GM Could Dodge a Bullet as Auto Industry Sales Signal Renewed Growth

Detroit (TheStreet) -- Auto industry sales reports for March seemed to signal a turnaround in the industry's fortunes after three weak months, and analysts said they expect GM (GM) will be able to take advantage of it despite recall costs.

On the Ford (F) sales call, John Felice, vice president, U.S. marketing, sales and service, said Ford "saw a big uptick (in sales) mid-month and then recall a very strong close." He said automotive "appears to be a very robust industry coming into the spring."

Ford said industry sales could gain about 5% in March, after being flat or down for the previous three months, a trend that raised the question of whether bad weather or slowing demand was to blame.

Ford sales analyst Erich Merkle said Tuesday the seasonally adjusted annual light-vehicle sales rate should be above 16 million for March, "more than what analysts were expecting." He added that Ford had a very strong final weekend in the close, (which) people probably couldn't pick up" in the forecasts made earlier. Much of the strength was in the retail sales side of the industry.

GM was acting peculiarly Wednesday morning, delaying its sales report due to a "computer systems issue impacting dealer sales reporting." CEO Mary Barra was scheduled to appear before a House subcommittee at 2 p.m. EDT to discuss, among other things, a recall of close to 7 million GM vehicles.

Whatever the sales report shows, analysts who follow GM continue to recommend the stock, even after estimating recall costs. Shortly before noon, GM shares were up 42 cents to $34.83. Ford shares were up 54 cents to $16.14.

In a report issued Tuesday, J.P. Morgan analyst Ryan Brinkman reduced his first-quarter earnings estimate for GM to 24 cents a share from 40 cents. Analysts surveyed by Thomson Reuters are estimating 47 cents, with a range of 23 cents to 67 cents.

Brinkman reduced his full-year estimate to $3.50 a share: consensus is $3.65. He noted GM has estimated the recall cost to date to up to $750 million. Still, he has a buy on the shares and a $50 price target.


Brinkman said he foresees "modest market share loss as consumers grapple with increasingly negative headlines, albeit less share loss than in prior high profile recalls and with the effect dissipating over time.

"While the recall situation is still unfolding, we would be buyers on any weakness," Brinkman wrote, noting that shares have lost $5.5 billion in value since March 10. The amount "is vastly more than our estimate of ultimate cost at this early stage," he said.

Meanwhile, UBS analyst Colin Langan reduced his 2014 earnings estimate to $3.40 from $3.70 a share, reflecting the 30-cent per share impact of the $750 million warranty charge. GM could eventually face a Department of Justice fine similar to the $1.2 billion Toyota fine, Langan noted.

"We also expect GM will face some market share headwinds over the next few months, due to the recall headline," he wrote. "However, we do not expect a long-term market share impact."

Langan has a buy on GM. He reduced his price target to $49 from $51.

Written by Ted Reed in Charlotte, N.C.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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