Will Germany Reign Over America?
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Or, more correctly, will Volkswagen (NASDAQOTH: VLKAY) reign over Ford (NYSE: F) ?
A short while back I reviewed Ford, GM (NYSE: GM), Volkswagen and Daimler as investments. Since then, sales data and other information has come out prompting a review of the original post. In a nutshell, Ford looks like it's doing better than I expected, VW is continuing its trajectory and GM is looking like it will slowly sink. Daimler (NASDAQOTH: DDAIF.PK) sells a classic luxury car, but may not do well as an investment. Here's why I think so.
Ford recently reported the best profit margin of the major car companies, coming in at 13.28% This is the latest in a series of positive results from Alan Mulally's successful tenure (who will replace him is becoming an interesting question with no clear successor in sight). Return on assets and revenue per employee are among the best in the business. Ford enjoyed the fruits of it high customer loyalty with an August sales increase of 13%. Ford is planning to market several new models of cars, including the C-Max hybrid which some are referring to as "The Prius Killer." Larger than the Prius V with a more powerful engine, a lower sticker price and better gas mileage, it might just happen.
Like all auto makers, Ford was clobbered by European sales, or lack thereof. Ford's response is to roll out 15 new models of cars to capture more of the European market. Fortunately, there seems to be some recognition on the part of European politicians that there really is too much auto making capacity in The Old World and some plants are just going to have to close with worker layoffs. This realization is coming late, but should help auto makers across the board. All told, Ford seems to be hitting on all cylinders. Whether this can be maintained, especially with the US experiencing anemic economic growth and falling median household income, is difficult to say. The potential is certainly there.
GM is having problems with no end in sight. Yes, sales rose this past month by 10% but that was the lowest increase of the major automakers. The Volt set sales records but total sales are still far short of what was projected and the company is losing an estimated $49,000 on each Volt built. When the US taxpayer bailed out GM, the company wanted to unload its Opel car division. The Federal government, in its infinite wisdom, said "No." Today, Europe is a festering financial ulcer. Opel is averaging $1 billion in losses a year for the past 12 years. With an operating margin of 3.98% and steady erosion of US market share, lit may be a while before GM gets back to its post bail-out price. There may come a day when GM can leverage Volt technology into profitable cars and wrestle back market share. Until then, GM strikes me as a stumbling giant that will fall to competitors unless it can get Opel out of the company and Uncle Sam out of the board room.
Volkswagen continues its quest to be the biggest car company in the world. It will roll out its seventh generation Golf in Europe this year and in the US next. This is the flagship car for VW and the company is putting some effort into the vehicle. The newest Golf is 220 pounds lighter than its predecessors with improved gas mileage. All sorts of high tech gadgets and ergonomics are integrated into the cabin. Motor Trend, Car and Driver, and Cars all are saying good things about not only the Golf, but the Passat as well. Audi seems enjoy rave reviews by its owners as it closes in on BMW as the best selling brand of luxury cars in the US.
Lastly, Daimler recently reported record sales, but questions remain about its Smart electric car. It's rolling out about a year ahead of BMW and VW's electrics, seems to have a cult following in European cities but does not enjoy a big profit margin. Daimler is also facing tough sledding in the luxury market as Lexus recently surpassed Mercedes Benz in US monthly sales. Daimler had already been bested by Audi in 2011.
For investment purposes, I'm still favoring VW over Ford, but not by much. Daimler stock hasn't done much over the past five years and I don't think its current trajectory bodes well for the future. GM still has problems that need to be addressed before I go with them.
dylan588 has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. 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.
