Is Anything Worth Owning in the Auto Industry?

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.

Comments

[peteypac]

GM is Chevrolet as well as Pontiac, Hummer, GMC, Saturn, Buick, Cadillac, Hummer and Saab. Have you seen the Malibu, the Enclave, the CTS? Get a clue!

[columbusguy]

You are right about Honda.

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."

[richjoy]

Sadly, it really doesn't matter what vehicles GM, Ford, or Chrysler market in the USA (or what prices, what new features, what quality levels, or what reliability)...the media will continue to present them in a 98% negative light.

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.

[BioInvestor]

I think that value depends on your time horizon. If you believe that Ford and GM will survive and thrive, one could argue that there is good value today.

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]

Unions killed the auto industry with outrageous wage demands, ( of course management caving in to them didn't help), non productive rules such as having only a union electrician change a light bulb, and on and on. Short term the unions gained, but the long term, they killed the goose that laid the golden egg.

Hershey

[Hershey]

See above

[Rick S.]

Hershey: You have to keep your anti-union attacks straight. In the building trades--craft unions--you have to have an electrical union member to electrical work. The industrial unions like UAW were organized to prevent that sort of silliness from happening. Everyone working in a factory organized by an industrial union belongs to the same union. So in your example, in a UAW plant it would be a UAW member that changed the light bulbs.

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.

[MortgageHelp]

Hmm - interesting points (except that Chevy is a sub of GM), but I think these may be a good buy right now since they are so battered down. They will likely tick up a little at some point so it might be a good place to hold money for a *possible* above average return. Everything else is getting crushed.

[wyosteven]

Plain and simple. The "American 3" fail and to my knowledge are continuing to fail to sell what people want to buy. Unions are an easy target, however the other easy target is piss poor management with no vision or progressive leadership --- DUH! Perhaps one might like to expose what happened between autos and oil? They used to be kissing cousins, and now what? There is a lot more to this situation than silly gas prices and unions. Some other "invisible hand" is breaking the spine of not just Detroit but America as a result and the arrogant fail to realize it. I can tell you that due to quality and service I will never own a Ford for sure, and the part Ford ought to pay attention to is that I have a lot of earning power and many of cars left to purchase in my lifetime of which they are excluded from due to short term, bottom line decisions. Didn't GM sell the hybrid technology to Toyota for the prius? Nice move leadership -- nice move.

[krasowskic]

Yes, of course I'm aware that Chevy is a part of GM, however, in terms of auto design, each brand is its own house and makes its own bed. Chevy styling simply is staggering bad, but don't get started on those GMC SUVs and large Trucks.

[Gumby]

Ha ha everybody is out to get me by spooking me enough to bail out of GM and Ford stocks. Guess what? The minute I sold them, they will take off the next minute. My computer is not secure anymore. CIA, FBI, Homeland Security, you name it... are tapping into my computer and watch me every step.... I am already used to it... With GM and Ford gone, Our GDP will take a trillion dollar hit...

[Gumby]

It makes me feel like a terrorist....which I am not..

[Gumby]

I worked my ass off changing GM , Ford, UAW, and even dumb ass shareholders for past years and I expect it to pay off . The last thing I need is a bitchin lette from you...

[Gumby]

If GM and Ford, so will GE, Boeing, 3M, DuPont, etc,, the only industry left thriving will be makeup industries like Revlon and Avon...

[Gumby]

I still have plenty of surprises left up my sleeves for you squirrels...

[Gumby]

Road kill time for rednecks!!

[Gumby]

You are nothing but an financial illusionist... once you see then you dont...

[GMfan]

The following GM designs; Traverse, Acadia, Enclave, Outlook, Malibu, Aura, G8, CTS, Vibe and Volt are all excellent designs. Your "taste" in automotive design is not necessarily fact.

[Gumby]

Our economy is going down the drains and I hid the only drain plug available to stop the hemorragging... You know better than to keep bitchin;.

[Gumby]

Goldman Sachs sounds like it is in deep trouble right now... It can be next Bears Sterns..

[Gumby]

Surprises and surprises everywhere everyday... Thanks to Great American Ignorance!

[Gumby]

GM and Ford can sue Big Oil to recover the oil dollars that Big Oil made off SUV and PickUp owners filling up tanks and tanks of gasoline for years and years to no end. It is in Big Oil's own interest to keep GM and Ford solvent. Maybe we dont need lawyers but just a take over of GM and Ford by Big Oil corporations??

[Gumby]

General Motors still has 2 billion spare shares to flood the markets. Even on top of that, GM still has relatively few shares outstanding as compared to Oracle, Microsoft and General Electric. They are floating billions of shares already... GM has only one half billion shares against even falling revenues of $170 billion. Plenty, plenty of time to make a turnaround... Chrysler already went through that with Lee Iaccocca.. Chrysler used to have only 70 millioin shares then ballooned to hundreds billions of shares yet stock price took off. GM is still a DJIA component. Chrysler used to be a DJIA and kicked out before its turn around with Lee Iacocca. Chris, you must be still a toddler with ABC blocks while that happend...

[Gumby]

I think Goldman SAchs downgraded GM so to save its holdings on TM and HOnda ... Goldman Sachs is a traitor to America..

[User 217199]

I would like to slap the next politician who wants to retrain the American worker because there allowing job erosion in this Country, I don't care if everyone gets a PHD, we cannot compete with 50 cents an hour labor. The same goes for those idiots yelling about Protectionism in this country, If protectionism is so bad, Then why is it working so well for China?

