June Auto sales hit a level last seen at the start of the deep 2007 to 2009 recession. Resurgent sales, however, have been good news for industry bellwethers like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F), and upstart Tesla Motors Inc (NASDAQ:TSLA). What’s less certain are the investment merits of U.S. auto stocks.
A Steep Decline
The U.S. auto industry was among the hardest hit sectors of the economy during the recession. General Motors Company (NYSE:GM) and Chrysler both took government bailouts and still had to restructure in bankruptcy court. In fact, General Motors Company (NYSE:GM) has only been a publicly traded company again since late 2010.
The recession reduced the availability of credit and led to a general fear among consumers for taking on debt. These were unusually weighty issues during the 2007 to 2009 recession. That’s a bad combination for an industry that sells large and expensive products using loans.
And it’s been a slow climb out of the hole. That said, automobiles wear out, so avoiding a new car can only last just so long. As customers have come back into the market, sales have clearly shifted back into growth mode.
A General Laggard
General Motors Company (NYSE:GM) shares are again trading at about where they were when they came public again, but in between experienced a bruising decline of about 40%. With such a short history, the company’s historical top and bottom lines aren’t much of a guide. That said, investors are clearly excited about the recent vehicle sales trends.
The only problem is that General Motors Company (NYSE:GM) has been something of a laggard on the sales front compared to Ford and Chrysler, which still hasn’t come public yet (it’s controlled by Fiat). For example, General Motors Company (NYSE:GM)’s sales rose 6.5% in June compared to Ford Motor Company (NYSE:F)’s increase of 13%. Moreover, the top-line was actually down year-over-year in the first quarter after a fairly strong second half in 2012.
Recovering from a 40% decline translates to an advance of around 75%. GM shares may interest momentum investors chasing improving U.S. auto sentiment, but most should probably avoid them for now.
Ford Motor Company (NYSE:F) was the only major U.S. auto maker to avoid bankruptcy, but that’s a mixed blessing. For starters, the company’s image has improved immeasurably. However, it is still saddled by many of the legacy costs that GM and Chrysler were able to unload in bankruptcy court. While union deals have brought many costs more in-line with peers, the company still has a notable debt load. Long-term debt accounts for over 80% of its capital structure; that figure is less than 25% at GM.
Still, Ford Motor Company (NYSE:F)’s June sales easily trumped GM’s and also bested Toyota, Honda, and Chrysler. While a single month doesn’t make a trend, Ford Motor Company (NYSE:F) has been posting solid sales all year. The recently released second quarter earnings underscore its success.