Filed Under:
Tickers in this Article: F, GM, HMC, NSANY, AAPL, C, TM
Car sales plummeted during the recession, falling in America from 16.5 million units in 2007 to 10 million in 2009. After showing significant improvement in 2010, the Economist provides forecasts that sales will resume to approximately 14 million in 2011. Although such estimates fall below actual 2007 results, unit volumes are expected to be the highest since the collapse of Bear Stearns.

IN PICTURES: 5 Tips To Reading The Balance Sheet

Industry Downturn
The North American automobile landscape has undoubtedly changed as waves of restructuring within the American auto industry has opened the door for foreign competitors. In 2006, for example, Ford (NYSE:F) and General Motors (NYSE:GM) held a respective 17.3% and 24.7% share of the U.S market, while oversees competitors Honda (NYSE:HMC) and Nissan (OTCBB:NSANY) held a combined market share of 15.3%. However, the economic downturn enabled better managed and more efficient competitors to make strides toward penetrating the U.S. market. Ford's market share has since deceased to 16.5%, GM fell to 19.1% and Honda and Nissan captured a combined 18.5% market share.

Activity Resumes
With the unemployment rate slowly creeping back to 9% and lenders willing to extend credit to consumer, the auto industry will be among the benefactors of improved economic conditions. Stocks in the industry have already shown strong gains. For example, despite major safety concerns, Toyota(NYSE:TM) shares have increased by 14% within the last year. Ford, on the other hand, has been the Cinderella story of the industry; after facing potential bankruptcy concerns, the stock is up 1000% after hitting their 2008 lows. Even General Motors has emerged from bankruptcy in the largest historical U.S IPO.

Ford's Performance
In 2010, Ford generated net income growth of 71% to $6.5 billion, mainly driven by growth in the North American market. Although sales volume suffered in Europe due to the uncertainty brought on by the debt crisis, car shopping is expected to resume to normal levels. Despite the shortcoming in Europe and stagnant fourth quarter sales in the North America, rapid sales growth in Asia Pacific and Africa resulted in a year-over-year fourth quarter volume increase of 41,000 cars. Full year volume was 5.3 million, up 771,000 units.

Unlike many other automobile manufacturers, Ford's financing arm plays an integral role in the success of the company. Although financial service revenue contributes only 8.3% to the company's top line, because of higher margins in this business segment, 36% of Ford's pretax income is from the finance operations.

General Motors Increases Sales Volume
General Motors also had impressive results with a yearly 12.2% increase in global vehicle sales, largely driven by a 28.8% sales increase in China and 41.3% growth in Uzbekistan. Similar to Ford, which sold numerous divisions throughout the last few years, General Motors has been seeing improved automobiles sales figures after selling half of the company's previously owned brands.

Bottom Line
When I was younger, my father told me that FORD stands for "Fix Or Repair Daily." Today, he drives a Ford and has never been happier with any previous car purchase. 2010 CEO of the year, Alan Mulally, who beat out Apple's (Nasdaq:AAPL) Steve Jobs and Citigroup's (NYSE:C) Vikram Pandit, has done an amazing job restructuring the company's operations and reshaping its overall brand image. The combination of increased consumer confidence, toward Ford and the overall economy, along with improved product lines, should enable Ford to regain some of its lost market share in 2011. (For additional stock analysis, see Natural Gas Forecast.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center