GM, Ford Shares Get Boost for Different Reasons

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Shares of the two largest U.S. carmakers, General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F), both hung on after the opening bell to premarket gains of more than 4%. But the reasons for the enthusiasm were different.

Ford shares were upgraded by analysts at Goldman Sachs who said shareholders could see a return of 40% as the venerable automaker restructures its business to focus more on light trucks and sport utility vehicles. The stock was upgraded from Neutral to Buy and the price target was lifted from $9 to $12. The company’s rich dividend yield of around 6.7% was called “sustainable” by the Goldman analysts, an even better reason to give the shares a shot in the arm.

As for GM, a report from Bloomberg News this morning cites sources who say that China will cut its 10% tax on sales of vehicles with engine sizes of 1.6-liters or less to 5%. About 70% of the vehicles sold in China have engines in that size range.

China is GM’s largest market and the company sales in the Middle Kingdom were down 14.9% year over year, which GM attributed to a “softening vehicle market.” For the first nine months of the year, sales are down 2.5% compared to 2017 sales.

That softening was a direct result of China’s 10% tax on sales. Retail sales in China dropped 13% year over year in September and deliveries are down 1.1% in the first nine months of 2018.

In response to U.S. tariffs on Chinese exports, China raised its tariffs on U.S.-made vehicles from 25% to 40%. Import duties on cars from other countries were reduced to 15%. Those fees will not be affected by the reduction in the purchase tax.

Volkswagen and Renault are two other carmakers who stand to benefit from the reduced tax. Daimler and BMW are unlikely to see much benefit because nearly all the vehicles they sell in China have engines too large to qualify for the benefit.

Ford could see some benefit from the tax cut, and there’s no question that the carmaker sorely needs the help. Sales fell 43% year over year in September and are down 30% for the first nine months of the year. The company announced that it is restructuring its Asia Pacific business and creating a separate division, Ford China, to boost its business in the country.

GM stock traded up about 4.7% in early trading Monday, at $34.20 in a 52-week range of $30.56 to $45.52. The stock’s 12-month consensus price target is $44.60, and the dividend yield is 4.75%.

Ford shares traded up about 6.8% to $9.59, in a 52-week range of $8.17 to $13.48. The 12-month price target on the stock is $9.79, and the dividend yield is 6.68%.