Wednesday, June 2, 2010

Auto recovery in full bloom

U.S. auto sales have clearly bottomed, and are up 17% in the past 12 months (first chart). The shares of Ford Motor are up 650% since last year's low (second chart). Relative to their lows of late 2008, Taiwanese auto sales are up 256%, and Chinese auto production is up 150% (to cite just a few of the auto recovery stories). This is a big story with long legs. Sales fell to such low levels in 2008 that the normal ageing of the auto fleet practically demands a recovery. As the auto sector ramps up production, this will have spillover effects throughout the economy. If the past is any guide, auto sales and production are likely to be rising strongly for at least the next several years.


John said...

One of my favorite industrial recovery plays is Ford (F-NYSE). I wish I could say I was smart enough to have accumulated it over the last several quarters, but I cannot. I have steered clear of auto companies in the past because in my opinion the managements and unions were both lining their pockets at the expense of shareholders. The necessary bailouts of GM and Chrysler and the severe financial straits of Ford is the result. However under the management of Alan Mulally Ford seems to have turned the corner. The fact that they never took government money and worked out their own problems with labor wins them new admiration from many, including me.

A good tennis friend has argued vehemently with me that they are a different company and the stock should be bought for a multi-bagger possibility three or four years down the road. My old biases kept me out. He has been in a little over a year and has very nice profits. He bought again last month. I'm yelling 'uncle'. I am watching for a decent entry point for a few shares.

If any of you consider this stock for investment, please note they have a large amount of debt and thus will do VERY well if our economy continues to prosper. If it does not, or if competitive or other factors serve to keep their sales from growing, THE STOCK COULD FALL HARD. It is high risk, high reward. Do your own homework.

Unknown said...

Between government workers, health care workers paid by the government through medicare/medicaid and government health insurance, unemployment recipients, government contractors, food stamp recipients, and social security recipients.....and a small but growing $1.5 trillion dollar Federal Deficit while most cities, counties and states are now essentially bankrupt......

under our current president....maybe everyone will be able to get a check from the government and buy a shiny new car.

The only problem is production/tax receipts will drop so low that government will have to take over Ford too....simply so it can afford to fund the purchase of new cars.

Frozen in the North said...

Think about this for a minute, car sales in the US are at a 30 year low, that's a recovery but it's still a terrible place to be. Moreover if you drill the data you find very important fleet purchases (from the government by the way)

Like new houses, eventually you have to hit the bottom. F,GM and Chrysler are there now.

Your investment theory holds, although there are still many legacy costs that need to be addressed especially at GM (and Ford).