beat Estimates, Up Y/Y)

Winnebago currently has a Zacks Rank #3.

5.    Volkswagen’s Audi AG has agreed on a deal with Hyundai Motor Company to develop fuel-cell technology. Subject to approval from regulatory authorities, both the companies will team up to develop hydrogen vehicle technology to facilitate volume production in a quicker and efficient way.

Further, in order to develop this sustainable energy solution, both the companies are exploring other extensive collaborations. Under this collaboration, the two companies can share non-competitive components and access each other's intellectual property to develop fuel cells for vehicles.

For Volkswagen Group, world's largest auto seller, Audi is responsible for developing hydrogen fuel-cell technology. Per its strategy for fuel cell electric vehicles (FCEVs), Audi is collaborating with companies to develop this sustainable technology at lucrative costs.

The capacity to cover longer distances and a shorter recharge time make hydrogen an attractive alternative energy option for electric mobility, specifically for large and heavy automobiles, due to FCEV's design. However, the success of hydrogen in becoming a sustainable energy source depends on a sufficient production and availability of an established infrastructure.

Performance

Last week, the maximum increase was witnessed by Tesla, Inc. (TSLA - Free Report) , while General Motors declined the most.

In the past six months, maximum rise has been recorded by Advance Auto Parts, Inc. (AAP - Free Report) while shares of Harley-Davidson, Inc. (HOG - Free Report) have declined the most.

CompanyLast WeekLast 6 Months
GM-5.6%4.6%
F-1.2%-4.7%
TSLA5.1%14%
TM-0.8%6.4%
HMC-4.2%-7.7%
HOG3.1%-12.1%
AAP4.9%37.5%
AZO1.1%-3.3%


What’s Next in the Auto Space?

Watch out for the usual news releases of other auto companies over the next week.

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