It has been a roller coaster on the market these last few weeks, with concerns over the spread of Ebola and falling oil prices has had investors dumping their stocks and running for the hills. It does not help that China’s slowdown is starting to become very apparent and Europe’s strongest economy, Germany, is sliding in recession. But this week investors have decided that the sell-off has been overdone and stocks have bounced back accordingly, most industries have been enjoying the rebound, including airlines that have benefited from lower oil prices and large tech companies like Apple and Microsoft have also enjoyed nice rebounds. Other companies like Netflix and Amazon have not fared as well but in this week’s blog I want to focus on one industry in particular, the American auto industry.
Yes I’m talking about General Motors (GM), Ford (F) and a newly traded Fiat Chrysler (FCAU). Yes I know, investing in the U.S auto industry brings back some bad memories. I am sure people still remember the days when the big three car manufacturers flew to Washington and begged for a bailout. GM went bankrupt and was rescued by Congress and Chrysler was sold off to Fiat, Ford managed to stave off bankruptcy but to had its reputation scarred by the crisis. Since those dark days though Auto stocks have bounced back, Ford is currently up 700% from its recession lows and GM was up almost 40% last year. But 2014 is looking bleak for U.S auto companies, the first 6 months were hell on earth for GM as the company was forced to recall over 20 million vehicles, and as a result did not show a penny in profit in the first half of the year. Ford has also not performed to well this year with its stock down over 20% year to date. But what about Chrysler and what is the future of the car industry?
To begin Chrysler is actually Fiat Chrysler and currently trades under the ticker symbol (FCAU), the newly minted car company’s IPO in the U.S is all part C.E.O Sergio Marchionne plan to turn Fiat Chrysler into a global auto company, capable to compete with the top companies in the industry, Toyota, General Motors, Volkswagen, and Ford. Currently Fiat Chrysler is the 7th largest auto company in the world, but it also trails behind its competitors in terms of market share, but Marchionne has sworn to change that, he plans to turn Fiat Chrysler into one of the largest automakers by 2018. His master plan though requires cash, almost $62 billion worth of cash to be exact, that is how much it will take to reinvent the company, hence forth the American IPO which was intended to open the company to new sources of cash and funding.
For investors this opens up a unique opportunity to buy into one of the fastest growing companies in the industry. This might sounds overly optimistic but Chrysler’s 2nd quarter earnings certainly show a bright picture, Chrysler’s net income grew 22% to $619 million, and September U.S auto sales increased 19%, marking 54 months of continuous growth. Considering that the U.S is the number one car market in the world that is a good sign. There are negatives to buying into the Chrysler turnaround story, one of which is the amount of debt that Fiat Chrysler will be carrying going into the future, and its debt is currently at junk status. Also little information is actually available about Fiat Chrysler since the company only recently made its market debut in the U.S. Investor will have to wait until November 5th to get a more accurate window into the finances of Chrysler. With that said both GM and Ford announced earnings this week and there reports show mixed reviews of the auto market.
General Motor’s Quarterly report on Wednesday actually showed life returning to the largest U.S car maker. GM posted a profit of $1.47 billion on revenue of $39.26 billion, although this is higher from a year ago when GM earned revenue of $38.98 billion profits are down year over year (GM made a profit of $1.72 billion during the 3rd quarter of 2013).The good news for the auto industry is that GM was helped by strong U.S car sales and increased operating margins in North America (margins rose to 9.5% from 9.2% last year). Unfortunately North America seems to be the only bright spot, a slowdown in Russia and South America have hit auto sales in those regions. In the 3rd quarter GM’s European division lost $387 million, while its South American unit has lost $32 million. Thankfully these losses abroad are offset by an increase in sales here at home, GM’s rival, Ford, shows a bleaker picture of the auto industry.
Ford reported earnings on Friday and they were less then exiting. The company said that its profit dropped 34% this quarter, and C.E.O Mark Fields blamed a variety of one time charges and a slowdown in the emerging markets. A slowdown in Russia and eastern Europe were supposedly the reason why Ford’s European Division lost $439 million during the quarter, also Asia including China (the world’s 2nd largest auto market) showed a slow down with Ford’s Asian assets losing some $44 million. Apart from international sales Ford also showed a decrease in the key North American market where earnings fell to $1.41 billion from $2.29 billion last year. Granted Ford’s 3rd quarter results were skewed due to a number of factors, the largest of which was the shutting down of one of its largest truck factories, which was producing Ford’s flagship product the F-150 pickup. The plant was shut down in order to be remodeled to produce a new aluminum version of the f-150, which is supposed to be more fuel efficient and guarantee Ford’s dominance in the field of pickup trucks. Shutting down the plant cost Ford $700 million which could explain why earnings were week.
Ford and GM showed mixed earnings this week, and there stocks closed down during a week where the market rebounded. Fiat Chrysler stock ended the week up but still remain more or less flat since the IPO, personally I feel that the auto market is very edgy, with the instability of international markets at the moment and slim profit margins it is an industry that I would stay away from. With that said, Fiat Chrysler in particular provides more growth potential then any of its competitors including GM and Ford so this stock might have a place in your portfolio.
IN THE NEXT FEW MONTHS I WILL BE MAKING A WEBSITE FOR INVESTMENT WEEKLY WHICH WILL INCLUDE WEEKLY STOCK TIPS AND POTENTIAL OPPORTUNITIES IN THE MARKET AS WELL AS WEEKLY ARTICLES ABOUT MARKET EVENTS AND ANALYSIS OF VARIOUS INDUSTRIES
IF YOU HAVE IDEAS FOR THE NEW WEBSITE PLEASE COMMENT
ALSO COMMENT ABOUT WHAT YOU THINK OF THE BLOG AND ANY IMPROVEMENTS YOU WOULD LIKE TO SEE
IF YOU HAVE FRIENDS INTERESTED IN THE MARKET PLEASE LET THEM KNOW ABOUT THE BLOG SINCE I AM CURRENTLY ADVERTISING SOLELY THROUGH WORD OF MOUTH