Strong Sales Gives GM Much Needed Boost
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sales are up in the automotive industry, and this is great news for many companies. General Motors (NYSE: GM) is currently dealing with both good and bad publicity, but its strength in the market will help the stock remain strong as demand continues to grow. Its presence in China may have some negative effects for the time being, but the company is still in a good position. As a result, I expect this stock to be increasing, both in the near future and in the longer term.
General Motors is moving forward with its current advertising strategy that avoids more common tactics like Super Bowl commercials. At a press conference on Thursday, the company is announcing a deal between Chevrolet and the Manchester United soccer club. This is one of the largest sports groups in the world in terms of its fan base, and this deal will likely bring success for General Motors. Stockholders should be pleased by the successful steps General Motors is taking towards successfully implement its new strategy. I believe this will be beneficial for General Motors stock, as it will lead people to associate the company with a popular team and provide good advertisement as well.
This will hopefully overshadow the bad publicity General Motors is beginning to receive as a result of giving a $600,000 advertising contract to a company partially owned by the CFO's wife. This possible conflict of interest presents a bad image, and the potential legal ramifications may cause more problems for the company as the situation develops. In my opinion, it is certainly a good thing that the Manchester United announcement is coming so soon, as the company needs something to help it maintain a positive image. As a result, the stock may not suffer, but this conflict of interest is certainly something holding it back.
Aside from public image and advertising, things are looking strong for General Motors and other automotive companies as well. In the automotive industry, sales are increasing significantly this year, which has lead Ford (NYSE: F), Toyota (NYSE: TM), and General Motors to increase their projected sales numbers for 2012. These companies are displaying great confidence and have the numbers to back up their claims. As a result, this is a very good time to invest in these automotive companies. Automotive parts companies are also benefiting from these increases in sales. Autoliv, Magna International, Johnson Controls, and Gentex are parts makers who are in particularly great places to benefit from this success. The stocks for all these companies will be positively influenced by the success of the industry as a whole.
To help handle the increase in the market, General Motors is also adding 200 workers to its Detroit-Hamtramck assembly plant. This shows even greater confidence in the industry and will help the company meet the growing demand from its customers. Stockholders should rest assured that these news items indicate both short-term and long-term increases in the stock. General Motors has given itself a very strong place in this market.
Ford, on the other hand, is struggling to keep up with this growing demand. It expects to lose some of its share in the U.S. market. Even though it increased its incentives this month, furthermore, its incentives remain lower than competitors General Motors and Chrysler. Its boost in incentives has put Ford above the industry average, but since it still expects to lose U.S. market share, the stock will not do as well as its major competitors. The increase in sales is still beneficial for the company, so Ford stock will still probably remain stable as the year progresses. As General Motors gains a larger share of the U.S. market, however, General Motors stock will likely be on the rise, making it a better company to invest in.
In comparison to Ford, its competitor Toyota is in a much better place to benefit from the growing market, as it is expanding its financial services business to include India. The company will now offer loans to customers so they can purchase Toyota vehicles. This is a strategy Toyota has implemented in thirty-three other countries, so this is not a very risky decision. Furthermore, it is coming at a time when demand is high. Providing assistance to boost sales even further will help Toyota remain a powerful force in the industry. As a result of the expansion and the continued increase in sales, Toyota stock will likely be on the rise.
Analysts are also increasing their faith in Honda (NYSE: HMC), which is another major competitor in this industry. The company anticipates increased sales like many of its competitors, and it continues to work on improving important aspects like fuel efficiency. The increase in expected sales is the major component that will help Honda stock, but the continued work on improving critical components of its products will also help Honda stock see a slight increase as time goes on.
While everything in the automotive industry has looked reasonably good thus far, shifts in the economy are complicating the situation. The economic growth in China is not happening as fast as many had expected. Many companies like General Motors had put a lot of faith in this country and may experience difficulties as a result.
The situation is not as bad for some competitors though. As India's gas prices rise, some may expect Toyota to face losses since it has a great presence in that country. It may actually benefit from this, however, as its vehicles tend to be fuel-efficient. The higher gas prices, therefore, may actually have a positive impact on Toyota stock since it provides the company with an edge over its competition.
General Motors continues to be a fairly strong stock. Its public image will likely remain fairly neutral as different events balance each other out, and it is in a solid position to take advantage of the growing demand in the automotive industry. I believe Toyota may be in a slightly better position, as it is set to take a larger portion of the market in India. Despite the slowed growth in China, General Motors is still a smart investment. Based on various current news events, the stock should be increasing for a good amount of time to come.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.