The Buzz Out of Detroit: Is There a Real "Charge" Coming For the Auto Industry?

With all the news from Europe, China, central banks and ratings agencies driving the markets these days, we thought it might be a nice change of pace to take a look at products people actually enjoy driving.

There has been a heavy calendar of news recently on the state of the automotive industry, reviews of the current North American International Auto Show in Detroit, and developments from the always-interesting CES show in Las Vegas, which has featured a fair amount of auto-related new technologies.

First, just a really quick overview of where the industry stands and updates on some key players.

• Very recent numbers on 2011 total U.S. unit sales at 12.8 million, up +10.3% versus 2010
  
• Estimates running as high as 14 million units for 2012
  
• Big winners for 2011 were the “Big Three” of GM (+13%), Ford (+11%), and Chrysler/Fiat (+26%), with virtually all of the other manufacturers from Asia and Europe up, with the very notable exceptions of Toyota and Honda, both down about 7%. All the European luxury brands had double-digit increases. Kia and Hyundai notably strong among the Asian brands, seen as offering more value for the dollar.
  
• SUV’s led the segments in terms of increases, +25%.
  
• GM took back the U.S. total market share leadership for the first time in a decade.

Ok, so what is creating some buzz in the industry for 2012-2013?

The North American Auto Show in Detroit, now running, has seen the largest press attendance in several years, with a focus on “green cars”, the usual hot concept cars, new interactive technologies, new luxury models (especially European), and driving simulators for testing out new models.

“The relief and sense of accomplishment was palpable at this year’s North American International Auto Show, as automakers rolled out an impressive wave of spit-shined recruits for showrooms. “ --(NY Times)

“Even cynical journalists thought there was something worth seeing. Prime hotel rooms sold out for the first time in years.” -- (Auto enthusiast magazine blog)

-According to Gartner Research, “It’s bringing about a new era where cars will have intelligence. Cars are becoming self-aware of what’s happening around it, what’s happening to it, and what’s happening to the driver in it.” (They promise we won’t have a high-tech “Christine” on our hands)

-The hottest concept cars are reportedly: the Acura NSX super sports car, the Cadillac ATS (“BMW-beater”), the all-new Dodge Dart (one of the first major joint Chrysler/Fiat efforts and incorporating Alfa Romeo components), the new Ford Fusion (“world car”), and the Lexus LF-LC sport coupe, with several others also turning heads. One of the more “interesting” but very risky ideas, falling in the “does the world really need this right now” category:

“It's Italian, but built in America. Maserati revealed its first-ever sport utility Tuesday that targets the lucrative luxury crossover market with Italian styling and parts but constructed in Detroit and sharing some components with Jeep.”

-Fiat/Chrysler’s CEO Sergio Marchionne has generally gotten rave reviews for his leadership but came out recently with comments that “European carmakers must consolidate in the face of chronic overcapacity and mounting financial losses in a weakening market.”

-Ford Motor has recently begun a broad search for candidates to replace current Chief Executive Officer Alan Mulally. “The search for a replacement for Mr. Mulally is the biggest question looming over Ford because his influence on the company has been so profound. Mr. Mulally has never hinted at when he wants to leave, but he is 66 years old and maintains his permanent home in Seattle, where he lived as the chief of the commercial business for Boeing before joining Ford five years ago.”

-BMW, the world’s largest maker of luxury autos, will invest about $900 million in its South Carolina factory to expand capacity and prepare the facility to produce a new sport-utility vehicle, the new X4 SUV.

-There were no less than 380 in-vehicle electronics exhibitors at the CES Show in Las Vegas, ranging from companies offering new mobile TV devices to high-speed Internet access for cars. One example being “heads-up displays for drivers and passengers, similar to that found in aircraft”. (Guess we need some more driver distractions). But there are also some remarkable safety features showing growing sophistication, especially for accident prevention.

So, what does this all mean for stocks? It is reported that the average age of U.S. vehicles on the road has reached almost eleven years, indicating there is a lot of pent-up demand out there, if consumers could only have a sense of job security and access to credit.

Automaker stocks had a generally miserable 2011, down on the order of anywhere from 10-40% overall depending on the manufacturer. Several auto stocks have performed very well in the early going of 2012, but one of the bigger issues is how China and the European auto markets will grow going forward over the next year.

Even with the departure of Ford’s Mulally on the horizon, Ford is getting some strong analyst attention again, with the average 2012 target price of $15 from Friday’s close of $12.04, and 9 of 14 major analysts giving it a “strong buy” . (We were fortunate to catch a nice ride on a portion of Ford’s spectacular move in 2009-2011 from under $5 to over $18. A big chunk of that move was given back in the latter half of 2011, with F moving below $10 again.)

Some of more exciting tech projects are coming out of Ford which has launched a dedicated Silicon Valley research center. According to CNET:

“Ford used CES to unveil its 2013 Ford Fusion that Mulally described as a ‘family of vehicles where we have electrified the entire platform.’ He said options will include gasoline-powered, diesel, hybrid, plug-in hybrid, and all-electric.

‘You can imagine where that leads you to on smartphones on sync and MyFord, and having an ecosystem of applications to manage your electric vehicle,’ including the right time to charge your vehicle, ‘the state of your vehicle, what's the right route to take to minimize your energy use. So really the car is becoming the all-time mobile application.’”

But whether one chooses to get involved in the auto stocks or not, it is at least encouraging in the overall big picture to see more than a glimmer of enthusiasm coming out of Detroit again these days.

Good Trading!
David W. (aka The Underground Trader)

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