Investors and analysts were not impressed as both Ford (F) and General Motors (GM) missed sales expectations for the month of October. Yet there were several encouraging numbers within each company's report that should encourage investors of the future. Therefore I have listed below three positive areas of each company's sales report and what it means going forward.
General Motors reported a sales increase of 1.9%, which missed the Street's estimate of 6.9% for the month of October. And although sales were lower than expected for the month of October, it continues to be the best sales since August of 2009, when Cash for Clunkers had consumers running to dealers. And despite analysts' initial reaction, GM sales are still trending significantly higher and are expected to outperform full-year expectations with inventories that have gotten much better and products that should encourage investors regarding the company's future. Below are three exciting developments from GM that I believe will be the catalyst for future growth.
General Motors has shown continued strength in its best-selling fuel-efficient cars, hybrids, and crossovers. The strength of GM over the last year has been a result of new model designs and increased fuel efficiency with vehicles such as the Silverado, Equinox, Tahoe, and Yukon. Each of these models have posted increased sales with the largest change being significant improvements in fuel efficiency which are necessary in today's economy.
This is more evident in the success of the Chevrolet Cruze, which has more than 200,000 deliveries YTD compared to only 516 in 2010, when it was released. The success of this model has resulted in GM creating more vehicles with better fuel-efficiency. Because the future of vehicles is fuel efficiency, sales will depend on which models save the consumer the most money. Therefore, as GM continues to make changes and create better products, I believe sales will increase.
Sales of the Cruze dropped slightly below 20,000 units delivered during the last month, a large reason being the arrival of the Sonic. The Sonic is the next generation of vehicles that will be built off the success of the Cruze that keep style and performance while incorporating fuel efficiency. The Cruze is a family car with a modern design, and although the Sonic is similar, it comes in two models -- a hatchback and a sedan. The design of the vehicle has a sporty appearance that will attract a consumer base that the Cruze has been unable to attract. However, the most exciting news regarding the Sonic is its price; the MSRP is $2,100 less than the Cruze with the same great 35 mpg fuel efficiency. And with sales that nearly tripled from September to October, I believe this unit will be one of many catalysts of growth for this company over the next several years.
Electric cars are yet to attract consumers at the levels automakers were hoping. However, the Volt has all the makings of a successful product that could be the first to transform the industry. The Volt is gaining momentum in its second month of availability and had 1,100 models shipped compared to 723 during the month of September. The vehicle is a bit pricey with a MSRP of $31,645, but I believe there could be a large demand for a vehicle with its capabilities.
The Volt has both an electric source along with a gas generator that runs on oil. Once charged, the Volt can drive for approximately 35 highway miles before switching to gas, and provides another 375 miles on a full tank of gas. I believe this service will be very beneficial to all consumers that have 15-20 mile commutes to work, who will now be able to simply charge the battery and drive to work without using gas. If the Volt owner also wishes to charge the battery once at work, he or she will use very little oil throughout the week, which makes the $31,645 MSRP a very affordable price.
Some potential buyers may worry about the performance of a vehicle that runs off a battery, but GM thought about this concern when creating the Volt. Therefore the battery comes with three settings: Normal for regular commutes, Sport, which can be used for high performance, and Mountain, a setting for climbing or driving in tough terrain. I believe GM thought of everything with this unit and that it offers something different which is a vehicle that any consumer can find beneficial.
GM has invested a lot of money into alternative forms of energy and achieving better fuel efficiency, and so far it's paid off. But I expect GM to use the Volt as a learning experience that will hopefully sell like the Cruze, and if so, we can expect a future line-up of vehicles that are both electric-operated and oil-based, with improved fuel efficiency.
Ford Motor Company (F) has reinvented itself much like GM, and has experienced a drastic increase in sales over the last twelve months. During October, sales increased by 6.3%, which was slightly short of analyst estimates of 8%; however, the company is still well above full-year expectations.
The Hybrid, Eco-Friendly Brand
Ford has spent an incredible amount of its revenue over the last two years in research and development in becoming more eco-friendly.' The company has reinvented most of its units with increased fuel efficiency, much like its competitor General Motors; however, Ford has taken the concept of eco-friendly to a new level. The company has made changes to the emissions and uses more recycled and renewable materials in an effort to improve the air quality both inside and outside the vehicle. Ford's costs have increased due to these changes, but it's expected to save Ford over the next ten years and increase its margins.
The company's hybrid engines are simply transcendent, and Ford is including these engines, which are both better for the environment and improve fuel efficiency, in its vehicles with the goal of consumers having an option. The difference between Ford's hybrid and GM's electric vehicle is the variety. Ford is offering its hybrid in most of its best-selling vehicles, yet gives the consumer a choice as to whether he or she wants to include the hybrid engine for a slightly higher price. And the hybrid engine is incorporated with oil to provide better fuel-efficiency compared to GM's model, which appears to be separated. I believe that, as Ford continues to incorporate the hybrid engines into its newer models, sales will increase. By focusing on eco-friendly materials, costs should decline over the next several years.
The Fusion is the equivalent to GM's Cruze in both sales and design. During the month of October, the Fusion continued its trend of high sales with 18,094 units. And although I personally prefer the Cruze over the Fusion, there are several reasons that the consumer has flocked to Ford to purchase the sedan with an MSRP of $20,200. Like many of Ford's vehicles, the Fusion has an option of a hybrid engine which averages 41 mpg on the highway with a 700-mile range with a full tank of gas. It's hard to compete with fuel efficiency such as this, which has been the driving force behind the Fusion's incredible sales. And I believe that the success of the Fusion is sparking new product lines from Ford, which include its new Focus, which is expected to have similar performance.
I have always been a utility vehicle owner, and I remember having to refuel quite often at 10-15 mpg. But those days are long over, and Ford is simply the best in utility vehicles, with 45,877 units shipped during the month of October as its fastest-growing segment within the company. The growth of utility vehicles can be traced back to the success of the Explorer and Escape, which are both growing and maintaining high sales. Since January the sales of the Explorer have increased by 134%, and the Escape, its bestselling utility, increased by 31% during the month of October.
The Escape is by far the most sought utility vehicle within the company, as sales consistently hover around 17,000-20,000 units per month since Ford updated the vehicle. The Escape has maintained its affordable price of $21,000, but the fuel efficiency has nearly doubled over the last two years. The Escape, which has a hybrid option, has been reinvented with the same fuel efficient technology and eco-friendly additions that Ford has rebranding itself with. And I believe that as Ford continues to create new utility vehicles and improve its brand, sales will only improve.
The success and excitement surrounding both General Motors and Ford Motors can be traced back to the companies' decisions to focus on fuel-efficiency and improving the technology of their vehicles. During the recession, both Ford and GM were failing to innovate vehicles and were not prepared to survive the increased price of oil during the recession. But now, with unemployment rates still high and millions of Americans under-employed, both companies have created products that save the consumer money with increased fuel-efficiency.
And over the next few years, as the economy improves, I believe that both companies will grow and create new products with even better fuel-efficiency. The auto industry as a whole is improving and growing faster than analysts expect. Analysts expected 12.5 million units sold during 2011; however, auto sales are on pace to exceed expectations by more than 1 million units. But stock performance has been dismal, and although sales are increasing, they are still at historic lows. Therefore I believe that both Ford and GM will rise over the next few years, with very limited downside and unprecedented upside poitential.
Disclaimer: All information in this article was obtained from October sales report and both GM and Ford's company site. As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy but rather informational purposes only.
Disclosure: I am long GM.