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Goldman Sachs downgrades GM, stock falls

October 30, 2017 GMT

General Motors Co. was trading down Monday following several months of steady growth after Goldman Sachs downgraded the stock to sell.

GM shares had fallen 3.45 percent to $43.10 per share Monday afternoon. The Detroit automakers have turned profits amid plateauing vehicle sales for SUVs and trucks.

But Goldman’s David Tamberrino in a Monday note said 2018 doesn’t look as good for GM. He expects new products and a continued plateau in sales will hurt GM’s profitability and earnings.

Crosstown rival Ford Motor Co. is better positioned for next year, Tamberrino said. The Dearborn automaker has more cash, which is forecast to be $28 billion by year’s end, and is expected to perform well in every region in 2018, he said.

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GM has more crossovers in its portfolio than Ford. Competition in that segment is expected to increase, which would put more pressure on GM than Ford, Tamberrino wrote.

The downgrade comes less than a week after GM reported adjusted pre-tax earnings of $2.5 billion from its continuing operations as the Detroit Three automakers execute a balancing act to drive near-term profits and map plans for a future in mobility.

“GM has outperformed Ford primarily on cost take-out and an upward lift in mix given higher exposure to crossovers, in our opinion,” he wrote. “However, with its pickup truck refresh in 2018, we expect to see a reversal of performance with GM North America earnings inflecting downward year-over-year, and Ford’s North America (and overall company performance) up year-over-year.”

Bringing an autonomous vehicle to market ahead of schedule — at a cheaper cost than expected — could help the forecast, Tamberrimo wrote. The company could help itself by further reducing inventory levels, “rationalizing product with demand,” and lowering its incentive spending, he wrote.

The note doesn’t address the potential effect of CEO Mary Barra’s decision to exit Europe, her push into autonomous technology and a string of announcements regarding future plans for those self-driving and electric vehicles. Those decisions have driven up shares in GM more than $10 apiece since July, a 20 percent gain.

Meantime, Ford and Fiat Chrysler Automobiles NV also posted consistent profits amid sales declines.

Others said GM is doing well. David Kudla, CEO of Grand Blanc-based Mainstay Capital Management LLC, said GM will continue to expand its profit margin and has made decisions that position the company well.

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“GM is proving it can deliver strong earnings at lower than peak volumes,” Kudla wrote in an email. “GM has articulated one of the most comprehensive strategies in terms of flexible mobility and EVs. And GM is already putting the pieces of that strategy into place. They are quarters or even years ahead of many other automakers in this area.”

The Detroit automakers are expected to continue to lean on trucks and SUVs for profits as sales normalize and U.S. consumers stop buying small cars. Kudla said GM is in the same position as other automakers there.

Tamberrino and other Goldman Sachs analysts said the recent decisions in electric vehicles will likely hurt GM in the short-term due to high battery costs and like some of Ford’s decisions.

“We believe that Ford has been a prudent operator ... and are encouraged by the company’s strategic cash balance ... as well as its willingness to rationalize production against a softening demand environment,” Tamberrino wrote.

“However, we remain on the sidelines until the new executive team provides further visibility into the company’s strategic priorities into a potential downturn, as well as potential changes to its cadence of investment into AVs, EVs, and mobility services — which are likely to continue to grow should the company accelerate its plans.”

Ford shares were trading up 0.25 percent Monday afternoon at $12.08 per share.

ithibodeau@detroitnews.com

Twitter: @Ian_Thibodeau