General Motors Company (GM), Ford Motor Company (F), Toyota Motor Corporation (ADR) (TM): A Performance Review of the US Auto Industry

The auto sector in the US has been recovering in 2013 after some ups and downs in sales. May sales registered the highest number since December 2012, mainly due to an increase in pick-up truck sales. Some of the improved results experienced by auto manufacturers come from the Federal Reserve’s quantitative easing program which drove down loan rates and increased affordability for many consumers. There is a lot of competition in the industry, however, so let’s see how some of the companies are performing.

General Motors: A Chinese bet

General Motors Company (NYSE:GM) has certainly regained investors confidence: its stock price has surged more than 56% since June 2012, beating the S&P 500 which only increased 21.5%. If we look at the company’s latest quarter financials, however, it is still having some issues. For the first quarter of 2013, General Motors Company (NYSE:GM) posted almost flat revenue and net income compared to the same quarter last year, totaling $36.9 billion and $0.9 billion respectively.

Another negative aspect is that the company continues to be heavily exposed to the US market. In the first quarter of 2013, the North American division accounted for more than 62% of the company’s total revenue. To hedge against this, management has announced that it will expand further in Asia and is building a $1.3 billion plant in Shanghai. The new plant will be focused on the company’s major luxury brand: the Cadillac. This is a risky move amid declining sales in China for other peers, especially in the luxury market. The company has 18% of the US automotive market share for 2013, compared to Ford Motor Company (NYSE:F)‘s 16.4% and Toyota Motor Corporation (ADR) (NYSE:TM)‘s 14.2%. We will have to wait and see if General Motors Company (NYSE:GM) can take advantage of this superior market share.

Ford: Expecting a strong 2013

Ford Motor Company (NYSE:F) has also been praised by the market as of late, with its stock rising 47.6% since June 2012. The company posted its 15th consecutive quarter of profitability with a 14% year-over-year increase in US sales, reaching a record of $2.4 billion in pre-tax profit for the North American region. The main problem for the company is its European division: its pre-tax results gave a $462 million loss and the company expects a $2 billion loss for 2013 in the region. If the situation in Europe starts to stabilize, Ford Motor Company (NYSE:F) could have a very good upside. The company is trading at a low price-to-earnings ratio of 10.7 times, compared to the industry’s 15 times. It also has a price/earnings-to-growth ratio of 0.6 times which could indicate an undervaluation, especially as cash flow improvement is expected on the coming years. Morningstar estimates the fair value of Ford Motor Company (NYSE:F)‘s stock to be $21, which is above the current trading price of $15.50.

Alan Mulally, president and CEO, stated that management expects 2013 to be “another strong year, as we go further in strengthening our global product lineup and improving the competitiveness of our operations.” This is a good signal for investors as the company’s 2013 guidance remains unchanged. The company’s total pre-tax profit is about equal to 2012, its operating margin is about equal to or lower than 2012, and its automotive operating-related cash flow is higher than 2012.