This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Does GM's Decline Signal Problems for the Economy?


November was the best U.S. sales month in six-and-a-half years, with the seasonally adjusted annual sales rate reaching 16.3 million, the highest total since February 2007. But in January, the SAAR had fallen to 15.2 million.

Since Labor Day, U.S. new-vehicle sales have risen just 2% year over year, compared with a 10% gain in the 12 months before that, and inventory levels are high, according to Automotive News.

The trade journal reported Monday that "supplies of unsold vehicles have ballooned to the highest level since the recession, and U.S. sales growth has slowed significantly in the past five months" and called the trend "an ominous combination that could mean a return of bigger discounts and lower profit margins throughout 2014.

"Each of the Detroit 3 started February with more than a 100-day supply of unsold vehicles, enough to last until roughly Memorial Day at the slow January selling rate," Automotive News said. "Across the industry, automakers had 88 days' worth of vehicles as of Feb. 1, the most for that date since 2009, when the industry's downturn was at its worst."

Lache isn't worried by the high inventories. He said inventories typically decline by 25 days between January and March. "This year's declines should be even larger," he said, because weather contributed to higher inventories. Additionally, he said, "GM and Ford both appear to be taking a conservative stance on production."

In the fourth quarter, GM reported net income excluding items of 67 cents a share. Analysts surveyed by Thomson Reuters had estimated 87 cents. GM shares closed that day at $35.23, down a penny from the previous close, despite being down 88 cents in intraday trading.

UBS analyst Colin Langan wrote in a report that shares initially lost ground on the earnings miss, but recovered on the realization that the miss was due to one-time factors. He maintained a buy rating and raised his target price to $52 from $49, but he reduced his full-year 2014 estimate to $3.70 from $3.90 a share. Analysts surveyed by Thomson Reuters are estimating $3.93.

In his report, Lache noted that "much of the U.S. auto cycle and GM product cycle is behind us," although he said he still believes "that strong North America earnings, market share, inventory trends and share repurchase announcements will be helpful" for GM. He has a buy on the shares and a target price of $48, down from $52, reflecting a reduced 2014 estimate of $3.55, down from $3.90 a share.

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
GM $37.68 0.29%
AAPL $126.25 -1.80%
FB $81.39 0.61%
GOOG $576.13 0.48%
TSLA $201.71 -0.36%

Markets

DOW 18,117.55 +20.65 0.11%
S&P 500 2,098.50 -0.03 -0.00%
NASDAQ 4,972.5670 +5.4260 0.11%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs