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Auto Stock Roundup: Sales in China Drop, Ford to Partner With Volkswagen

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Vehicle sales in China declined 13% in December 2018 per China’s Association of Automobile Association Manufacturers (CAAM). In 2018, total automobile sales fell 2.8% to 28.1 million units, marking the first decline in nearly three decades. The slump in China doused hopes of robust growth in auto sales in the future.

Ford Motor Company (F - Free Report) and Britain’s Jaguar Land Rover (“JLR”) announced that they will cut jobs in Europe. A sharp decline in demand for diesel vehicles, stricter emission norms and a slump in global economies led by China might have prompted these automakers to make such a move. Among others, General Motors Company (GM - Free Report) and German auto giant, Volkswagen AG, are likely to be hit as these rely heavily on the China market.

For 2019, General Motors anticipates earnings to witness an uptrend from the figure mentioned in 2018. The figure is projected to be between $6.50 and $7.00 in 2019 compared with its prior expectation of $5.80-$6.20 in 2018. New vehicle lineups of trucks, crossovers and SUVs are likely to boost General Motors’ earnings in 2019.

Recap of the Week’s Most Important Stories

1.    Honda Motor Co., Ltd. (HMC - Free Report) announced that it will halt its operations in Britain for six days in April 2019, per Reuters. This Japanese auto giant took this step to counter possible disruptions, arising from the U.K.’s exit from the European Union.

Importantly, in case the U.K. leaves the European Union without a trade deal, the production process of automakers will be severely hurt as these companies are heavily dependent on persistent delivery of auto parts.

In fact, Honda has been evaluating possible ways to deal with logistics and cross-border troubles, generating from the U.K.’s exit from the European Union on Mar 29, 2019. In order to ensure that this automaker is well-positioned to withstand all the possible outcomes, the company will shut the U.K. production for six days in April. (Read more: Honda to Halt UK Production to Counter Possible Disruption)

Honda currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

2.    Shares of General Motors gained roughly 7.1% in a day’s trading on Jan 11. The rise in share price can be attributed to the company’s prediction of an earnings growth in 2019 along with an expectation of surpassing earnings estimates in 2018. It will release fourth-quarter and 2018 earnings on Feb 6.

For 2019, General Motors expects earnings to witness an uptrend from the figure mentioned in 2018. The figure is projected to be between $6.50 and $7.00 in 2019 compared with its prior expectation of $5.80-$6.20 in 2018. Further, this Detroit-based automaker expects adjusted cash free cash flow of $4.5-$6 billion for the current year. New vehicle lineups of trucks, crossovers and SUVs are likely to boost General Motors’ earnings in 2019.

Despite predictions of a gloomy car market in 2019, this automaker predicts the U.S. market to remain strong, with an annual industry sale in the lower range of 17 million vehicles. In the U.S. automotive market, the company expects to continue with its retail market growth through new Chevrolet Silverado and GMC Sierra light-duty full-size pickup trucks. Apart from trucks, the company’s Cadillac XT4, Chevrolet Blazer and all-new Cadillac XT6 luxury SUV are also expected to witness strong demand. (Read more: General Motors Foresees Stronger 2019 Backed by Launches)

General Motors currently flaunts a Zacks Rank #1.

3.    Ford announced that it will collaborate with Volkswagen to reduce expenses. The companies will team up for commercial vans and pickups, and explore electric and autonomous technological developments. The companies have confirmed that there will be no probable merger or equity stake transaction.

The partnership between these auto giants will start in 2022, with the sale of commercial vans and medium-sized pickup trucks. Ford will develop and manufacture medium-sized pickups for both companies. Moreover, Ford will produce larger commercial vans to cater to European customers while Volkswagen will develop its commercial vans at Ford’s hub in Turkey. Ford expects that jointly developing trucks and vans will add up to $500 million in yearly pre-tax profit, beginning from 2023.

In recent times, the automotive industry is experiencing numerous changes, owing to stringent emission regulation, extensive developments for electric and autonomous vehicle technologies, and a continuous consumer shifting trend toward pickup trucks and SUVs. These changes compelled automakers to heavily invest on such developments and line up their portfolio with products that customers prefer. Amid such challenging conditions, collaborating with peers seems to be a good plan. (Read more: Ford, Volkswagen Partner for Trucks, EVs & Autonomous Cars)

Ford currently carries a Zacks Rank #3 (Hold).

4.    Fiat Chrysler Automobiles N.V. (FCAU - Free Report) is open to collaborations for developing mid-sized pickup trucks, per Reuters. Adding new pickup models to the portfolio will aid Fiat Chrysler to expand its presence in markets outside the United States. The company wants to develop the new pickup truck for markets like Latin America. If this materializes, Fiat Chrysler’s new pickup will give tough competition to other market-specific models offered by its peers.

The company’s management agrees on the lack of affordable and lower-cost truck models in its portfolio that can cater to commercial uses of markets outside the United States. Fiat Chrysler is delving on probable options if it moves ahead on its own or takes aid from other companies.

In last November, the company unveiled the one-ton, mid-sized Jeep Gladiator, which will be available in markets by 2022. Although ideal for the U.S. market, the vehicle is more of a lifestyle truck that doesn’t match the requirement of developing markets for work-oriented pickup trucks. (Read more: Fiat Chrysler Likely to Collaborate for Pickup Trucks)

Fiat Chrysler currently carries a Zacks Rank #3.

5.    Magna International Inc. (MGA - Free Report) provided the outlook for 2019. This Aurora, Canada-based manufacturer and supplier of automotive components announced that its revenues in 2019 will be impacted by the disposition of the Fluid Pressure & Controls (“FP&C”) business, and appreciating dollar.

In September 2018, Magna inked a deal to divest its global FP&C. For this divestiture, the company signed an agreement with Hanon Systems, a global supplier of thermal and energy management systems based in South Korea, for $1.23 billion.

Magna added that its North American business will be affected by General Motors’ decision to close its Oshawa plant in Ontario. Notably, in November, as part of its restructuring program, General Motors announced the closure of three assembly plants.

For 2019, Magna expects total revenues of $40.2-$42.4 billion and net income of $2.1-$2.3 billion. Further, the company expects a slight decline in EBIT margin in 2019 due to elevated commodity costs, and higher spending on electrification and autonomy. (Read more: Magna’s Revenues in 2019 to be Hurt by Unit Disposition)

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

Performance

In the last week, General Motors gained maximum while Ford declined the most.

In the past six months, AutoZone, Inc. (AZO - Free Report) has increased the most, whereas Ford declined the most.

CompanyLast WeekLast 6 Months
GM7.1%-5.9%
F-4.9%-23.6%
TSLA2.2%7.2%
TM2.2%-4.4%
HMC2.8%-0.5%
HOG1.6%-13.1%
AAP-1.2%15.8%
AZO1.5%19.1%


What’s Next in the Auto Space?

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

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