What Sales Data Tell Us About Auto Stocks

Auto sales were down in March, but the sector may not be at its low point yet.
By Kevin Baker ,

Sales figures released yesterday showed that, in March, total U.S. vehicle sales were 15.1 million, down from 15.3 million in February on a seasonally adjusted annual rate.

So, what does that mean for automotive stocks and funds in the sector?

The domestic portion showed the worst automotive sales performance since August 1993, at just 11.1 million vehicles. Domestic trucks failed to carry their load, dropping to an annual rate of 6.2 million in March from 6.6 million in the prior month.

Fear that we may already be in a recession, along with other economic problems, likely kept many buyers out of showrooms.

Belt-tightening was not limited to domestic vehicles. Germany's Porsche reported a North American overall sales decline of 24% in March, with 911 sales off 42% and Boxster sales off 49%.

In the last year,

General Motors

(GM) - Get Report

shares lost 31%. GM is now only barely larger in market capitalization than

Harley-Davidson

(HOG) - Get Report

, which gave up 32%.

Ford

(F) - Get Report

lost 26%.

The Europeans and Japanese fell less, with

Daimler

( DAI) down 12%,

Bayerische Motoren Werke

(BAMXF)

down 16%,

Toyota Motor

(TM) - Get Report

down 19%,

Nissan Motor

(NSANY)

down 17%, and

Honda Motor

(HMC) - Get Report

down 11%.

There is no question that the stocks have been beaten down, but "value" is in the eye of the beholder.

One insider does not think we've hit bottom. Ford's marketing chief, Jim Farley, believes that "the second quarter may be the worst sales period of the year."

For trading the auto industry, the saying might go, "Never try to catch a falling engine block." The better way to trade is to wait for the corner to be turned before jumping on board.

In fact, TheStreet.com Ratings' model ranks the

Fidelity Select Automotive Portfolio

(FSAVX) - Get Report

as "E+," or Sell. Along with the auto manufacturers listed above, just over half the fund holdings are auto-parts makers, with

Johnson Controls

(JCI) - Get Report

accounting for almost 21% of fund assets.

If you have a brokerage account that can trade in Paris, check out the

EasyETF Automobile

that tracks the Dow Jones Euro Stoxx Automobile Index. This is a pure play on European automobile and parts manufacturers that, as an exchange-traded fund, could be sold short. (Be sure you understand currency and short-selling risks before selling short any foreign security.)

The auto industry will not be all doom and gloom forever. Beyond the economic rough ride in 2008 and into 2009, companies such as Nissan, Toyota and Honda plan to continue implementing today's research in higher mileage, lower-emission hybrids the public is demanding. The U.S. Department of Energy awarded Johnson Controls $4.1 million over two years to develop 40-mile range plug-in hybrid batteries to help domestic producers do the same.

Personally, I'm holding out for a solar-powered SUV with a 100-mile "cloudy-day" range for under $40,000. Whichever company mass-produces this car first ought to trounce its competitors.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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