Is Anything Worth Owning in the Auto Industry? 39 comments
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In short, with high Oil prices and report after report from the
big automakers cutting production, the answer's a resounding No!
There's simply nothing compelling out there valuation wise in the
Automotive space.
Ford (F)?
Virtually slashing it's popular truck line in half with delays and
production cuts, and the only car worth talking about, besides police
departments contracts, is the Mustang which now has been stagnant for
almost half a decade.
General Motors (GM)?
$40Billion in the hole and counting... Not to mention probably the
ugliest set of cars in America next to Chevrolet. Truly incredibly
uninspiring automotive design.
Toyota (TM)?
Actually the only compelling value out there with a P/E of 9. However,
whispers of US sales expectation management are seeping through the
proverbial cracks, which will put some serious pressure on upcoming
earnings reports. The company has the clout of being the "leader" in
the Hybrid segment going for it but could the Prius possibly look any
worse, and if the respectable Jeremy Clarkson of Top Gear is to be
believed, in a race the Prius provided worse fuel economy than a BMW
M3! (*Obviously the car was not run under normal conditions*)
Toyota
at levels below $100 is one to put on the watch list, however times
will continue to be rocky in the automotive segment as a whole until oil speculation subsides and consumers instill in themselves a renewed
confidence to go driving again.
Of the companies traded in the US, the only one continuing to do reasonably well is Honda (HMC). Is it a big secret that it is up 4% Year to Date while others are off significantly? F (-20%) GM (-40%), DAI (-30%), TM (-10%).
Honda's
secret sauce? Fuel efficient well engineered cars, that have very good
engines, are impressively reliable and most importantly, don't make you
loathe getting into them every single morning. It isn't hard to
understand that successes like Accord and Civic, year after year show
up on best lists and best seller lists. The Acura luxury line continues
to produce winners as well, but a watchful eye on the headlines is a
necessity in this sector.
With Toyota starting to whisper
statements that US sales targets will be "tough to meet" it doesn't
require multiple graduate degrees to surmise Honda may be in for some
dry spells to come. While at this stage Honda is a Hold in this book,
closer to $30/share is an attractive entry point for an innovative car
company, that yet sees almost none of the corporate stumbling blocks
faced by its US peers and has a big enough worldwide presence to funnel
out good small cars all over Europe and Japan.
Disclosure: Author holds no position in the above mentioned companies.
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This article has 39 comments:
You do know Chevy is part of GM though, right?
"General Motors (GM)? $40Billion in the hole and counting... Not to mention probably the ugliest set of cars in America next to Chevrolet."
Within 5 years, the USA will lose a huge manufacturing base (remember WWII), a couple hundred thousand good jobs for the non-college grads, and our (former) place in the world...which is NOT to say they didn't contribute greatly to their own demise...
The consequences of our auto-makers moving what they have left off-shore will be much more severe than most now realize...a very sad for America is just over the horizon.
I'd be careful of citing a PE of 9 as signaling compelling value. In a cyclical industry, a low PE ratio doesn't necessarily signal value.
Hershey
I note that in explaining the downfall of American auto makers you neglect to mention the fact that they keep building cars and trucks that fewer and fewer people want to buy. Do you think that might have something to do with their current problems? Or how about the greedy top brass who keep upping their salaries and perks to new levels? Naah. It's the union's fault.
Whatta deal! Every week a new team to paw through your bags for bombs. As they say, you get what you pay for. In this case that's not very much.
1. Re Prius's looks, I was unaware anyone was buying the car for its styling. Leaving aside opinions about looks, the car has the fastest inventory turns in the USA at present, staying on dealer lots just long enough to be washed, prepped, and delivered. About one day. Love the Prius or hate it, it is a sales homerun for Toyota.
2. Conversely, while I think the Honda product line has a lock on success for the foreseeable future (after all, knocking off the F-150's sales crown is stunning!), Acura is arguably in some disarray. Only one of the Japanese upmarket brands has broken into the "Tier One" luxury segment, and that is Lexus (with a vengeance of course!). Acura continues to languish somewhat and arguably has been passed by Audi.
3. A key asset every Japanese company has, that is often overlooked, is the reservoir of high-mpg models they have "back home" that can be brought to the USA quickly if fuel prices stay high. Thus Toyota did not need to develop Scion from scratch, but just adapt domestic models for USA sales. Nissan brings its Cube here next year. Etc. Chrysler has no such reservoir; Ford could tap Mazda for small cars but to date seems not willing to do so; and GM has Daewoo in Korea, which should be able to deliver the goods (though the Aveo has been a real dud, I will admit). Unfortunately for the Big Three, the flow does not reverse: there is really no market anywhere in the world desperate for large pickup trucks.
The point here is the car companies and their unions aren't solely to blame for the mess they're in today. Just WHO was buying those behemoth SUV's in the face of so-called peak oil? And didn't we all KNOW what our self-imposed mortaria would do to our nation's energy supplies and independence?
Hindsight is always 20/20 and Monday morning quaterbacking makes us feel wonderful. But we ought to be looking in the mirror sometimes when we're blissfully pointing our fingers at some other poor jerks.
For now, GM still pays a dividend with an 8.77% yield based on current prices. Even F still pays on its bonds (KVU - issued by CorTS Trust II for Ford Notes).
While KVU's face value ($25) and yields 8%. The current price of $14.07 would give you a yield of 14.21% ($1 per share paid semi-annually).
It's a low volume bond, but no one thinks that F will go away, so is it a long term growth and income play?
Toyota does things differently then the American auto makers. They do not produce a car until it is actually sold to a dealership. And a dealership obviously doesn't buy a number of cars without a clear rough estimate of typical demand.
While other automakers produce cars all the time, leave them at the plant until they are sold, and when no one buys them they shut the plant down for 2 weeks and send everyone home, Toyota is different. They produce cars that are already sold to dealerships and use overtime to produce any excesses if needed.
There is a reason why Toyota cars dont stay on dealership lots very long.