GM And Ford Holding On To Gains Despite Double-Dip Fears

Includes: F, GM
by: Dana Blankenhorn

Investors continue to ignore good news in the auto sector.

General Motors (NYSE:GM) and Ford (NYSE:F) are holding on to their leading positions in the U.S. new car market and the stocks could gain if fears of a double-dip recession recede.

Analysts have baked-in the double-dip scenario, but actual sales are just stalling, not falling.

TrueCar, which follows the new car market, said the two U.S. companies should hold their top positions in the domestic market this month even as supplies increase from Japan.

This would be true despite the fact that incentives are down substantially from a year ago at this time. The average Ford sale includes incentives of $2,722, TrueCar said, the average GM sale $3,207. This compares favorably with Nissan incentives of $2,903 and Toyota incentives of $2,405 per vehicle.

How a car company's sales do in response to changing incentives is a good indication of brand health. By that measure the healthiest brand right now appears to be Hyundai/Kia, which is holding 9.9% of the market despite cutting incentive spending 26%. Hyundai recently announced an expansion of its assembly plant near Montgomery, Alabama, while Kia is expanding its plant in West Point, Georgia, and both were running full shifts with overtime this spring.

The point here is that the car market is the car market, not neatly divided between foreign and domestic. Your new Kia is just as likely to have had American workers hands on it as your new Ford.

Ford and GM, meanwhile, have brought on 90,000 new workers between them from their trough two years ago.

Judging from comments on blogs like Seeking Alpha, investors remain down on American auto workers and U.S. competitiveness generally. It's assumed that union workers are lazy and strike-prone, and that the companies could not survive without government assistance.

Ford director Irving Holladay was among the stock's buyers last week despite a UAW “strike authorization” vote scheduled for September 2. Holladay may know such votes are routine and negotiations on a new contract are actually ahead of schedule. The authorization may have more to do with internal politics within the UAW than any real possibility of a walkout.

GM still trades at a PE of 5.18, Ford at 6.47. At the start of trading today both rose in price about 4%.

Disclosure: I am long F.