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General Motors $GM reports its second-quarter 2017 earnings results on Tuesday before the market open.  Here's a look at what to expect. Eyes are on Opel, China and whether the bleeding has stopped. Later in the week the other big 3 Auto makers, Ford $F and Fiat Chrysler $FCAU also report.

It has been a difficult year for car makers. Car sales continued to soften in June General Motors sales fell 4.7% to 243,155 units in June more than the -1.3% expected by Kelley Blue Book.  $GM also had more bad news when they had to raise it's estimate for special charges it will incur from the sale of its Opel AG European division, to $5.5 billion, about $1 billion higher than originally expected. 

 

Consensus Estimates Analysts polled by Thomson Reuters expect GM to report $1.69 earnings per share on revenue of $41.23 billion. Both lower than Q216 at $1.86 per share (excluding special items) on $42.2 billion revenue.

OPEL

GM announced the deal in March to sell Opel to France's Peugeot for about $2.1 billion. The business had  suffered billions of dollars in losses over nearly two decades. GM will report Opel results as discontinued operations beginning with the auto maker's second-quarter earnings.

GM said it will utilize around $3 billion in short-term debt to help pay for pension-funding obligations that Peugeot will inherit once the deal closes. 

GM Lowers Sales Forecast

In June General Motors CFO Chuck Stevens lowered it's U.S. light-vehicle sales to "low" 17-million range. This was  down from an earlier expectation that his year would roughly match the 17.55 million record from last year.  Mr. Stevens said U.S. pricing "very, very competitive" and "It appears the industry is becoming a bit more rational." 

The big 3 dealer inventory glut is expanding. The big three automakers General Motors (GM), Ford (F) and Fiat Chrysler (FCAU) sales are indicative of consumer interest, potential jobs and manufacturing. False economies have a downside, auto sales have been downhill since. Higher interest rates and vehicle price rises has altered buyer patterns as they are also opting for longer loans, meaning they won’t be buying as soon. 

Auto sales have slowed with shaky consumer confidence, a glut of used cars and credit tightening as delinquencies and defaults gather speed. There is also the 'Tesla effect' where consumers are worried about obsolescence with new technologies such as electric and driver-less cars.

Electric Vehicles

Its not all bad news for GM, they built the first self-driving cars built by an automaker in a regular factory this quarter.  The company built 130 self-driving Chevrolet Bolt EVs in its Orion Assembly Plant in Michigan. This helps the company overcome the so called 'Tesla Affect'

China

GM's china sales rose 4.3% in June on strong growth in its SUV sales and ongoing success of its higher profit Cadillac luxury brand. Cadillac sales rose 35% in June to 12,886 vehicles. GM's equity income from its Chinese joint ventures could exceed the $471 million from Q216. 

Buick has been the biggest seller for GM in China. Buick sales rose 13% to almost 97,000 in June. Many of the big hits in China have not been as popular in the U.S. highlighting the different consumer wants. 

What Analysts Think

Bank of America Merrill Lynch in Friday issued a note warning about a "swift and material downturn" in U.S. auto sales. BofA Merrill Lynch sees  a "tsunami" of off-lease used cars hitting prices. They project auto vehicle sales falling to a 13 million unit annual rate by around 2021.

They also see the potential of raw material costs increasing hurting margins. In the note Bank of America Merrill Lynch cut the automotive sector across the board.

- Lithia Motors (LAD) cut to underperform, $LAD fell 8.7% to close at 88.57 Friday.
- Sonic Automotive (SAH) fell 7.9% and Group 1 Automotive (GPI) fell 4.2% Friday 
- Used-car dealer CarMax  fell 1.4% Friday
- Ford Motor (F) fell 0.2%, General Motors (GM) fell 0.9% and Fiat Chrysler (FCAU) were off 0.7% on reduced price targets 
- Parts supplier Magna International (MGA) lost 3.9% and Delphi Automotive (DLPH) lost 1%.

Over at Morgan Stanley, analyst Adam Jonas cut his 2017 sales estimate to 17.3 million from a prior view of 18.3 million. By 2019 Jonas expects annual sales  pulling back all the way to the 2013 level of 15 million against previous  earlier estimates of 19.2 million. A massive 4.3 million autos.

Source: Reuters, Edmunds, TradersCommunity Research Desk

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