Providers and Administrators in blue logo
MenuMENU
SearchSEARCH

Why Auto Stocks Are Sinking After Car Sales’ Record Year

January 12, 2016
4 min to read


The past year set a record for sales of cars, but investors are signaling doubts about the companies that make them, reports The Wall Street Journal.

Shares of auto makers such as General Motors Co. and Ford Motor Co. began sliding late last year. This year, they have fallen even faster than the battered broader market.

Ad Loading...

Analysts and investors attribute the declines to worries that rising U.S. interest rates could crimp auto finance and to fears that auto sales may have peaked. They are also concerned that the slowdown in China, the world’s largest car market, may be worse than expected. The result has been a setback for an industry that in the U.S. just enjoyed its best year ever.

Shares in GM, the No. 1 U.S. auto maker by sales, have dropped 11% this year through Monday’s close. Ford’s stock has fallen 9.4%, and shares in AutoNation Inc., the nation’s largest dealership operator, have slumped 19%.


The drops stand out against the 5.9% decline for the Dow Jones Industrial Average, which posted its worst ever start to a year. They come even after a combination of low gas prices, a strengthening labor market and low interest rates propelled U.S. car sales to 17.5 million in 2015, surpassing a peak last hit 15 years ago.

“How much higher than 18 million units can we go?” said Brian Hennessey, a portfolio manager at Alpine Funds, which manages $4 billion. “It’s pretty much a peak number.”


AutoNation Chief Executive Mike Jackson said he believes the fourth quarter of 2015 will mark the start of a plateauing of sales.

Ad Loading...

“Everybody was talking about how great the month of December was,” Mr. Jackson said on the sidelines of the North American International Auto Show in Detroit on Monday. “But if you take away the extra selling days and the incentives, sales were flat in what is a bellwether month.”

The auto industry’s seasonally adjusted annual selling pace fell to 17.3 million in December from 18.2 million in November.

Sentiment in the options market has turned sour in recent days, suggesting that traders don’t see the auto makers’ stocks rebounding any time soon. Trading in options to sell Ford or GM stock on Thursday and Friday sharply outpaced trading in options to buy the shares, according to data provider Trade Alert.

A Ford spokeswoman said the company remains focused on delivering profitable growth for its stakeholders. “We do not run our business based on day-to-day stock changes,” she said. GM didn’t immediately respond to a request for comment.

Mr. Jackson is warning auto makers, especially those producing luxury cars, to reduce output or face a pricing war that will hurt the industry overall. He said AutoNation has cut its car orders and is instead bulking up on pickup trucks and sport-utility vehicles.

Ad Loading...

“Some auto makers have moved to a push rather than a pull mentality,” he said. “Rather than waiting for dealers to order they are sending more inventory. It’s a recipe for disaster.”

Mr. Jackson’s comments echo his warning last Wednesday that a bulging inventory of unsold cars is beginning to erode profit margins.

The comments fueled investors’ concerns that manufacturers will have to turn to deals or discounts to get customers to buy more cars.


“Manufacturers could lose pricing power,” said Peter Stournaras, portfolio manager of the BlackRock Large Cap Series Funds.

Mr. Stournaras said he prefers shares of auto-parts makers to auto makers. He figures that low gasoline prices could encourage consumers to drive more, in turn prompting a greater need for replacement parts.

Ad Loading...

Shares of Delphi Automotive PLC, a U.S. auto-parts supplier, have dropped 12% so far this year through Monday.

Some investors say the selloff in car makers’ shares has been overdone. Ford recently traded at 9.0 times the last 12 months of earnings, according to FactSet. Its five-year average is 9.5. GM’s price-to-earnings ratio was recently 6.2, less than its five-year average of 9.1. AutoNation recently traded at 12.3 times the past year of earnings versus its five-year average of 18.0.

These investors argue that a monthslong slump in oil prices has fattened consumers’ wallets, and the continued recovery in the labor market has begun to result in slightly higher wages. That, they say, bodes well for continued strength in auto sales.

