BOSTON (TheStreet) -- Prospects for GM (GM) and Ford (F) are improving on an almost daily basis. Just yesterday, Ford Chief Executive Officer Alan Mulally made the bold prediction that sales will rise 50% in four years as Africa and Asia demand strenghtens. Ford, which sold 5.3 million vehicles in fiscal 2010, will shoot for "nearly 8 million" by 2015. Is that reasonable?
GM is stealing incremental market share from Toyota ( TM), whose production was crimped by the Japanese earthquake. UBS ( UBS) says GM "will be the biggest beneficiary of the upcoming Japan-related inventory shortages, with the potential to gain as much as 110 basis points of additional share in 2011. We expect these gains can boost 2011 EBIT by $1 billion and EPS by 60 cents." UBS is the latest to join the bullish herd. It upgraded GM to "buy" in early May, on the same day that April auto sales exceeded the bank's estimate. GM has attractive NOLS, or net operating losses, resulting from its bankruptcy restructuring, which may allow the company to shield between $14 billion and $19 billion of its profit from taxes, adding to shareholders' bounty. Unlike in previous years, GM is focused on profitability, not market share. The globalization of the auto market should provide ample opportunity for all, so GM wants to generate high margins and profit, rather than striving to outsell competitors with heavy discounting or promotion. Barclays ( BCS) likes the strategy. The bank rates GM "overweight" with a lofty $44 target, implying 52% of upside. SAAR, or the seasonally adjusted annual rate, for autos declined beneath 12 million in May from more than 13 million April, missing Barclays' forecast by about 300,000. Still, the bank says that "only a small portion of the decline (around 0.4 million units of SAAR) was due to weaker consumer sentiment." GM's May sales grew 7.7%, missing Barclays' forecast. Passenger-car sales jumped 22%, but light truck sales dropped 2.2%. Market share gained 80 basis points. Yesterday, as GM held its annual shareholder conference, the shares stagnated, but upon announcement of an aggressive plan to increase sales in South America, home to many of the fastest-growing emerging markets, the stock popped 1.1% intraday. GM plans to introduce 40 new vehicles in South America through 2012. Currently, it seems that manufacturing will be domiciled elsewhere as no new plant investments were announced with the sales target. GM plans to sell, at least, 500,000 more cars per year in South America, starting in 2015.
Although rival Ford has a higher operating margin and 2011 cumulative profit, GM's now echoing Ford's mantra of "profit, not market share," and it has a head start in emerging markets, indisputably, the key growth venue for both companies. GM generated 14% of its 2010 sales from its international unit, excluding the Chinese operations. About 7% of total sales came from Brazil and 5.4% from South Korea. Although domestic woes present a headwind in 2011, longer term, stock performance will be linked to overseas growth.
-- Written by Jake Lynch in Boston.
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