U.S. auto makers are positive about 2017; GM, Ford climb on bullish outlook
Desmond Boylan/Reuters
Main page Economics

The world's leading automakers don't seem to be worried about what's to come in 2017, despite the analysts predicting a decline in the industry after several years of record-high sales.

The two biggest American car producers, General Motors and Ford, watched their shares climb this week as they gave a positive outlook for 2017. GM (NYSE: General Motors Company [GM]) stock has gained more than 6% since Tuesday, after it announced a $5 billion share buyback and significantly lifted its earnings guidance. Similarly, Ford (NYSE: Ford Motor Company [F]) told its shareholders that it planned to add as much as $200 million on top of the regular Q1 dividend in 2017, driving its stock higher on Tuesday.

“As we close 2016, Ford continues to be a solid investment with attractive upside on emerging opportunities. We are pleased to, once again, reward our shareholders with a regular and supplemental dividend, as we continue delivering profitable growth for all,” Ford CEO Mark Fields wrote in a statement.

Despite the investor worries that long years of upbeat sales could come to an end in 2017, the auto makers seem to be much more optimistic about that. Bloomberg adds that U.S. car producers have significantly outperformed the S&P 500 Index, with GM gaining 7.2% and Ford increasing by 5.9%.

"We see from the macroeconomic point of view pretty robust underpinnings for another good year, absent some external shock to the system," GM president Dan Ammann said during a press conference, as reported by Reuters.

GM has been having a good week so far after it updated its earnings per share guidance for 2017 to the range of $6 to $6.50 while the analysts generally predicted this year's EPS to be at around $5.76. The company also announced that its full-year earnings per share for 2016 will be on the high end of the previously announced range of $5.50 to $6, reported Reuters. The EPS guidance for 2017 comes on top of the already record-high profits predicted for 2016.

GM said that such promising results will make it possible to further expand its buyback program that started in 2015 by repurchasing $5 billion more of its stock. On top of that, the company expects to generate at least $2 billion in pre-tax profits from its financial division while its free cash flow is predicted to reach $6 billion this year. Needless to say, investors were more than pleased with the company's announcement this week.

One of the reasons why the analysts were unsure whether the industry could grow or at least sustain the current sales levels was the change of the U.S. administration. In the weeks following the election, the President-elect Donald Trump threatened both GM and Ford with high import taxes for their vehicles produced in Mexico. However, considering that Ford has already canceled its plans for building a new plant in Mexico and GM CEO Mary Barra joined Trump's business advisory board, the auto makers are finding their ways to navigate the changing environment.

Ford cancels Mexico plant hours after Trump's threat of heavy import taxes for GM

"Recognizing what we are trying to accomplish, we think there are many things we can do, and working with the administration that are going to make America great again, and that are going to strengthen business, which is going to strengthen growth, which will strengthen jobs," Mary Barra said, as reported by CNBC.

With that in mind, 2017 can actually turn out to be a good year for the car producers as the level of consumer confidence in the United States has reached the highest level since 2001, creating a favorable environment for the auto makers.

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