The company’s share is growing because car investors fear that high inflation and aggressive increases in Federal Reserve interest rates could put great pressure on the US economy.
Shares of the automotive industry fell by 7.6% at 14:34. ET.
Car inventories are declining in the wider market today as investors increasingly fear soaring inflation, despite Federal Reserve measures to reduce it. A report released last week showed that the consumer price index rose 8.6% in May as prices of everything from fuel to food and shelter rose. The Fed has already introduced several interest rate increases in an effort to reduce inflation but the report proves this to be more difficult than expected.
This is bad news for GM and other automakers, as it means rising costs could reduce revenue. GM and its partners are already facing higher costs due to a lack of material and supply chain, especially in the semiconductor industry. Persistently high inflation will not only exacerbate some problems but will also prevent some buyers from buying a new car.
In an April first quarter profit survey, GM said it could produce 25 to 30% more cars than last year, despite rising costs and supply chain problems. However, according to a recent inflation report, investors appear to be more pessimistic than GM’s management.
While some companies have problems with higher costs and high inflation, car companies may be particularly sensitive to the economic consequences.
If inflation remains too high for a long time, consumers will refrain from buying new cars, and if the Federal Reserve is able to curb inflation by further raising aggressive rates, it could lead to a significant economic slowdown. It’s not good for car sales either, which means GM’s investors have to keep a close eye on the company’s next quarter, which is expected by the end of next month to see if there have been any changes in management strategy.
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