Ford And GM Set To Reverse Downward Course, Could Double In A Year's Time

Includes: F, GM
by: Brian Nichols

Auto and truck manufacturing companies released August sales Thursday that show the strength of the industry. Most analyst expected for sales to be flat, considering the turmoil of the market in August, along with the effects of Hurricane Irene, which closed many dealers last weekend. I think it is safe to say that with consumer confidence at its lowest level in over 2 years, consumers are finding fuel-efficient automobiles to be a necessity even in today's economy. Below is a look at major auto manufacturers and their sales for August.

Chrysler rolled in strong with August sales up 31% year-over-year, the strongest report since 2007. Chrysler, Jeep, Dodge, and Ram Trucks all posted year-over-year gains, which include all five Jeep models posting gains over last year. The new 2011 Jeep Compass gained 130% over last year results. This set the fifth consecutive month that the Jeep Compass hit record sales.

Nissan Motor Company (OTCPK:NSANF) posted North American sales that increased more that 19% year-over-year. The Altima was the big winner out of this group, with more than 23,000 units shipped, a gain of 24.5%. The company's crossover, the Rogue, achieved a new record with 11,467 units delivered.

General Motors (NYSE:GM) increased sales 18% compared to the same period last year. Sales were led by the fuel-efficient Cruz accounting for 1 in every 10 units delivered. The Equinox gained 58%, while the Terrain posted gains of 88%, as General Motors' fuel-efficient vehicles continue to produce.

Ford Motor Company (NYSE:F) posted an increase in sales of 11% year-over-year. Ford sales were led by utilities, and more specifically the new Explorer, with gains over 300%. The Fiesta came in strong as well with gains of 76%.

Analysts were not expecting results this positive, because of the events that took place in the month of August. The month began with the debt crisis, as every American learned how far apart the government is with its objectives. The European debt crisis continued to get worse, which contributed to major market sell-offs through the first half of the month. Finally, Hurricane Irene hit the East Coast which temporarily stopped auto sales in most major U.S. cities.

With events such as these it is no wonder our consumer confidence is at its lowest level since April of 2009. With consumer confidence so low in conjunction with the multiple events that took place in August, there was no reason for analysts to be optimistic regarding auto sales during the month. Therefore, the fact that auto sales were so strong speaks volumes about the rebound the industry has made.

The companies listed above have each reinvented themselves with new designs. The new models have encouraged consumers to purchase vehicles that now come with better warranties and solid rebates. During the recession most auto companies experienced serious financial distress, and there was a lack of innovation or change within the industry. I remember going to buy a new Chevrolet Yukon and the model being exactly the same as my old one -- just years newer and much more expensive. Auto manufactures kept this mindset for quite some time, and kept selling old models as new models for too long, which gave the consumer no incentive to upgrade.

The new lineups have now encouraged consumers to buy new vehicles because the models' designs have changed. Along with new designs, the auto companies took into consideration what consumers really wanted: fuel efficiency. As a result consumers have now bought and enjoyed new vehicles with new designs and better fuel efficiency. This change, along with low stock prices within the auto industry, is why I am so optimistic about its future.

I expect for each stock to be trading significantly higher as a result of posting such high sales, despite the obstacles during the month. However, GM is trading with a loss of more than 4%, and F is trading with a loss of 2.35%. Both companies, despite their growth, are trading near 52-week lows.

Monthly sales do not usually impact the price of a stock, but with everything that has occurred within the economy I expected both F and GM to see gains if the sales were positive. The price action of these two stocks trade without logic. The stocks trended lower with the rest of the market after manufacturing, construction, and consumer confidence all disappointed for the month of August.

I understand the meaning behind the economic indicators and the importance of each indicator to signal economic growth. But the drop in these three areas had no effect on the auto industry, as sales continued to increase despite economic indicators. With both Ford and GM trading near 52-week lows it only adds to my beliefs that these two stocks will not only reverse, but could double within the next year as the industry becomes even stronger.

Disclosure: I am long GM.