The second half of 2024 presents a challenging situation for Ford, GM, and Stellantis.

• After years of record-high prices, low vehicle inventories, and resilient demand, the U.S. market, which is a profit engine for most automakers, is now normalizing.
• The auto industry's cyclical nature has been leading to a downturn on Wall Street for some time now.
• The challenges faced by the industry are also affecting individual automakers, as well as creating uncertainty about the adoption of all-electric vehicles.

During the Great Recession, the U.S. automotive industry was on the brink of bankruptcy when shares of dropped by more than 18% in a day, as they did last week.

The freefall in shares after Ford missed Wall Street's earnings expectations is a leading example of the uphill battle automakers face for the remainder of the year.

The U.S. market, which has been a profit engine for most automakers, is experiencing a decline in record high prices and resilient demand. Inventories, particularly for the Detroit automakers, are increasing, and vehicle pricing is slowly decreasing.

The auto industry's cyclical nature has been leading to a downturn on Wall Street for some time now.

Morgan Stanley analyst Adam Jonas advised investors to reconsider their belief that autos can outperform on earnings beats and buybacks, as auto fundamentals may be peaking due to rising incentives and delinquencies. This could eventually lead to lower spending and mergers and acquisitions.

The firm downgraded GM from overweight to equal weight this week, and Jonas commented that the auto industry remains one of the most challenging in the world due to competition, excess capacity, cyclical, and secular risks.

The challenges faced by the industry are also affecting individual automakers, as well as the uncertainty surrounding the adoption of electric vehicles, which have been costly investments for automakers despite their largely unprofitable nature.

Since March 2020, shares of Ford had their worst week, declining 20% to close at $11.19 on Friday. Similarly, General Motors experienced an 8.7% drop in share price to $44.12, while Stellantis saw a 12.6% decline to $17.66.

GM

Wall Street analysts reported that investors were hesitant to accept GM's pullbacks in growth businesses, declining growth prospects in the second half of the year, and concerns about the automaker's earnings potential plateauing, according to the analysts.

The reason why GM expects the second half to underperform the first is because it aims to sell more EVs. The company anticipates its adjusted second-half earnings to be between $4.7 billion and $6.7 billion, or $3.82 and $4.82 adjusted per share. This is lower than the $8.3 billion, or $5.68 adjusted earnings per share, it achieved in the first half of the year.

The automaker predicts a 1% to 1.5% decrease in vehicle pricing and anticipates an additional $1 billion in expenses, including $400 million in marketing costs, to support vehicle launches. GM aims to make its money-losing EVs profitable on a production or contribution-margin basis by the end of the year.

Concerns among analysts include GM's ongoing losses in China, which have traditionally been a source of profit for the company. In the second consecutive quarter, the automaker's Chinese operations recorded an equity loss of $104 million, following a 20-year low in 2023.

"During the company's earnings call, GM CEO Mary Barra stated on Tuesday that despite taking steps to reduce inventories, align production to demand, protect pricing, and reduce fixed costs, the company's efforts have not been sufficient. She added that the rest of the year is expected to remain challenging."

Despite the challenges, the automaker is predicted to achieve robust outcomes in the second half of the year, maintain its solid cash flow position, and buy back billions of dollars to reward investors.

Ford

Unlike GM's closest crosstown rival Ford, which opposed any share repurchasing and instead relied on the company's dividend to reward investors.

Wall Street analysts observed the disparity in share repurchases among companies, attributing it to the Ford family's control of the board and ownership of special shares.

UBS analyst Joseph Spak stated on Thursday that although there was hope for a special dividend or buyback due to the elevated cash balance, it was likely due to investor pressure compared to GM's policy. However, it seems that Ford is not willing to change their stance.

Ford anticipates that its earnings in the second half of the year will range from $2 billion to $3 billion, which is lower than the $5.5 billion it earned in the first half of the year.

Despite falling 21 cents below adjusted earnings per share expectations in the second quarter, the company maintained its 2024 guidance. The automaker also reported an additional $800 million in unexpected warranty costs compared to the previous quarter.

Ford CFO John Lawler adjusted the company's guidance for the last six months of the year for its Ford Blue and commercial Ford Pro operations. Expectations for full-year EBIT are up for Ford Pro, to a range of $9 billion to $10 billion, due to further growth and favorable product mix. However, guidance is down for the company's Ford Blue segment, to a range of $6 billion to $6.5 billion, due to higher warranty costs.

"Lawler informed investors on Wednesday that we are disciplined with our capital, have the right portfolio of products, and consistently generate cash to reward our shareholders. We remain focused on improving both quality and cost through relentless pursuit of new ways to enhance our business."

Stellantis

Stellantis' U.S. operations present the most significant challenge for the transatlantic automaker in the second half of the year.

Carlos Tavares, CEO of Stellantis, stated in a media interview that the company's issues are mainly due to its U.S. operations, which he previously attributed to "arrogant mistakes" related to vehicle inventory management, manufacturing, and sales strategies.

In 2022, Stellantis was the only major U.S. automaker to experience a decrease in sales compared to the previous year.

In the first half of the year, the firm's U.S. sales decreased by approximately 16%. Additionally, its North American market share dropped by 1.8 percentage points, to a total of 8.2%.

Stellantis has affirmed its 2024 forecast for a double-digit adjusted operating income margin, positive industrial free cash flow, and at least 7.7 billion euros in capital return to investors through dividends and buybacks, despite ongoing issues.

In the first half of the year, Stellantis' adjusted operating margin was 10%, while its free cash flow was negative 392 million euros and its capital return was 6.65 billion euros.

Tavares anticipates meeting his targets with the help of 20 new model launches this year, resolving issues in the U.S. and further price reductions to boost sales. However, he did not dismiss the possibility of additional layoffs.

"Tavares stated that the industry is extremely challenging and the current period is particularly tough. As a result, everyone must strive for excellence. To achieve this, we must put in a lot of effort."

– CNBC's Michael Bloom contributed to this report.