“All the key metrics that we use to gauge the health of the auto industry are as healthy as they have ever been,” said Amit Kapoor, senior equity analyst at Loomis, Sayles & Co. Mr. Kapoor owns GM shares.

Another reason for optimism, these investors say: Cheap gasoline prices remain a powerful driver for sales of the big cars that are most profitable for car companies.

Ad Loading...

“The auto makers generally make more money selling big cars, like pickup trucks and SUVs, than they do making sedans,” said Annie Rosen, portfolio manager for Fidelity Select Automotive Portfolio. “When you have low gas prices, like we do today, the average consumer willingness to buy a car that uses more fuel goes up.”

Sales of trucks and sport-utility vehicles helped Ford and GM post record operating profits in North America in the third quarter. Ford is set to report fourth-quarter earnings Jan. 28 and GM is scheduled to post results Feb. 3.

More Industry

Line graphic showing week-over-week wholesale auto price changes
Industryby StaffApril 22, 2026

Black Book: Weekly Market Update

Wholesale auto conversion rates dropped slightly as auction buyers proved picky last week, analysts observed.

Read More →
pavement with car and charger wrapped around it painted on
Industryby Lauren LawrenceApril 16, 2026

EV Battery Cycle Life at Risk

Fast charging of electric vehicles provides a solution for range anxiety, but it also poses a risk to battery cycle life due to increased temperatures, according to an EV supply chain data provider.

Read More →
Photo of exterior facade of Beardmore Chevrolet store
Industryby Hannah MitchellApril 14, 2026

Founding Family Sells Nebraska Dealerships

Expanding Midwest automotive group picks up three stores as part of the robust transaction activity early this year.

Read More →
Ad Loading...
Up-close photo of car battery
Industryby Hannah MitchellApril 13, 2026

Automaker Increases Parts Recycling

Stellantis is adding a third end-of-life vehicle dismantling facility to feed its growing reuse business sparked in large part by autos’ growing lifespans.

Read More →
Photo of white 2026 Ford Bronco on a sandy beach
Industryby Hannah MitchellApril 10, 2026

March New-Vehicle Sales Don’t Reflect War

Cox Automotive data shows Americans doubled down on big-is-better despite price increases. Slightly higher incentives helped fuel the demand.

Read More →
Photo from the rear of the XC60 SUV
IndustryApril 8, 2026

Volvo to Shift Some EV Production to U.S.

The automaker says its movement of some electric-vehicle work to the S.C. factory is part of a more tailored product focus. It also plans to add a new hybrid model to the plant’s itinerary.

Read More →
Ad Loading...
Bar graphic depicting week-over-week change across the various vehicle segments
Industryby StaffApril 7, 2026

Black Book: Weekly Market Update

Last week's wholesale automotive auction activity continued in a healthy mode, though buyers practiced selectivity.

Read More →
red car at a gas station being filled with gas. Efficiency Drives Demand. Providers and Administrators logo
Industryby Lauren LawrenceApril 7, 2026

Gas Prices Driving Consumer Interest

CarGurus’ first quarterly review of 2026 shows that affordability concerns are continuing to drive consumer purchases with a shift to more fuel-efficient options.

Read More →
Blurred photo of red car moving down a road
Industryby Hannah MitchellMarch 31, 2026

Automakers Have More Tricks Up Their Sleeves

JD Power analysts see auto retail faring this year’s storms well through various means, though it acknowledges conditions are challenging to accurately predict.

Read More →
Ad Loading...
background view of Washington D.C. with the capitol building and cherry trees. Text says 'What's the Cost?' with two diverging arrows and the Providers and Administrator's logo
Industryby Lauren LawrenceMarch 31, 2026

Insurance Rates Continue to Fall

Car insurance premiums have continued to decline so far this year, the overall national average settling at $138 per month in March, according to Insurify data.

Read More →