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Auto Stock Roundup: September Sales Lag, GM & Honda Recall, Ford Extends Alliance

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In the past week, automakers released sales figures for September 2018. Per Autodata Corp., in September 2018, seasonally adjusted annualized rate of sales (SAAR) of U.S. car and light-truck sales was 17.44 million vehicles, decreasing from 18.1 million in September 2017. Rising interest rates and uncertainty in price induced by tariffs have discouraged consumers to buy new vehicles lately.
 
In the past week, Tesla, Inc. (TSLA - Free Report) released production and delivery figures for the third quarter. In the quarter ending Sep 30, the company produced 80,142 vehicles. This included 53,239 Model 3s, and 26,903 Model S and Model X vehicles. Deliveries to customers amounted to 55,840 Model 3 along with 27,660 Model S and X. These numbers are close to estimates and indicate that the company is making good progress despite hurdles.

Moreover, the week saw automakers devising emergency plans with the final bell of Brexit drawing close. In fact, a slow pace of negotiation between Britain and the European Union (EU) has raised concerns for auto manufacturers.

(Read the previous roundup here: Auto Stock Roundup for Sep 27, 2018)

Recap of the Week’s Most Important Stories

1.    Ford Motor Company (F - Free Report) plans to extend partnership with other carmakers in order to restructure its business and cut costs, per Reuters. The company is in talks with German automaker Volkswagen AG (VLKAY - Free Report) and Mahindra and Mahindra Ltd., based in India, to expand alliances and develop products.

Ford plans to share manufacturing plant floor capacity as well as develop vehicles with its partners.

The company is in discussions with Volkswagen to expand their previously announced commercial vehicle tie-up to Europe and South America, where Ford is already struggling to generate profit. Apart from commercial vehicles, the companies will develop other vehicle types. Per Volkswagen’s management, the companies are talking about a partnership in Brazil. However, the announcement, regarding the partnership, is not expected before 2019.

The extended partnership will enable Volkswagen to access a few of Ford’s profit-making models, which include Ranger compact pickup trucks and Transit commercial vans. On the other hand, merging vehicle manufacturing is likely to aid Ford to strengthen presence in South American and European markets, where it has been making losses.

Ford is also in talks with Mahindra to combine manufacturing platforms. This will enable the companies to lessen supplier costs in the region. The first product from the joined platform is likely to launch in 2020.

Per management, increased product range and cost-sharing through these plans will help Ford reduce contract engineering and purchasing costs related to manufacturing vehicles. Further, these moves will assist the company with its $11-billion restructuring plan, spanning over three to five years. Additionally, it also set a target of doubling pre-tax profit margins to 8% by 2020 from 4.3% recorded in the last-reported quarter. (Read more: Ford Plans to Extend Alliance With Volkswagen, Mahindra)

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

2.    General Motors Company (GM - Free Report) was again caught in a recall mess. Per Reuters, this U.S. auto giant announced that its China joint venture, Shanghai GM, will recall over 3.3 million vehicles in China from Oct 20.

Per the State Administration for Market Regulation, the market regulator in China, flaw in the suspension system led to this recall and vehicles that will be recalled include Buick, Chevrolet and Cadillac produced between 2013 and 2018.

No causality has been reported due to this fault yet. Per GM Shanghai, there are chances that the suspension arm may be deformed under extreme operating conditions. The company added that affected vehicles will be repaired for free. (Read more: General Motors to Recall Over 3.3M Vehicles in China)

General Motors currently carries a Zacks Rank #4 (Sell).

3.    Per Associated Press, Honda Motor Co., Ltd. (HMC - Free Report) will recall 1.4 million Honda and Acura vehicles in the United States. The cars will be recalled to replace faulty front passenger-side airbags manufactured by Takata. The recall is an effort by the company to stay ahead of the government’s planned vehicle recall for defective airbags.

Of the five-phase recall plan set by the National Highway and Transportation Safety Administration in 2016, this recall marks the fourth recall for Honda. Further, the company stated that it repaired more than 77% of existing recalls. Honda added that it is ahead of the schedule. Honda’s previous recall, consisting of 465,000 vehicles with the same issue, was in January 2018.

The defective Takata inflators are at risk to explode in a crash, sending metal shrapnel into passenger compartments, causing fatal injuries. Reportedly, this technical snag resulted in minimum 180 injuries and 23 deaths worldwide. (Read more: Honda Issues Recall for Rear Cameras and Takata Airbags)

Honda currently carries a Zacks Rank #3.

4.    Toyota Motor Corporation (TM - Free Report) expects closing production at its U.K. factory if Britain exits without any deal from the European Union (EU), per Bloomberg. Once closed, the company is uncertain of the plant’s reopening, which may take months. Incapability to ship parts required for car production from Europe impelled Toyota to opt for this plan.

In 2017, the company’s factory, based in the Midlands, manufactured 150,000 Auris and Avensis cars, with components shipped from the EU. Toyota follows just-in delivery system for parts, which arrive at the site minutes or hours before vehicle assembling. Of the total vehicles produced, approximately 90% were shipped to the countries in the EU. Per the company’s website, the hub currently employs 2,500 people.

Except for Toyota, many automakers raised concerns on the uncertainty of cross-border tariffs if Britain exits the EU without a deal. Companies warned about manufacturing disruptions due to tariffs and high chances of free trade loss. (Read more: Toyota Cautions About Midlands Hub Closure With No-Deal Brexit)

Toyota currently carries a Zacks Rank #3.

5.    Johnson Controls International plc (JCI - Free Report) acquired assets of Philadelphia-based Lux Products Corp. (”LUX”) for an unspecified amount. With the acquisition of LUX, which specializes in residential thermostats and smart home products, Johnson Controls is bolstering its position in the thermostat market.

This acquisition enhances Cork, Ireland-based diversified technology company and multi-industrial leader Johnson Controls’ capability to offer superior products to customers, enabling innovation. On the other hand, Rob Munin, CEO of LUX and newly named general manager, Thermostats for Johnson Controls stated, “Together, we will enhance a strong position in the residential channel and look forward to expanding our offerings to serve a wide range of customers.”

Importantly, announcement of this acquisition followed the launch of Johnson Controls’ GLAS, the new smart thermostat, with OLED touchscreen display and several high-tech features. For Johnson Controls, the acquisition of LUX strengthens its position in the thermostats market. The recent acquisition also enables faster product development cycles, enhances customer service capabilities and supports greater product innovation. (Read more: Johnson Controls Acquires Thermostat Leader Lux Products)

Johnson Controls currently carries a Zacks Rank #4.

Performance

In the last week, shares of General Motors gained the maximum whereas Tesla declined the most.

In the past six months, Advance Auto Parts, Inc. (AAP - Free Report) has increased the most, whereas Ford declined the most.

CompanyLast WeekLast 6 Months
GM0.8%-10.6%
F-1.5%-19.6%
TSLA-4.8%-3.6%
TM-1.9%-3.7%
HMC-3.1%-15.8%
HOG0.3%5.5%
AAP-1%44%
AZO-1.8%19.8%


What’s Next in the Auto Space?

Watch out for the usual news releases over the next week.

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