Auto Industry Stock Outlook - Sept. 2017

The auto sector’s joy ride in 2015, which continued in 2016, has been somewhat subdued in 2017. Not only that, the auto industry is undergoing a transition, courtesy of changing consumers’ preference toward SUVs and crossovers, and the necessity for manufacturing electric vehicles.

According to an IHS Markit forecast, total global light vehicle sales will reach 93.5 million units in 2017, up 1.5% from 2016, with most of the global growth coming from China.

In fact, automakers across the globe are partnering with local companies in China, the biggest car market in the world, where sales of electric vehicles are anticipated to increase. Renault SA (RNLSY - Free Report) and Nissan Motor Co., Ltd. (NSANY -Free Report) have partnered with Chinese automaker Dongfeng Motor Group Co to manufacture battery-powered automobiles in the Chinese market. Ford Motor Company (F - Free Report) announced a joint venture to manufacture electric vehicles in China. Also, General Motors Co. (GM - Free Report) and other automakers have shared their plans of manufacturing electric vehicles in China.

On the other hand, automakers bore the brunt of expenses related to safety recalls and negative currency effects. Massive recalls related to Volkswagen AG’s (VLKAY -Free Report) emission scandal and Takata Corp’s defective airbag inflators have been hurting the auto sector in recent times. Rising delinquency rates in auto loans are expected to hurt sales in the future.

Zacks Industry Rank – Positive Outlook

The distinctive attributes of the auto industry prompted us to have a dedicated sector for the industry in our database. The automobile sector is one of the 16 Zacks sectors, unlike the S&P classification, wherein autos are part of the Consumer Discretionary sector. The S&P has 11 sectors compared with the 16 sectors for Zacks.

At the expanded classification level, the Zacks Auto sector is divided into six industries: Auto-Domestic, Auto-Foreign, Auto-Original Equipment, Auto-Replacement Parts, Auto-Internal Combustion Engines and Rubber - Tires. The level of sensitivity and exposure to the different stages of the economic cycle vary for each industry.

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