Why GM and Ford Stocks Are Still a Buy Despite Tariff Challenges

In the face of President Trump’s newly announced 25% tariffs on finished cars and components, it’s no surprise that traditional American automakers like General Motors (GM) and Ford have felt the pinch. GM’s stock took a significant hit, plummeting 7.4% while Ford was not far behind, dropping 3.9%. However, a deeper analysis reveals that these companies are still solid investment opportunities, thanks to a recent report by J.P. Morgan’s analyst Ryan Brinkman.

Tariff Pressures on Domestic Automakers

Let’s be clear: the tariffs will undoubtedly inflict financial pain on the American auto industry. Brinkman estimates that GM could incur around $13 billion in tariffs over time, a slight improvement from his earlier estimate of $14 billion. For Ford, the cost is expected to be about $4.5 billion, down from $6 billion. Given that both companies earn significant profits, with GM’s guidance for 2025 indicating earnings before interest and taxes (EBIT) of $13.7 billion to $15.7 billion, and Ford projecting $7 billion to $8.5 billion, the tariff burden can be offset in the long term.

Domestic Advantage

Despite these challenges, Brinkman maintains a bullish outlook on both companies. One of the critical factors in this assessment is the inherent advantage U.S.-based builders have compared to their international counterparts. Most of the vehicles manufactured by GM and Ford are assembled in the United States, which allows them to source parts from neighboring Canada and Mexico more effectively, thus lessening the overall tariff impact.

Specifically, 12 of GM’s 17 models are assembled domestically, while 14 of Ford’s 19 models also hail from the U.S. This positions them better to adapt to the new tariff structure while safeguarding market share against foreign automakers, who may face additional logistical and price pressures.

Price Power and Market Strategy

Brinkman emphasized that the revised tariff structure could actually grant American automakers greater pricing power. With almost all car manufacturers under pressure to hike prices, domestic companies like GM and Ford are better positioned to do so without losing significant market share. This is a game-changer for how these companies can navigate financial pressures while continuing to maximize earnings.

GM’s Return to Shareholders

Additionally, General Motors is set on boosting shareholder returns by raising its dividend and increasing share repurchases. This strategic move reflects GM’s commitment to returning value to its shareholders, which is a critical point for any potential investor considering the stock. Coupled with strong sales of refreshed full-size trucks and SUVs, GM remains a worthy candidate for investment despite the tariff backdrop.

Ford’s Revamped Lineup

As for Ford, the automaker is also making strides to position itself favorably in the market. With a fresh lineup of vehicles and a strategic pivot to reduce its international operations, Ford is working to streamline its business model for better efficiency and profitability. The renewed focus on domestic production also aligns with the current political environment and economic sentiments toward ‘America first’ manufacturing.

Valuation and Market Timing

It’s worth noting that both GM and Ford shares are trading at or slightly below historical valuations, making now an opportune time for investment. These stocks are being overlooked by many, but the underlying fundamentals look promising, particularly with the prospect of increased pricing power and operational efficiency.

Conclusion

While the newly implemented tariffs present challenges for GM and Ford, savvy investors should not overlook the potential upside. J.P. Morgan’s analysis indicates that these companies are positioned to handle financial pressures more adeptly than their international competitors. With solid plans for shareholder returns and a focus on strengthening their domestic production, both GM and Ford remain viable investment options in these turbulent times. In the hands of investors with a conservative mindset, these stocks could deliver substantial long-term gains.