GM, Ford Fall as Morgan Stanley Analyst Cites Recession Risk

General Motors Co. and Ford Motor Co. declined after Morgan Stanley analyst Adam Jonas said their profits are more at risk in a recession than the automakers have estimated.

The two companies would break even in a U.S. auto market of about 13 million to 14 million vehicles, Jonas said in a note. GM and Ford have said they can avoid losses even if U.S. sales fall to 11 million vehicles or lower.

The level at which profits might evaporate is a vital point for the two automakers, which have been telling investors they can weather even a steep downturn like the financial crisis of 2009, when U.S. sales slid to 10.4 million. Investors will have more faith in the U.S. carmakers if they can show they’re able to stay in the black during a downturn, which Jonas has now called into question.

“We are encouraged by their focus on managing risk in the most profitable and healthy auto market today,” Jonas said in the note, adding that he’s skeptical about their ability to break even in a downturn because “pricing typically comes under pressure as automakers must rely more on discounting.”

GM dropped 1.8 percent to $28.84 at the close in New York. Ford fell 2.7 percent to $12.08. Earlier in the day, Ford slid as much as 6.6 percent and GM dropped as much as 5.3 percent, the steepest intraday declines for each since Aug. 24.

Investors have started to question whether automakers will maintain last year’s record profit levels if 2015 industry sales of 17.5 million vehicles in the U.S. was a peak. Through Tuesday, the share declines were 12 percent for Ford, 14 percent for GM and 31 percent for Fiat Chrysler Automobiles NV.

Jonas said in his report that he doesn’t expect a recession.

GM Break-Even

A GM spokesman said the company’s chief financial officer said in January that its break-even point is at U.S. industry sales of 10 million to 11 million vehicles, and the automaker stands by that claim.

The last time the U.S. auto market fell below 13 million light vehicles was in 2011, when Americans bought 12.7 million, according to data compiled by Bloomberg. That year, GM made $6.9 billion in its North American operations and Ford made $6.2 billion.

Ford spokeswoman Whitney Eichinger said the company can maintain its financial success this year.

“We believe the market has underestimated the underlying health of the U.S. auto industry, our record operating performance, our improved international operations, our stronger financial position and our iconic products,” Eichinger said in an e-mail. “We are going to build on our 2015 success and deliver a year that will be as good if not better than 2016.”

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