Will These Companies Let an Opportunity Slip Away?

Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As Suzan prepares dinner for her new hard working husband she decides to pop the question. "Have you started looking at options to re-model the bathroom, honey?" Steve knows he has been putting it off and doesn't want to disappoint Suzan, so he thinks of the most logical answer he can that will keep him off the couch. "I think it would be best to wait until we have the money available to make any major decisions about the bathroom. After all, we did just have to replace the transmission on your car."

The beauty for investors in the automobile industry is shown perfectly in this short conversation. December was a remarkable month for auto makers, the best since 2006. Virtually every company showed growth throughout the month and have great opportunities moving forward. The average age of automobiles on the road is eleven years, but many believe that should decline soon.

Ford (NYSE: F) and General Motors (NYSE: GM) actually brought up the tail end of automakers, while still posting 2% and 5% sales growth, respectively. Toyota (NYSE: TM) performed better than most in the industry showing a 10% increase in sales. In 2008, 2009, and 2010, auto makers fell of a "fiscal cliff" of their own. They have struggled to gain traction until 2012, which accounted for the best year since 2007 for the industry. 

North America is very important to auto makers around the world. China accounts for mass volumes of vehicles being sold, but also accounts for very little profit. Companies like GM and Ford need to focus heavily on North America sales, as they gain more profit there. The Chevy Silverado could be a large contributor for GM. There seems to be a large interest in the vehicle and a large market to focus on. 

What to watch for....

Investors should watch one revenue maker very closely with all auto makers. A company’s willingness and ability to adapt to needs is crucial. Ford, GM, and Toyota have all shown they can make excellent trucks. Toyota has done a reasonable job at adapting to the changing needs of vehicles, but GM and Ford could experience large growth if they do the same. How these companies adapt to alternative fuel options/hybrid technology will play a significant role in how they perform. 

The graph below shows the past three month performance. 

<img src="http://media.ycharts.com/charts/c82121fb0a93aeddaf8d8889b3f690ee.png" />

F data by YCharts

While it was a historical year for the industry, some companies still show a lot of opportunity to excel in 2013. Ford and GM actually lost market share (1.3% and 1.6% respectively) while Chrysler remained flat. Even though they lost market share, their sales still increased. Honda (NYSE: HMC) saw a 17% growth in sales and matched GM with a 1.6% loss of market share. Toyota actually saw an increase of approximately 1% in market share. 

While these companies all performed well throughout the year and the month of December, Volkswagen might have had the best month out of all auto makers. Volkswagen increased its market share by .5%, and its sales by over 35%. This marked the best performance in 39 years for the company. Volkswagen also showed a 31% increase in capital expenditures as it continues to expand globally, primarily in North America. 

The Bottom Line...

Though the auto industry has seen its best performance in recent memory, there is still room for opportunity. If these companies can adapt to more hybrid and alternative fuel vehicles, they could perform even more historically. The beauty for investors looking at the auto industry is this: People don't defer the cost of a car; if they need a new transmission, they fix it before remodeling their bathroom. Investors should watch closely as 2013 could potentially be a significant year for auto makers. 


tlwofford has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors Company. The Motley Fool owns shares of Ford. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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