Automakers could be in for a rough ride next year, with some analysts expecting a significant decline in profits as weakening demand leads to an oversupply of vehicles.
According to a USB Group research note, estimates for the sector need to move materially lower, as the three-year run of “unprecedented” pricing and margins is about to end abruptly, with an abundance of cars beginning to emerge as soon as three months from now. “Demand destruction is no longer a vague risk, but has started to become a reality,” said UBS Group AG analysts, led by Patrick Hummel.
Shares of automakers like GM and Ford have been taking a beating lately, as outlook for the industry has progressively darkened over the course of the year. Since January, GM shares have dropped over 38 percent to $37.86 a share, while Ford stock sank almost over 41 percent to $12.82 a share. This puts both companies’ stocks at losses for the year, with values down more than 45 percent on concerns of supply-chain shortages, rising costs and a cash-strapped consumer.
Despite this drop in share price, GM earnings have been improving. For the third quarter of 2022, GM recorded 1,537 million vehicle deliveries globally. That’s a significant increase compared to the 1,312 million deliveries during the same time frame a year ago. The uptick in sales enabled GM to earn $3.3 billion in income on $41.9 billion in revenue during the quarter.
By comparison, GM recorded 1,421 million vehicle deliveries globally during the second quarter of 2022, representing a drop of 19 percent year-over-year compared to the 1,757 million the same time frame a year ago. This led to GM reporting $1.7 billion in income on $35.8 billion in revenue. When compared to the second quarter of 2021, the results represent a 40 percent downturn in income and a 4.7 percent uptick in revenue on “higher corporate expenses primarily due to year-over-year mark-to-market changes,” according to the automaker.
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Comments
If profits drop by 50%, is that really a problem if they had risen by 50% a year before? Sounds like normalization and they made plenty of money before
They still came out way ahead.
Profits haven’t risen 50%….. profit margins have, but so have costs, overall revenue is down almost 30%
A 50% increase and then a 50% decrease results in a lower number than
Start – 1
+ 50% – 1.5
– 50% – .75
Well maybe the chip and supply shortages will still be a major factor next year impacting production, which hopefully will align with projected lower demand. I think GM’s forecasters also see the coming lower demand and are planning accordingly, they don’t have much inventory to begin with so they are in a good space.
We are headed into a rescission that already is started. With higher food and gas prices there is going to be less money going into other spending.
GM is in a good place to weather it but Fords in worse shape. Ford is in heavy spending and not getting the full profits from the F150 as the aluminum cost have eaten into them vs GMs mixed materials that have not been impacted.
I expect a couple bad years till energy cost come down. If we can get back to increasing oil and gas it will help things recover faster.
The chips will be a slow recovery but each year the impact will be less.
Where are the vehicles? The dealer lots are bare and salesmen don’t have new vehicles to sell. GM ads claim vehicles are arriving weekly ; only the spelling is incorrect. Vehicles are arriving WEAKLY. I stopped at a Ford store and inquired about a new loaded Ranger. He didn’t have one and said any coming in was already sold.
It seems simple to me that if they are concerned about profits they need to make and provide vehicles. Dealers and salespeople need product which the makers have failed to provide. When dealers and salespeople are gone that will be another group that won’t be buying any new vehicles..
There were thousands of new unfinished Silverados sitting in northern Indiana outside of the Ft. Wayne assembly plant. I suppose they are still there, haven’t driven that way lately.
There are 45,000 Ford Trucks sitting in a large lot in Tennessee. Looks like they are not finished. Not good for Ford.
Ky speedway is full of trucks.
Good because lower demand is perfect timing for me to buy what will come out at better pricing! There is a god.
Yup,same here l’ e been waiting for the recession and return of normal prices with rebates to purchase.
Every roller coaster ride reaches the end. The new & used price point gauging HAD TO END, eventually. Soon I will shopping a Cadillac for what it is literally worth, not these exorbitant sticker prices. All such b*****it!
