Carpocalypse in Motown
Gloom descends on Detroit after nightmare day of earnings
It felt so 2009.
First, General Motors and Fiat Chrysler reported weak earnings, with both reining in profit forecasts for the year. That sparked sharp sell-offs of their stocks.
Then it really got ugly. Ford took the stage and projected $11 billion (all figures US) in charges linked to a restructuring plan that will take as long as five years to play out. The already-struggling company that had touted plans to cut $25.5 billion in costs in the coming years left analysts wanting more detail and subjecting chief executive officer Jim Hackett to harsh questioning.
Not since the financial crisis and Carpocalypse have Detroit automakers had so much bad news in one day. To be clear, all of the companies are solidly profitable and nowhere near the edge of survival like they were in 2009. But what made the headlines all the more confounding was that the downbeat results and outlook came at a time when the U.S. auto market is solid, the economy is humming and China is buying more cars every month.
GM’s profit issues were mostly caused by external forces, namely President Donald Trump’s steel and aluminum tariffs and depressed currencies in Argentina and Brazil. Fiat Chrysler will have to sort out slumping sales in China under a CEO after the death of Sergio Marchionne announced early Wednesday. And Ford’s problems stem from bloat and stale models.
Ford missed estimates by posting adjusted profit of 27 cents a share, less than half what it earned on that basis a year earlier. The Dearborn, Mich.-based company said it will make between $1.30 and $1.50 a share instead of as much as $1.70.
Fiat Chrysler isn’t in nearly the bind Ford is, but new CEO Mike Manley has plenty of problems, too. The much-heralded Jeep brand hasn’t caught on in China — a key element of the growth strategy laid out only a matter of weeks ago.
The redesigned Jeep Compass that’s been a hit in the U.S. has struggled going up against local Chinese brands that are on the ascent in the country’s mass market segments. As a result, the company’s Asian operations lost $115 million in the second quarter.
GM is telling more of a hardluck story. Trump’s steel and aluminum tariffs have driven up metals prices and contributed to commodities adding $300 million to costs in the quarter and $500 million in the first half. The company had been expecting that sort of a headwind for the whole year. Instead, it’s now seeing about a $1-billion blow to annual earnings.
Add in a $100 million hit from devalued Argentine peso and Brazilian real, and GM had to lower its forecast for adjusted earnings to $6 a share. The company had been expecting to make as much as $6.50.