General Motors Company (GM), Ford Motor Company (F) & Toyota Motor Corporation (ADR) (TM): Fingers Crossed for May Auto Sales

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General Motors Company (NYSE:GM)May is coming to an end and the market has varying expectations for US auto sales for the month. To the disappointment of auto industry bulls, April’s numbers came in well below the Street’s consensus estimate. Will the auto industry once again disappoint the market, or is the industry moving at a pace to sell 16 million light vehicles in 2013, something that the Street thought at the start of the year.


The Street expects May US light vehicles on a seasonally adjusted annual rate, or SAAR, to track at roughly 15.2 million, which will mean a year-over-year increase of 9%. Many readers tend to get confused between the actual sales and the SAAR figure. While the actual sales figure shows us the actual amount of vehicles (in units) that have been sold in a particular month, the SAAR figure depicts the selling rate of vehicles for a particular month. By this I mean that a SAAR rate of 15 million for a particular month indicates that the auto industry is on pace to sell 15 million vehicles on an annual basis.

Major players and the general trend

General Motors Company (NYSE:GM) is expected to witness a 6% rise in sales on a year-over-year basis. The other listed Detroit player, Ford Motor Company (NYSE:F) is expected to achieve a stronger double-digit growth rate of 11% for the year. Chrysler is expected to see a 9% rise in its sales.

This month’s auto review is a reminder that the North American auto industry remains healthy, with the SAAR steadily rising, incentives in check, inventories historically low, and commodity prices, such as those used in care production – synthetic rubber, copper, and polypropylene, falling.

The channel checks in May indicate another strong full-size pickup truck month (April was also strong), which strongly suggests increased volume for the Detroit 3. It is interesting to note that General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F) & Chrysler control ~93% of this market. This trend was reinforced by Ford’s recent announcement of increased F-Series capacity.

While the North American auto industry is healthy, we are not seeing substantial evidence just yet of a turnaround in Europe despite the perception many investors are beginning to position themselves for a Europe turnaround. While Western Europe’s (WE) SAAR has stabilized sequentially in recent months, it should also be noted that WE SAAR tracked -8% in April and remains -8% on a year-to-date basis.

Investment thesis

I remain bullish on GM. General Motors Company (NYSE:GM) is expected to benefit from its upcoming K2XX full-size pickup truck launch, which will provide a significant boost to earnings over the second half of 2013 to the first half of 2014 timeframe.

Overall, the stock is a cheap buy. The stock is trading at a cheap 7 times earnings, well below the average consumer goods sector multiple of 13. The company is set to grow under the iron-fisted CEO Dan Akerson, who vows to remove the ‘Government Motors’ label from the company. The company is actively restructuring its European operations, which have long been a drag on the company’s performance. And above all that, the company is undergoing the biggest product launch since its inception. General Motors Company (NYSE:GM)’s current product portfolio is the oldest in the industry. GM’s management believes that it will take another 15 months to turn the whole portfolio over.

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