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Auto Stock Roundup: Daimler & Fiat Face Fines, Cummins Reaches Milestone & More

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The United Auto Workers’ (“UAW”) nationwide strike against General Motors (GM - Free Report) has completed its 17th day. The strike was called after the company’s four-year contract with workers expired on Sep 15 without any agreement on replacement. Notably, this marks the first major work stoppage at the company in the last 12 years and the longest national strike in the United States since 1970.

Notably, General Motors’ latest comprehensive offer was rejected by UAW as it once again failed to meet the latter’s demands. With many issues remaining unresolved, UAW responded with a counterproposal over disagreements on health care, wages, temporary workers, etc. Negotiations are again expected to resume today.

Due to the impact of strike that led to parts shortage, the U.S. auto giant recently idled a pickup plant in Mexico, temporarily laying off 6,000 workers. The job cuts at the Silao facility in the United States has brought the total count of layoffs for non-UAW represented laborers in North America with the company to about 10,000.

Meanwhile, U.S. light-vehicle sales decreased 12% year over year in September, with total sales coming in at 1,268,871. Notably, Japan’s auto biggies — Honda Motors, Toyota Motor (TM - Free Report) , and Nissan — recorded lower year-over-year U.S. sales in the month. Moreover, the Big 3 automakers, namely Ford (F - Free Report) , General Motors and Fiat Chrysler (FCAU - Free Report) , came up with quarterly sales figures. General Motors, Ford and Fiat Chrysler recorded sales of 738,638, 580,251 and 565,045 vehicles, respectively. While General Motors holds a Zacks Rank #2 (Buy), Ford and Fiat Chrysler are #3 (Hold) Ranked firms. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

(Read the Last Auto Stock Roundup here).

Recap of the Week’s Most Important Stories

1. Daimler AG (DDAIF - Free Report) has been slapped a fine of $960 million (870 million euros) by German prosecutors for selling about 684,000 vehicles that did not adhere to regulations on emission of Nitrogen Oxide, one of the key ingredients in smog. The fine includes 4 million euros for “negligent violation of supervisory duties” and another 866 million euros from profit.

Notably, the fine is the result of tightened scrutiny since Volkswagen’s Group diesel emission cheating scandal jolted Germany’s automotive industry four years back. Volkswagen’s former and current CEOs, as well as current Chairman have been accused of market manipulation for not informing investors about the rigged engines. (Read more: Daimler to Pay $960M for Diesel Car Probe in Germany)

2. Fiat Chrysler has agreed to pay $40-million penalty to the U.S Securities and Exchange Commission (“SEC”) for misleading investors by inflating monthly sales figures over five years (from 2012 to 2016). The SEC noticed that Fiat Chrysler violated the reporting and internal accounting control provisions of the Securities Exchange Act, 1934, and anti-fraud provisions of the Securities Act, 1933.

The company inflated new-vehicle sales by paying dealers to report fake sales numbers. Fiat Chrysler overstated sales numbers and reported an unbroken streak of growth in months between 2012 and 2016, while in reality, the streak ended in September 2013. (Read more: Fiat Chrysler Fined $40M for Inflating Sales Numbers)

3. Cummins Inc. (CMI - Free Report) recently produced the 3-millionth turbo diesel engine for RAM, which is Fiat Chrysler’s truck division. This is undoubtedly a very important milestone for the company. The new 6.7 liter I-6 turbodiesel high-output engine serves 400 horsepower and 1,000 pound-feet torque, boasting a host of upgrades for improved fuel efficiency, lower NVH and higher power.

Very recently, Cummins announced collaboration with Hyundai for Hydrogen Fuel Cell Technology. The new power trains are anticipated to be developed by integrating Cummins’ electric power trains, battery and control technologies with Hyundai fuel cell systems. The cooperation is a golden opportunity for Hyundai and Cummins to leverage their respective strengths to grow and widen their product portfolios. (Read more: Cummins Hits Milepost on 3-Millionth Engine Output for RAM)

4. Anticipating a decline in sales volumes of heavy trucks and trailers, Meritor, Inc. (MTOR - Free Report) recently launched a restructuring plan to trim salaried and hourly headcount on a global basis.

Truck manufactures are not expecting market conditions and sales to improve in the near term. Amid the industry headwinds, the commercial truck and industrial parts maker is contemplating to slash labor costs. Notably, Meritor expects to incur $20 million in severance costs across both its reporting units — Commercial Truck & Trailer and Aftermarket & Industrial. The restructuring is expected to be completed by the end of first-quarter fiscal 2020. (Read more: Meritor to Cut Labor Costs Amid Industry Headwinds)

5. In a bid to develop latest technologies and gain economies of scale, Toyota Motor and Subaru Corporation have expanded their partnership. The collaboration is aimed at developing electric vehicles, which will combine Toyota’s electrification tech with Subaru’s all-wheel drive hardware. The alliance is likely to aid the companies to create second-generation Toyota 86 and Subaru BRZ.

Toyota intends to increase its stake in Subaru from 16.83% to 20% to strengthen ties with the latter. The move will expand Toyota’s voting rights and Subaru will become an affiliated company. The deal will give Subaru the right to expand the use of Toyota hybrid technology beyond Crosstrek Hybrid. (Read more: Toyota to Collaborate With Subaru to Develop 86 and BRZ Cars)

Price Performance

The following table shows the price movement of some of the major auto players over the past week and six-month period.

In the past week, all the stocks have declined except Advance Auto Parts, which has scaled up 1.6%. In the past six months, Tesla has declined the most, while Toyota Motors has recorded the maximum gain.

Company

Last Week

Last 6 Months

GM

-7.8%

-10.6%

F

-5.9%

-7.0%

TSLA

-3.3%

-12.4%

TM

-5.0%

7.6%

HMC

-3.4%

-9.6%

HOG

-1.2%

-10.9%

AAP

1.6%

-6.4%

AZO

-3.0%

1.2%

 

What’s Next in the Auto Space?

Industry participants will be waiting for new updates related to the UAW-General Motors strike. As the strike continues, increasing number of suppliers and workers are getting affected. The company’s inventory level is being watched closely. While the strike did not significantly affect the carmaker’s third-quarter sales, it may eat into the firm’s fourth-quarter profits. It all depends on how effectively the company can ramp up production, once the strike ends.

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

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