Markets Rise, but for Automakers, Challenges Linger

Wall Street had a good first day of the quarter, but supply chain problems persist.

Wall Street had a good first day of the quarter, but supply chain problems persist.

After a terrible quarterly performance from January to March, investors were hoping that April Fools’ Day wouldn’t play a bad joke for the stock market. It was a rough road, but by the end of the day, the Dow Jones Industrial Average ( ^DJI 0.40% ), Nasdaq Composite ( ^IXIC 0.29% ), and S&P 500 ( ^GSPC 0.34% ) all managed to put up modest gains to start the second quarter.

Index

Daily Percentage Change

Daily Point Change

Dow

+0.40%

+140

S&P 500

+0.34%

+15

Nasdaq

+0.29%

+41

Data source: Yahoo! Finance.

However, not every part of the stock market did well. Automakers  had mixed performance in their stocks as they reported their latest sales figures for March. Even as high demand for vehicles of all kinds has persisted, major auto manufacturers haven’t been able to sustain production, and it’s unclear when the bottlenecks that are holding automakers back will ease up.

Person holding printed materials standing next to auto chassis components.

Image source: Getty Images.

Ugly sales figures despite unprecedented demand

The numbers from automakers might have suggested that the economy was extremely weak. General Motors ( GM -1.78% ) reported sales of 512,846 vehicles in the U.S. in the first quarter of 2022, which was  down more than 20% from year-earlier figures. Moreover, it took a herculean effort from GM’s supply chain and manufacturing teams to do even that well in keeping plants operating to as close to normal levels as possible. GM warned that supply chain disruptions will continue, but it hopes to start producing positive comps by the second half of 2022. The stock was down almost 2% on Friday.

Toyota Motor ( TM 0.07% ) also reported poor results, albeit not quite as bad on a relative basis as GM’s. First-quarter sales for Toyota’s North American division fell 14.7% to 514,592 vehicles. The company’s Lexus division saw sales hold up slightly better than the namesake make. However, there were more promising signs about Toyota’s efforts toward electrification, with its mostly hybrid lineup of EVs making up more than a quarter of its unit sales for the quarter. Toyota managed to close just above the unchanged mark.


Honda Motor ( HMC 0.14% ) saw further weakness in its numbers, reporting a 23.2% drop in sales in its American division to 266,418. Cars underperformed trucks, and the company’s Acura division saw bigger declines that its core Honda unit. Yet Honda also said higher gas prices helped produce record monthly hybrid sales, and the company is looking forward to continued adoption of EV technology in new models looking forward. The stock eked out a $0.04 per share gain for the day.

No relief in sight

Even if long-term prospects look favorable, the short run will still be painful. Both GM and Ford Motor ( F -1.54% ) decided to suspend production lines at one of their plants next week because they don’t have enough parts to justify continuing. Semiconductor chip shortages have been a constant culprit and were the immediate problem for Ford, but other logistical challenges have also arisen that were responsible for the GM plant’s temporary suspension. Ford shares fell 1.5% on the day.

At this point, both automakers and consumers are at a place on the supply demand curve they don’t want to be. Prices are artificially high because of supply constraints, which would ordinarily have automakers chomping at the bit to boost production. But without being able to get key parts and components, automakers can’t take advantage and are having to sell fewer units. Until that situation changes, investors won’t be completely confident about the prospects for auto stocks.

Read this article on Motley Fool

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