What's going on?
Slam the brakes on! Shares of Fiat Chrysler, the Italian-American owner of Jeep and Maserati, fell by 16% on Wednesday – and General Motors’ stock reversed by 5% too, thanks to their disappointing outlooks.
What does this mean?
Fiat’s second-quarter profits fell short of investor expectations, with China failing to drive growth as hoped. Jeep’s revamp in the country didn’t accelerate as hoped, as competition swerved into its lane. And Chinese customers of Fiat’s luxury sports cars put their purchases on hold, instead waiting for lower tariffs on imports from July. As a result Fiat said it expects annual profits to be about 10% less than planned.
General Motors – of Chevy fame – saw its better-than-expected second quarter tailgated by higher steel and aluminum costs, which crashed into future profit expectations and spun the company’s targets for this year off the road.
Why should I care?
The bigger picture: A baptism of fire for Fiat’s new CEO.
Fiat’s new CEO’s only been in the driving seat for a few days – stepping in after illness beset the previous leader (leading to his death, announced just minutes before Wednesday’s earnings report). He intends to keep the company on the straight and narrow for the time being, but will also have to contest with guiding the company into the age of electric vehicles and trade tensions in key markets – the US and China. Some investors may be optimistic as he’s got a strong track record at the company – jump-starting the Jeep brand in recent years.
For markets: Investors are trading in their autos.
Stocks of both European and US automakers fell – by as much as 3% on average. In June, Mercedes-Benz manufacturer Daimler said China’s tariffs on cars from the US will hit its bottom line and reduced its profit expectations for the year. Investors sold off its stock along with its competitors but may have been somewhat taken aback by higher costs of metals weighing on profits – it surprised America’s biggest aluminum producer, Alcoa, too. Some relief may be in sight however – late on Wednesday, the US and EU said that they would work to resolve their nascent trade war.