4 Auto Stocks That Could Sink By 2013

Includes: F, FCAU, GM, HMC, TM, TTM
by: Investment Underground

by Daniel Green

General Motors (NYSE:GM) will unveil a new strategy designed to turn its money-losing Opel/Vauxhall division around sometime next month. Press reports indicate that GM's European boss, Karl-Friederich Stracke, leaked what could be some of the details of this strategy to unidentified workers at an Opel factory in Ruesselsheim, Germany.

The focus of the strategy will be concentrating the production of the Astra model car at two factories instead of one. Astra is currently built at Ruesselsheim, Ellesmere Port in England and Gliwice, Poland. Recent news stories seem to indicate that GM will terminate Astra production at Gliwice and concentrate it at Ellesmere Port and Ruesselsheim. The company is currently negotiating with unions in England in order to add a third shift at Ellesmere.

The idea behind the restructuring is to cut costs and increase utilization of GM's European assets. The factories at Russelsheim and Ellesmere are currently operating below capacity. Stracke wants to maximize the use of resources by adding a third shift. Adding shifts and presumably workers at Russelsheim and Ellesmere is also designed to get more support from labor unions, whose support will be critical for any restructuring of Opel and Vauxhall.

This plan could increase GM's stock value if investors like it and unions accept it. If investors or unions balk, it could send GM's stock prices falling. Opel/Vauxhall reportedly lost $256 million in the first quarter of 2012.

Chevy Going to Europe

General Motors is considering building Chevrolet brand cars in Europe. Chevy is apparently part of Stracke's restructuring plan, which seems to indicate that GM is acknowledging that its flagship brands have lost some of their appeal.

Chevy cars are currently sold in Europe, but they are manufactured in South Korea. Stracke's plan seems to indicate that the European Chevy would be made in conjunction with PSA Peugeot Citroen (UG.PA) in France. GM has had an arrangement with Peugeot for quite some time, but has not made much of it.

Chevy has been a huge success in China, where General Motors and its partner, the Shanghai Automotive Group, sold 972,369 vehicles in the first quarter of 2012. If GM could repeat that success in Europe, it would demonstrate that it is still a dominant force in the auto business. Successful production of Chevy in Europe would definitely help GM's stock value and augment the big success it has had in the U.S. and China lately.

The building of Chevy cars in Europe could give GM a new low-priced vehicle to compete with Japanese and Korean imports. It would also head off protectionist efforts from labor friendly European governments. In addition to that, the maximizing of resources and the use of existing assets could increase GM's market share and stock value in Europe.

If it is successful, Stracke's plan could rebuild General Motors' brand in Europe and stock value. Unfortunately, it is unclear how realistic this plan is, particularly with a massive drop in European car sales in the past year.

The plan does indicate that GM is committed to retaining a significant presence in Europe. Stracke also told workers and the press that General Motors intends to honor its pledge to keep producing cars at Russellsheim for another 15 years.

General Motors also seems intent on expanding Opel's brand overseas. It put out a statement indicating that it is looking at selling cars under the iconic German brand name in Australia, the Middle East, and South America. There is no indication that a market exists for Opels in any of those areas, so this move may not add to the earnings or stock value.

Opel definitely needs to expand beyond Europe, where auto sales outside of Germany and Great Britain have fallen off drastically because of the debt crisis.

Toyota Aims to Reclaim Lost Position in Europe

GM faces a host of problems in Europe, including a crowded auto market. In addition to home- grown competitors, such as Fiat (FIATY.PK) and Peugeot, it faces a fierce challenge from the major Japanese brands, including Toyota. Like GM, Toyota (NYSE:TM) is committed to the European car market.

Toyota is planning to roll out two new models in Europe this year- the Yaris subcompact hybrid and the GT86 sports coupe (sold as the Scion FR-S in the U.S.). Toyota has been having problems in Europe in recent years, where its top selling position was taken by Volkswagen (OTCPK:VLKAY) last year.

Toyota's market share has increased in the past year from 5.7% to 6.6%, which indicates that Europe's auto market is in flux. That could be good news for GM and its efforts to bring Chevy to a European audience, so. So it is possible that the company could add market share and increase its earnings per share.

This could also be bad news because Toyota seems to be making an aggressive push into the economy car market. That means it could be trying to take market shares away from the Astra, which is one of Opel/Vauxhall's flagship brands. A successful launch of the Yaris hybrid in Europe could hurt General Motors' stock.

Global Economic Woes Hurt Tata Motors

The global economic downturn is definitely hurting Tata Motors (NYSE:TTM), which saw its stock values decline by 7% on Wednesday. The reason for the fall was obvious - Tata's sales, especially of its flagship Land Rover and Jaguar brands, are flat. Some analysts noted that the cause of the flat sales was turmoil in Europe, which is reducing car demand in that region.

That's certainly bad news for General Motors and Toyota as they try to expand their sales on the continent. It could also be the beginning of a general fall in auto stock prices, including such big brands as Toyota. The only thing keeping auto stocks from an even bigger fall is the great sales figures from the U.S.

Ford Admits that It Has Major Image Problems

Ford (NYSE:F) has admitted that its iconic brand name has a serious image problem that could hurt sales. The company has even launched a new advertising campaign that does not show the Ford logo or mention the name Ford.

Business Week reported that the decision was made because of the results of consumer focus groups. The research indicated that consumers reacted favorably to new Ford vehicles, but not to the name Ford. The company's own director of marketing communications, Matt VanDyke, even admitted that the U.S. public has a negative perception of Ford.

That could be very bad news for a company in an increasingly competitive auto market. It also seems to indicate that U.S. auto makers have not overcome the negative reputation they have had for a long time. Such a reputation could definitely hurt the company's stock value. Not surprisingly, Ford's shares declined by 2.5% after this news came out.

Part of the problem is that Japanese brands, such as Toyota and Honda (NYSE:HMC), have a far better reputation among U.S. car buyers, Ford's own chief of global marketing, Jim Farley, told reporters. Farley even admitted that buyers in U.S. population centers on the East and West coasts prefer Toyota and Honda to Ford.

Ford certainly is facing a problem: its U.S. market share has fallen to 15.4% even though it offers several models that offer excellent fuel efficiency. Part of the problem could be a management team that holds a press conference to tell reporters that consumers have a negative impression of it. That's exactly what Ford executives did, according to Business Week.

It goes without saying that such bone-headed moves are a great way to sink a company's stock value. Expect Ford stock prices to fall and keep falling for the foreseeable future unless the company develops some common sense. A good way to do this would be to stop reminding investors that consumers don't like their products. An even better way would be to develop some effective marketing campaigns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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