Despite Europe, where sales remain flat, the automotive sector is leaving its worst times behind and showing signs of slight recovery. The rebound in the U.S. construction industry is boosting demand for vehicles, mostly pickup trucks. Fifteen million cars and light trucks will be sold this year in the country, especially favoring the big three domestic brands. Companies unfortunately cannot focus on America alone, and have to expand in the fast-growing emerging markets, where competition is growing.
Let’s see how three car manufacturers are performing.
Ford Motor Company (NYSE:F) looks east
Ford Motor Company (NYSE:F) is a producer of cars and trucks, operating in two sectors: Automotive and Financial Services.
The company’s Q1 positive results were driven by a strong performance in North America and Asia Pacific Africa. Earnings of $0.41 per share have risen 5.1% year over year. Revenues grew 10.5% as well. Management expects a growth in the company’s U.S. market share for this year, maintaining pre-tax operating profit level, and a decline in operating margins to 10%.
Ford Motor Company (NYSE:F) has an ambitious expansion plan in which China and India play a major role. The company expects Asia to account for 70% of its global growth in this decade. Ford Motor Company (NYSE:F) poured $500 million in both countries since 2009, with a strong focus on small cars, which now account for 48% of total sales and is expected to increase.
Its product transformation plan “One Ford,” with the mission to produce common vehicle models and shift from trucks to small cars, is having a positive impact. Another key objective is to concentrate production on fewer core platforms. The company will also launch its Lincoln lineup in China in 2014 to exploit the booming luxury market in the country.
Nonetheless, higher structural costs and the global economic weakness are becoming a concern. The high relative costs of replacing older models and launching new ones puts pressure on cash flow. Plus, operating margins will decrease in North America due to higher sales of less-profitable small cars.
European exposure for GM
General Motors Company (NYSE:GM) is reviving from its ashes.
Despite a 3.6% rise in retail unit sales, the company’s profits for the quarter fell 28%, with EPS of $0.67. With the exception of Europe, all geographic operations generated lower earnings. Revenues dropped 2.4% reaching $36.9 billion. Management expects modest growth in sales this year due to bad performance in Europe. That will come despite improvements in the U.S. and China.
General Motors Company (NYSE:GM) has benefited from its focus on the developing markets, particularly Brazil, China and India, and it expects better results from its global expansion plan. Four new plants will be built in China to reach annual production of 5 million vehicles and triple exports to 300,000 units.
The company is No. 2 in terms of sales after Toyota, with 9.29 million vehicles sold in 2012. It plans to invest $8 billion annually in new-vehicle development and to upgrade 70% of its global lineups. However, the company’s high exposure to Europe and the global sluggish economy makes me remain cautious about the stock. General Motors Company (NYSE:GM) Europe’s revenues fell 17.6% in 2012 and 8.3% this quarter. The market is expected to shrink 4%, so I doubt we will receive good news coming from the old continent in the short term.
