MILLBURN, N.J. (Stockpickr) -- The automobile industry has experienced a tremendous amount of trauma over the past few years, much like the housing and banking sectors. But the auto industry is beginning to turn itself around, and opportunities are presenting themselves to investors.
Last week, we discussed
suppliers and retailers
. In this installment, we turn to manufacturers and retailers.
Auto manufacturers have suffered severe blows, but in 2010 there has been a prevailing and positive buzz for an industry that was on life support as the credit crisis worsened and the recession deepened.
were spotlighted at the 2010 Detroit Auto Show, and Ford stole the show. Not only did Ford's Fusion Hybrid win North American Car of the Year, but the 2012 Focus was the show's shining star.
Indeed, of the remaining publically traded automobile manufacturers, Ford is the stock to own. I have been buying it in various forms since the fourth quarter of 2009, when the stock was still in the single digits. In no uncertain terms, Allan Mulally and Ford have not let me down. Unlike its two other domestic auto builders,
and General Motors, Ford avoided bankruptcy by obtaining longp-term financing before the credit crisis began and building a competitive and compelling pipeline of products. Its products have made important strides in quality and execution over the past few years and are expected to build on that success in the future.
Ford has taken a new strategic perspective on its vehicles and will be taking advantage of all of its assets, such as Ford Europe. Additionally, its monthly year-over-year sales have been generating impressive results. Ford reported sales gains of about 25% in January 2010 and 43% in February
March 2010. If that's not exciting enough, perhaps its low forward P/E ratio is.
The last week of March brought another important auto show to the Big Apple. But where Detroit's attention was predictably on the domestics, New York had a different flavor.
Continuing their assault on the auto world, the cars that stole the show were from import brands. Arguably, the top vehicles to make an appearance came from
youthful brand, Scion, with the tC, and from an all-new mid-size sedan with European touches from Kia, the Optima.
Imports, particularly of the Korean persuasion, showed why they made out with a large chunk of auto sales in 2009. Kia and Hyundai had a solid 2009 with year-over-year total sales up nearly 10% and 8%, respectively. Meanwhile, the industry as a whole was in double-digit declines.
With the Scion tC, Toyota had something to deflect attention away from its recent recall woes. If you have not been hiding under a rock for the past several months, you likely have heard about Toyota's three recalls. The first two centered on unintended acceleration, and the third focused on Toyota's hybrid vehicles' anti-lock braking system software.
When all was said and done, approximately 9 million vehicles had issues -- and we're not talking about something small or aesthetic but about the most crucial aspects of a vehicle -- and Toyota needed to remedy them as soon as possible. Additionally, sales of several affected Toyota products were halted until they could be addressed.
With a tremendous amount of media attention on the brand, which was once known for having impeccable quality, there could be damaging implications from Toyota's depleted credibility and reputation.
Questions as to whether driver error caused Toyota problems has added to the controversy as of late.
Likely, history won't repeat itself and the situation won't escalate to the scale of Audi's troubles a couple of decades ago. Toyota will still feel the impact, though, and some research is already showing that future buyers will be adverse to Toyota products.
The second-to-last stop in the automotive supply chain is the auto retailers or dealers. These are the salespeople who have been satirized in the movies and on television for their dubious sales practices. Many auto retailers are independent dealers. Many are also quite reputable.
There is also a nice selection of publically owned auto retailer chains worthy of some analysis. What makes these companies so intriguing is that the large auto retail groups can be a bag of mixed nuts. For instance, some may place most of their weight in used products, while another firm may sell new cars but predominantly in the premium/luxury arena.
Once again, this means the most crucial part of investing -- doing your homework -- is of the utmost importance.
is diversified across 33 brands but is going to experience some pain because General Motors
Chrysler have closed down some of their dealerships. Toyota's recent recalls have created a bit of an issue as well. And as we touched on before, Toyota's problems may translate into demand destruction as consumer confidence lowers in the firms once reliable products.
As with other retail businesses, a significant focus must be placed on economic conditions. Examples include consumer confidence and unemployment. These factors weigh heavily on the retail landscape and need your attention before investing.
With that said, I am confident that it would be wise to steer clear of this segment because there is nothing tremendously compelling about auto retailers at this point.
Although we know that manufacturers are beginning to ramp up incentives in order to move cars off of dealer lots, some auto retailers have the cards stacked against them due of their focus on premium brands or their exposure to auto manufacturers that are shutting down stores and not producing solid sales figures.
-- Written by Scott Rothbort in Millburn, N.J.
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Note: Contributing to the research and writing of this report was Richard Posluszny. Posluszny is a graduate of Seton Hall University's Stillman School of Business and is currently a contributing editor at AutoSpies and an associate producer for Auto Stream's Fast Lane Daily.
At the time of publication, Rothbort was long F and F Warrants, although positions can change at any time.
Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of
, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of
, an educational social networking site; and, publisher of
. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.
Mr. Rothbort is a regular contributor to
TheStreet.com's RealMoney Silver
website and has frequently appeared as a professional guest on
Fox Business Network
and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.
Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.
Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.