The domestic auto sector is making a comeback. There are several companies poised for significant advance during the coming year. However, Toyota (TM) isn't one of them. Its market multiple of 40.66 just isn't backed up by the numbers. Plus, Toyota is facing growing competition from its American counterparts. Edmunds.com expects that light auto sales for December in the U.S. will be up 24% from November, with General Motors (GM) posting a huge 31% gain (for December). GM's total market share for 2011 is around 19%, Ford (F) claims about 16%, totaling over 35% of the U.S. market. U.S. based automakers are expected to reclaim 2% of total market share from foreign based competition. Toyota barely makes 9% of the U.S. market, also per Edmunds.com, and is losing ground. Domestic producers also posted double digit sales gains. Toyota despite being up for November has lost 7.5% on the year.
Toyota has faced many challenges recently. The tsunami in Japan, massive flooding in Thailand and a global recall to name a few. Beginning in 2009 and carrying into 2010 Toyota recalled over 9 million units, costing the company over $5 billion. A strongly trading yen is also hampering Toyota's bottom line. Never mind that disaster can be overcome, if the yen remains strong then Toyota will be hard pressed to increase profit margins. Toyota has announced it is planning to bounce back in 2012. Toyota is estimating it will solve its production problems and increase global sales next year by 20%.
Toyota is currently trading at a premium compared to Ford. Toyota's P/E of 40.66 compared to Fords 5.25 is concerning. Not to mention how thinly traded, Toyota's average daily volume is less than 5% of Ford's and 50% of General Motors'. Bearish momentum is consistent with a drop below $60 and could easily take the stock down to its 10 year low. About the only thing Toyota has going for it now is the dividend, which pays about 1.5%. Despite Toyota's claims of increased sales and production in 2012 there is little evidence the company will regain its spot as top automaker.
General Motors is a better pick. However, it does come with some caveats. GM is a relatively new company. Even though GM has been around for over a century, the new company, under the leadership of Daniel Akerson, has barely been solvent for two years. Aided by federal bailout money, money still deeply invested in GM, GM slashed debt, renegotiated obligations, streamlined production and brought itself back to profitability. Government ownership of GM is still over 30%, with a cost basis around $43/share. GM is currently trading around $20 a share.
Analysts and investors alike are right to worry over GM's prospects. Currently the corporation is being run by many of the same old folks that allowed GM to get as bad as it was. However, under CEO Akerson, GM is positioning itself to stay current with market trends. “We're getting good people ... people out of Silicon Valley” says Akerson. The new GM will no longer rely on a “55 year old ... telling us what a 20 year old wants to buy.”
However, Ford is the best pick. It won't go skyrocketing to $20 but it is going up. Aside from the good and improving fundamentals Ford has the spirit of America behind it. This may sound hokey but it's true. Fear stemming from economic trouble in Europe and China has investors spooked. Just look at the VIX. It broke out above 20 in late summer, the same time European fears were escalating. It shows a choppy and volatile market all the way up to the present. The markets appear to be calming but that does not make Europe and China safe. Money has been sitting on the sidelines for too long, investors need to see profits. Since foreign markets have lost their luster investors will be flooding back to the domestic market in search of returns.
Ford also has strong brand recognition. Americans are turning to “American Made”, a trend highlighted by ABC World News. In their “Made In America” segment they spotlight Americans seeking out American made products. This trend will span the entire market place, not just autos. Ford has also been able to maintain its profitability without bailout or bankruptcy. Another attraction for Ford is its dividend. Currently reinstated, it is paying about 1.8%. This move will surely bolster investor sentiment. For the year, Ford sales are up 9%, a gain placing it in number two position among the leading automakers.