Beat The Struggling Auto Sector With This Stock
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Even with the global crisis that is sweeping the planet at the moment, General Motors (NYSE: GM) has continued to show signs of vitality. The company is planning to further consolidate its position as a major automaker in all continents, despite the worrying situation the automotive industry finds itself in. General Motors may have lost a small proportion of its global market share between January 2012 and September 2012, but this didn't result in fewer sales. The company saw a 2.5% increase (6.95 million units) in the volume of vehicles sold worldwide.
A minor setback occurred when the company recorded a 1.5% decrease in sales in the South American market, to 787,000 units. The decline can be seen as a reflection of the intense renewal portfolio in several countries. In Brazil, Cruze Sport 6, Spin, Sonic, Cobalt 1.8 and S10 were launched during the same period. GM South America also saw its market share decline by 0.8 points, moving to 18.1%.
On the other hand, GMIO, which includes markets in Asia, Oceania, and Africa, rose by 8.6% in sales to 2.64 million vehicles. The result does not include volumes sold by joint ventures that General Motors is part of in these regions. Partnerships in China added more than 2 million units, and the branch office in India sold 64,000 units in the period. In North America, there was an increase of 3.6% in volumes sold, to 2.28 million registrations. The increase did not reflect in the market share, which shrank by 1.7 percentage point to 17%.
In a statement distributed to investors, CEO Dan Akerson recognizes that there is much work to be done, particularly in Europe, and celebrates the company's achievements elsewhere. GM's goal in Europe is to reduce the deficit in operations and increase its profits by mid-decade. Opel, GM's German unit, has proved to be a problem in the company's results, leading the automaker to press for changes in its European division. To reduce their spending on the European unity, General Motors aims to save about $500 million, downsizing its strength by 2,600 employees.
At the same time, GM has consistently been increasing its investment ventures in Latin America. The company has invested almost $450 million in Rosario, Argentina, with the goal of creating a new model of global vehicles. In Brazil, due to tax incentives by the federal government, investments will reach almost $2 billion. These investments in Latin America represent a new phase for General Motors. With the middle class in Latin America growing each day, a new opportunity has arisen for the company to consolidate its position further in these markets. In fact, a partnership between General Motors and Peugeot Citroen is a venture that may draw more investment in Brazil. What I understand is, GM is making very wise decisions in investing in Latin America, which is the most stable business environment at the moment among developing markets.
Meanwhile, Toyota (NYSE: TM) has continued its marketing and sales campaign globally. According to an annual survey by Booz & Company, Toyota was the most innovative company of 2011, followed by the pharmaceutical companies Novartis and Roche Holding. The Japanese car maker was successful in innovation because it invested about 16.5% of its revenues in R&D. Moreover, the company continues to increase its investments globally. In Brazil, Toyota will invest about $500 million in a new plant to serve the local market, with a capacity to produce up to 400,000 vehicles per year.
However, Toyota's sales fell by 44% in China due to a territorial dispute between the two Asian giants. Violent protests and calls for boycotts of Japanese products occurred across China in mid-September. Honda (NYSE: HMC) faces the same problems as Toyota does in China because of the territorial dispute, and this has caused problems for the company. Honda believes its profits shrank by 20% due to this. However, Honda has plans to invest in South America as well, as the continent is relatively more stable than many volatile regions in the world.
Ford (NYSE: F) is not immune to problems either. The company has faced a lot of issues in Europe. Ford has decided to close its plant in Genk, Belgium, which employs 4,300 people, and transfer it to the Spanish town of Almussafes in Valencia, in 2014. The closing of the Genk plant is a blow to the local automotive industry and a disaster from a social standpoint for the residents of Genk. Another place where Ford plans to close its doors is England, where its factory production model incurred losses of nearly $1.5 billion this year. This plant will be relocated to Turkey.
Fiat, on the other hand, has been discovering new ways to fight a dismal automotive atmosphere. The CEO of Fiat, Sergio Marchionne, attempted to make a deal with Peugeot and GM earlier this month, trying to propose the creation of a Euro-American giant in this sector. The idea is not to initiate a direct merger with GM, but with its European subsidiary, Opel, which has a joint venture with France's PSA Peugeot-Citroën. Fiat approached Opel in early October and even made a bid for the GM subsidiary, which was denied by GM nonetheless.
General Motors has a market cap of $40.35 billion and an enterprise value of $23.28 billion. This high level enterprise value and market cap is mostly because of the company's investments in developing countries and partnerships elsewhere. General Motors' fundamentals are stable, and will likely stay that way, in spite of the fluctuations in the global auto market. Part of this stability is because the company has wisely invested in Latin America, unlike many other car companies.
General Motors has total cash of $33.73 billion and total debt of $16.65 billion. Though this debt level may be considered high, the investments and profits made in other countries are also high. I can certainly say that it is increasingly clear that General Motors is making progress in developing countries, its fundamentals are not as affected by the economic crisis as other automotive companies are, and it will surely bring good returns to investors in the coming quarters.
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