The year 2019 was a tough one for Detroit 3 automakers, namely General Motors GM, Ford F and Fiat Chrysler FCAU. Tariff woes, popularity of ride-sharing services and rise in car prices on the back of technological advancements tamed consumer demand to some extent, resulting in year-over-year decline in revenues and shipments for these firms in 2019. In addition, sluggish sales in China amid economic slowdown affected the companies. Weak European market amid Brexit uncertainty and tighter emission standards also weighed on the carmakers.
Q4 and Full-Year 2019 Scorecard
Amid the headwinds, the Detroit 3 auto giants came up with weaker year-over-year results in 2019. In full-year 2019, revenues, earnings and vehicle sales for each of the companies declined. Even in fourth-quarter 2019, Ford and General Motors’ earnings and revenues dipped from the prior-year period. However, Fiat Chrysler’s fourth-quarter revenues and profits improved. While Fiat Chrysler and General Motors managed to beat the Zacks Consensus Estimate for earnings in the fourth quarter, Ford — which carries a Zacks Rank #5 (Strong Sell) — missed the same. General Motors has a Zacks Rank #3 (Hold), while Fiat Chrysler carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into quarterly results of the Detroit 3 automakers.
In fourth-quarter 2019, the top U.S. carmaker reported adjusted earnings of 5 cents per share on revenues of $30,826 million. This compares unfavorably with the year-ago earnings per share of $1.43 on revenues of $38,399 million. Notably, the UAW labor strike cost the company $2.6 billion in earnings before interest and taxes during the quarter. While revenues and profits of the firm’s GM North America (GMNA) and GM International (GMI) segment tumbled year over year during the quarter, GM Financial recorded improved revenues and profits.
In full-year 2019, General Motors posted earnings of $4.82 per share, depicting a 26.3% decline from 2018. Revenues of $137.2 billion compared unfavorably with the year-ago figure of $147 billion. Vehicle sales volumes in GMNA and GMI units declined 9.5% and 13.6% to 3.2 million and 995,000, respectively. While the company witnessed operational efficiency, lower demand amid macro-economic headwinds and rise in car prices resulted in decline in full-year operating earnings for both GMNA and GMI units. While GMNA recorded operating profit of $8.2 billion, down 23.8%; GMI swung to a loss of $202 million against profit of $423 million in 2018. The only bright spot was the GM Financial unit, which recorded year-over-year increase of 3.8% and 11.1% in revenues and profits, respectively.
Adjusted automotive free cash flow came in at $1.1 billion in 2019, representing fall of 71.1% year over year. Long-term automotive debt was $12.5 billion as of Dec 31, 2019, down from $13.1 billion a year ago.
Fourth-quarter 2019 adjusted earnings and revenues for Ford came in at 12 cents per share and $39.7 billion, respectively. This depicted a downtick from the year-ago earnings and sales of 30 cents per share and $41.8 billion, respectively. Lower automotive sales across all major markets served including North America, South America, Europe, Middle East & Africa (MEA), Asia-Pacific and China resulted in the dismal results.
For full-year 2019, Ford posted overall revenues of $155.9 billion, down 3% year over year. Adjusted earnings per share tumbled 8.4% year over year to $1.19 per share. Wholesale volumes declined 10% year over year to 5,386,000. EBIT for the automotive segment fell 9.1% from a year ago to $4.9 billion in 2019. Lower contribution from North America and negative EBIT from all other markets led to weak results. On a positive note, the Ford Credit segment had an exceptional year, wherein it posted its best results in nine years, with $12.2 billion in revenues and $3 billion in earnings before taxes. Just like General Motors, Ford also managed to trim total costs in 2019.
Ford’s adjusted free-cash flow totaled $2.8 billion in 2019, flat year over year. Automotive long-term debt was $13.2 billion as of Dec 31, 2019, reflecting an increase from 11.2 billion in the comparable year-ago period.
In fourth-quarter 2019, Fiat Chrysler reported adjusted EPS of 0.97 euros ($1.07) per share, up 3% year over year. Revenues came in at €29,643 million or $32,819 million, reflecting an uptick of 1% from the corresponding quarter of 2018. Strong pickup sales, primarily in the North American market, led by RAM and Jeep brands led to improved results.
