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Auto Stock Roundup: August Sales Out, Ford Announces Recalls, Honda Reaches Settlement

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The last seven days have been eventful for auto stocks. The Harvey impact continued, recalls were announced, earnings were released and August U.S. sales figures were revealed.

The August data show that troubles are not over for the auto industry. Reportedly, U.S. sales of new cars and trucks fell 2% in August, marking the eighth consecutive month of decline.

In August, General Motors Company’s GM vehicle sales rose 7.5% year over year. The growth was driven by strong crossover sales. In the month, Ford Motor Company F reported a 2.1% decline in U.S. sales. However, Toyota Motor Corporation’s TM sales went up 6.8% year over year in August 2017, whereas Honda Motor Co., Ltd. HMC recorded a 2.4% year-over-year decline.

Per Wall Street Journal, Hurricane Harvey destroyed around half a million vehicles in Texas. This has opened up opportunities for many automakers to replace damaged cars and pick-up trucks. Also, this is likely to provide huge impetus to the demand for auto parts.

(Read the previous roundup here: Auto Stock Roundup for Aug 31, 2017)

Recap of the Week’s Most Important Stories

1.    The declining trend in the United States auto sales continued in August as well. This weak performance comes despite an extra selling day in the month.

Among the major American and Japanese automakers, General Motors and Toyota recorded year-over-year sales improvement. Ford’s sales declined in the month.

2. Ford announced the issuing of two safety recalls and two safety compliances in North America. The recalled vehicles will be Ford F-150 and Mustang vehicles, Ford Explorer, Taurus and Police Interceptor Utility and Sedan vehicles. The models to be recalled for safety compliances are Ford F-150 Crew Cab, F-250 and F-350 Super Duty Crew Cab vehicles and Focus vehicles.

Roughly, 935 of 2017 Ford F-150 and Mustang vehicles with ARC passenger air bag inflators will be recalled due to defective deployment of the inflators. This may result in metal fragments striking the vehicle passengers and causing fatal injuries.

The second safety recall will be 263 models of 2017 Ford Explorer, Taurus and Police Interceptor Utility and Sedan vehicles with inaccurate steering gear heat shield fasteners. These flawed devices may corrode and expose the gear system in high temperatures, leading to melting of gear electrical connectors. Also, drivers might face an unexpected loss of power steering assist without prior warning, resulting in accidents at high speeds (read more: Ford Announces a Couple of Safety Recalls & Compliances).

Currently, Ford has a Zacks Rank #3 (Hold).

3.    Honda announced that it has agreed to a $605 million legal settlement over faulty Takata air bag inflators, which caused numerous deaths and injuries, according to a Wall Street Journal report. The loss settlement covers up to 16.5 million Honda and Acura vehicles.

Per the news, the Japanese automaker will have to pay $484 million after receiving $121 million credit, taking into consideration the company’s recall efforts, which included offering rental vehicles to customers who had to wait for repairs. Of the $484 million, Honda will spend around $200 million over four years looking out for the vehicle owners with unrepaired cars and encouraging them to replace the inflators. The remaining amount will be utilized for paying attorney fees and reimbursing owners who had to suffer due to lost wages and had to incur expenses due to hiring rental cars.

Notably, several global automakers had reached similar kind of settlements early this year. The settlement amount was more than $650 million. Takata’s air bags are linked to several deaths and injuries across the globe. Early this year, Takata filed for bankruptcy protection in the United States and Japan, and also agreed to pay $1 billion in penalties (read more: Honda Agrees on $605 Million Takata Air Bag Settlement).

Currently, Honda sports a Zacks Rank #1(Strong Buy). You can see  the complete list of today’s Zacks #1 Rank stocks here.

4.    Per Reuters, Harley-Davidson, Inc. is expected to experience a period of continued weak sales, driven by low demand of new Harley motorcycles.

Recent researches show that millennials prefer buying less-expensive, used Harley-Davidson models or cheaper versions of other brands rather than going for new Harley-Davidson motorcycles. Also, the company’s ageing core customer group and low prices of Harley-Davidson’s used-motorcycles are other concerns it currently faces in the United States.

Owning a well-known brand at a low-cost budget encourage young Americans to buy used-motorcycles of the brand, Harley-Davidson, while paying their home and student loans. Per analysis, people are still interested in the brand, as they buy used-motorcycles, which definitely do not benefit the company or its shareholders (read more: Will Harley-Davidson Continue to Face Sales Decline?).

Currently, Harley-Davidson has a Zacks Rank #1.

5.    Navistar International Corporation’s NAV earnings came in at 37 cents per share in third-quarter fiscal 2017 (ended Jul 31, 2017), comfortably beating the Zacks Consensus Estimate of 28 cents. In the year-ago quarter, the company reported a loss of 42 cents per share. Navistar recorded a net income of $37 million as against a net loss of $34 million recorded in the prior-year quarter.

Navistar’s revenues increased 6% year over year to $2.21 billion in the reported quarter, surpassing the Zacks Consensus Estimate of $2.16 billion. The revenue rise was primarily driven by an increase in truck segment’s sales.

Performance

Among these stocks, in the last week, General Motors registered the maximum increase. On the other hand, Tesla, Inc.’s TSLA share price fell the most in the past week.

In the last six months, Tesla gained the most while Advance Auto Parts AAP registered the steepest decline.
 

Company Last Week Last 6 Months
GM 5.2% 1.1%
F 5.1% -8.2%
TSLA -2.4% 39.6%
TM 1.3% 1.8%
HMC 1.6% -9.2%
HOG -1.1% -20.3%
AAP -1.2% -38.4%
AZO 2.1% -24.7%


What’s Next in the Auto Space?

With the earnings season over, stay tuned for the usual news updates in the space.

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Ford Motor Company (F) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
Tesla Inc. (TSLA) : Free Stock Analysis Report
 
Honda Motor Company, Ltd. (HMC) : Free Stock Analysis Report
 
Toyota Motor Corp Ltd Ord (TM) : Free Stock Analysis Report
 
Advance Auto Parts Inc (AAP) : Free Stock Analysis Report
 
Navistar International Corporation (NAV) : Free Stock Analysis Report
 
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