GM, Too, Faces Rising Commodity Costs

DETROIT (TheStreet) -- Rising commodity prices degraded earnings at both Ford(F) and Whirlpool(WHR), but some experts suggest GM(GM) may be spared.

"I think GM will buck the trend," said Nicholas Colas, a strategist for ConvergEx Group, which provides financial technology to investment firms, in an interview. "It's been so aggressive on its cost structure in bankruptcy."

Nevertheless, Colas said the rising cost of everything is a deep concern. "It isn't just Ford. In past recoveries, with big boosts in demand, commodity price inflation did not follow for a couple of years, so you had [a period of] gangbuster demand and low costs.

"But now we have a slow-growth recovery with a lot of inflation in raw materials, food, steel and energy," he said. "The philosophical question everybody is struggling with [is] 'in a slow economic recovery with accelerating commodity prices, do cyclical companies experience margin expansion or compression?'"

In a report issued Monday, which followed GM's report of a 23% January sales increase, Colas reaffirmed his buy rating and $43 price target for GM. "We believe that GM is managing its pricing model within the parameters necessary to earn a competitive return on its capital," he wrote.

However, he acknowledged mild concern over reports that GM's incentive spending increased from December 2010 to January 2011. "That is an unusual cadence, since car companies tend to push hard in December for year-end sales targets and take the foot off the accelerator in January," he wrote.

GM has not said when it will report fourth-quarter earnings. Spokeswoman Renee Rashid-Merem said the company typically gives about three to five days advance notice.

Automakers' shares suffered in January, even as the Standard & Poor's 500 Index gained 2%; Ford shed 6% and GM was down 2%. The key reason, of course, was Ford's earnings miss, which caused a one-day 13% decline on Jan. 27.

GM took a 5% guilt-by-association hit.

Goldman Sachs analyst Patrick Archambault said he did not think Ford's miss would have a major impact on GM. "We think expectations for GM's fourth quarter are quite different following explicit warnings by management that the quarter would be weak" relative to the third quarter, Archambault wrote in a report.