GM’s operations in China are the largest of its peers, where it sells more vehicles than back at home. In March, GM sold 816,373 vehicles in the country, with a higher percentage of higher-end Buicks and Cadillacs being sold than lower-end Chevrolets, which posted negative growth. Meanwhile, Ford sold 186,000 vehicles in China, primarily driven by strong demand for its flagship Focus. Ford also owns a 30% stake in Chinese automaker Jiangling Motors, and has a 50-50 joint venture agreement with another automaker, Chongqing Changan. These two partnerships have helped Ford rapidly expand its footprint against General Motors Company (NYSE:GM)’ larger operations.
Volkswagen, which operates under a similar system of partnerships and joint ventures, reported that it sold 598,100 vehicles in China during the first three months of 2013, but did not provide month-by-month figures. Volkswagen notably includes Hong Kong and Macau in its China segment, unlike GM and Ford Motor Company (NYSE:F), which report these regions separately.
It’s apparent that an increasingly affluent Chinese middle class is going to Volkswagen and GM for higher-end vehicles, while sticking with Ford for mid-range ones, such as the Focus. All three automakers have benefited from the decline in demand for Japanese vehicles, which was partially caused by the ongoing Senkaku Islands dispute between the two nations.
In the near term, however, I believe that renewed fears of a Chinese slowdown, due to its recent GDP miss (7.7% vs 8.0% expected) will weigh on China-dependent stocks, such as these three automakers.
The Foolish Bottom Line
In closing, let’s break down the fundamentals of Toyota, General Motors Company (NYSE:GM), Volkswagen and Ford, to see which company is a better investment at current prices.
| Forward P/E | Price to Sales (ttm) | Return on Equity (ttm) | Debt to Equity | Profit Margin | Qty. Revenue Growth (y-o-y) | Qty. EPS Growth (y-o-y) | |
| Toyota Motors | 14.54 | 0.64 | 7.94% | 110.41 | 3.51% | 9.30% | 23.40% |
| General Motors | 6.65 | 0.27 | 16.15% | 43.38 | 4.06% | 3.50% | 64.70% |
| Volkswagen | N/A | 0.34 | 30.15% | 114.57 | 11.27% | 12.50% | -21.30% |
| Ford Motors | 7.75 | 0.40 | 36.10% | 644.09 | 4.22% | 5.30% | -88.30% |
| Advantage | GM | GM | Ford | GM | Volkswagen | Volkswagen | GM |
Source: Yahoo Finance, April 16
As we can see, being bailed out by the government has its advantages. As a result of its 2009 bankruptcy and bailout, GM has the lowest debt of all its competitors. It also has the strongest earnings growth and cheapest valuation of its peers.
Meanwhile, Toyota’s robust top and bottom line growth make it a strong second choice. A weaker yen will also boost its overseas profitability. However, Toyota’s challenges in the anti-Japanese market should be noted, and could weigh on sales growth throughout the year.
Ford Motor Company (NYSE:F) is still faring the worst, being weighed down by enormous debt (it was the only major U.S. automaker not bailed out) and poor bottom line growth due to its major exposure to Europe. Volkswagen (NASDAQOTH:VLKAY), as the largest automaker in Europe, is also suffering from the same problems. However, I believe that the appeal of Volkswagen’s luxury vehicles in China and North America will help soften the blow a bit – an advantage that Ford’s stodgy luxury brand, Lincoln, does not have.
For now, I believe that GM and Toyota Motor Corporation (ADR) (NYSE:TM) are safer investments, but Volkswagen is the one to keep an eye on. Strong growth in China, an enviable portfolio of high-end brands, and healthy demand in North America all point to higher growth once the European crisis comes to an end.
Leo Sun owns shares of General Motors. The Motley Fool recommends Ford Motor Company (NYSE:F) and General Motors. The Motley Fool owns shares of Ford.
