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Transportation equipment industry

Oil Prices and Auto Industry Weigh on Markets

Strategic Insights

— 2 min read

The combination of rising oil prices and a gloomy outlook from General Motors (GM) sent markets sharply lower on this trading day. OPEC's announcement to increase its oil production quota by 500,000 barrels per day starting April 1 added to the downward pressure, as oil prices rebounded after the news, but ultimately settled back down. The market's focus on oil prices overshadowed other economic news, including a higher-than-expected U.S. current account deficit and a modest gain in industrial production.

Key Takeaways:

  • General Motors (GM) trimmed its earnings outlook for the first quarter and full year, citing weak sales and production volumes in North America, a tougher pricing environment, and a more car-based sales mix.
  • GM expects to suffer a loss (excluding items) of $1.50 per share in the first quarter, well below its prior target of break-even results or better.
  • Ford Motor (F) reaffirmed its first-quarter and 2005 earnings outlook, expecting a profit (excluding items) of 25-35 cents per share and 2005 earnings of $1.75 to $1.95 per share.
  • DaimlerChrysler (DCX) shed roughly 1.5 percent in afternoon trading, while Delphi (DPH), which derives roughly half of its revenue from GM, had relinquished more than four percent.
  • American Axle & Manufacturing (AXL) dropped roughly three percent lower, with approximately 80 percent of its business coming from GM.
  • Economic news was largely overshadowed by GM's warning, but the Commerce Department reported a record $187.9 billion U.S. current account deficit in the fourth quarter of 2004.
  • U.S. industrial production rose 0.3 percent in February, and capacity utilization rose to 79.4 percent, higher than economists' expectations of 0.3 percent and 79.2 percent, respectively.

Statistics:

  • Crude oil for April delivery tagged an intraday, all-time high of $56.35.
  • The CBOE put/call volume ratio for equity options was 0.92.
  • 1,878,971 calls and 1,888,675 puts traded, with a composite put/call ratio across all six exchanges of 1.00.
  • General Motors' earnings outlook was revised to an expected loss (excluding items) of $1.50 per share in the first quarter, down from a prior target of break-even results or better.
  • Ford Motor's 2005 earnings are expected to be between $1.75 and $1.95 per share.

Sources:

  • "OPEC to Raise Oil Output by 500,000 Barrels a Day," Reuters.
  • "General Motors Cuts Earnings Forecast, Trims Revenue," Bloomberg.
  • "Ford Reaffirms Earnings, Cash-Flow Outlook," Bloomberg.
  • "U.S. Current Account Deficit Surges to Record in Fourth Quarter," Bloomberg.
  • "U.S. Industrial Production Rises 0.3% in February," Bloomberg.

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