While the company witnessed year-over-year improvement in the fourth quarter, its full-year 2019 results were weaker than 2018. For full-year 2019, Fiat Chrysler posted adjusted EPS of €2.73 ($3.05), down 9% from 2018. The top line declined 2% year over year to €108.2 billion or $121.2 billion in 2019. Worldwide shipments fell 9% to 4,418,000 due to dealer stock reduction in North America, lower China JV shipments and discontinuation of products in EMEA. While adjusted EBIT increased year over year in North America, APAC and LATAM units amid higher revenues and operational efficiencies, the metric declined for EMEA and Maserati units amid lower revenues. All in all, adjusted net profit of the firm totaled €4.3 billion or $4.8 billion, down 9% from 2018.
Fiat Chrysler’s industrial free-cash flow totaled €2.1 billion ($2.4 billion) in 2019, down 52.5% year over year. As of Dec 31, 2019, the Italian-American automaker had €12.8 billion ($15.7 billion) of outstanding debt, down 10% from 2018.
While macro-economic headwinds will continue to weigh on General Motors’ sales, the company is likely to benefit from vehicle launches and cost-cut efforts in 2020. Excluding the effects of UAW strike that took a toll on General Motors’ 2019 bottom line, the company anticipates adjusted EPS for 2020 to be flat year over year. Nonetheless, adjusted auto free cash flow is expected to grow year over year in 2020.
While Ford expects FCF to improve year over year in 2020 on the back of low capex, weak results from Ford Credit, high investments in Mobility and sagging sales in China are anticipated to weigh on the company’s profits.
Fiat Chrysler expects strong performance in 2020. It forecasts adjusted EBIT, EPS and industrial FCF to improve year over year. The firm, which is expected to close the merger with PSA Groupe by the end of 2020 or early 2021, envisions to generate approximately €3.7 billion of annual synergies at run-rate.
Betting Big on EVs
As citizens are getting deeply concerned about rising fuel prices and growing climate crisis, EVs seem to be the best solution in hand. For years, it seemed that Tesla TSLA was the only automaker that was playing at the forefront of the EV phenomenon but now various firms are focused on electric and autonomous vehicle development in order to adapt to changing dynamics and customer preferences. In this regard, Detroit 3 companies are ramping up investments in electric vehicles, which are the road to the future.
General Motors recently confirmed plans to revive the Hummer name on an all-electric pickup truck to be sold under the GMC brand.The firm recently announced $2.2 billion investment in the Detroit-Hamtramck plant to manufacture a full lineup of all-electric trucks and SUVs for multiple brands.It plans to produce the next-gen Chevrolet Colorado and GMC Canyon mid-size pickups. In December 2019, the company inked a deal with LG Chem to produce battery cells.In May 2019, it teamed up with Bechtel to build V fast charging stations across the United States.
Ford will continue with extensive product introductions, featuring electric commercial and passenger vehicles, and carry out investments in smart-vehicle capabilities throughout 2020.Apart from Mustang Mach-E, the company plans to launch other refreshed or new vehicles in North America in 2020. These include F-150, featuring a first-ever hybrid-electric version, a small off-road utility vehicle, the first of 30 market-specific Ford and Lincoln vehicles in China, and Electrified versions of the Lincoln Corsair and Ford Escape/Kuga.
Fiat Chrysler is revving up electrification efforts, with Jeep hybrids in the pipeline.Fiat's e500 and Chrysler's Pacifica Hybrid van are also models to look for. The firm’s first fully-electric car, the redesigned 500 Electric, will be launched in late 2020. This year, Fiat Chrysler announced plans to establish a 50-50 joint venture with Foxconn, in a bid to develop and manufacture next-gen battery-powered EVs in China.
U.S.-Sino trade tensions, which had been building pressure on automakers for long, are now abating, as the countries have reached a preliminary agreement. Improving domestic economy, rising wage growth and low unemployment levels are expected to provide some respite. Vehicle sales in China, which is the world’s largest auto market, are expected to remain weak amid economic slowdown concerns.
From a future competitive standpoint, carmakers will have to balance revenue generation with broader challenges and escalating expenses. Eventually, the success will depend on how well the companies manage escalating costs for mass manufacturing and evolving technology.
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