A Reuters report published on Thursday said UBS analyst Colin Langan downgraded GM to sell and Ford to neutral, citing expectations that slowing demand would hurt the companies’ earnings. A sell rating indicates that an investment could lose value, while a buy rating signals an investment could increase in value over time. The report comes after both automakers reported disappointing sales numbers, with Ford seeing its first monthly drop in car and truck sales since 2009 last month and GM reporting U.S.
DEARBORN — The shares of General Motors and Ford Motor both fell on Monday as a result of two downgrades from UBS that cited concerns about a potential decline in demand due to inflationary pressures.
Ford’s shares dropped more than 8% during intraday trade before falling 6.9% to close at $11.37 per share. GM’s loss reached 7.5% before settling at $32.29 a share, a 4% decline.
The shares of GM and Ford are each down roughly 45% so far this year. A little under $50 billion is the market valuation of both corporations.
In notes to clients published on Monday, UBS analyst Patrick Hummel predicted that the U.S. car sector will face challenges in the near future after posting record profits amid limited supply and strong demand during the coronavirus outbreak.
According to his forecast, the car industry would reach oversupply “in three to six months, which will bring a sudden end to a three-year epoch of unprecedented” pricing power and profit margins for the manufacturers.
Ford was reduced from “neutral” to “sell,” and GM was downgraded from “buy” to “neutral.”
Due to its success with electric vehicles and fewer production issues during the third quarter, UBS continues to favour GM over Ford. GM, which is due to release third-quarter earnings on October 25, is anticipated to have a “good quarter,” according to Hummel of UBS.
Ford reported last month that 40,000 to 45,000 cars, mostly high-margin trucks and SUVs that haven’t been able to reach dealers, had been impacted by component shortages. At the time, Ford also stated that it anticipated recording an additional $1 billion in unanticipated supplier expenses.
On October 26, Ford is expected to release its third quarter earnings.