Ford Motor (NYSE:F)
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By Mike Colias
General Motors Co. and Ford Motor Co. provided tepid outlooks that give little optimism for the year ahead to investors who are increasingly betting on electric-vehicle maker Tesla Inc. as the car company of the future.
Both Detroit giants are dealing with weakening demand and rising labor costs. On Wednesday, GM said earnings last year were dinged by a crippling 40-day strike that idled dozens of U.S. factories last fall, and said it didn't expect operating profits to grow in 2020 due in part to anticipated slowdowns in the U.S. and Chinese car markets.
Rival Ford, meanwhile, reported Tuesday that it barely broke even last year and presented an even grimmer outlook, releasing earnings guidance for 2020 that fell short of Wall Street's expectations. Ford's stock fell more than 9% on Wednesday.
The downbeat forecasts follow nearly a decade of steady sales growth and stout profits globally for Detroit's auto makers. While that run helped put the once-vulnerable companies on firm financial footing, it has failed to translate into higher share prices.
Instead, investors are gravitating to upstarts like Tesla, whose valuation soared in recent days to more than $130 billion -- higher than that of GM, Ford and Fiat Chrysler Automobiles NV combined.
Now the Detroit giants are girding for tougher times. Analysts and industry executives predict China's once-booming car market will continue to contract this year and the U.S. auto industry could see its first significant decline in a decade.
The auto makers must manage the slowdown at the same time that they invest billions in electric and self-driving cars -- which offer them scant profitability in the near term -- to tap the growth potential that has enticed Tesla investors.
Even as GM and Ford highlight these future bets to investors, they continue to face challenges in their old-world manufacturing business -- obstacles that are only poised to grow if vehicle demand globally softens further in coming years, as expected.
GM said Wednesday its operating profit in the October-to-December period plunged 96% to $105 million, reflecting lost production in October as workers continued to picket its U.S. plants after the company and union failed to reach a new labor contract in September.
For the full year, the Detroit auto-making giant posted a $6.7 billion net profit as it commanded higher prices on pickup trucks and SUVs and squeezed costs in North America.
Ford's profits last year were dented in part by warranty costs to fix problems on vehicles engineered and built many years ago. The Dearborn, Mich., car company also struggled with manufacturing problems related to new-vehicle launches and continued losses in its overseas business.
Both Ford and GM face higher U.S. labor costs in coming years from fresh United Auto Worker contracts signed last fall, after the strike that drained GM of $3.6 billion in operating profit. And both have engine factories that could become costly burdens over time if the market shifts to electric cars, analysts say.
While Tesla's workforce isn't unionized, it faces the same challenge in churning out defect-free vehicles on a large scale. Tesla has faced quality complaints and Chief Executive Elon Musk has missed production targets over the years.
But for now, Wall Street is wagering that Tesla's head start in electric cars will help it fend off bigger players, said Brad Cornell, managing director at Berkeley Research Group.
"The market has got to be thinking that electric cars are a relatively new wave of the future," he said. "And that competition has to be so tardy and inadequate that Tesla can get a dominant position in the market."
In her seventh year leading GM, Chief Executive Mary Barra has struggled to translate the company's success across many parts of the business into share-price growth. GM's shares rose 1.9% on Wednesday and are trading only slightly above the IPO price of nearly a decade ago.
Ms. Barra and other GM executives outlined their strategy in a three-hour presentation Wednesday to investors in New York. They highlighted aggressive plans for electric and autonomous cars, including a new electric-vehicle system that will be used across as many as a dozen models.
The company also said it would expand across more models its Super Cruise system, which enables hands-free driving on highways. Tesla's semiautonomous system is a key selling point for customers.
Finance chief Dhivya Suryadevara said GM has "unique positioning" in electric and driverless technology and expressed confidence that investors eventually will reward that.
"From a share-price standpoint, we're very bullish on the future," she told reporters ahead of the presentation. "What we're going to do is put those proof points on the board to make sure that that's clear to all investors."
Even with the hit from the strike, GM's results show it has solidified its profitability lead over Ford.
Ford posted net income of only $47 million, its earnings dented by a multiyear, overseas restructuring that has yet to return the company to profit growth. It missed fourth-quarter profit forecasts.
"The 2020 guidance...makes it hard for us to see why investors should get excited about owning Ford stock now," Morningstar analyst David Whiston wrote in a note.
Ford executives have said the company has new models coming this year, including a new F-150 pickup, that will help lift its bottom line. Asked about Tesla's valuation, Chief Executive Jim Hackett pointed to new electrified offerings in the works that he said would give eventually give Ford a bigger lineup than "the other guy."
--Ben Foldy contributed to this article.
Write to Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
February 05, 2020 17:28 ET (22:28 GMT)
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