[Gumby]

The plain truth is that we can easily bring oil prices down again like we did during Reagan's terms. It was really Jimmy Carter who jawboned GM and Ford into "compacting" big cars by two feet or so . GM and Ford used to have a long lineup of four cylinder models and pickups imported from Isuzu, Mazda and Mitsubishi rebadged as LUV, Courier and D50. Even Mustangs had 4 cylinders back then. V8 displacements were shrunken from 400 cu down to mere 300 cu or 4.0 liter or so from 5.7 or even 6.5 for Caddys.. Four barrel carburetors were history. Big Oil figured out ways to stretch depleted oil reserves with horizitional drilling. We were intoxicated with excitement and return to gas guzzlers . GM and Ford is perfectly capable of building excellent models with anticipated financial savings bestowed by UAW in the coming years. What remains to be seen is whether UAW will return to mischief makings as usual or not...This remains to be seen..

[Gumby]

What if a super volcano erupted iin Japan and burned many car plants there. duh?

[Gumby]

We let our Zenith televisions. cameras, textiles, customer support , etc go overseas. Now cars.. then what next.. Something gotta be next , right?? Yeah, maybe Boeing jets, hmmm , aha, jet engines of GE, hmm aha 3M tapes, hmmm aha Good year tires, hmmm aha, school teachers, hmmm aha Apple computers, hmmm aha, HOme Depots, hmm aha booze, hmmm aha, gasoine stations, hmmm aha , convenience stores, hmmm aha lawyers, hmmm aha prison systems, hmmm aha politicians, hmmm aha terminally ill patients, hmmm aha, tobacco companies, hmm aha aluminium companies, hmm aha railroads, hmmm aha NASA, hmmmaha solar industries and utilties, hmm aha banks, hmmm aha sewage systems hmm aha forests, hmmm aha national parks, hmm aha interstate highways, hmm aha museums , hmm aha, chemicals, hmm aha NFL, NBA and HL, hmm aha Pentagon, hmm aha guns... Nuclear holocaust !!

[EMTenterprises]

I don't see how anyone can still defend Unions. There is not one unionized industry in this country that is doing well. Airlines, Education(teachers Union), Airport Security,etc.. They are all do their job poorly and inefficiently. It's a good thing for them that they have the democrat DC scum in their pocket otherwise they would be history

[EMTenterprises]

Hey User 217199, I agree 100%. One thing I have not heard is who pays your rent or mortgage and you car payment and feeds your family, while you're out of a job and getting you govt. sponsored retraining at the local community college?

[Rick S.]

Hey Gumby. Swear off coffee for the rest of the day. And try to keep your thumb off the Publish icon.

[Rick S.]

EMTerprises: The problem in Airport Security isn't unionization. It's (1) minimum wage pay, and (2) the resulting revolving-door work crew.

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.

[Retriever5280]

Hey Gumby, perhaps people like you should stop criticizing Japan and start emulating them. Be careful what you wish for, the volcano there could be Mississippi flood waters here. Toyota is not ranked the MOST REPUTABLE company in the world for no reason. In 1974 when we were standing in line for gas because of the embargo, I truly thought GM and Ford had gotten the message that efficient cars were desperately needed. Instead, they built wasteful behemoths that got worse mpg in 2008 than in 1974. Don't blame Toyota and Honda, and other innovative companies for Detroit's failings. Blame the idiotic leadership at the not-so-big in thinking three in the U.S. for not applying their engineering manpower to developing cars such as the Corolla and Prius. The Corolla is the #1 selling car in the world. Obviously, there is a demand for a fuel-efficient, RELIABLE, decent car. After helping several friends stranded with one to two year old Fords in my 14 year old Toyota, who do you think comes out ahead? In the time I've owned one (1) Toyota, I know several people who have owned four or five vehicles. What a waste. Unions did kill GM and Ford. Workers making $25-30/hour, then griping about minimal copays for MD visits. The rest of the working population have been paying copays for years and didn't expect a free ride. Workers are cross-trained at Toyota and Honda, while the domestic workers will only focus on one specific task because their union made it that way. Get a clue. When our companies are gone and we're standing in bread lines, in many ways we will have no one to blame but ourselves. No company should "feel" bad that it made a responsible product and backed it accordingly, so your arguments regarding those other comapnies (Toyota and Honda), as well as your disrespect of the Japanese people, clearly show you are a displaced, disgruntled, disgusting individual adding to the problem, instead of being part of the solution!

[IHateCars]

I have seen what a car company can do. Ten years ago, Volvo was a good company that I was proud to work for. Now, it's Ford trash that screws its customers and leaves them stranded with dangerous driveability problems (ref: Electronic Throttle Module disaster, cooling fan recalls, ABS module failures, etc). While my ten-year-old Volvos still run well, I usually drive our newer Prius because of the fuel economy. And since I don't race M3's, I usually get 53 mpg. Seriously, I have heard of a lot of reasons to badmouth the cheese wedge, but racing? Ignorant! But, not surprising from someone who invests in a company or makes a $25-50,000 purchase based on its looks instead of its function. I feel sorry for the drivers who truly need pickups and large trucks. They are getting a real screw job. For those buying a gas guzzler because it's trendy or looks good--that's just a stupid tax.

[Gearhead]

A few comments:
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.

[paulk8756]

While I was so busy buying energy stocks during the past year, somehow it NEVER occurred to me to short the autos. It was a natural, too! With gas prices at record highs, the automakers HAD to substitute low profit sedans for big ticket trucks and SUV's. It was only a matter of time till they went away. I KNEW that!

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.

[MikeyLV]

Unless you think GM/F will go belly up, at some point there will be a buy point for the long term investor. The question is, what is that point?
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?

[Retriever5280]

Gumby: I'm shaking in my socks..... Please continue to write nonsense.

[krasowskic]

Gearhead, just to add to your comment about the Prius sales and how long it stays on the lot.
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.