Geneva Business School

Stock Market: Automotive Industry. Toyota and Ford.

Alina Abdrakhmanova

Table of Contents

Industry 3

Macroeconomic analysis 6

Japan 6

USA 7

Toyota 8

Ford Motor Co. 11

Conclusion 14

Appendix I 15

Appendix II 16

Appendix III 17

Appendix IV 18

Appendix V 20

Appendix VI 22

Appendix VII 24

Appendix VIII 25

References 26

Industry

Automotive industry has been badly hurt by the 2008 crisis and now shows its first steps to recover with revenue over $ 30 Billion and operating margin 6.3%. The biggest markets are North America and Asia Pacific. (Appendix 1)

Over the last six months, many automotive companies took advantage of improved credit conditions and a favorable rate environment to modestly increase leverage.

Ernst & Young has identified six mega trends that will impact the revenues, costs and profitability of participants in the global commercial vehicle industry. To capitalize on opportunities that lay ahead, players need to leverage their ability to innovate and to be flexible.

• Truck owners demand technology solutions enabling greater transparency

• Regulations drive changes for truck owners and OEMs

• OEMs to expand geographical footprint and review operational efficiency

• OEMs increase “glocalization” and offer customized value added services

  • OEMs reinvent portfolio with products such as low-cost trucks for emerging and developed markets alike

  • Bundling of products with value added services key to maintaining margins

• Suppliers offering innovation, operational flexibility and entering new product/service markets

• Globalization and economic uncertainties expose CV industry to supply chain, manpower and economic risks

• Industry invests in restructuring supply chain and flexible capacity management (1)

The future trends in the industry

• Passenger travel distance to double by 2050 — over 70 trillion kms per year

• Per capita commuting delay to double by 2050 to over 100 hours per year

• Over 37 cities – majority in Asia and Latin America – to have over 10 million inhabitants by 2025

• Over 70% of global population to live in urban areas by 2050, up from 51% in 2010 (2)

The growing interest in alternative powertrain technologies, especially the increased electrification of vehicles, is affecting the entire automotive industry value chain and creating new mobility trends involving several new, non-automotive stakeholders.

Existing vehicle manufacturers (VMs) are adding alternatively powered vehicles to their product line-ups, such as plug-in hybrids and pure electric vehicles, while new market entrants are using transformation of mobility drivers as their door into the automotive industry.

• About 58 million of stop/start vehicles, also known as micro-hybrids, are expected to be produced in 2022, which is 89% of the total hybrid and electric vehicle production market, according to a new report from IMS Research.

• .According to report, stop/starts are not strictly hybrid vehicles, the proportion these vehicles represent of the total hybrid and electric vehicle production market is expected to increase from 77% in 2010 to 89% in 2022. (3)

According to the latest analysis, there are four companies to consider as potentially profitable investment:

• Ford sales in America were up 6.5% to 177,700 units, driven by its pickup and several new, state of the art small, fuel efficient vehicles. The company earned $2.3 billion in profit from North American Operations in the third quarter. It announced increasing production goals for the current fourth quarter to 750,000, representing an 11% increase from the fourth quarter of last year.

• General Motors has had a tougher go of it than Ford, much of that traceable to still having partial ownership by the U.S. Treasury. Its passenger car sales and crossover sales of up 19% and 9%, overwhelming a sharp 8% drop in light truck sales. The net result was a gain in November of 3.4% over November, 2011, making this November the best such month since 2007. But GM's announcement that it may be reducing its truck manufacturing ability belies that this is a month to month issue. Like Ford, GM's status in North America is fine. But it will lose well over $1 billion in Europe this year. And it is just as hard to see Europe turning around as it is to see North American sales flailing. All the while, Chinese sales in general are showing continuing strength despite the relative slowdown in the country.

• Tesla Motors is a niche automaker devoted solely to premium, electric powered vehicles. The big news for Tesla is its introduction of its first car with a price well below six figures. Tesla's “S” model can be configured with batteries with ranges from 160 miles to 300 miles. All have extraordinary acceleration, and can be well customized. for a company that has never even come close before to turning a profit, its current, nearly $4 billion market capitalization seems daunting. Tesla is for the most speculative of investors only.

• World leading automobile manufacturer Toyota has turned its act around for the better. After blows about vehicle quality followed by an earthquake and tsunami in Japan that affected much of Japan's infrastructure, Toyota is competing successfully not just against other producers, but also against its own past few years' results. In America, its November sales of 162,000 units was up 17.2% from November 2011. Overall, the company's second fiscal quarter profits of $2.06 per share was some 225% above the same quarter a year ago. Overall, through the first half of its fiscal year, Toyota sold about 4.5 million units, a 50% jump from last year. (4)

According to the latest surveys, there are two best selling leader cars: Focus sedans and hatchbacks with 489,616 cars sold globally in the first half of 2012, besting the Toyota Corolla by almost 27,000. However, Toyota also sells the Corolla Verso, a van-like vehicle that Toyota has traditionally counted as a Corolla, so including all the models, Toyota sold 603,840 Corollas in the first half, beating the focus by about 114,000. (5)

Taking the mentioned facts into consideration, the analysis of investment into Ford and Toyota companies will be provided.