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Oh, How the Mighty Have Fallen

Jun. 13, 2011 2:48 PM ET
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I am old enough to remember when Detroit’s Big Three, GM (GM), Ford (F), and Chrysler, were far and away the planet’s more prolific auto manufacturers. So I was somewhat amazed to see a ranking of the 2010 global sales by units of the top five auto makers the other day. Here it is:

Toyota 8.42 million
General Motors 8.39 million
Volkswagen 7.14 million
Hyundai 7.74 million
Ford 5.31 million

I knew Toyota was on top, but they are certain to lose that position this year as the wide raging effects of the March earthquake and tsunami take hold. That would make General Motors the world’s number one car maker once again. It is surprising to see how fast Hyundai has moved up, offering Japanese style quality at American prices. It is also perplexing to see how far Ford production has fallen, the inventor of modern assembly line car manufacturing, now only 63% of Toyota’s.

These figures came out at Ford’s annual meeting, where it promised to raise sales by 50% by 2015, and to capture 20% of its sales in Asia and Africa by 2020.
While these are ambitious goals, and the demand side of the equation is certainly there in the emerging markets, I wouldn’t bet too much money on Ford being the once generating the supply.

Ford is assuming that it can beat Toyota, Nissan, Honda, Hyundai, KIA, Tata Motors, and up and coming Chinese car makers on their home turf, a stretch at best. I would be willing to bet money that higher US sales are based on the assumption that we return to the heady GDP growth rates of 3.9% in the last decade, not the 2% I believe that we will actually see going forward.

If you don’t believe me, just try and get financing for a new car these days. I’m paying cash for all of mine. And even if Ford does hit these targets, the profits won’t be there. There is a huge sea change going on in the auto market where consumers are favoring economical, high mileage, low margin four cylinder vehicles instead of the V8 behemoths of the past. That is what Ford’s lowly PE multiple of 7.8 is telling us.

I don’t see a trade here. Unfortunately, the US car industry has shrunk so much that it has almost become an irrelevance. I bet the investors in the GM’s ill fated IPO certainly wished they reached the same conclusion months ago.

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