TRAVERSE CITY, MI – The auto industry has been breaking sales records and making lots of money, but automakers’ tepid stock prices don’t seem to reflect that.
“These are the good days, so why doesn’t the market seem to care about the great results of the auto world?” Matthew Stover, equity research analyst for Susquehanna Financial Group, says at the CAR Management Briefing Seminars here.
Compared with the S&P 500, automaker stock values are down 30%. Stocks for publicly owned dealership chains and auto suppliers are down 18% and 17%, respectively.
“Why is the market so glum?” Stover asks. “It’s simple. The market looks forward, not backward.”
Although the auto industry sold a record 17.4 million light vehicles last year in the U.S. and is expected to top that figure this year, many forecasters see a sales plateau on the horizon.
Wall Street is well aware of that, and reacting accordingly. “It’s the outlook people are looking at going forward,” Stover says. “It’s a cyclical industry.”
He cites other reasons the auto industry fails to make the stock market swoon:
- The auto industry is growing, but not as much as Wall Street would like.
- “Returns drive valuations, and investors are concerned they peaked.”
- “It is a very capital-intensive industry,” Stover says. A new auto plant can cost more than $1 billion. “The market feels the industry does not get a high enough return on investment.”
The industry would benefit from consolidation, but those aren’t easy, Stover says. “Fiat Chrysler (Automobiles) has practically stapled a for-sale sign on its sticker symbol.” It has had no takers so far, even after actively wooing General Motors.
Impediments to potential automaker mergers include the possibility of the government “mucking it up” and the fact “a lot of companies don’t want to be consolidated.”
Something else: Large auto companies that would like to pursue consolidation often lack the culture and the capital to do it, Stover says.
He offers a couple of warnings to the auto industry.
First, it should guard against tech companies with ambitious automotive aspirations. “Silicon Valley has its eyes on the Motor City’s business, and it has friends in Washington.”
Second, Stover advises automakers against partnering too heartily with ride-hailing companies and the like. For example, GM recently has upped its investment in Lyft.
“The market will not reward you,” he says. “Are you listening, GM?”
