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Crash Test For US Autos

11 October 2018 by jbchevrel

Ford (F) and General Motors (GM) have seen their credit spreads under upward pressure this week, clearly underperforming the broader US IG sector (cf. chart above). Their respective stock prices are also near their lowest levels since the end of 2012... The main trigger for that move has probably been declining sales in September, especially in China due to trade issues. Ford posted an 11% decline in US sales in September versus consensus of down 9.1%. Last week, F said metal tariffs cost it ~$1bn in profit in 18 vs previous guidance of ~$600M. Other factors include higher rates impact consumers’ demand for new cars down, higher raw material prices (without counting the steel & aluminium tariffs). Adding to that trend, a few brokers are now UW on the sector. Ford’s downgrade by Moody’s from Baa2 to Baa3 (adding a relatively unexpected negative outlook on top of that) at the end of August was already setting the stage for a choppy end of the year. In this market, talks (if any) between the US and its main partners will be closely watched...