Slowing auto market puts GM and Ford to the test

Wed Jan 13, 2016 2:42pm EST
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By Joseph White and Bernie Woodall

DETROIT (Reuters) - A looming slowdown in global auto demand will test U.S. automakers General Motors Co and Ford Motor Co as they try to funnel more cash to shareholders while still investing adequately in new vehicles and technology.

At a conference on the sidelines of the Detroit auto show, the rivals outlined their strategies for an era of slower growth and rapid shifts in technology and consumer behavior.

As of Wednesday, GM (GM.N: Quote) was winning the referendum among investors, with its shares up slightly, while Ford (F.N: Quote) shares sank about 5 percent. Yet with investors concerned about the challenges facing the automakers, shares of both companies remained well below the highs they hit during the past 52 weeks.

Some of these issues, such as the ups and downs of the sales cycle and pressure to make cars safer, are as old as the car industry itself. Others are still not clearly understood, for instance the transformation of cars into digital devices and selling to consumers who want to buy rides instead of cars.

Automakers face a challenging future where 60 per cent of the value of a car is software and content, said Morgan Stanley analyst Adam Jonas, who has a sell rating on Ford and is restricted from covering GM. With China's market uncertain and U.S. vehicle sales at a peak, "more investors will say it's a pretty good time to sell" automaker shares, he said.

GM Chief Executive Officer Mary Barra and two of her top executives outlined plans to return to shareholders a total of $16 billion for the period of 2015 through 2017. In March 2015, GM agreed to return a total of $10 billion in share repurchases and increased dividends through the end of 2016.

If GM carries out the plan, the once-bankrupt automaker will have returned to shareholders about $23 billion between 2012 and the end of 2017, or about 90 percent of free cash flow, Chief Financial Officer Chuck Stevens said.

Top Ford executives announced a special dividend of $1 billion, but cautioned that margins in its North American auto market could plateau at about 9.5 percent.   Continued...

General Motors Chairman and CEO Mary Barra speaks during a keynote address at the 2016 CES trade show in Las Vegas, Nevada in this January 6, 2016, file photo.  REUTERS/Steve Marcus