Ford and General Motors enter a new phase of uncertainty on prices and demand

Detroit – Talk about pricing power.

least, General Motors And ford motor likely to be doing so this week as they report fourth-quarter results and 2023 guidance, Wall Street is watching for signs of weak consumer demand and a Difficult pricing scenario.

Any issues would mean lower profits this year for automakers, which are expected to report relatively solid fourth-quarter results versus year-ago earnings. GM is expected to report fourth-quarter earnings per share of $1.69, a 25% increase over the year-ago period, while Ford is expected to report EPS of 62 cents, up from a year-ago period. That’s more than double the 26 cents posted. Refinitiv Consensus Estimate.

Auto makers have posted record results in recent years amid a tight supply of new vehicles and resilient consumer demand. they have relied on the constant pent-up demand Inventory levels return to normal as vehicles are expected to avoid heavy discounts or incentives to move.

But that scenario is slowly being neutralized. And that leaves new vehicle prices and profits in flux.

Cox Automotive reports that Detroit automakers have some of the highest inventory levels in stock in the industry, noting that vehicle numbers vary greatly by brand. At the same time, incentives are gradually increasing.

The overall concern is that pent-up demand was largely erased amid fears of a recession and affordability issues resulting from rising interest rates and record-high prices for a new vehicle averaging nearly $50,000.

Ford on Monday introductory price cut on its electric Mustang Mach-E, weeks after the electric vehicle industry leader Tesla cut it own prices,

Duncan Eldred, head of GM’s GMC brand, indicated that the truck and SUV brands expect to continue to grow their average transaction value, which he said set a new record of more than $63,405 during the fourth quarter.

Those rising transaction prices are partly due to the launch of the redesigned pickup and electric Hummer SUV, which retails for more than $110,000. GM began production of that SUV this week at a plant in Detroit, the company said Monday during a media roundtable.

GM is set to report its results before the market opened on Tuesday, followed by Ford after the bell Thursday.

wall street brags for one “Demand Destruction” outlook for the past several quarters, which means much of its focus this week will be on automakers’ 2023 guidance.

Goldman Sachs said it expects forecasts to be below consensus, “driven by pricing and mix as well as lower financial services profits.”

GM is expected to guide adjusted earnings per share to decline by about 20% for the full year 2023, according to Refinitiv estimates. Ford’s 2023 EPS is expected to decline by about 16% compared to 2022.

Deutsche Bank analyst Emmanuel Rosner wrote in an investor note earlier this month, “We anticipate that GM and Ford could see significant declines in profitability this year, due to declining vehicle pricing and losses from rising EV volumes.” Could be less.”

Rosner said the guidance risk is already anticipated and shouldn’t dent the shares.

Deteriorating pricing, low-cost vehicle mix and shrinking earnings from automakers’ financial arms are expected to “potentially start restructuring and cut ‘special projects,'” Morgan Stanley’s Adam Jonas said in a note to investors last week. Do it.”

Amid fears of a continuing recession, automakers are yet to announce substantial layoffs or cost-cutting, as has happened in other sectors. technology in particular, Tough. Wall Street will be keen for updates on those fronts this week.

Ford reportedly plans to cut 3,200 jobs across Europe and move some product development work to the United States. Germany’s IG Metal Union said Last week. GM, which sold its European business in 2017, has not announced any such actions.

GM and Ford have said they will continue to invest in EVs regardless of macroeconomic factors. Any changes to those plans would be notable to investors as well.

– CNBC Michael Bloom contributed to this report.