Much of the attention today has been focused on the share-price slide of Ford (NYSE:F) stock. However, let’s not ignore the other American automotive icon, General Motors (NYSE:GM). The same analyst that took aim at Ford also has GM stock in his crosshairs. Apparently, there are too many vehicles in stock, demand is diminishing and margins are set to shrink soon — or at least, that’s what one UBS analyst seem to think.
General Motors just can’t seem to catch a break in 2022. High inflation and supply chain constraints have made it difficult for American automakers to enjoy the relatively wide profit margins of years past.
Against this challenging market backdrop, an analyst at UBS dropped a bombshell this morning with a downgrade of General Motors shares. Observing “rapidly deteriorating” consumer demand, analyst Patrick Hummel reduced his rating on the shares from “buy” to “hold.”
What’s Happening with GM Stock?
Hummel also slashed his price target on GM stock from $56 to $38. Perhaps as a result of the analysts’ harsh assessment, the shares dropped 6% this morning, falling to $31 and change.
This might seem like an instance of “kicking a man when he’s down.” General Motors investors were already severely underwater this year before the UBS analyst issued this downgrade.
However, there are specific reasons for this pessimistic outlook. UBS expects a three-year run of “unprecedented” pricing and margins for U.S. automakers to abruptly come to an end. Furthermore, the firm anticipates an oversupply of vehicles to emerge as quickly as three months from now.
“Demand destruction is no longer a vague risk, but has started to become a reality,” the UBS analyst also warned. Thus, Hummel is connecting the dots between inflation, vehicle demand and margins, pointing to potentially lower share prices. It’s a stark statement for GM stock investors, some of whom are anxiously selling their shares today.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