Go woke go broke!
The current administration’s destruction of our economy causing high inflation, higher prices, and high interests rates have strapped many consumers to the point that a new vehicle is out of reach. It’s called a recession with stagflation and it’s painful and difficult to correct, ie, late 70’s and early 80’s. I don’t believe that today’s politicians or consumers could stomach the medicine. I lived it, new car loans were 13.8% and mortgages were 14% and unemployment was it double digits. Today isn’t so bad, yet. On the bright side, if you had cash to invest, CD rates were 15%.
Manufacturers no longer prioritize sold orders. Which makes no sense. They would rather build a stock order for a large metro dealer than a sold order for a small to mid size dealer.
How can they complain about lower demand when hundreds of thousands of new vehicles
are ordered and GM can’t even get them made and delivered.
Looks to me like the demand is outstanding when companies can’t keep up with demand and lots are almost bare. Seems like almost years before they can even catch up, if ever.
Who writes these articles???
Regarding the comment about waiting until energy costs come back down, I believe they are only going up. Especially electric. I just retired out of the energy sector and from what I saw it looks very concerning how much and how fast energy rates are increasing. And I don’t believe it’s short-term or temporary. The energy path forward is changing.
Everywhere I go, I see a ton of infrastructure repairs. These are mostly pick-ups trucks employees. Usually, when there is a large amount of government infrastructure repairs money spent the way we see today, that is a good sign that pick-up truck sales will be strong. There are no highways and bridges that are not under repair today, and it looks like this will go on for the foreseeable future. Not to get political, but thanks old Joe. It is time for our government to spend American tax dollars right here in America!!!!!! This is a non-political comment, so please, let’s keep it that way.
My comment is about government infrastructure repair $$money supporting pick-up trucks auto sales. Let me hear your reply to my comment, my ears are open.
So many typos in this article. That makes it seem less credible.
Rental car lots are overflowing with everything under the sun.
LOL, take another drink of libbie koolaid.
Until gasoline prices come down, inflation will continue. Auto manufacturers will continue to have higher manufacturing costs. High gas and diesel prices increase the cost of everything. Every time there is an increase in energy costs, there is a corresponding decrease in the economy. Gas was $1.89 per gallon two years ago and is a large part of why the economy was recovering so quickly, in spite of COVID. We have more oil and gas reserves than Venezuela and Saudi Arabia combined, but we have cancelled nearly all oil drilling leases and cancelled the Keystone XL pipeline. Two years ago, we had achieved energy independence for the first time in U.S. history. Now we are begging the nation’s enemies for oil. Had we finished the Keystone XL pipeline, the amount of oil we would be getting would roughly match the amount of Russian oil. Had we continued being energy independent, we would be able to export oil and gas to our European allies.
Also, you can’t just dump trillions of dollars into an economy without causing inflation.
Ruh Roh. There goes that $103,000 AVERAGE Dealer Employee salary just reported. Easy come easy go voters!!! Hopefully you’ll do the right thing this election but I highly doubt it.
No we haven’t cancelled almost all oil drilling leases, most of the leases on federal land have not been used by the oil companies-their choice. The oil companies are using profits to buy back stock and increase dividends instead of reinvesting. I know that because I have some of their stocks. We were energy independent with out the Keystone pipeline. You forget, the oil that pipeline would have brought is hard to refine oil that can’t produce very much of the by- products we really need. By the way, we are exporting oil and gas to our allies. Yes, high gas prices do some bad things. You need to talk to Putin and his friends in OPEC about the price of oil. It wouldn’t be a problem at all if U.S. oil companies would use their record breaking profits to expand production instead of blackmailing us to slow down the development of clean energy. If you are a climate denier take a drive to Miami Beach and see where high tide reaches now. You as a tax payer will pay for the problems caused by heated and rising ocean water. Just wait til you see the insurance rates, you ain’t gonna like them.