Analysts singing the highest pessimism in the past decade! General Motors (GM.US) and Ford (F.US) trapped in a "value trap"?

General Motors Company (GM.US) and Ford Motor Company (F.US) are currently the cheapest stocks in the Standard and Poor's 500 index. However, Wall Street analysts say this does not necessarily mean they are good buys. As the risks surrounding the future prospects of the two century-old automakers increase, analysts' views on their stocks are rapidly deteriorating. The proportion of analysts recommending selling General Motors Company and Ford is currently at the highest level in at least 10 years. According to data collected by Bloomberg, over 9% of analysts covering GM have a sell rating on the stock, the highest proportion since 2015. For Ford, 27% of analysts recommend selling, the highest level since 2010. Both companies recently released their earnings, with Ford reporting earnings last Wednesday and GM the week before. Ford warned that profits this year will significantly decline due to lower prices and costs associated with launching new vehicle models, while GM's profit outlook improved but failed to excite investors. Concerns about the potentially destructive impact of tariffs under President Donald Trump's leadership have been weighing on the stock prices of both companies, contributing to the overall market downturn. Given the vast global supply chain of automakers, the automotive industry is widely considered to be one of the industries most vulnerable to tariffs. However, their problems go beyond this. In addition, traditional automakers face long-term challenges as they seek to transform their businesses to compete in an industry moving towards electric and autonomous vehicles. In this field, competitors like Tesla, Inc. (TSLA.US), China's BYD Company Limited, and Alphabet's Waymo are leading the way. Ivana Delevska, Chief Investment Officer at Spear Invest, said, "We are not buyers in this sector; it's a tough business to start, and traditional car businesses are about to be disrupted." As of Thursday's close, General Motors Company's price-to-earnings ratio is 4.3 times, while Ford's is 6 times. The average price-to-earnings ratio of the S&P 500 index is 22 times. Bloomberg Intelligence analysts Steve Man and Peter Lau said, "There's a risk of a value trap here." "Stocks are cheap, but the fundamentals don't look good, the industry is consolidating, and corporate profit margins are very low." Analysts are also pessimistic about profit and revenue growth expectations for these two companies. After experiencing 38% annual profit growth in 2024, General Motors Company is expected to see adjusted earnings per share grow by only 4.5% in 2025, with revenue forecasted to decline by over 3%. For Ford, the outlook is even dimmer. Estimates show adjusted earnings per share are expected to decline by 18% this year, with revenue falling by 0.8%. However, at present, the movement of tariffs could have the biggest impact on these stocks. Despite Trump's postponement of plans to impose a 25% tariff on goods from Canada and Mexico, the stock prices of General Motors Company and Ford Motor Company remain subdued. Additionally, the recent passing of a 10% new tariff on China has added further pressure. These trade issues are once again confronting American automakers as they are already grappling with a slowdown in demand for electric vehicles. They have invested heavily in electric vehicles, with development costs on the rise, and industry observers warn that American car prices have risen so high that consumers will soon find it difficult to afford. If Trump does implement the tariffs on Canada and Mexico, it will further increase the cost of manufacturing cars, with Bloomberg Intelligence estimating the cost per vehicle will increase by at least $3,500. Companies typically pass these higher costs onto buyers. Bernstein analyst Daniel Roeska wrote in a report this week, "While the postponement of tariffs gives automakers more time to plan for countermeasures, from an investment perspective the long-term uncertainty complicates the US auto industry." He added that given the current ambiguity of this issue, investors are better off waiting for information on policy negotiations before taking action.