GM and Ford Stock Under Pressure From a Slowdown in China

Slower economic growth in China is hurting a swath of global players, from emerging markets to mining companies, and now it’s U.S. automakers’ turn.

Ford logo ford stock gmA slower economy is hurting car sales in China, which could threaten revenue forecasts for U.S. vehicle manufacturers this year.

The world’s largest vehicle market slowed dramatically last month, and there’s reason to believe there’ll be more weakness ahead. After all, the economy in China continues to cool, and the nation’s domestic car companies are stealing market share from U.S. and other foreign competitors.

Given China’s importance to the fortunes of General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F), the market is right to worry about the potential implications for GM and Ford stock this year.

China car sales grew at their slowest pace in two years in April, as the economic growth contracted for a fourth consecutive quarter to hit a record low of 1.3%.

As a result, even as GM and Ford posted strong gains in U.S. sales last month, China was a big drag. GM said sales in China fell 0.4% in April, while Ford was essentially unchanged.

That’s a tough reversal from the first three months of the year in which GM and Ford mostly enjoyed strong gains. As recently as March, GM sales rose 8% year-over-year to hit a March record. Ford set its own monthly record in January, when sales in China jumped 19%.

A slowdown in China only compounds the car makers’ problems with uneven sales at home.

China Slowdown Forces Big Change at GM

The slowdown has become pronounced enough that GM was forced to follow the lead of other car manufacturers in the way it reports sales in China. Like much of the rest of the foreign car companies doing business there, GM will now report cars sold to Chinese consumers rather than dealers, which are struggling with a glut of vehicles, The Wall Street Journal reports.

GM changing its reporting methodology only underscores that this a problem not going away soon. As reports, Chinese passenger-car sales growth is expected to slow to 8% this year to 21.3 million vehicles, compared with 9.9% last year. At the same time, inventory levels at the end of March were 28% higher than the year-ago period.

The troubles in China aren’t good news for GM or Ford’s top line. This year wasn’t forecast to be good for much growth as it is. Analysts polled by Thomson Reuters expect Ford revenue to increase just 2.1% this year. GM’s sales are anticipated to slip by o.1%.

The implications for GM stock and Ford stock are hardly disastrous. Much of the new sales backdrop — both overseas and domestically — looks to have been baked into shares already. Ford stock and GM stock are both up about 1% for the year-to-date. That lags the performance of the broader market, but only by a percentage point.

With China further weighing on sales results, neither GM nor Ford looks good for the kind of better-than-expected growth that would serve as a catalyst for shares. Unless the car companies get a jolt in U.S. revenue, both GM stock and Ford stock look fairly priced at current levels, which makes them no better — and no worse — than “holds.”

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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