DETROIT – Let's talk about pricing power.
At least, General Motors and Ford Motor likely will be doing that this week as they report fourth-quarter results and 2023 guidance, with Wall Street watching for signs of weakening consumer demand and a tougher pricing landscape.
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Either issue would mean lower profits this year for the automakers, which are expected to report relatively solid fourth-quarter results over subdued 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, more than doubling the 26 cents it posted a year earlier, according to Refinitiv consensus estimates.
Automakers have reported record results in recent years amid the tight supply of new vehicles and resilient consumer demand. They have banked on sustained pent-up demand as inventory levels normalize, hoping to avoid heavy discounts or incentives to move vehicles.
But that scenario is slowly neutralizing. And that leaves new vehicle prices and profits in flux.
Cox Automotive reports the Detroit automakers have among the highest inventory levels in stock in the industry, noting vehicle numbers differ greatly by brand. Plus, incentives are slowly rising.
There's overall concern that the pent-up demand was largely eroded amid recessionary fears and affordability issues resulting from rising interest rates and record-high prices of nearly $50,000 on average for a new vehicle.
Ford on Monday cut the starting prices on its electric Mustang Mach-E, weeks after electric vehicle industry leader Tesla slashed its own prices.
Duncan Aldred, head of GM's GMC brand, signaled the truck and SUV brand expects to continue increasing its average transaction price, which he said hit a new record of more than $63,405 during the fourth quarter.
Those rising transaction prices are due in part to redesigned pickups and the launch of the electric Hummer SUV, which tops more than $110,000. GM started production of that SUV this week at a plant in Detroit, the company said during a media roundtable Monday.
GM is scheduled to report its results Tuesday before markets open, followed by Ford after the bell Thursday.
'Demand destruction' watch
Wall Street has been bracing for a "demand destruction" scenario for the last several quarters, which means much of its focus this week will be on the automakers' 2023 guidance.
Goldman Sachs said it expects the forecasts to be below consensus, "driven by price and mix as well as lower financial services profits."
GM is expected to guide toward a roughly 20% decline in adjusted earnings per share for the full year 2023, according to Refinitiv estimates. Ford's 2023 EPS is expected to fall by nearly 16% compared with 2022.
"We estimate GM and Ford could see a notable decline in profitability this year, as earnings can be weighed down by vehicle pricing declines and losses from growing EV volumes," Deutsche Bank analyst Emmanuel Rosner wrote in an investor note earlier this month.
Rosner said that guidance risk is already well anticipated and shouldn't dent the stocks, however.
Morgan Stanley's Adam Jonas expects the deteriorating pricing, lower-cost vehicle mix and declining earnings from automakers' financial arms to "potentially initiate restructuring and cut 'special projects' to defend the bottom line," he said in a note to investors last week.
Amid persistent recessionary fears, automakers have yet to announce substantial layoffs or cost cuts similar to those that have hit other sectors, particularly tech, hard. Wall Street will be eager for an update on those fronts this week.
Ford reportedly plans to cut up to 3,200 jobs across Europe and move some product development work to the United States, Germany's IG Metall union said last week. GM, which sold its European business in 2017, has not announced such actions.
GM and Ford have said they will continue to invest in EVs regardless of macroeconomic factors. Any change in those plans would be notable for investors as well.
— CNBC's Michael Bloom contributed to this report.
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January 31, 2023 at 12:40AM
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Ford and General Motors enter a new phase of uncertainty on prices and demand - CNBC
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