A number of auto companies reported sales figures for 2018 in the past week. Favorable economic conditions, along with growing consumers’ appetite for spacious vehicles, aided the industry to record annual new-vehicle sales of 17.27 million in 2018, marking a yearly increase of 0.3%.
Buyers continued to splurge on sports utility vehicles, crossovers and pickup trucks while passenger car sales waned, similar to 2017. Car sales contributed 32% to the total sales in 2018 while trucks and SUVs added 68%. Although the industry managed to keep its winning streak alive, the same can’t be anticipated in 2019. Rising interest rates and vehicle price hikes are expected to influence buyers to make choices.
The issue of recalls continued to hurt automakers. Ford Motor Company (F - Free Report) announced a worldwide recall of around one million vehicles to replace Takata airbags, per AP. The airbags can explode when deployed, causing injury to passengers. Again, Toyota Motor Corporation (TM - Free Report) announced a worldwide recall of 1.7 million vehicles to fix faulty Takata airbag inflators, per Reuters. This recall by Toyota is part of the ongoing recall campaign announced by automakers in 2016.
Recap of the Week’s Most Important Stories
1. General Motors Company’s (GM - Free Report) self-driving car unit ‘Cruise’ and food delivery service ‘DoorDash’ are partnering to test autonomous technology for meal, and grocery deliveries, per CNBC. The program, slated to begin in March, will deliver meals from certain restaurants. This will also include delivery of grocery items from some specific stores. Per the company, the program will initially be concentrated in the San Francisco area.
Auto giants are emphasizing on developing business models for driverless vehicles. In early 2018, the second-largest automaker Ford made the announcement of partnering with Domino's Pizza and delivery service ‘Postmates’ in Miami.
Starting a delivery service is a major opportunity for Cruise as the company looks for commercialization of the autonomous vehicle technology and to redefine transportation. Partnership with DoorDash will help the company take another step toward goal to deliver technology for the betterment and convenience of people. Notably, General Motors invested $1.1 billion in GM Cruise. Investments are expected to provide the capital that is necessary to reach commercialization at scale, beginning in 2019. (Read more: General Motors & DoorDash to Provide Self-Driving Delivery)
General Motors currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
2. Tesla, Inc. (TSLA - Free Report) is finally breaking ground for its Shanghai Gigafactory, following a lot of planning, per Reuters. This is likely to strengthen this electric vehicle (EV) pioneer’s presence in the world’s biggest auto market, wherein it encounters growing competition from several domestic rivals and also suffers soft sales due to elevated tariffs on U.S. imports.
Last year, this auto giant inked a deal with the Shanghai government for building the 500,000-unit factory. In order to grab more than 200 acres of land for the planned Gigafactory 3, Tesla shelled out $140 million. This will be the auto maker’s first vehicle manufacturing facility outside the United States. The company, which intends to begin production in 2019, is likely to manufacture around 250,000 vehicles annually in the initial stage, including the Model 3 and Model Y.
A production base in China is important for Tesla, which is fighting the odds of possible waning demand in the United States, particularly after the reduction of tax credits for EVs. The company decided to lower the price of all of its models by $2,000 to partially compensate for the loss of subsidy.
A wholly-owned manufacturing facility in China would mean that Tesla won’t have to share its profits and technology with partners in China. Domestic production will protect Tesla from high import duties, resulting from the trade spat between China and the United States. (Read more: Tesla to Break Ground on Gigafactory Plant in China)
Tesla currently carries a Zacks Rank #3.
3. Ford announced a worldwide recall of around one million vehicles to replace Takata airbags, per AP. The airbags can explode when deployed, causing injury to passengers.
The recalled vehicles consist of the 2010 Ford Edge and Lincoln MKX, the 2010 and 2011 Ford Ranger, the 2010 to 2012 Ford Fusion and Lincoln MKZ, the 2010 and 2011 Mercury Milan, and the 2010 to 2014 Ford Mustang. Out of 953,000 vehicles, 782,000 are from the United States and territories while 149,652 are from Canada.
The company advised customers to get their vehicles checked at their dealerships. The frontal airbag inflator or module will be replaced by the dealers without any extra cost.
