After requiring financial help from the government in 2009, is General Motors Company (NYSE:GM) back on a flying lap? Will the world’s biggest automaker –Toyota Motor Corporation (ADR) (NYSE:TM) – show its strength in North America too? Will Ford Motor Company (NYSE:F)’s reliability and performance help it find greener pastures again? In this article, you will find the answers for these questions.
Recent events
Ford Motor Company (NYSE:F) is targeting what it calls ‘super segment’ with its Escape, Fusion, Focus, and Fiesta. In 2008, the two leading Japanese autos accounted for about 36% of the super segment while Ford Motor Company (NYSE:F) had 8%. Today, Ford Motor Company (NYSE:F) alone accounts for 13% in the super segment through April – on the heels of market leader – Toyota Motor Corporation (ADR) (NYSE:TM), which is at 15%. Furthermore, in the first five months of 2013, Ford Motor Company (NYSE:F) has already surpassed its full-year hybrid sales record.
The company is cutting losses as it closes production facilities in Australia altogether. Ford Motor Company (NYSE:F) had a torrid time in Europe during 2012, but as it shuts down facilities in the U.K. and Belgium, supply is expected to equal demand soon. Profitable business in Europe requires the economy to speed up and austerity drives to drop.
General Motors Company (NYSE:GM) has planned to replace 61% of its current product offerings in the next two years. The company aims to do this by replacing famed cars such as Silverado and Sierra. Furthermore, it has introduced new cars in its Buick and Cadillac segments. Cadillac’s sales are currently growing faster than they ever have in the last 40 years while the company’s biggest market — China — is reported to have demanded 9.4% of Buick’s new offerings in May alone. The company has re-joined the S&P 500.
Toyota Motor Corporation (ADR) (NYSE:TM) is the world’s largest automaker. In the North American market, the car maker has introduced an aggressive new edition of its best-seller Corolla. However, its market share is constantly being driven down by Ford’s new models which offer better features and services than the Japanese manufacturer. On the other hand, Toyota Motor Corporation (ADR) (NYSE:TM) is enjoying the positives of having a weaker yen which is boosting sales due to competitive pricing.
As the company’s market share is being challenged in North America, Toyota Motor Corporation (ADR) (NYSE:TM) has the opportunity to invest in emerging markets while General Motors Company (NYSE:GM) and Ford do not currently have a stronghold in these markets.
Competition
| Indicator | Ford | General Motors | Toyota |
|---|---|---|---|
| Price/Earnings ttm | 10.5 | 8.8 | 22.7 |
| Price/Book | 3.4 | 1.7 | 1.7 |
| Net Income Growth (3 Yr Avg.) | 27.8 | -61.1 | – |
| Revenue Growth (3 Yr Avg.) | 4.9 | 13.3 | -3.3 |
| Dividend Yield , % | 1.95% | – | 1.17% |
| Return on Equity | 34.4 | 22.7 | 7.2 |
| Current Price | $15.52 | $34.46 | $118.69 |
Data from Morningstar and Financial Visualizations on June 17, 2013
After appreciating approximately 65% since 2011, Toyota Motor Corporation (ADR) (NYSE:TM)’s share price is a staggering $118.69. Based on the industry average P/E and P/B of 14.6 and 1.7, respectively, Toyota looks overvalued while Ford and General Motors Company (NYSE:GM) show potential for growth. Based on timing, Ford and General Motors Company (NYSE:GM) could both be profitable investments. Based on Ford’s cheap share price and comparatively better performance than General Motors Company (NYSE:GM), it seems to be a better pick. Furthermore, GM does not provide a dividend after its financial collapse of 2009 which gives Ford and Toyota and inherent advantage.
Final thoughts
The first five months of the year have shown promising signs of growth for the automobile industry – especially the American automakers. GM has a large consumer base in China and a slowdown in the Chinese economy, as is being reported, will hurt its sales badly. Ford, on the other hand, has chosen to cut back on its market share to stop bleeding cash.
While Toyota tries to combat in the North American market with a new Corolla, it is highly unlikely that consumer trends will shift direction from Ford’s brilliant new range offerings. Ford has also taken measures to reduce demand in Europe and minimize losses till the economic conditions improve. In my opinion, Ford is primed to make big gains due to the innovative product line up it is providing. Ford is a Buy for long-term investors.
Marina Avilkina has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Marina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Which Automaker Should You Invest In? originally appeared on Fool.com is written by Marina Avilkina.
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