Friday, August 15, 2014

General Motors or Ford? Credit Suisse Doesn’t Particularly Like Either

When it comes to Ford Motor (F) and General Motors (GM), investors have stated a clear preference for the former over the latter. So do the folks at Credit Suisse, although it’s fair to say they don’t really like either of the major automakers.

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Credit Suisse analysts Dan Galves and Shreyas Patil explain:

For General Motors and Ford, we don't expect much earnings growth, short of what is already relatively assured (non-recur of restructuring / recalls, return to profit in Europe). The biggest gap to the Street is likely in NA, where we believe trend mid-cycle earnings levels could be well-below 2014. We believe that US trend demand is lower than the market thinks, even a modest rise in rates could have a meaningfully negative impact on US pricing, and regulatory costs to meet fuel economy targets are accelerating…

If we were bullish on OEM's, Ford would be high on the list. In the next 1-2 years, Ford will approach 100% of volume off 9 high-volume, versatile platforms and their vision years ago to shrink vehicle size and go full -bore into downsized, turbocharged engines is exactly what consumers are demanding today. But our cautious view on US demand/pricing, and our belief that NA EBIT will not snap back as quickly as the market thinks drives our Neutral rating on Ford…

[In regards to General Motors, it's] always something. With General Motors on the cusp of meaningful European improvement, it now appears that NA margins are peaking much earlier than expected, with headwinds ahead. And soon after General Motors instituted a meaningful dividend in January, a series of recalls put $2.5 bln out the door, lowering the likelihood of a meaningful buyback in the near future.

Shares of General Motors have dropped 1.2% to $33.55 at 11:39 a.m., while Ford Motor has fallen 0.7% to $17.30.

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