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Ford Expects Record Profits; GM Sees Own Earnings Growth

Makers increase returns to shareholders; GM boosts stock buyback program.

by on Jan.13, 2016

Ford CEO Mark Fields showing off a new piece of technology at CES last week.

Investors take notice: while the stock market hasn’t been kind to the auto industry in recent weeks – or just about anyone else, for that matter – Detroit’s two largest carmakers are making some upbeat projections for 2016 that could make nervous shareholders happy.

Ford Motor Co. now expects to close the books on 2015 with a record pre-tax profit, with 2016 numbers to be “equal to or higher.” And GM is boosting its own earnings outlook for 2016. Both companies now plan to up their cash payouts to shareholders, while GM is expanding its ongoing stock buyback program.

Insight!

“This pattern of strong returns gives us a great platform to build on as we enter the year with a focus on strengthening our core business and engaging aggressively in emerging opportunities through Ford Smart Mobility,” said Ford CEO Mark Fields, in a statement detailing Ford’s forecast.

While Ford is still weeks away from revealing its final numbers, it now expects 2015 pre-tax earnings, excluding special items, to run in “the upper half” of its earlier guidance, meaning somewhere closer to $11 billion than $10 billion.

GM CEO Mary Barra with the Chevy Bolt.

(Ford finds way to boost bottom line by $1.5 bil. Click Here to learn how.)

Both Fields and GM Chairman and CEO Mary Barra are planning to expand on their projections during appearances at an investment industry conference today.

In her own statement, Barra said, “We made significant progress executing our strategic plan and the results are being demonstrated through our improved earnings.”

Though also weeks away from issuing a final accounting for 2015, GM outlined its expectations for 2016 in per-share numbers. It now projects it will earn between $5.25 and $5.75 over the coming 12 months. It previously forecast something between $5.00 and $5.50 a share.

(GM poised for long-term success, says Pres. Dan Ammann. Click Here for more.)

GM had even more good news for investors, announcing a 6% boost in its common stock dividend, from 36 to 38 cents a share. And it plans to substantially increase its stock buyback program. It now plans to repurchase $9 billion in its own shares, 80% more than the original $5 billion goal.

Ford is holding its own dividend at 15 cents a share for the first quarter – but it has approved a supplemental cash dividend payment of $1 billion, which works out to 25 cents a share.

“Clearly, going back to the big downturns, the cost-cutting and reorganizations have set the stage, with record industry volumes, for record profits,” said Joe Phillippi, a veteran Wall Street analyst and head of AutoTrends Consulting.

Marchionne has reason to smile as he plans to have FCA debt-free by the end of 2018.

While Detroit’s maker “have taken a lot of cost out of their products. They’re clearly benefiting from lower commodity prices in two ways – lower production costs and consumers are buying more profitable big trucks,” Phillippi added, noting that the housing recovery has also boosted demand for pickups and other commercial vehicles.

Wall Street had a mixed response to the news, by mid-morning, GM shares were up sharply after a month of losses that drove its share price down about 11%. But Ford was in the red, its share price again tumbling by more than 2%.

Detroit’s Big two weren’t the only ones putting a good spin on the coming year. On Monday, during a media gathering at the North American International Auto Show, Fiat Chrysler Automobiles CEO Sergio Marchionne outlined his own forecast and goals. He said he was more confident than ever the trans-Atlantic automaker will meet the ambitious financial targets it laid out for investors in May 2014. And Marchionne said FCA was on target for clearing its industrial debt by the end of 2018.

Marchionne did, however, warn that he still sees the need for industry consolidation, hinting FCA has been approached by several potential partners.

(Click Here for more on what Marchionne said at the Detroit Auto Show.)

The strong numbers automakers are reporting are not entirely surprising considering the U.S. market set an all-time sales record of around 17.5 million vehicles last year. Meanwhile, the National Automobile Dealers Association and others now expect the numbers to grow to around 17.7 million to 17.8 million for 2016.

Ford’s Fields also had some good forecasts for key overseas market. In particular, the maker is finally expecting its European subsidiary back in the black after more than a decade of losses.

But there are clearly some weak spots around the globe. While India is setting its own record, the situation is not as sanguine in the rest of the so-called BRIC markets. Russia and India are in major recessions. And China, said analyst Phillippi, is a “wild card,” with a fluttering economy that has made it difficult to predict where car sales there will go.

Carlos Ghosn, CEO of the Renault-Nissan Alliance, put a slightly different spin on the Chinese situation, however. True, it had long delivered double-digit annual gains, but if China’s car sales only grow 5% this year, that’s likely to be more than what experts are forecasting for the U.S.

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