Why Did GM Stock Fall 5% On Tuesday?

General Motors (NYSE:GM) stock declined by over 5% in Tuesday’s trading, falling to $43 per share. Although GM remains one of the best-performing large auto stocks this year, rising by about 25% year-to-date, driven by improving profitability and a higher mix of truck sales, there appears to be some uneasiness among investors in the auto sector.  Multiple auto stocks, including General Motors, received new ratings from Deutsche Bank which do not appear very bullish, with GM rated as a Hold.

There are a couple of concerns for the U.S. automotive market, which could well be at the end of the big growth cycle that began around the Covid-19 pandemic. High interest rates and lofty car prices have made monthly vehicle payments soar for Americans. Additionally, the U.S. job market is showing signs of cooling, with employment numbers for August coming in below estimates. Concerns of an economic slowdown could further impact consumer spending and the automotive market. The automotive industry is also likely to experience a normalization of prices following a period of undersupply and unprecedented inflation. J.D. Power expected the average new-vehicle transaction price for August to decline 4.1% year-over-year. GM’s full-year guidance also indicates that it could see a potential decrease in profits for the latter half of this year. Although this could be due to a lower number of production days and increased costs associated with transitioning to newer models, it could underscore a cooling economic environment as well.

Now the increase in GM stock over the last 3-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 41% in 2021, -42% in 2022, and 8% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period.

Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could GM face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

We have a $43 price estimate for GM, which is roughly in line with the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM. For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money. In the near term, GM could continue to benefit from a higher mix of truck sales. Moreover, the slowdown in the EV market should also benefit traditional automakers such as GM with more time to monetize gas-based vehicles while investing in long-term electric vehicle developments. Furthermore, GM’s new deal with the United Auto Workers last November is also likely to have a softer-than-expected impact on the company’s cost base as Q2 results beat estimates, with the company also upping operating profit guidance for the year. That said, concerns about the broader global economy  and weaker consumer spending could impact the stock.

While GM stock has outperformed this year, it is helpful to see how GM’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/11/2024
[2] Cumulative total returns since the end of 2016