Auto Stock Roundup: Tariff Woes Rampant, Ford to Settle Takata Lawsuit

The U.S. auto industry is now encountering tariff woes. According to the Alliance of Automobile Manufacturers, if 25% tariff is imposed on imported cars and parts, it would escalate the price of U.S. vehicles by $83 billion annually and result in job losses. The auto industry has organized a full-scale campaign to oppose the tariffs.

In another development, the week witnessed Ford Motor Company F agreeing to pay $299.1 million to settle the claims of economic loss incurred by the consumers, pertaining to Takata Corp. air-bag recalls. Notably, Takata air-bag recalls are the largest recall in the history, which resulted in a number of lawsuits by consumers and accident victims.

Sonic Automotive, Inc. SAH believes that gross margin pressure in key brands is going to affect its performance in the soon-to-be-reported quarter. At its BMW and Honda dealerships, new vehicle gross profit per unit has been low in second-quarter 2018.

(Read the previous roundup here: Auto Stock Roundup for Jul 12, 2018)

Recap of the Week’s Most Important Stories

1. Cummins Inc. CMI has announced that its board approved an increase in its quarterly cash dividend on common stock to $1.14 per share. The revised dividend will be paid on Sep 4 to shareholders of record as of Aug 22, 2018.

The dividend was hiked roughly 5.6% from $1.08 per share, which was offered in the previous four quarters. Prior to this, in July 2017, the company raised its dividend payout by 5.4% from $1.025 per common share.

Per the CEO, the company will maintain strong returns by offering products and services to customers. Also, the dividend hike is in sync with Cummins’ commitment to providing increased returns to shareholders, which reflects the company’s confidence in its long-term performance.(Read more: Cummins Announces 5.6% Hike in Quarterly Dividend)

Cummins currently carries a Zacks Rank #3 (Hold).

2. WABCO Holdings Inc. WBC has signed a steering system deal in India with Tata Motors Limited TTM, a global manufacturer of cars, utility vehicles, buses, trucks and defense vehicles. Per the deal, WABCO will supply its hydraulic power steering systems to meet Tata Motors’ performance and reliability requirements for manufacturing new heavy-duty trucks.

This marks the first major deal in India after WABCO acquired the U.S.-based supplier of steering technologies, R.H. Sheppard, in September 2017. Further, the latest agreement is in sync with WABCO’s commitment to expand and offer its technology portfolio to customers outside the United States. The contract with Tata Motors corresponds to a significant milestone in providing steering solutions to global customers.

The company will supply M110 heavy-duty hydraulic power steering gears and assemblies, enabling Tata Motors to cater to the rising demand for new heavy-duty trucks after the changes in legislation to limit axle weight loads. Since 1986, WABCO’s M-Series gears have been meeting industry standards by using top-quality materials and components. (Read more: WABCO Signs Contract to Supply Steering System in India)

WABCO currently carries a Zacks Rank #3.

3. Ford has agreed to pay $299.1 million for settling the claims of economic loss incurred by the consumers, pertaining to Takata Corp. air-bag recalls. Per Reuters, the settlement covers various damages linked to the inflators. This includes claims that vehicles were falsely presented as safe, buyers were charged higher price for cars with faulty air bags and customers had to bear out of pocket expenses to deal with recalls.

The Takata air-bag recalls, the largest in the history, resulted in a number of lawsuits by consumers and accident victims. The air bags can go wrong and send pieces of metal to drivers and passengers. At least 23 deaths have been reported across the globe, pertaining to the rupturing of flawed Takata air bag inflators.

The auto giant, Ford is the latest automaker to settle the claims of economic loss. Previously, many other auto biggies reached similar settlements, valuing more than $1.2 billion. The Ford settlement covers at least 6 million U.S. vehicles, with potentially faulty Takata air bag inflators. (Read more: Ford Agrees to Pay $299.1M to Settle Takata Lawsuit)

Ford currently carries a Zacks Rank #4 (Sell).

4. Sonic Automotive is slated to report second-quarter 2018 results on Jul 27. The company anticipates gross margin pressure in key brands to adversely impact its performance in the soon-to-be-reported quarter. According to the company sources, at its BMW and Honda dealerships, new vehicle gross profit per unit was considerably lower during the second quarter. This low margin can be attributed to the lower manufacturer-to-dealer incentives on certain models. This low margin pressure is likely to continue in the third quarter too. However, this scenario is anticipated to reverse in the fourth quarter, with new model releases from BMW and support from its manufacturing partners.

However, due to these headwinds, the company now expects diluted earnings per share from continuing operations for second-quarter 2018 to be in the range of $0.37-$0.41 and on an adjusted basis to be in the range of $0.32-$0.36.  For 2018, the company expects diluted earnings per share from continuing operations to be within the range $1.65-$1.75 and on an adjusted basis to be between $1.90 and $2.00. (Read more: Sonic Automotive's Q2 Results to be Impacted by Margin Woes)

Sonic Automotive currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance

Last week, Toyota Motor Corporation TM has recorded the biggest gains. However, shares of Harley-Davidson, Inc. HOG have declined the most.

In the past six months, share prices of all these stocks have declined, except for Advance Auto Parts, Inc. AAP. Harley-Davidson has declined the most.

Company	Last Month	Last 6 Months
GM	1.5%	-7.6%
F	-1.8%	-9.4%
TSLA	1.5%	-7.5%
TM	3.1%	-5.5%
HMC	1.8%	-18.6%
HOG	-1.9%	-20.5%
AAP	0.1%	19.6%
AZO	1.8%	-12.5%

What’s Next in the Auto Space?

Watch out for the earnings releases as well as usual news of auto companies over the next week.

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Sonic Automotive, Inc. (SAH) : Free Stock Analysis Report
 
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