General Motors Company (GM), Toyota Motor Corporation (ADR) (TM): Auto Stocks on Track for Long-term Growth

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Sales numbers for the automotive industry in the US are made public first thing every month. For almost two quarters, sales have been rising higher than in a long time. This is down to loans, which are easier to obtain once again, plus higher demand, which has been building up for a while. The median age of cars in use is also at its highest in years.

Though it’s not certain whether or not this trend will continue until the end of this year, a quick peek at how the industry sales appeared in April should provide a little more certainty.

The automotive industry

The seasonally adjusted annual unit rate (SAAR) for light vehicles in April is more than 15 million, according to sell side analysts. Last year the figure stood at just over 14 million, compared to the 15 million run rate for March this year.

Understanding the difference between actual sales versus SAAR can be confusing. Sales figures tell us how many units get sold during one month. But SAAR in turn tells us the rate at which cars are selling at a yearly rate. So if we say that in April the SAAR is 15 million, this means that in an estimation based on that month’s sales, it looks like overall that year there will be 15 million cars sales.

The whys and the wherefores

The fact that credit is easier to come by at this moment and many people are replacing their old worn and torn cars, is cause for smiles. Pick-up truck demand is also strong, according to information from distribution channels. It is the smaller car though or the smaller utility vehicle that is becoming more and more popular with consumers. This is why it is expected that the total sales percentage of this segment will grow significantly in 2013 on a year over year basis.


The automotive industry seems to be keeping to a conservative line when it comes to promotional activity. Therefore the industry has shown a trend of low-lying sequential incentives increases – these have only slightly increased on a year over year basis. Having said this, Hyundai has been engaging in higher than average incentive activity. So has Toyota Motor Corporation (ADR) (NYSE:TM), on its Camry/Corolla. Both companies are attempting to hold onto their share of the market for specific categories.

1. Toyota

Toyota Motor Corporation (ADR) (NYSE:TM) lost some market share this month. Incentive spending has been chopped radically, although as I mentioned above, Toyota has affected an increase on incentives for Corolla and Camry.

Up until now Toyota Motor Corporation (ADR) (NYSE:TM) has performed well as a favorite auto industry stock, mainly thanks to its variety. The forward multiple is around 13 times. The company’s operating profits are set to increase by 23% in the next two year. But the fact remains that incremental Camrys and Corolla revenues has already been priced in the current stock price.

Lexus, however, has gone from strength to strength in the US. Analysts think Lexus will significantly contribute to Toyota Motor Corporation (ADR) (NYSE:TM)’s profits this year. Lexus has helped Toyota in achieving much needed expansion in the luxury car sector – a segment that is known to have high margins. Lexus sales have been improved because Toyota Motor Corporation (ADR) (NYSE:TM) produces high quality cars and its customers trust the brand. The prices are also more competitive now since the Yen is weaker. Plus new SUVs now offer diesel engines, thanks to technology bought from BMW.

2. General Motors

General Motors Company (NYSE:GM)‘s recent sales trends are positive, and are expected to increase by 5% overall this year. The influencing factor seems to be truck promotions – the sales there are looking to bump up to 10%. However, at the same time, total car sales are estimated to drop by5% next month.
General Motors Company (NYSE:GM)Whilst General Motors Company (NYSE:GM) is predicted to get an advantage from truck promotions this month, there have been problems with model transitions. Consequently a sequential loss of 250bpswas felt on the market share last month, but analysts expect a 75bps improvement in the market share next month.

Cheap stock

Generals Motors stock is cheap for buyers now and has been trading at forward multiple of 7 times; this is considerably below anything found in the consumer goods segment, which is showing a 14 times multiple. Dan Akerson, General Motors Company (NYSE:GM)’s CEO, is already gaining quite a reputation as a tough leader, true to his personality and style, and has sworn to do away with GM’s ‘Government Motors’ rep. In Europe, GM is engaged in a very active restructuring process. This is a timely move, since the operations in Europe have long been affecting the company’s performance, and not in a good way. The company’s current portfolio is also the auto industry’s oldest. The management at General Motors Company (NYSE:GM) now reckon that turning this portfolio over completely should take them about 2 years.

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