By Thomas Hughes
The domestic auto industry has been perking up. 2011 was a good year for General Motors (GM), Ford (F) and the string of supply companies that keep the auto giants operating. In 2011 the U.S. automakers reclaimed domestic market share and the top two spots in world sales. Their foreign based competitors have faced challenges that do not seem to be subsiding. Here at home the economy, while not strong, is still expanding and gaining speed. The European debt crisis and recession are hurting sales and manufacturing in the region while in Asia economic growth has slowed to its lowest rate in years. This is compounded by two serious natural disasters. U.S. automakers have been sheltered from both obstacles and have the growing support of the U.S. market.
GM CEO Daniel Akerson has been fighting hard to enhance the company's corporate image. He has butted heads with the aging corporate bureaucracy in General Motors and is trying to standardize the brand. A recent move to upgrade all GM dealerships has limited support. The move is estimated to cost each dealership about $1 million. Many dealers are asking why it is important they all look the same. They must not see the importance of branding and brand recognition in business. This move is especially important in the wake of the Volt hearings. The company has been under close scrutiny, but no charges have been filed and the National Highway Traffic Safety Administration has ruled that electric cars do not pose any increased risk of fire.
General Motors is scheduled to release its fourth quarter and full year earnings on February 16th. The company has been releasing news in relation to company sales and earnings so there should not be any surprises. Strong sales of passenger cars from the fourth quarter carried into January, as this figure jumped up 13% for the month. GM has announced that 2011 was the best year ever in sales for its Chevrolet brand. The increase led General Motors to a 7.6% gain in vehicle sales over 2010. This has led to an expansion of a Texas plant, adding jobs to the economy.
The stock, which is currently trading around $26, is making a breakout on high volume. GM bottomed last fall and has been gaining all year. I expect to see GM trade at around $30 by summer 2012. This stock is extremely undervalued in comparison to other global players. The average Dow (DIA) stock is valued around 17 times earnings, while General Motors is valued at 6.5. The market knows that GM is back on the scene, and it is not waiting for the earnings release. GM stock is on the move. Just be careful, the higher it gets the more tempted Uncle Sam will be to sell.
Rival, competitor and close cousin Ford Motor Company also is doing well. And Ford was able to do it without government bail out money. This domestic automaker made impressive gains in 2011 as well and was able to increase January sales, something GM was not able to accomplish. January sales jumped 7% over the same month last year, led by the Focus and F-Series. The F-Series has been the top selling brand for 30 years and made an 8% jump in sales for the month. Full year net income in 2011 was up 50% from the previous year with 2012 looking to be as good. Global sales of Ford are on the rise. Sales in India and China are up 15% and 7%, respectively.
Shares of Ford have not broken out yet but appear to be on the way. The company offers all the value of GM but with added bonuses. There are no lingering doubts linked to bail out money and debt as with GM, and Ford has managed to improve on last year's results. GM has not, and does not pay a dividend, while Ford does. The company reinstated the dividend December of last year, and the stock now yields about 1.5% at the current share price near $12.50.
Auto parts makers have also been able to profit from the restructured and improving automotive sector. American Axle (AXL) reported that fourth quarter and full year sales increased on a GM and non-GM basis. General Motors accounts for most, but not all, of American Axle's business. The company supplies drive train parts for assembly into GM and other vehicles. Sales grew by 4% in the fourth quarter and 13% on a year over year basis. Excluding sales to GM, sales for the year grew by 25%. Earnings per share for the year grew by 20% to $1.89, which includes a $.20 per share loss on one-time charges related to planned facility closings.
BorgWarner expects 2012 to be even better than 2011. It is expecting net earnings per share to jump around 25% compared to previous results. This is on a projected 10% increase in sales and operating margins better than 11%. Fourth quarter and full year 2011 results are expected on Valentine's Day before market open. Third quarter results included a 62% jump in earnings per share over the same period last year and reaffirmation of full year guidance to the high end of the range.
BorgWarner stock has been trending up since the first of the year but is nearing the top of its one year range. The stock appears to have support around $70 and could make new highs in 2012. The company has a diversified client list and operates worldwide. Exposure to global economic conditions and suffering automotive brands could hold this one back. I still think GM and Ford are better choices in the automotive sector.