This Stock Could Pass GM, Ford By 2013

Includes: F, GM, HMC, TM, WFC
by: Stock Croc

The CEO of General Motors (NYSE:GM), Dean Akerson, is interested in buying at least some assets of the ailing Ally Financial (ALLY-PA). Akerson told Bloomberg reporters that he would like to buy Ally's operations in Europe, Canada, Mexico, and South America. Akerson said GM probably is not interested in buying any of Ally's U.S. operations. He said those assets are not attractive because Ally's U.S. lending operation has been turned over to Wells Fargo (NYSE:WFC) in the Western U.S. That probably means that adding such financing would not help GM's sales in the Western U.S.

GM wants Ally's Canadian, European, and Latin American operations in ordering to expand its financing infrastructure, Akerson seemed to indicate. He did not say what exactly General Motors plans to do with that infrastructure, only that he seems to think it would benefit the company. Interestingly enough, such an acquisition would simply take back assets that a previous management team at GM sold off in 2006. Ally Financial used to be General Motors Acceptance Corporation, or GMAC, which pioneered automobile finance in the United States. GM sold 51% of GMAC to Cerberus Capital Management LP, the hedge fund that used to own Chrysler.

The effect of this vague talk on GM stock prices might not be very good. Ally Financial's capital has been in trouble lately because of losses at its privately held mortgage REIT, ResCap. ResCap has had to file for bankruptcy reorganization because of its problems.

Purchasing Ally's assets would hurt GM because they are valued at $30 billion. Bloomberg speculated that Ally has to sell them in order to pay back bailout money to the U.S. treasury. The terms of the bailout deal Ally signed give Uncle Sam a 74% ownership stake in the company. That's one partner Ally's management team would like to move out of the building, so it might use the funds to buy out the Feds.

Buying $30 billion worth of assets from a troubled company-- at a time when GM is facing huge losses in Europe-- would undoubtedly hurt the company's stock value. GM reportedly lost $300 million in Europe in this quarter alone, particularly in Europe. Akerson claimed that General Motors would not bleed to buy Ally's assets, but he claimed he was the natural buyer. The possible Ally acquisition could be part of GM's expansion plans overseas, particularly in Europe. General Motors has plans to introduce a new Astra model at its Vauxhall Opel division and, increase the number of shifts at plants in Germany and England and to increase Chevy's presence on the continent.

From Akerson's remarks, it seems that General Motors also wants to increase car financing in Europe. Akerson sounded unhappy with the way Ally has been financing cars in Europe. This could be a risky strategy with the European debt crisis. Increasing GM's exposure to car loans, which can be risky, could increase its exposure to losses. The biggest potential losses could be in Europe, where car sales in countries like France and Italy have fallen by as much as 20% in recent months. It should be noted here that car sales have been good in Canada, but they have been falling in South America. That means the increased demand for auto finance that Akerson is counting on to justify the acquisition may not be there.

In the long run, that could hurt its earning per share and stock values. Expanding into a riskier area of business in market, where the company is already taking huge losses, sounds like a sure-fire recipe for hurting GM's stock value. The only thing that would give investors confidence in that move would be greatly increased European sales, which does not seem likely anytime soon.

Ford Plans to Compete with Toyota Prius with European Import

Ford (NYSE:F) is planning to challenge Toyota (NYSE:TM) and Honda (NYSE:HMC) in the U.S. hybrid market with the C-Max Hybrid. Toyota's Prius and Honda's Civic currently dominate the Hybrid car market in the U.S. The C-Max platform has already been a success in Europe, where Ford has sold 156,000 units of the gasoline version since it was introduced in 2010. C-Max is $500 less than the Prius and it contains a lot of nifty technology, including active park assist and an automatic lift gate.

The big challenge for Ford will be selling C-Max to more sophisticated East and West Coast hybrid lovers that prefer Japanese cars. Ford's own marketing team admits that it has failed to connect with that demographic. This strategy could boost Ford's sales and stock values because urban dwellers on the East and West Coasts are similar to Europeans in their attitudes, so it could have finally found a way to appeal to them.

The big challenge will be to get potential Hybrid buyers to go into a Ford dealership. That could be tougher than actually building the car. Ford has had trouble getting ecologically-minded urban dwellers to buy its Fusion hybrid and its high mileage cars like the Fusion.

Japanese Electricity Shortages could Affect Auto Production and Toyota's Bottom Line

An ongoing electricity shortage in Japan could hurt auto production at Toyota and other Japanese automakers. Toyota Boshoku, which is the main supplier of car seats, announced that it might have to cut production this summer when Japan's nuclear power plants shut down. Boshoku will have to cut electricity usage by 5% because of the shutdown, which was caused by public opposition to nuclear energy ignited by last year's tsunami. This will increase costs because Boshoku will have to install backup generators and make its own electricity. These generators will burn oil, which will increase costs. Boshoku will have to pass those costs onto Toyota, which will affect that company's earnings per share and profit margins.

Toyota Increases Investment in the U.S.

Not surprisingly, Toyota seems to be moving more of its production to the U.S., where electricity costs are lower. The company is planning to invest $80 million in its engine plant in Huntsville. This will raise production at the plant by 216,000 units and add a new 300,000 -square foot building to the plant.

The Huntsville plant makes V-6 and V-8 engines for a wide variety of vehicles, including the Camry, RAV4, Venza, Sienna, Highlander, and the popular Tundra trucks. This investment is in conjunction with a $30 million expansion at Toyota's Georgetown Kentucky plant that will raise production there to 100,000 vehicles a year. Toyota is planning to increase its engine production in the U.S. to 1.4 million a year from 700,000 in the near future.

This news is not necessarily good news for Ford and GM because it indicates that Toyota thinks its sales in the U.S. are about to grow. That could indicate that Toyota thinks it can take more market share from Ford, Chrysler, and GM. That could lead to falls in Ford and GM stock value, but help Toyota. Toyota seems poised for growth in the North American market. It could also be planning to shift production to the U.S. from Japan, where rising electricity costs could eat into profits and earnings per share. The question for Toyota shareholders is whether the company can shift production to the U.S. fast enough to cut its costs and maintain stock value.

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