General Motors Co. GM shareholders should be happy this week. The company is trying to increase their returns with a new capital allocation plan. Moreover, the company will maintain an investment-grade balance sheet and a healthy cash balance.
Meanwhile, Ford Motor Co. F has started producing 2.0-liter and 2.3-liter EcoBoost engines in North America. In another positive development, Thor Industries Inc. THO reported strong second-quarter fiscal 2015 results.
Coming to the negatives, Tesla Motors, Inc. TSLA had to quash rumors of a delay in the construction of its $5 billion Gigafactory. The company’s restructuring and staff cutback in China also grabbed headlines. Honda Motor Co., Ltd. HMC, meanwhile, announced yet another safety recall.
Recap of the Week’s Most Important Stories
1. General Motors announced a comprehensive capital allocation strategy which reflects its strong operating performance and robust financial position. The automaker intends to return its available free cash flow to shareholders while maintaining an investment-grade balance sheet with a cash balance of $20 billion to boost long-term growth.
As part of this capital allocation plan, General Motors’ board announced an initial share repurchase of $5 billion, expected to be over by 2016. In addition, the company announced last month that it will increase its quarterly dividend by 20% to 36 cents per share.
From Jan 2016, General Motors will form annual capital return plans and announce those in the first quarter of every year. The company intends to achieve at least 20% return on invested capital through investments in vehicle and technology upgrades (read more: General Motors Announces Capital Allocation Strategy).
2. Tesla is restructuring its operations in China, leading to a cutback in employee count. The company said that it is removing certain positions and adding new ones. While the number of layoffs has not been revealed, the Chinese newspaper that broke the story reported that 30% of the company’s 600 employees in the nation will be handed the pink slip.
A large portion of the cutback has already been completed. The media blames the weaker-than-expected sales in China last year for these job losses (read more: Tesla's Shares Continue to Fall on China Staff Cutback News).
3. Thor Industries reported second-quarter fiscal 2015 (ended Jan 31) adjusted earnings of 57 cents per share, beating the Zacks Consensus Estimate of 43 cents. Also, earnings increased 78% from 32 cents per share in the second quarter of fiscal 2014. Revenues rose 34% year over year to $852.4 million, beating the Zacks Consensus Estimate of $770 million. The improvement was driven by higher sales of both towable and motorized recreational vehicles (read more: Thor Industries Beats Q2 Earnings & Revenue Estimates).
4. Ford recently began the production of 2.0-liter and 2.3-liter EcoBoost engines at the Cleveland Engine Plant in Ohio. This marks the first production of these twin-scroll engines in the U.S. The 2.0-liter engine will feature in the new Ford Edge, which is scheduled to hit the markets in the first quarter of 2015. Meanwhile, vehicles like Ford Mustang, Explorer and Lincoln MKC will be equipped with the 2.3-liter engine (read more: Ford Producing 2.0, 2.3-Liter EcoBoost Engines in US).
5. Honda will recall Accord 4-cylinder vehicles of model year 2014–2015 and CR-V vehicles of model year 2015 in the U.S. due to the possibility of improperly torqued bolts in some engines. The recalls are estimated at 137 vehicles. Honda uses an automated system to verify engine connecting rod bolt torque.
According to the company, the system may not have recognized some improperly torqued bolts in a specific group of engines. As a result, a connecting rod bolt can unfasten and damage the engine. It could even stall the engine and lead to a crash (read more: Honda to Recall Accord & CR-V for Improperly Torqued Bolts).
Performance
Most auto stocks recorded small losses in the last one week due to a decline in the broader market along with some company-specific factors. Tesla’s downward trajectory continued due to rumors of a delay in the construction of its $5 billion Gigafactory, later denied by the company, and the company’s decision to reduce its employee base in China.
Consequently, the electric carmaker recorded the maximum loss over the last five trading sessions. Meanwhile, General Motors gained the most during the week, driven by its new capital allocation strategy.
Over the last six months, AutoZone Inc. AZO and Tesla have not budged from the highest and lowest spot among gainers and losers, respectively.
|
Company |
Last 1-Week Period |
Last 6 Months |
|
GM |
+1.4% |
+12.4% |
|
F |
-1.7% |
-5.5% |
|
TSLA |
-4.3% |
-30.9% |
|
TM |
-1.1% |
+15.2% |
|
HMC |
+0.9% |
-3.0% |
|
HOG |
-1.1% |
-4.7% |
|
AAP |
-2.3% |
+9.6% |
|
AZO |
-1.3% |
+21.4% |
What’s Next in the Auto Space?
As no major development is lined up for the next week, the performance of auto stocks should not change significantly.
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