2013 was a great year for the automotive industry as a stronger economy pushed many to buy new cars, while an improved European market had a similar effect on car sales across the Atlantic. Hopes were pretty high for a solid 2014 too, though with recent data some are wondering if that will really be the case.
These concerns have really been centered on the January car sales report, which came in far below expectations. Most major automotive manufacturers saw plunging sales which were largely blamed on the frigid weather across much of the Midwest, and the intense snow in much of the Northern part of the country.
Yet while many viewed the weather as a culprit for the lax sales, luxury brands actually saw a pretty decent January. BMW, Mercedes-Benz, and Audi all saw gains for the month (year-over-year), while Nissan and Fiat Chrysler both saw double digit increases from the previous year.
To me, this suggests that more than the weather was at play for the January figures, and that a shifting demand picture could really be hurting some car makers this year. This is particularly true for General Motors (NYSE:GM), as the company saw one of the biggest declines in sales for the month, with total sales slumping 12% (year-over-year).
GM in Focus
This is quite the disappointment for GM as the company had seen a smooth ride for much of 2013, and it finally broke free from the "Government Motors" label as the U.S. Treasury sold off the rest of its stake in the automotive giant. However, thanks to its weak January sales and a sluggish earnings report, 2014 isn’t shaping up too well.
In the firm’s most recent earnings release GM was expected to post earnings of 88 cents a share. However, the company saw just 67 cents in profits, a miss of over 23%, and the first such miss since the December 2012 quarter.
Even more troubling was the miss on sales for GM, as this represented the first such miss since the June 2012 quarter. While it was barely a miss — shy by 0.83% -- it does suggest that the company is having trouble meeting expectations. And when you throw in the weak January numbers, investors have to be feeling a little wary about GM’s stock in the near term.
With this backdrop, it isn’t too surprising to note that analysts have been slashing their estimates for GM, pretty much across the board. All new estimates in the past 30 days have been lower for the current quarter, while the same trend has been seen for the current year and next year time frames as well.
Thanks to these declining estimates, the consensus has been sliding for GM pretty much across the board. In fact, the current quarter has seen the consensus slide from $1.04/share 30 days ago to the current level at just 78 cents a share, suggesting that analysts are becoming increasingly bearish on the firm’s near-term prospects.
This drop in expectations has led GM to a Zacks Rank #5 (Strong Sell), meaning it is in roughly the bottom 5% of all stocks that we cover. And with a poor Zacks Industry Rank for the automotive domestic sector — bottom 30% -- the broader space isn’t looking too hot either.
With such a poor industry rank, solid companies in the domestic automotive sector are hard to come by. However, there is one top Ranked company in the space, which could be a great selection for those who want to stay in the space, Tesla Motors (NASDAQ:TSLA).
Tesla currently has a Zacks Rank #1 (Strong Buy) and earnings estimates have been surging in recent sessions for this firm, pushing year-over-year growth expectations for this year up over 100%. And since it is in the luxury car market, it could survive the bad weather better than the low-to-mid market focused GM, and thus be a better near-term selection for automotive stock investors.