Additionally, Ford issued a recall for 87 2019 Ford Ecosport vehicles, per a report by Detroit Free Press. The front seats of the recalled vehicles are not fixed properly as a result of improper welding, which increases risks of injury in case of a car crash. Region wise, the recall consists of 63 vehicles in the United States and territories, and 13 in Canada. The faulty seats will be changed with new ones at Ford’s dealerships.
Apart from recalls for Takata airbag replacements, Ford has been frequently recalling vehicles, owing to faulty vehicle parts. In the last month, it announced a recall for 874,000 F-Series trucks in North America. Regular vehicle recalls not only add to the company’s expenses but also hurt consumers’ confidence in the brand. (Read more: Ford Recalls 1M Vehicles to Replace Airbags & Seats)
Ford currently carries a Zacks Rank #3.
4. AutoNation, Inc. (AN - Free Report) announced its cost-saving and restructuring plan to enhance profitability, and efficiency. The largest automotive retailer of the United States is consolidating its regional structure from three regions to two and the company expects this restructuring to result in annual savings of $50 million. It anticipates that through this move it is likely to be better placed to attain long-term success.
The company believes that automotive retail will remain challenging in 2019. Corporate and regional restructuring, as well as the cost-saving plan, will aid it in tackling challenging market conditions efficiently.
Per Reuters, analysts believe that an anticipated slowdown in vehicle sales in 2019 might have prompted the company to opt for such restructuring moves. Per National Automobile Dealers Association, rising vehicles prices and higher interest rates may restrict vehicle purchase plans of customers, and new-vehicle sales are likely to decline in the United States.
Due to this restructuring plan, the chief operating officer Lance Iserman and the chief technology officer Tom Conophy will leave the company, effective immediately. Dennis Berger, the chief human resource officer, will leave the company later this month. A veteran of the company, James Bender has been appointed as the executive vice president of sales. (Read more: AutoNation Declares Cost-Saving & Restructuring Plan)
AutoNation currently carries a Zacks Rank #4 (Sell).
5. Toyota announced a worldwide recall of 1.7 million vehicles to fix faulty Takata airbag inflators, per Reuters. The recall is part of the ongoing recall campaign announced by automakers in 2016.
The recalled vehicles are of the model year 2010 through 2015. The latest recall includes 4Runner, Corolla, Matrix and Sienna under Toyota while Lexus models include ES 350, GX 460, IS 250C, IS 350C, IS 250, IS 350 and IS-F. Although Toyota will start sending mails to the affected customers by the end of January, customers can also check the company’s website to know whether their cars have been recalled.
Out of the total recalled figure, 1.3 million Toyota and Lexus models are from the United States. Auto manufacturers are adding around 10 million more vehicle inflators in the United States, which already has been known as the largest recall in history. Earlier to this, automakers have recalled roughly 37 million U.S. vehicles, with 50 million airbag inflators. 16.7 million inflators are yet to be changed.
Of late, this Japanese auto giant has been involved in several vehicle recalls, similar to other automakers across the globe. In the last month, Toyota announced a recall of about 70,000 Toyota and Lexus branded vehicles in North America to replace airbag inflator. The batch majorly consisted vehicles of model years 2002 through 2005.
Apart from Takata airbag replacements, the company has been recalling vehicles, owing to faulty vehicle parts. In November, Toyota announced a worldwide recall, consisting more than 400,000 vehicles along with Subaru Corporation. The vehicles had defective engines that could stop engine valves from opening while fuel is combusted, leading to accidents or severe engine damage. Out of the total number of recalled vehicles, Toyota’s count is 80,000. Regular recalls not only add to the company’s expenses but also hurt consumers’ confidence in the brand.
Toyota currently carries a Zacks Rank #3.
In the last week, all the stocks, except for AutoZone, Inc. (AZO - Free Report) , gained. The maximum increase was witnessed by Ford while AutoZone declined 2.2%.
In the past six months, AutoZone has increased the most, whereas Ford declined the most.
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What’s Next in the Auto Space?
Watch out for the usual news releases over the next week.
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