Ford Motor Company (F) and General Motors Company (GM) Feature on Morgan-Stanley’s Downgrade List

GM

 

For investors who reacted to Ford Motor Company (NYSE:F) being downgraded courtesy of Morgan Stanley by shifting their loyalties to General Motors Company (NYSE:GM), the latest news truly spells disaster. In one of its most recent updates, Morgan Stanley’s auto analyst, Adam Jonas downgraded General Motors too, saying –

‘We believe many elements from Ford’s recent profit warning are applicable to GM’s outlook through 2015 and beyond. At its investor day, GM understandably focused its attention on reestablishing cultural and strategic momentum. They didn’t warn, so we’re doing it for them.’

When Ford Motor Company (NYSE:F) announced on 30th September, 2014, that it was likely to miss its profit forecast for this year courtesy of the cumulative effect of several factors, a downgrade was but natural and occurred in form of Morgan Stanley placing its share value at $14. On being asked to explain, Adam Jonas cited three main factors on CNBC which he felt played an instrumental role namely Ford models being difficult to make, fierce competition in the auto industry and low gas prices.

Ford Motor Company (F)

Based on these criteria, his outlook on Ford Motor Company (NYSE:F) was bleak and fraught with reasonable amount of uncertainty, given the technical difficulties that were involved. As per Jonas, the same rules applied to General Motors Company (NYSE:GM) as well –

“Ford’s reduced outlook was based on increased macro pressure in Russia, Latin America and FX and quality-related issues. On our calculations, GM’s exposure to each of these factors is at least as great as Ford’s.”

Much of the dent in performance is attributed to what is termed as the crucial industrial metamorphosis wherein Ford Motor Company (NYSE:F) is planning to cut down on the number of platforms used for manufacturing its cars and also rendering its F-150 model truck lighter that it already is. General Motors Company (NYSE:GM) intends to incorporate the same strategies in its modus operandi and Jonas feels that it is a step which might trigger a possible conflict between the company and its shareholders. It is in the following comment that he expresses his apprehension –

“What concerns us…is whether shorter-term constituents in the stock market will appreciate the need for GM to expend many billions of up-front capital to execute such important goals that may ostensibly compete for capital return from share buybacks and dividends,”

Some of the other factors which he said had been taken into account pertained to the impact of Yen on the American auto industry, the fact that Japanese dominated as much as 40% of the US market and all indications pointing towards a possible deflation. Thus General Motors Company (NYSE:GM) now stands at $27 as opposed to its earlier value of $29.

This article has been written by Vinita Basu.

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