With interest rates set to be low until 2015, this means that financing for cars will be extremely affordable for the next few years. Currently, the interest rates banks are charging for car loans are among the lowest since 1971, when the Federal Reserve started keeping track of such data. This will greatly increase the affordability of product in the automotive market sector, and should allow for an investment opportunity.
Data just released by Autodata Corp., the market research firm, say sales of cars and light trucks in November jumped by 15% to 1.14 million units from year-ago levels. The annualized rate for the automobile market sector is 15.5 million units, the highest since January 2008. (Source: “U.S. November Auto Sales Rise,” Bloomberg, December 3, 2012, accessed December 6, 2012.)
One of the firms in the automotive market sector that I brought to my readers’ attention several months ago was Ford Motor Company (NYSE/F), when it was below $10.00 per share. Ford reported a year-over-year increase of 6.4% in total for November, to 177,092 vehicles. Sales of small cars were up an astonishing 76% year-over-year, the highest in 12 years. The “F-Series” pickup truck increased sales by 18% year-over-year, the strongest since 2005.
Obviously, this is not a coincidence. The low interest rate environment encouraged by the Federal Reserve is working in some areas of the economy. We all know that real estate is starting to rebound, and now we’re seeing several months of strong sales in the automotive market sector.
As I noted several months ago, this investment opportunity is based on an easy monetary policy, along with a rebound in the housing market. The senior economist at Ford, Jenny Lynn, echoed my sentiment in the conference call, stating, “Economic indicators are pointing to modest economic growth with a better housing sector ahead.” (Source: Ibid)
The interesting item to note is that the automotive market sector is having strong sales, in spite of a weak economy. As an investment opportunity, as long as the fiscal cliff issue is resolved, and the economy picks up steam next year, we could see significant increases in both revenue and earnings for the automotive market sector. Over the short term, damage due to Hurricane Sandy will increase vehicle sales on the East Coast between 20,000 and 30,000, according to Ford.
One caveat for Ford is related to some very serious European concerns. The market sector in Europe is clearly in trouble, but when such an event occurs, it sometimes can provide an investment opportunity for the long-term shareholder.
Europe makes up approximately less than a quarter of Ford’s revenue. While this is clearly not immaterial, the profitability in America should cover this exposure. The company is doing the right thing; cutting costs in Europe and focusing on the most profitable parts of the world.
Chart courtesy of www.StockCharts.com
The automotive market sector has two conflicting themes going forward. The first is an economy that’s growing slowly, while the second is the wind in their sails from an easy monetary policy that’s creating a resurgence in the housing market and car sales. The investment opportunity is clearly to err towards the bullish side long-term. The American fleet is aging, and the new vehicles built by all of the firms within the automotive market sector are far more fuel-efficient than ever before. One should be patient, and look for opportunistic entry points into stocks like Ford, as long as revenue continues to grow and the stock remains above its support levels.
I think so. They need to continue to bring innovation to the truck industry (which the Ford Raptor is evident of) and continue to use Ford Service Parts because I think that is what separates them from a lot of other car companies. Other than that keep being America's Truck!!
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