Ford Motor Company (F), General Motors Company (GM): What’s Holding These Automakers’ Stock Prices Down?

Ford Motor Company (NYSE:F)January and February were two great months for vehicle sales in the U.S. market, delivering great sales figures, profits, and renewed optimism at Detroit automakers Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). In those same two months, however, the stock prices of Ford and GM haven’t responded – both companies lag the broader market. With a rebounding U.S. market, and gaining share in China, it’s clear Europe is the biggest cause of pressure on domestic auto stocks. I bet you’re shocked, huh? There’s no need to panic or avoid these stocks, for the European market will bottom out and rebound eventually. What’s important is understanding if the rebound will resemble the U.S. market or the Japanese market. If you don’t know the difference, then read on; it will make a huge difference in the stock prices through 2020.

Japan or U.S.
Ford Motor Company (NYSE:F) expects to lose more money in Europe in 2013 than it did in 2012. Not good news from a company that lost $1.8 billion there last year. Analysts expect sales to start recovering in 2014, but they see a slow and gradual rebound. Vehicle sales aren’t expected to reach pre-crisis levels until the end of the decade, at least. That’s terrible news considering that the European auto market once was the largest in the world.

Some analysts now believe Europe could resemble Japan’s auto recovery rather than that of the United States. “Auto sales in the U.S. recovered to 14.4 million in 2012, up 13.4 percent from 2011 and 39 percent from 2009. This was in contrast to previous market assumptions and forecasts pointing to long-lasting depressed conditions,” Emmanuel Bulle, Paris-based autos analyst with Fitch Ratings said.

He goes on to mention that Japan’s vehicle sales have fluctuated between 25% and 45% below its 1990 peak, never fully recovering. If that’s the case, and the European consumer doesn’t fully return, it makes maintaining market share in the U.S. and growth in China the most important factors going forward. There is hope though; let’s look at a few factors that will help Ford and General Motors Company (NYSE:GM) get out of this rut.

Been there, done that
Obviously, industry sales are expected to decline again this year, but consider some other factors. There are advertisements that are offering discounts equivalent to over $9,000 per vehicle. Some nations are also considering scrap programs, similar to our cash-for-clunkers program, which would make it even more difficult for automakers to estimate needed inventories. Any of that sound familiar? It’s 2008 all over again, with a European twist.

Alan Mulally, Ford Motor Company (NYSE:F)’s CEO, still expects to lose $3 billion over the next two years in Europe. That said, the company has seen much worse and come out better than ever. Consider that between 2006 and 2008 Ford lost $30 billion due to the U.S. recession — or 10 times more than it expects to lose in Europe over the next two years. Ford plans to use the same cost-cutting tactics that helped return Ford to profitability in 2009. This time it will use the tactics in Europe. The plan is to cut costs by $500 million a year and reduce in-stock vehicle inventory by 20%. It will also be cutting factory capacity, which has been difficult due to political pressure. This adversity isn’t anything new, and much easier to handle than the 2008 U.S. crisis. Mulally and Ford have been there, done that, and I expect them to get the job done again.

GM’s survivor
General Motors Company (NYSE:GM) has also learned a few things from recession and bankruptcy. Meet Susan Docherty, head of Chevy and Cadillac in Europe. She’s a trooper, having witnessed GM’s bankruptcy, the plunge in U.S. industry sales, and the cash-for-clunkers program mentioned earlier. She’ll be instrumental in taking lessons learned years ago and applying them to very similar situations in Europe.

In some countries Chevy will be offering covered maintenance (oil changes, tire rotations, etc.) for up to three years on vehicles purchased. A less confident consumer worried about decreasing income will have one less thing to worry about.

As mentioned earlier, advertisements are sporting over $9,000 worth of incentives to sell vehicles. GM decided it isn’t going down that road again; it didn’t work in the U.S. and doesn’t make sense now. It will concede market share and avoid incurring massive losses to move vehicles off the lot. This is a great sign for investors, and hopefully that lesson will hold true for GM’s operation in other countries.

Bottom line
Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are making the right moves to minimize losses in Europe. As cost-cutting measures begin to take effect and a gradual recovery occurs, both companies will be sitting pretty. It will take time and investor patience because for the foreseeable future Europe will put pressure on the stocks. A patient investor can pick up a valuable company poised for future success. I personally believe Ford has reacted quicker and proved itself to handle the original crisis much better than its rival General Motors Company (NYSE:GM). Keep an eye on whether Europe’s recovery resembles the U.S. rather than Japan, or somewhere in between. By the time 2020 rolls around, Ford Motor Company (NYSE:F) might be the star in your portfolio. At least, that’s what I’m banking on.

The article What’s Holding These Automakers’ Stock Prices Down? originally appeared on Fool.com.

Fool contributor Daniel Miller owns shares of Ford. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!