Breakingviews - Ford and GM can afford to put on a brave face

But Detroit has something pure-electric automakers don’t to fund these losses: cashflow-rich gas-car businesses. Ford and GM reported total operating profit 43% and 20% above analyst expectations this quarter, respectively, according to Refinitiv. Yet GM’s stock fell 3% after reporting results. Ford fell a similar amount after hours following its results on Tuesday.

Part of the concern is likely pricing. Detroit’s great strength of late has been, counterintuitively, a lack of cars to sell, thanks to pandemic-wrecked supply chains that left them short of key components like semiconductors. As buyers scrambled for what cars were available, sticker prices spiraled upwards.This price ratchet added billions to operating profit in recent years. The fear is that this could reverse. Buyers are stretched as inflation bites.

But there’s still plenty of unsatisfied demand. Back in 2018, Ford and GM sold a combined 5.5 million vehicles. If that rate had held, they would have sold 3.6 million more cars than they actually did over the past four years. And used car inventories are still low while prices are high, according tosupply and demand carefully, pricing for combustion cars is unlikely to collapse back to pre-pandemic levels. Even if it does a bit, demand for cars has plenty of room to accommodate the difference.

Detroit-based peer General Motors on April 25 reported first-quarter revenue of $40 billion and adjusted operating profit of $3.8 billion, 3% and 20% above analyst expectations, respectively. GM increased its expectations for full-year operating profit by $500 million, to a range of $11 billion to $13 billion.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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