While Delphi doesn’t have a clearly articulated European plan like Ford and GM, the company’s results in the region will likely be closely tied to the success of these companies. General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) represented 24% of the company’s sales in 2012. Compounding the matter, Volkswagen and Daimler represent another 18% of 2012 sales.
Valuations
Domestic auto manufacturers appear fully valued if not slightly overvalued.
Ford Motor Company (NYSE:F) currently trades at a P/E of 9.6, well above its five-year average P/E of approximately 6.6. Despite the problems in Europe, Ford has seen strong growth in US sales. As of April 30, US sales were up 12.7%.
General Motors is trading at a P/E of 10.8 versus its five-year average P/E of 9.3. The company also has an unimpressive start to 2013. Revenue dropped approximately 2.4% from the same quarter last year and EBIT dropped by 18.2%.
Delphi is trading at a P/E of about 14.4 versus its five-year average of 9.2. The company also had a rough first quarter with revenue dropping by 6%, adjusted EBITDA dropping by approximately 3.8%, and EBITDA margins were compressed by 0.3%.
While investors can make the case that the higher P/E ratios reflect the strengthening US economy as well as the increasing strength of the US auto industry, the P/E’s appear fully valued.
Closing
While the April retail sales report showed a nice surprise for motor vehicle sales, US automobile manufactures do not appear to be good investments at these price levels. The pending rise in interest rates will have an impact on sales as credit becomes more expensive.
Historically, Europe has represented a significant portion of sales for these companies, and the continent shows no signs of improving in the near term. While General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) have been aggressively cost cutting and launching new vehicles, neither company plans for financial success in the near future. Mid-decade profitability could just as well turn to late-decade profitability. Valuations seem to fully price in any upside potential with little concern for future headwinds. At these levels, there are better investments to be found.
The article Auto Sales Surprise; Should You Be Buying? originally appeared on Fool.com and is written by John Timmes.
John Timmes has a position in General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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