GM, Fiat Chrysler Shares Climb As Investors Focus on Future -- Update

By Mike Colias and Chester Dawson Features Dow Jones Newswires

Wall Street is finally rewarding Detroit's old guard auto companies for the direction they are taking, leading them to garner strong stock gains even as the car market is softening.

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The industry developments Tuesday highlight a strategy shift that is well under way in the Motor City. Caught off guard by rapid developments and sizable investments in driverless cars and other innovative transportation ideas coming from Silicon Valley tech giants, including Alphabet Inc., Tesla Inc. and Uber Technologies Inc., domestic auto companies have fought back by slimming down or dumping old lines of business and focusing on efforts to reshape the way people get from Point A to B.

On Tuesday, General Motors Co. recorded one of its worst quarterly net-incomes since filing for bankruptcy in 2009, spilling nearly $3 billion in red ink during the July through September period. GM's performance is primarily due to decisions to dump its unprofitable European operations and pare back on low-margin businesses, such as passenger-car production and sales to rental companies. A strong balance sheet, allows the company to plow resources into autonomous driving and electric vehicles.

Delphi Automotive PLC, meanwhile, purchased a popular driverless-car developer, the latest attempt to supercharge the American auto-supply sector's role in reinventing personal transportation.

Ahead of Ford Motor Co.'s third-quarter results Thursday. Chief Executive Jim Hackett unveiled a management shake-up after five months at the helm. Mr. Hackett has said he wants to speed decision making and "attack" costs at Ford, targeting $14 billion in annual savings within five years, aimed at streamlining the core business so it can steer more investment toward driverless cars and electric vehicles.

Fiat Chrysler Automobiles NV, meanwhile, reported a 50% increase in net earnings, but sales and North American profit growth flatlined over the summer. Still, the company maintained an ambitious outlook and higher-than-expected cash inflows helped chip away a debt load that is seen as a hurdle to the Italian-American auto maker's pursuit of a merger partner.

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Citi analyst Itay Michaeli said GM's ability to post an 8.3% margin in North America amid a 26% production cut and "downturn-like conditions," demonstrates the type of resiliency that cyclical domestic car companies once lacked.

Revenue took hit, falling 12% to $33.6 billion. The shrinking top line reflects GM Chief Executive Mary Barra's strategy to pursue profits and game-changing tech over market share.

GM shares touched $46.76 Tuesday, with a $67.5 billion market capitalization representing the highest value since its 2010 initial public offering and an $11 billion lead over Tesla, which is under pressure to launch a mass-market electric car. GM Chief Financial Officer Chuck Stevens said he was "pleased" investors are rewarding progress on the core business and future technology bets.

Mr. Stevens says he believes investors are rewarding "actions we've been taking over the last number of years to build a stronger, more resilient core business."

Meanwhile, Fiat Chrysler has benefited by doubling down on production of popular SUVs and trucks. Chief Executive Sergio Marchionne says the company will remain disciplined once it climbs back to positive net cash.

"I don't want to chase rainbows," Mr. Marchionne told financial analysts on a conference call, saying memories of being starved of capital a decade ago after Chrysler emerged from bankruptcy are still fresh. "The scars that this last crisis caused I still have," he said.

Shares in Fiat Chrysler closed $17.45 Tuesday, a 5.45% increase, one of the highest points since the company's formation earlier in the decade.

Ford's market value, which is roughly 25% lower than GM, has barely budged during the short tenure of its new CEO. The shake-up on Tuesday led to the surprise departure of John Casesa, a former investment banker and star auto analyst who was charged with running strategy in 2015 under ex-CEO Mark Fields. The heads of marketing, quality and human resources all elected to leave the company as well.

Ford's board installed Mr. Hackett in May after ousting Mr. Fields amid questions about Ford's direction and culture. Earlier this month, Mr. Hackett briefed investors on broad plans to accelerate Ford's development of autonomous vehicles and electric cars, though his outline left some wanting more specifics.

Delphi's $450 million acquisition of Boston-based NuTonomy Inc. could help the Michigan-headquartered company bring autonomous vehicles to market by the turn of the decade. This is a boost for Detroit's car companies, which have deep ties with Delphi dating back to the days when it was a subsidiary of GM.

Delphi acquired other startups in recent years, including its 2015 purchase of Carnegie Mellon University spinoff Ottomatika Inc., another company that provides software for self-driving cars. This further changes Delphi's profile in the industry from a company that many analysts saw ripe for acquisition into a potential power player.

The deal for NuTonomy -- a spinoff of MIT that attracted attention with its public driverless-car tests in Singapore -- adds top robotic talent to Delphi's growing stable of acquisitions and partnerships as it looks to create an entire autonomous vehicle system that it can sell to auto makers. For NuTonomy, Delphi's scale provides leverage to hasten the industrialization of self-driving technology, allowing it to put its stamp on software installed in millions of future vehicles.

This is a win for the domestic auto-supply chain following the recent acquisition of Harman International Industries by Korea's Samsung Electronics, and the acquisition of Mobileye NV by Intel Corp. earlier this year. Harman and Mobileye are considered pioneers in the development of connected cars that can drive themselves. Delphi wants to join with auto makers on speeding up autonomous-car research and offer its own off-the-shelf solution for car companies that don't have deep pockets.

--Tim Higgins contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com and Chester Dawson at chester.dawson@wsj.com

(END) Dow Jones Newswires

October 24, 2017 17:26 ET (21:26 GMT)