I don't know how much more data investors really need. I wrote about this last year, and the signs have only become clearer since then. The auto industry is undergoing a recovery that should last for several years. The pent up demand is huge, and the Great Recession cause many to rethink purchasing a new vehicle. However, just like death and taxes, some things are inevitable, and old cars don't run forever. One company poised to benefit from this upcoming recovery is Ford Motor Company (NYSE:F).
How Many Tips Do You Need? When I wrote my last post, Experian reported there were 245 million vehicles in the U.S. with an average age of 11 years. In addition, 52 million of these vehicles were 16 years or older.
Investors can also look at the railroad industry to get a tip on the direction of auto sales. In their last earnings report, CSX saw a 15% increase in auto shipments. Norfolk Southern also said auto shipments were up, and Union Pacific saw a rise of 14% in automotive volumes.
In addition, you have analysts’ projections for growth at each of the major automotive manufacturers. Analysts expect both Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC) to show big earnings growth as they reclaim lost market share. Specifically, Toyota is expected to grow earnings by over 40%, and Honda Motor Co Ltd (ADR)(NYSE:HMC)Honda Motor Co Ltd (ADR)(NYSE:HMC) is expected to see near 30% growth. Ford Motor Company(NYSE:F) and General Motors Company (NYSE:GM) have been gaining ground on their foreign competitors, so they aren't expected to see such explosive growth. However, with 12.5% growth expected from GM, and 10.5% growth at Ford, they won't do too badly either.
The Strength Of The OvalCompany If you look at Ford's recent quarterly earnings, you can see that in three of their four geographic regions they performed very well. In North America and South America the company saw 12.76% and 10.71% revenue growth respectively. In Asia Pacific and Africa, the company's 47.37% revenue growth was astounding. It's no surprise the problem region was Europe, showing revenue down 21.69%.
Ford did mention something interesting, that I think bodes well for the future of the company in Europe. They said that last year, Europe only sold 13.5 million vehicles, which was the lowest since 1995. When a geography has a 17 year low in units sold, you can assume if they aren't at the bottom of their cycle, they have to be pretty close. Automotive sales are cyclical in nature, so investors have to realize that buying when things are bleak is often the best way to profit.
There Is Always Room For Improvement In addition, Ford has some opportunities to improve their performance even further. The company's automotive operating margin of 3.8% compares favorably to most of their competition. This margin was good enough to beat out Toyota's margin of 1.91% and Honda's margin of 2.94%. However, General Motors Company (NYSE:GM) did better at 4.27%, and Ford had a wild variation in margin between different geographies.