US market proves a headache for global carmakers

The highly competitive U.S. automotive market is experiencing significant challenges, including weak pricing, excessive inventory levels, and logistical difficulties. These issues have negatively impacted the profits of major automakers such as Ford Motor, Stellantis, and Nissan, causing their stock prices to decline on Thursday as they urgently seek solutions.

The global automotive industry is facing a deteriorating sales outlook across key markets, particularly in the United States. Simultaneously, manufacturers are grappling with the costly transition to electric vehicles and intensifying competition from more affordable Chinese competitors.

Ford, the U.S. automaker, saw its shares plummet by 16 per centfollowing the release of its second-quarter earnings, which fell short of analysts' expectations. The company's performance was hampered by high warranty expenses and losses in its electric vehicle division. Stellantis, listed on the Milan stock exchange, experienced a nearly 9 per centdrop in share value, reaching its lowest point in almost a year. Nissan's stock price fell by 7 per cent, which in turn affected the shares of its French alliance partner, Renault, despite the latter reporting first-half profits that exceeded estimates.

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The automotive companies have been burdened by excess inventory in the United States, partly due to a June software malfunction that disrupted or halted operations at numerous dealerships. According to Cox Automotive, the supply of new vehicles at the beginning of July was more than twice that of the same period last year. Cox analysts anticipate inventory levels to normalize within a couple of months as the effects of the CDK software outage diminish. Nevertheless, investors remain cautious about elevated inventory levels, especially considering the robust motor vehicle production in the United States.

Barclays analyst Dan Levy noted in a recent report that most investors have expressed concerns about emerging pricing risks, particularly in light of rising inventory. U.S. federal data indicates that average spending per vehicle has recently decreased.

Lance Woelfer, Honda's U.S. sales chief, stated that inventory hasn't been a problem for the Japanese automaker in the United States. However, he acknowledged that when any automaker faces difficulties, it affects the entire industry, potentially impacting pricing. Woelfer emphasized that this year has been about balancing inventory and demand, with Honda's U.S. sales expected to increase by 10% in the current year.

Nissan was severely affected by higher inventory levels, with its fiscal first-quarter profits nearly eliminated. The company was forced to revise its annual outlook downward due to substantial discounting in the U.S. market to clear excess inventory. CEO Makoto Uchida described the task of optimizing inventory buildup in the United States as "tough" and stated that the company would focus on producing better cars that can command higher prices.

Ford has been struggling with structural inefficiencies and challenges in its electric vehicle business as it strives to gain traction in that market segment. The company's EV and software unit reported an operating loss of USD1.1 billion for the quarter and anticipates losses of up to USD5.5 billion for the year before taxes in that division.

Stellantis, the world's fourth-largest automaker, announced that it is taking measures to address weak margins and high inventory in the U.S. market after reporting worse-than-expected first-half results. CEO Carlos Tavares stated that he would not hesitate to eliminate underperforming brands from the company's extensive portfolio, asserting, "If they don't make money, we'll shut them down." Since Stellantis was formed in 2021 through the merger of Fiat Chrysler and PSA, Tavares has maintained that all 14 of its brands, including Maserati, Fiat, Peugeot, and Jeep, have a future.

Although Stellantis has historically achieved higher profit margins than its competitors, Bernstein analysts noted that its margins are now only slightly above those of General Motors, which recently reported solid results and raised its annual profit forecast. The analysts questioned Stellantis' reputation for cost efficiency, as its shares have declined by more than 20per centthis year, the worst performance among major European automakers.

Hyundai, the world's third-largest automaker by sales, reported strong second-quarter results, boosted by U.S. sales of premium SUV models and hybrid vehicles, which helped offset prolonged weakness in its home market of South Korea.

Similar to Stellantis, Nissan plans to boost sales through new and refreshed models in the second half of the year, including the Armada and Murano SUVs. However, analyst Seiji Sugiura from Tokai Tokyo Intelligence Laboratory expressed uncertainty about which Nissan vehicles are popular in the United States, stating, "As the competitiveness of the models in their lineup is falling, they have no other choice but to make new vehicles, sell those and hope that they will be popular."

This situation underscores the complex challenges facing the global automotive industry as it navigates changing consumer preferences, technological transitions, and intense competition in key markets.