October Auto Sales Were a Tad Light; We’re Not Worried

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

After Ford and General Motors posted fantastic third quarter results, industry-wide auto sales came in slightly lighter than expected in October, as many cite Hurricane Sandy as hurting industry-wide unit sales by as many as 300,000 units. Let’s take a look at a few companies.

Ford

Best Ideas Newsletter holding Ford (NYSE: F) announced an excellent quarter on Tuesday, and shares have rallied since trading resumed Wednesday. The firm’s October results were decent, with sales growing 0.4% year-over-year (retail up 2%), but they came in below consensus estimates of 3.5% expansion. More pressing, Alan Mulally confirmed that he will remain CEO until “at least” 2014, but President Mark Fields was promoted to chief operating officer and will oversee the day-to-day operations. Joe Hinrichs and Jim Farley were also promoted; though we think Fields remains the favorite to take the helm when Mulally retires. Ford has had notoriously poor succession plans in the past, so we like the idea of advanced planning. Replacing Mulally, the company’s most prominent CEO since Henry Ford himself, will be no easy task.

During October, sales of Ford branded vehicles increased 1% year-over-year, but Lincoln’s 15% decline weighed on aggregate totals. F-Series sales continue to grow at an impressive rate, increasing 8% year-over-year. EcoBoost has given a positive charge to sales, and we think no other OEM is coming close to Ford with respect to pick-up sales. Focus sales also grew nicely, up 48%, while we saw a sharp 30% decline in Fusion sales. This unfavorable mix could hurt profitability.

Overall, we weren’t discouraged by Ford’s October results, especially after such a strong third quarter, but we really would like to see Lincoln return to growth. That won’t be easy given increased competition from Audi, Cadillac, and Mercedes, but we think the iconic American brand still stands a chance in this segment. Find out why Ford is included in our Best Ideas Newsletter.

General Motors

Sales at GM (NYSE: GM) were also a bit weaker than expected, growing 4.7% year-over-year (6.8% retail) versus a consensus estimate of 7.8% growth. The October SAAR, according to the firm, came in at 14.4 million units, which is below last month’s levels. Buick and Cadillac were the clear standouts, growing 14.5% each, as the two continue to make strides against competitors like Lincoln and Audi. Total passenger car sales grew 15% year-over-year, while crossovers and trucks grew 3% and 8%, respectively.

While we do have some concerns with respect to channel stuffing--the company’s day’s supply of inventory is running well above internal goals--we think the firm has made some meaningful strides in the luxury market. Volt sales also increased significantly, posting a monthly all-time high of 2,961 units sold, though performance continues to run dramatically below original forecasts. Still, the month was fairly solid for GM. We think the stock is fairly valued at current levels.

Toyota

Leading Japanese firm Toyota (NYSE: TM) posted solid gains once again, though similar to all other firms, unit growth of 15.8% came in well below expectations calling for 26% expansion. We’re big fans of the company, and its strong performance in consumer reports underscores why the company does so well in America. Toyota segment sales increased 16.8% year-over-year due to strong growth from Scion, as well as the reliable Camry and Corolla. Light trucks increased 8.3% year-over-year, keeping pace with Ford and suggesting GM is falling behind both firms.

Lexus sales lagged the pace achieved by the rest of the company, growing 9.8% year-over-year in spite of a 15.2% increase in passenger car sales and spectacular performance from the GS mid-sized sedan. SUV sales increased just 2.3%, and we think the brand is falling behind other SUV makers in terms of design and marketability. Headwinds from Japanese/Chinese relations and the Yen/USD exchange rates have punished shares too much, and we believe the company is very inexpensive. Still, a Valuentum Buying Index (our stock-selection methodology) score of 3 keeps us on the sidelines at this point.

Honda

After its newly-redesigned Accord received fantastic reviews, Honda (NYSE: HMC) followed through with 8.8% sales growth during October, which was slightly lower than consensus estimates. Accord sales surged 25% year-over-year, while sales of the Civic increased 27%. Honda’s reputation for quality continues to drive solid market share, but the company blamed Sandy for hurting sales at the end of the month. Acura sales grew nicely, up 9.8% year-over-year, with sales of the RDX SUV surging 62% year-over-year. It’s difficult to target a single car in terms of its impact on the entire market, but we suspect the RDX is greatly responsible for Lexus’ slower SUV sales growth. Honda is fairly valued, in our view.

Chrysler, Volkswagen, and Kia

Sales of Chrysler continue to flourish thanks to Fiat, up 10.2% year-over-year. Kia sales volumes were also strong, up 12.6% year-over-year, leading to a record month for the producer of inexpensive vehicles. Volkswagen continues to post fantastic results throughout the US, as sales increased 22.4% year-over-year in the firm’s best October in the States since 1972. Audi sales advanced 14.5% year-over-year, and we think it remains one of the more popular luxury car makers in the US. Volkswagen’s commitment to building cars tailored to Americans continues to strike a chord, and we suspect the firm will continue to gain market share going forward.

Drive Home With Further Analysis

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford’s stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of The Motley Fool’s top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.


Valuentum includes Ford in its Best Ideas Newsletter. 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.

blog comments powered by Disqus