2 Domestic Auto Stocks Worth Watching Despite Geopolitical Crisis

Industry Overview - The Zacks Domestic Auto industry encompasses companies involved in the design, manufacturing, and sale of various vehicles, including passenger cars, trucks, and electric vehicles [3] - The industry is highly cyclical, closely tied to consumer spending, and is undergoing significant transformation due to heavy investments in new technologies, including electrification and digital connectivity [3] Key Themes Shaping the Industry - Vehicle sales momentum is declining, with February 2026 vehicle sales falling below last year's levels for the fifth consecutive month, attributed to high vehicle prices and economic uncertainty [4] - Geopolitical tensions, particularly between the U.S. and Iran, have negatively impacted consumer confidence and contributed to rising crude oil prices, which have exceeded $100 per barrel [5] - The expiration of key electric vehicle tax credits has led to a sharp decline in EV demand, with Ford reporting a 71% year-over-year drop in EV sales in February [6] - Higher tax refunds from the One Big Beautiful Bill Act may provide a short-term boost to auto demand, although broader demand conditions remain under pressure [7] Industry Performance and Valuation - The Zacks Automotive – Domestic industry currently ranks 150, placing it in the bottom 38% of over 240 Zacks industries, indicating lukewarm near-term prospects [9] - The industry's earnings estimates for 2026 have declined by 51% over the past year, reflecting a negative outlook for constituent companies [10] - The Domestic Auto industry has outperformed the broader auto sector and the S&P 500, returning 81% over the past year compared to 48% and 23% respectively [12] Company Highlights Ford - Ford is adjusting its strategy to focus on profitable hybrids and traditional vehicles while scaling back its EV expansion, emphasizing smaller and more affordable models [18] - The Ford Pro division has become a significant profit driver, with paid software subscriptions rising by 30% in 2025 [19] - Ford plans to invest approximately $1.5 billion in 2026 for energy storage market initiatives and has a strong liquidity position with about $50 billion available [20] - Ford carries a Zacks Rank 2 (Buy), with EPS growth estimates of 40% and 20% for 2026 and 2027 respectively [21] General Motors - General Motors emerged as the top-selling automaker in the U.S. in 2025, marking its fourth consecutive year of market share gains [23] - The company has shifted some production capacity from EVs back to internal combustion engine models in response to slower EV demand [23] - GM's software and services, including OnStar, are becoming increasingly important, with projected deferred revenues reaching about $7.5 billion in 2026 [24] - GM carries a Zacks Rank 3 (Hold), with EPS growth estimates of 16% and 7% for 2026 and 2027 respectively [25]