In The Largest Markets, Ford Leads And General Motors Follows

Feb.25.14 | About: General Motors (GM)

General Motors (NYSE:GM) and Ford (NYSE:F) have been vying for position both domestically and internationally. In the US, competition on who makes the better truck remains strong. As the largest auto industry in the world, China continues to offer solid growth opportunities. Being on different ends of the Chinese auto market spectrum, GM is struggling to maintain its dominance, whereas Ford looks to quickly navigate its way up the market share ladder. For investors, GM must prove that it is a leader, but so far, it is bested by rivals both domestically and internationally. At this time, Ford is faster to adjust to trends and better positioned for growth, as a result.

Recent Trends

When we look at the two biggest markets for GM, we see it underperforming in one and slightly outperforming the other. In terms of volume, the U.S. auto market grew at a 10% average annual growth rate since 2011, whereas the Chinese car industry grew at 8.80% per year. In the same period, GM increased volumes by 5% CAGR in North America, half the rate of the industry. As for the Chinese market, the company increased volume by 11% per year, better than the Chinese industry. For GM, the Chinese market is very close to becoming its main market.

Ford, on the other hand, has been growing volume at a rate of 8% per year domestically and 34% in China, since 2011. Ford has experienced much more aggressive growth in China. This is mostly due to the different stages of growth within the Chinese market, as GM is the more established player.

Second Best-Selling Truck

Ford continues to dominate GM at its best game. The Chevrolet Silverado was voted 2014 North America Truck of the Year. There were 480,414 units delivered last year, up 14.8% compared to 2012. The Silverado lineup is the best-selling model in terms of volume out of all GM brands, followed at a distant second by Chevrolet Cruze, with 248,224 units sold. Nevertheless, as the table below shows, the F series outsold the Silverado by 282,988 in 2013.

U.S. Total Unit Deliveries

December

December-January

January

2013

2012

2013

2012

2014

2013

Ford F-150

74,592

68,787

763,402

645,316

46,536

46,841

Chevrolet Silverado

42,539

50,699

480,414

418,312

28,926

35,445

Click to enlarge

Data as of February 24th. 2014.

For the year 2013, units of F Series increased by 18.3%, whereas Silverado deliveries grew by 14.8%. Sales data from the last 2 months do not suggest the situation may change in the coming year. Units of Silverado delivered in the months of December 2013 and January 2014 decreased by 16% and 18.4%, respectively, on a year over year basis. This is discouraging data, since the F-150 recorded an 18% increase in December and slight 0.7% decline in January units sold, year over year.

The success of the F series has to do with pricing. At a starting price of $24,445 for the 2014 lineup, the F-150 is about $1,000 less than the cheapest 2014 Silverado. Both companies offer a variety of pricing incentives for its models. Currently, both Ford and GM offer $1,000 cash back on models. For the 2015 lineup, both companies are focusing on reducing weight of the vehicles by relying more on aluminum builds. The 2015 F-150 is expected by late 2014. We will see whether Ford will continue to under price GM's Silverado.

Second Best-Selling Auto Maker in China

Up until last year, GM was the largest car maker in China for almost an entire decade. Volkswagen (OTCPK:VLKAF) now holds the title, with 3.27 million units delivered in 2013 compared to GM with 3.16 million.

Rank

Model

Maker

Deliveries

1

VW Lavida Sedan

Shanghai-VW

374,056

2

Buick Excelle

Shanghai-GM

296,183

3

VW Sagitar

FAW-VW

271,188

4

VW Jetta

FAW-VW

263,408

5

Chevy Sail, Sedan

Shanghai-GM

263,163

6

Nissan Sylphy

Dongfeng-Nissan (OTCPK:NSANF)

259,545

7

Chevy Cruze

Shanghai-GM

246,890

8

VW Bora

FAW-VW

237,156

9

VW Passat

Shanghai-VW

227,156

10

Ford Focus, Hatchback

Chang'an Ford

207,376

Click to enlarge

Top 10 Sedans of 2013. Data taken from chinaautoweb.com

The table above shows how GM lost its position in China. Five out of the 10 best selling cars of 2013 belong to Volkswagen. GM's top selling model, the Buick Excelle is second to the Lavida model of Volkswagen. The Buick Excelle starts at 96,000 RMB ($15,822), whereas the VW Lavida is more expensive, starting at 115,900 RMB ($19,102). GM is looking to invest an additional $11 billion in China by 2016. There are 19 new models expected in 2014 as a result, among which a new Chevrolet SUV aimed to tap the growing popularity of larger vehicles. At the same time, Volkswagen is planning to invest $25 billion through 2018, in an effort to become the largest car manufacturer in the world. As the smaller player in the market, Ford is investing $5 billion in China, aiming to add 5 additional manufacturing plants, making 9 in total.

