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Why GM and Ford Stocks Are Mixed despite New NAFTA

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Updated

The new NAFTA

Just before midnight on Sunday, September 30, President Donald Trump made a trade deal with Canada that barely met the deadline. Early Monday morning, he tweeted congratulations to Mexico and Canada, saying, “We reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico.”

The new trade deal, which replaces NAFTA (North American Free Trade Agreement), is called the United States Mexico Canada Agreement, or USMCA.

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Automakers and USMCA

Ford (F), the second-largest US automaker, was quick to respond positively to the USMCA trade deal in a statement on October 1. Joe Hinrichs, executive vice president and president of Global Operations, said, “Ford is very encouraged by today’s announcement, and we applaud all three governments for working together to achieve free and fair trade in a strong regional agreement.”

According to a recent CNN report, the new agreement “requires that 75% of the parts must be made in Canada, Mexico or the United States, about 12 percentage points higher than under the original NAFTA.” The new trade deal between the United States, Canada, and Mexico came as a big relief for automakers. The Trump administration’s NAFTA negotiations began earlier this year.

Weak US auto sales

On October 2, dismal September US auto sales data (XLY) were released, hurting investor sentiment. The weak data also raised investors’ doubts about the future of US auto demand. That could be one of the main reasons General Motors (GM) and Ford (F) stock turned negative on October 2 after trading positively on October 1.

As of October 2, General Motors (GM) and Ford have fallen 1.1% and 0.5%, respectively, MTD (month-to-date). US electric carmaker Tesla (TSLA) and Italian-American automaker Fiat Chrysler (FCAU) have risen 13.7% and 2.1% MTD, respectively. By comparison, the S&P 500 Index has inched up 0.3% in the first two days of October.

In the next part of this series, we’ll look at the weakness in US auto sales and what could be hurting US automaker stocks.

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