GM and Ford: Assessing the 2025 Rally and the 2026 Outlook

The auto sector's performance in 2025 was a study in divergent paths, with General Motors and Ford delivering starkly different but powerful rallies. GM's stock closed the year with a 56% gain, marking its best annual performance since the company's reemergence from bankruptcy in 2009. Ford, meanwhile, rose 34% over the past year, closing near its December annual peak. Both stocks are now trading at or near their 2025 highs, but the stories behind their runs could not be more different.

GM's surge was built on a foundation of consistent execution. The rally was fueled by a track record of strong financial results and shareholder returns, including stock buybacks, that convinced Wall Street the stock was undervalued. This operational resilience was paired with forward-looking optimism, as analysts pointed to potential benefits from regulatory changes and a strategic pivot toward higher-margin segments. The stock's performance extended a run that had already seen it hit a post-earnings four-year peak earlier in the year.

Ford's climb, by contrast, was a story of strategic repositioning and sector momentum. The company's pivot toward hybrids and more affordable EVs, coupled with the strong performance of its Ford Pro commercial segment, provided a new narrative for investors. This shift helped the stock overcome headwinds like tariffs and supply chain disruptions, allowing it to outpace the broader market. Its price action has been supported by a resilient 80-day moving average, which has acted as a floor during pullbacks.

The sustainability of these rallies is now in question as the market normalizes. Both stocks are trading near record highs, and their recent performance has compressed volatility, with both sporting cheap options as measured by a low Schaeffer's Volatility Index. This sets up a critical test: can the underlying business stories justify these elevated prices, or will the market's focus shift back to fundamentals? For GM, it's about maintaining earnings momentum; for Ford, it's about proving its strategic pivot is translating into durable growth. The 2025 rally was a powerful move, but the path forward will be defined by execution, not just momentum.

The 2025 Market: A Year of Policy-Driven Volatility

The auto market's performance in 2025 was a direct function of shifting policy, not underlying consumer strength. The year was a rollercoaster of pull-forward demand, with sales surging in the first half as buyers rushed to beat anticipated tariff price increases and the expiration of EV tax credits. This created a classic "pull-forward" effect, where future demand was accelerated into the present. The market's resilience was evident in the full-year result, with sales expected to reach 16.3 million units, up 1.8% from 2024. Yet this aggregate success masks a sharp decoupling between the first nine months and the final quarter.

The third quarter was the peak of the policy-driven boom. Sales of electric vehicles saw a record surge, fueled by the $7,500 federal tax credit that expired at the end of September. This incentive pushed BEV share to an all-time high of 11.3% in September. But the moment the credit vanished, demand collapsed. The market is now in the hangover phase, with BEV share falling to just 5.3% in November and discounts soaring as automakers clear inventory. This is the clearest signal that a significant portion of recent EV demand was purely incentive-dependent.

The fourth quarter has been a stark slowdown, with sales tracking significantly lower. December is expected to finish down from last year, and the full-quarter sales are projected to be down nearly 5% compared to 2024. This pullback is the direct result of the policy shifts that drove the first-half surge. The market is proving resilient in the aggregate, but the volatility is structural, not cyclical. The industry is now in the aftermath of these massive pull-ahead sales, adjusting to a new reality without the immediate boost of tax credits and facing the looming impact of tariffs.

The 2026 Forecast: A Structural Slowdown

The market's recent pullback is a tactical pause, but the underlying demand environment for automakers is shifting toward a structural slowdown. The forecast for 2026 points to a "high-15 million" unit market as the new norm, a clear step down from the recent peak. Cox Automotive projects the new-vehicle seasonally adjusted annual rate (SAAR) will decline 2.4% to 15.8 million units, with retail sales expected to fall about 1.5% year-over-year. This isn't a cyclical dip but a recalibration driven by powerful headwinds.

The primary pressures are now in full effect. First, the full impact of tariffs is hitting the balance sheet, adding an estimated $5,500 to the cost of imported vehicles. Second, the expiration of federal EV tax credits has removed a major demand catalyst, leading to a sharp pullback in that segment. Third, a bifurcated consumer is making value perception critical, as wealthier buyers navigate different pressures than those facing affordability strain. These forces are creating a more competitive, value-driven market.

This environment will directly pressure automaker profitability and strategic positioning. The "high-15 million" unit market means less volume to spread fixed costs, while the tariff-driven price increases are squeezing average transaction prices. The recent shift away from heavy EV incentives is already providing a boost to manufacturer and retailer profitability by reducing steep discounts, but that tailwind is likely to reverse as the broader market cools. Competition will intensify for value-conscious buyers, forcing a focus on operational efficiency and pricing discipline.

The bottom line is that 2026 will be a year of consolidation. Automakers that successfully navigate the tariff costs, manage their balance sheets, and target the right consumer segments will be positioned to hold market share. Those that fail to adapt to the new, lower-demand reality risk seeing their margins erode further. The forecast is clear: the easy growth of recent years is over.

Strategic Implications and Investment Scenarios

The 2026 slowdown is a shared headwind, but General Motors and Ford are navigating it with fundamentally different strategies. GM's edge is in its dominant position and software momentum, while Ford is betting on a costly, long-term cost transformation.

GM's strategy is one of consolidation and software monetization. The company is the clear market leader, expected to end 2025 with a total market share of 17.3%, up from 16.8% the year before. This scale provides pricing power and a stable earnings base. Its real growth engine is software, where year-to-date revenue from Super Cruise and OnStar has reached about $2 billion, with deferred software revenues climbing over 90% year-over-year. This is a tangible, recurring revenue stream that improves margins. Combined with aggressive share buybacks-more than $3.5 billion repurchased through Q3-GM is actively boosting EPS and providing a clear path to earnings visibility in a softer market. The company is also securing its supply chain, with a strategic role in the Lithium Americas' Thacker Pass project for domestic battery materials.

Ford's strategy is a radical cost-cutting pivot. Faced with a roughly $19.5 billion special charge for rationalizing its U.S. EV assets, the company is abandoning its previous capital-intensive EV push. Its new Universal EV Platform is designed to slash parts and assembly time, aiming for a midsize electric pickup starting at around $30,000 by 2027. This is a bet on affordability and efficiency, not premium EVs. The goal is to reach EV breakeven by 2029, with improvements starting in 2026. This transition is painful but necessary; Ford's valuation reflects extreme caution, with a forward P/E of 9.29 and analyst price targets averaging around $12. The company's strong liquidity and a dividend yield of more than 4% provide a buffer during this painful reset.

The key watchpoints for each are distinct. For GM, the focus is on the pace of tariff pass-through to consumers and the evolution of used-vehicle supply, which could pressure its core sales. For Ford, the critical test is the execution of its cost-cutting initiatives and the success of the Universal EV Platform in driving down the cost of its next-generation EVs. The $5.5 billion of the special charge expected to impact cash flow in 2026 and 2027 will be a major strain on its balance sheet.

The bottom line is a classic value-versus-momentum trade. GM offers a more visible, shareholder-friendly path through the slowdown, leveraging its scale and software. Ford offers a higher-risk, higher-reward bet on a successful, long-term cost transformation, but it must first endure a significant financial and operational storm.