Although the Ford Focus hatchback places 10th in terms volume, The Focus lineup as a whole is the best-selling model in China, with a total of 403,000 units sold in 2013. Ford continues to see success in the Chinese market. The strong momentum carried into 2014, with January Ford Focus sales rising 8% year over year. In the recent quarter, market share increased to 4.4%. At a base price of 99,600 RMB ($16,332), in between the Excelle and Lavida, Ford offers a competitive product to the Chinese market.

The fastest growing car segment in China is the sport utility vehicle. Sales of SUVs grew by more than 50% in 2013, with 2.2 million units sold. That number is expected to double by 2020. The table below lists the top 10 best-selling SUVs for 2013:

Rank

Model

Maker

Deliveries

1

Haval H6

Great Wall

217,889

2

Tiguan

Shanghai-VW

199,782

3

CR-V

Dongfeng-Honda (NYSE:HMC)

199,333

4

Ix35

Beijing Hyundai (OTC:HYMLF)

156,876

5

M4

Great Wall

128,054

6

Qashqai

Dongfeng-Nissan

124,589

7

RAV4

FAW Toyota (NYSE:TM)

117,800

8

Audi Q5

FAW VW

102,514

9

Kuga

Chang'an Ford

95,891

10

Highlander

GAC Toyota

95,216

Click to enlarge

Ford has already positioned itself to take advantage of this growing market. The Kuga model is joined by the Ecosport SUV, which together play a significant role in further expanding Ford's market share. GM, on the other hand, sold a total of 132,000 SUVs in the same period through all its brands. The company is in need of a standout model to compete with the likes of Kuga and Tiguan. GM has announced the introduction of one new SUV, which will be released sometime this year. It remains to be seen whether the model will become a popular choice among Chinese consumers.

Luxury Models

The rivalry between Cadillac and Lincoln in the U.S. has recently intensified with the revamped Lincoln MKZ and MKS models. The new MKZ aims to steal market share from the popular Cadillac CTS. However, GM sees a much larger opportunity for the Cadillac brand in China, where it expects to sell 300,000 units per year by 2020. To put numbers in perspective, GM sold 182,543 Cadillac models last year in the U.S. Bad news for GM is that Ford looks to introduce the Lincoln brand to China by the end of 2014, further fueling its current growth rate and aiming to steal market share from GM. The success of the Lincoln brand will be an important catalyst for Ford in the Chinese market moving forward.

Key Metrics At A Glance

Company

Ford

General Motors

P/E

10.69

15.36

Forward P/E

7.90

7.49

Gross Margin

14.80%

11.60%

Operating Margin

5.60%

3.30%

Net Margin

4.87%

2.43%

ROE

33.81%

11.54%

Dividend Yield

3.3%

3.30%

Click to enlarge

Data taken from finviz.com and Morningstar.com as of February 24th 2014. Data on a ttm basis.

Ford seems to outperform GM in almost all above metrics. As far as earnings, Ford offers investors better value, trading at a much lower PE. Ford is also slightly more efficient in terms of margins as well. Both companies offer a similar dividend yield, but Ford has a better return on equity. The future growth potential for Ford in China is much larger due to its relatively smaller market share, which makes Ford a more enticing long term play.

Conclusion

In order to gain trust in the potential of General Motors, we would like to see what it does with its pickup lineup to edge its biggest competitor Ford. Internationally, China undoubtedly offers the largest growth potential and focusing on this market is key for long term success. However, falling second to Volkswagen does not bode well with investors looking for the car manufacturer with the better future outlook. Ford, on the other hand, looks well positioned for growth within the Chinese market.

So far, GM is second best in its two largest revenue driving segments. And it does not seem the situation will improve. Moving forward, look for the introduction of the Lincoln brand to the Chinese market for any potential disruptions to the Cadillac brand.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have no business relationship with any company whose stock is mentioned in this article. The Oxen Group is a team of analysts. This article was written by Adrian Moraru, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.