General Motors (GM) just released the company's 2011 fourth-quarter results and was the last of the big 4 - now including Ford (F), Toyota Motor (TM) and Honda Motor Corp. (HMC) - to release year-end numbers and the result were not viewed as positive by the financial news websites and quoted analysts. However, it appears investors like the news, driving up GM's stock price by 7% on the day of the earnings release. The news also lifted the Ford share price and the two Japanese automaker shares were up slightly. The question is does the news out of GM forecast better or worse times for the car makers in 2012?
First the two Japanese auto companies: Toyota and Honda close their fiscal years on March 31, so the results through December 31, are for the first three quarters of their respective fiscal years. For Honda, the year to-date has been terrible. Global automobile sales were down 19%, revenue off 17.6% and net income down 70% from a year earlier. By the end of the fiscal year, the company expects results to improve to revenue down just 12% and profits down 60%. For FY 2013, the Wall Street analysts expect profits to return to the 2011 level, but it will be several quarters before we see if Honda is starting to turn things around. Toyota saw revenue decrease by 10% for the first nine months of the fiscal year and net income declined by 57%. The Wall Street estimates have Toyota profits rebounding sharply for FY2013 starting in April. Net profits are forecast to be triple the amount earned in FY 2012.
The American auto manufacturers fared much better in 2011. Ford saw revenue in 2011 increase by 13% and the reported operating profit of $8.8 billion or $1.51 per share was a 5% improvement over 2010 results. For 2011, General Motors reported vehicle deliveries increased by 7% and total revenue was up 10.8% and net income increased 62% compared with 2010. Going forward, the Wall Street consensus earnings estimates have profits for Ford increasing 12.5% and GM profits are expected to decline slightly in 2012. It is worth noting that over the last year, the share values of all four auto manufacturers declined by at least 10%. The two U.S. companies under performed their Japanese competitors, with share value losses greater than 20%.
The stock market gets lots of news and sales figures from the automotive industry and share prices are effected every time a quarterly report or monthly sales report is released. The two American auto companies have come back from the recession years of 2008 and 2009 to strong levels of profitability and are trying to figure out how to grow from here. The Japanese auto manufacturers had problems in Japan and Asia, which negatively affected worldwide sales in 2011. From this point investors should consider the overall trends in auto sales. Each manufacturer will get its share.
Consider the big sales picture. For the first eight years of the current century, vehicle sales in the U.S. varied between 16 and 17 million units per year. In the recession year of 2009, only 10.4 million cars and trucks were purchased. The 2011 sales in the U.S. were just over 12 million, still 4 million short of the typical pre-recession years. The big question for the auto industry is how quickly the U.S. economy will recover to get back to 16 million car and truck sales each year. Investors who see progress on this longer-term trend can avoid the noise of monthly car sales reports. General Motors has approximately an 18% market share of North America auto sales. Eighteen percent of 16 or 17 million cars is a much larger number than 18% of 12 million cars.
The final worry on the GM fourth-quarter earnings report was the company's struggles in Europe and South America affect overall profits for the fourth quarter. Also, the GM management did acknowledge revenue would be hurt in 2012 as customers bought more less expensive vehicles and fewer high cost SUVs. In this respect Ford has done a better job shifting production to attractive and economical cars. Still, Honda and Toyota may be poised to show significant per-share profit growth in 2012 and may be the better bets as investments.