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Brian Tidd | April 24, 2013

Is the auto sector revving up?

The Geneva International Motor Show recently wrapped up and after scanning the news about it, I thought now might be a good time to share some insights from my experience at the Detroit Auto Show in January and provide my thoughts on the auto sector in general.

Auto sector overview

While the press focuses on the glitzy roll-out of new models, there is also a large investor conference that runs alongside the Detroit show. That conference was well-attended compared with prior years, suggesting increased investor interest in the space. Some of the best-informed comments come from OEMs (original equipment manufacturers) and suppliers; here’s what they had to say:

  • The North American market appears to be quite healthy
  • Europe is weak
  • Latin America and Asia fall somewhere in between

Most conference presenters expected European auto sales to be down 3%-5% this year. Based on recent data, I believe demand will be heading even lower.

Restructuring is required in Europe, with many plants currently running at around 70% utilization – below the 80%-85% required to break even. Some of the mass producers have started shedding capacity, but it will take time to see the benefits.

In North America, 2013 should be a good year for growth. But, new capacity is expected to increase supply in 2014 and this may have an impact on profitability. It remains to be seen who is going to win share, who will lose share and how much incentive activity will be required to defend/take share. While depreciation of the yen could aid Japanese OEMs, many of their products sold in North America are now made locally.

Ford Motor Co.*

My favorite name in the auto space remains Ford. At the Detroit show, the Ford booth definitely saw heavy traffic. The next generation F150 truck prototype stole much of GM’s thunder around the release of its new line of trucks.

Over at the investor conference, the Ford management team laid out its product strategy and the rationale behind it. In short, they are among the first shifting to global platforms and are still in the early stages of exploiting this advantage.

I plan to comment in more details about Ford as an attractive investment in an upcoming blog post, so stay tuned for my thoughts on how Ford is addressing various investor concerns. Please feel free to comment in the field below. I’d be happy to answer any questions.

*The above company was selected for illustrative purposes only and is not intended to convey specific investment advice.

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