BNL Finance has a very large, diverse group of members. While access to the BNL Portfolio and our stock research platform (with coverage on nearly 60 companies) is why members sign up, the one thing that members end up liking most is our “member chat”.
Here, members gather and chat throughout the day, and we have everyone from college students, doctors, lawyers, investment bankers, CEOs, engineers, scientists, etc. You name it, we got it, which creates some very interesting conversations throughout the week.
One of the “Member Chat” conversations on Wednesday regarded General Motors Company (NYSE:GM) and to some degree Ford Motor Company (NYSE:F). Specifically, a Trump catalyst to push both Ford and GM stock much higher. Notably, this catalyst would be in addition to the reasons previously mentioned why GM and F stock are likely to double.
What GM stock (& Ford Stock) Catalyst?
According to Beth, “GM could go up big-time when gas mileage requirements get scrapped“. She later concluded, “GM is the best deregulation play I’ve seen. Trump is absolutely going to scrap those regs.“
What she’s referring to, and what we discussed throughout the day, are strict fuel economy and emission standards that have been in place since the Obama Administration’s start. Reportedly, these regulations have kept the auto industry in a “choke hold”. That might explain why GM stock and Ford stock have greatly underperformed the market during the Obama Administration’s tenure, and why they trade at 7 and 8 times FY2017 EPS expectations, respectively.
Therefore, if Trump were to repeal those standards, it could have a profound effect on the industry. The big question is will he, and if so, why?
To address that question, understand that the National Highway Traffic Safety Administration enacted a National Program to “reduce greenhouse gas emissions and improve fuel economy”. It came with a ridiculous goal of “54.5 MPG by 2020,” that requires massive investments in technology to reduce pollution and decrease fuel consumption.
In a WSJ article, a Trump senior policy adviser said the following in regards to these policies:
It is important to remember that this particular program was first put in place as a way to reduce our nation’s dependence on foreign oil, not for purposes of global warming regulation…Mr. Trump will be focused on bringing jobs, including auto manufacturing, back to the U.S., and making sure that government policies are in the national interest.
Ford, General Motors, & Trump all need each other
The big takeaway here is if Trump will repeal EPA emissions and fuel economy regulations, thereby allowing the likes of GM and Ford to make whatever the consumer wants, and whatever is most profitable, it would mean higher margins and higher sales. That is the scenario that Beth and many BNL Members expect, here’s why:
Ford and General Motors employ more than 400,000 people, collectively, and are very important pieces of Trump’s “make America great, again” plan. The auto makers need Trump to loosen some of these pricey policies and Trump needs the auto makers to bring manufacturing back to the U.S., and hire. It is the classic, “you scratch my back and I’ll scratch yours” situation.
Already, we have seen Ford scrap plans for a Mexican manufacturing plant, and elect to invest $700 million in a Detroit expansion instead. Trump has been very vocal in his big “auto wins”, and in criticizing the auto companies when necessary. It will be interesting to see how this all plays out, but if Trump makes de-regulation a reality, we can bet it will be great news for consumers, manufacturing jobs, and investors of Ford stock and GM stock.
Why BNL still prefers General Motors stock to F stock
All things considered, both F and GM have a tremendous amount of upside ahead in 2017, as seen in the BNL Stock Score research platform. However, long-term is a different story. The rest of this content is exclusive to BNL members only.