Bloomberg

(Bloomberg) -- For a year in which automakers are facing their first U.S. sales decline since the recession, 2017 is off to an awfully auspicious start.

General Motors Co. on Tuesday projected its fifth consecutive year of improving profit -- not counting ignition switch recall costs -- and heaped a $5 billion share buyback plan on top of the $9 billion it started repurchasing in 2015. Hours later, Ford Motor Co. added $200 million cash to its regular first-quarter dividend -- a sweetener for investors to begin a temporary one-year profit drop due to spending on robotic and electric cars.

Japanese and German carmakers at this week’s Detroit auto show joined the hometown players in expressing optimism. Nissan Motor Co., just two months removed from calling a U.S. market peak, now sees the rise in consumer confidence following the election of President-elect Donald Trump as a harbinger of an even better 2017. And BMW AG pointed to the good times rolling on Wall Street as one reason luxury vehicle sales will be sustained.

“The auto industry has benefited from cheap and available credit and low fuel prices,” said Maryann Keller, an independent auto analyst in Stamford, Connecticut. “All of that has worked in the industry’s favor and no one is saying that’s going to die.”

The shares of U.S. automakers and suppliers have outpaced the Standard & Poor’s 500 Index since the beginning of the year, with gains of 7.2 percent at GM and 5.9 percent at Ford. Fiat Chrysler Automobiles NV, benefiting from a bet on shifting its lineup almost exclusively to light trucks, has surged 19 percent in part on speculation it’s more likely to get a pass from a loosening of environmental regulations under Trump.

GM Forecast

GM is finding ways to boost revenue and profit by introducing new models, trimming costs and cashing in on a global shift to larger, more expensive vehicles. Car buyers are shifting to pricier SUVs and GM has three new models -- the GMC Terrain and Chevy Equinox and Traverse -- coming to market this year.

The largest U.S. automaker’s net income should increase to between $6 and $6.50 a share this year, Chief Executive Officer Mary Barra said at an analyst conference in Detroit. When 2016 earnings are reported later this month, the company expects to hit the top of its guidance, she said. Standard & Poor’s lifted GM’s credit rating one level Tuesday to BBB, the second step above junk.

“It’s very good guidance given a U.S. market that has plateaued,” said David Whiston, an analyst for Morningstar Inc. It shows management is “not done making the company better.”

After a strong 2016 for the North American market, “we see more of the same favorable environment,” GM President Dan Ammann said. He has company. Nissan Chairman Carlos Ghosn said Monday that U.S. auto sales may grow again this year, about two months after his co-chief executive officer had said the market peaked.

Ford Dividend

Ford, the second-largest U.S. automaker, will pay an additional $200 million to shareholders beyond its regular first-quarter dividend and said its 2016 tax rate will be higher than previously forecast. The company’s regular dividend of 15 cents a share, plus the cash, boosts its total payout to 20 cents a share.

Even though Ford cut profit forecasts twice during the second half of last year, a weaker auto market isn’t the culprit. Big technology investments will cut slightly into the bottom line this year before profit rises again in 2018, the Dearborn, Michigan-based company reiterated Tuesday.

Ford has promised to put 100,000 robot taxis -- without steering wheel, gas or brake pedals -- into ride-hailing or ride-sharing fleets by 2021. It’s also investing $4.5 billion to convert 40 percent of its lineup to electrified vehicles by 2020 and this month revealed seven of those models.

Cost Vigilance

While the good times for carmakers aren’t going away soon, carmakers need to stay vigilant on costs, according to Keller, a former Wall Street analyst. Incentives have been rising and the glut of used cars coming off lease in the next couple of years will put pressure on vehicle prices and profits, she said.

“It’s not going down, but the double digit sales growth is not going to happen,” Keller said. “They have had the wind in their sails for five years. How can it get better than that?”

--With assistance from Melinda Grenier To contact the reporters on this story: David Welch in Southfield at dwelch12@bloomberg.net, Keith Naughton in Southfield, Michigan at knaughton3@bloomberg.net. To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Kevin Miller, Chua Kong Ho

©2017 Bloomberg L.P.

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