Having had its presence in the automotive industry for decades, General Motors (GM) has comprehensively established itself as one of the largest automakers in the world. Over the course of its long history, the company has seen numerous shifts and changes in trends. However, it has managed to adapt itself each time, coming on top of emerging trends and evolving market conditions. More recently, General Motors has redirected its strategic focus towards garnering higher shares in emerging markets in Asia, Europe and South America. Among these, China has appeared to be one of the largest markets for automobile manufacturers.
However, with a significant slowdown in China's economic growth in recent months, economic gurus predict that automobile manufacturers will find it increasingly difficult to achieve projected sales growth in the current fiscal quarter. General Motors has come a long way considering the fact that it filed for bankruptcy in 2009. It has formed a strategic alliance with the Shanghai Automotive Industry Corporation (SAIC), announcing plans to buy back 1% share in the venture. This will allow General Motors a 50% share for both parties in operations.
General Motors has fared well in the first fiscal quarter of 2012, reporting impressive increases in sales and profits year-on-year. Leading financial indicators of the stock look promising, suggesting a brighter outlook in the future and better returns for investors. This explains why the stock has been able to post an impressive performance recently amid favorable market conditions and strong investor sentiment.
General Motors has also announced plans to acquire a 10% stake in Isuzu (ISUZF.PK), the leading Japanese truck maker. The proposed business alliance between the two auto manufacturers is a step in the right direction as it will allow General Motors to collaborate on manufacturing of commercial vehicle projects in Asia, Central America and South America. The company has also commenced site work for an expansion project in Missouri which will cost nearly $380 million. The completion of this assembly plant is scheduled in June, after which a new production line will be added for the Chevrolet Colorado pickup truck. This should help General Motors increase its production efficiency.
Looking at recent news and developments, I believe General Motors is poised for higher growth and revenues. Even currently, the stock is showing strong upward movement and recent alliances and acquisition plans will certainly help it on its way up.
No analysis is complete, however, without considering how impressively, or dismally, the direct competitors of a stock are performing. For this purpose, I will analyze three major competitors of General Motors that have been in the industry for almost as long and have been tough competition to the company.
Being the oldest and the largest competitor for General Motors, Ford (F) can be called General Motor's traditional rival. Much like General Motors, Ford also originated from the same market and has recently entered emerging global markets such as China for expansion and greater growth. Even with a slow economic outlook for the massive market of China, Ford has decided to go ahead with its plans of constructing a fifth manufacturing facility in China by the start of 2015. The company accepts that the project will cost a staggering $5 billion and I strongly believe that the move is not a wise one, especially considering the fact that the Chinese market is foreseeing an economic exhaustion in the coming months which will cause a slowdown in activity.
So, although the management at Ford strongly believes that it will be able to gain a competitive edge in the Chinese market with the completion of this project, the economic outlook of the market suggests otherwise. For investors who seek higher returns on their long-term investments, Ford's move to invest a staggering $5 billion in a volatile market puts a big question mark on its potential to pay high yields. General Motors is, therefore, a safer investment option, according to my analysis.
Toyota (TM) has been another major competitor for General Motors ever since Japanese automakers entered the American market. Today, both these companies compete against each other in the international market. However, Toyota is the stronger competitor between the two when analyzed in the current scenario. This year, certain industry analysts referred to Toyota as a ticking time bomb, which would blow up in the face of investors. They added that Toyota would fail to sustain its growth for long, even with the recent innovations that it has introduced in its models. On the contrary, Toyota has raised its sales forecast for this year based on how well it has performed in the first quarter. This move signifies confidence and optimism that the company has the capacity and potential to exceed projected targets. This is always a good sign for investors as they can expect earnings and returns. Toyota is perhaps the one competitor that can still give serious competition to General Motors.
While Honda (HMC) is a direct competitor of General Motors, it is not as well established in the global automobile market as say, Ford or Toyota. However, I have chosen this stock largely for the high investor interest that it has attracted recently. It is an indubitable fact that Asian markets have been largely profitable for international automobile manufacturers. Some new entrants into the international market have achieved a lot of success after penetrating the Asian markets initially. Tata Motors (TTM) is one name which is worth mentioning here. Sales and income growth has been quite impressive because in the last year alone, the company reported an increase in income volumes of as high as 93%. This growth can certainly be called exponential as very few of its competitors have ever been able to achieve such overwhelming figures. Some experts strongly believed that Honda would be able to grow as much as other leading Japanese automakers. However, the stock has recently been downgraded by ratings agencies, partly owing to the fact that it has not missed projected revenue and growth targets for the first fiscal quarter of 2012. Therefore, I rate General Motors as a more viable investment option.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.