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A portion of the Ford exhibit area at the North American International Auto Show

GM, Ford Boost Shareholder Payouts in Sign of Detroit’s Optimism

Jan. 11, 2017
The world’s biggest carmakers signaled that they don’t see an end to their prosperity any time soon, and the optimism is translating into returns for shareholders.

In Detroit, 2017 has been touted as the year that will mark the end to a nearly decade-long boom in U.S. auto sales. And maybe it will. But there’s little sign of that right now.

One after another this week, the world’s biggest carmakers signaled that they don’t see an end to their prosperity any time soon. On Tuesday, General Motors Co. projected another year of profit growth and heaped a $5 billion share buyback plan on top of the $9 billion it started repurchasing in 2015. Hours later, Ford Motor Co. added $200 million cash to its regular first-quarter dividend.

Japanese and German carmakers also joined the hometown players at this week’s Detroit auto show in expressing optimism. Nissan Motor Co. — just two months after calling a U.S. market peak — now sees an even better 2017 after the election of Donald Trump and the rise in consumer confidence that has followed. BMW AG pointed to the good times rolling on Wall Street as one reason luxury vehicle sales will be sustained.

“The auto industry has benefited from cheap and available credit and low fuel prices,” said Maryann Keller, an independent auto analyst in Stamford, Connecticut. “All of that has worked in the industry’s favor and no one is saying that’s going to die.”

The optimism is translating into returns for shareholders. U.S. automakers and suppliers have outperformed the Standard & Poor’s 500 Index since the beginning of the year, with gains of 7.2% at GM and 5.9% at Ford. Fiat Chrysler Automobiles NV, benefiting from a bet on shifting its lineup almost exclusively to light trucks, has surged 19% in part on speculation it’s more likely to get a pass from a loosening of environmental regulations under Trump.

The consistent theme tying together all this positivity has been the unprecedented appetite for sport utility vehicles. GM is boosting revenue and profit by introducing new models, trimming costs and cashing in on the global tilt toward larger and often more expensive vehicles. As car buyers shift, GM has three redesigned rides — the GMC Terrain and Chevy Equinox and Traverse — coming to market this year.

The largest U.S. automaker’s net income should increase to between $6 and $6.50 a share this year, CEO Mary Barra said at an analyst conference in Detroit. When 2016 earnings are reported later this month, the company expects to hit the top of its guidance, Barra said. Standard & Poor’s lifted GM’s credit rating one level Tuesday to BBB, the second step above junk.

“It’s very good guidance given a U.S. market that has plateaued,” said David Whiston, an analyst for Morningstar Inc., said of GM’s forecast for the coming year. It shows management is “not done making the company better.”

After a strong 2016 for the North American market, GM President Dan Ammann said the company is seeing “more of the same favorable environment.” The comment echoes Nissan Chairman Carlos Ghosn, who said Monday that U.S. auto sales may grow again this year, about two months after his co-CEO had said the market peaked.

Ford, the second-largest U.S. automaker, will pay an additional $200 million to shareholders beyond its regular first-quarter dividend and said its 2016 tax rate will be higher than previously forecast. The company’s regular dividend of 15 cents a share, plus the cash, boosts its total payout to 20 cents a share.

While Ford cut profit forecasts twice during the second half of last year, a weaker auto market wasn’t the culprit. Hefty technology investments will cut slightly into the bottom line this year before profit rises again in 2018, the Dearborn, Michigan-based company reiterated Tuesday.

Investors and consumers have positive expectations of policies the Trump administration could implement that “could be quite attractive” for the economy, Chief Financial Officer Bob Shanks said in an interview Tuesday, without being specific.

Ford has promised to put 100,000 robot taxis — without steering wheel, gas or brake pedals — into ride-hailing or ride-sharing fleets by 2021. It’s also investing $4.5 billion to convert 40% of its lineup to electrified vehicles by 2020 and this month revealed seven of those models.

While the good times for carmakers aren’t going away soon, the companies need to stay vigilant on costs, according to Keller, a former Wall Street analyst. Incentives have been rising and the glut of used cars coming off lease in the next couple of years will put pressure on vehicle prices and profits, she said.

“It’s not going down, but the double-digit sales growth is not going to happen,” Keller said. “They have had the wind in their sails for five years. How can it get better than that?”

By David Welch and Keith Naughton, with assistance from Melinda Grenier.

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Licensed content from Bloomberg, copyright 2016.

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