A lot of people have been jumping on the Ford (NYSE: F ) bandwagon of late, and a few have been on it for quite a while, like our co-founder David Gardner. The company has certainly made a remarkable turnaround from the depths of total collapse as shares traded near $1 toward the end of 2008. Those who bought into the turnaround story early have made quite a hefty profit, with shares now trading over $13.
Many were excited by September's 41% increase in auto sales over September 2009. However, let us not forget that last September was the first month after the government's Cash for Clunkers program ended, and a victim to the sales pulled forward, resulting in a slower month. The favorable comparisons were not available in August, a month in which United States auto sales hit their lowest levels in the past 27 years. Auto sales fell from the July totals by about 5%, showing we have a ways to go before the new-car market reclaims its former glory.
Ford has been performing better than its peers and has been able to win important U.S. market share. The company's market share domestically is now 16.7%, up from 15.2% from the first eight months of last year. Ford in particular has been helped by Toyota's (NYSE: TM ) manufacturing problems as well as the stigma attached to General Motors' government-funded bailout. Ford's sales have also been buoyed by giving higher incentives than the industry average. Incentives for Ford vehicles averaged $2,975, climbing nearly 6% in the face of an average industry decline of 1.6%.
Morgan Stanley is bullish
Another bullish party was heard from when Morgan Stanley analyst Adam Jonas initiated coverage on the stock Monday, naming it a "Best Buy" and putting a price target of $20 on the shares. The analyst believes that there is a real recovery in new automotive sales in America, and the company's domestic operations will lead its growth.
Jonas believes the additional availability of credit will boost the American consumer, increasing unit sales in North America to 14 million in 2011. This number exceeds consensus estimates of 12 million, and in my opinion is wishful thinking.
The real trend
Ford's turnaround is impressive, but I see another trend that could hurt Morgan Stanley's bullish sales predictions. The age of vehicles and the mileage put on a vehicle over its lifetime have been increasing significantly. The average age of passenger vehicles on the road has essentially gone in one direction since 1995, when the average age of a vehicle was 8.4 years. Today that number stands at 10.6 years. Vehicles are simply better-made today, resulting in a vibrant used market that resulted in consumers buying new autos less frequently. This is part of the reason we have seen an explosion in certified pre-owned dealership cars. Thrifty consumers realize that used cars provide much better values for consumers and businesses.
As thousands of dealerships have closed over the last couple of years, so have opportunities to fix and install original equipment manufacturer parts on cars and trucks. Much of this parts business has gone to aftermarket parts retailers such as O'Reilly Automotive (Nasdaq: ORLY ) , AutoZone (NYSE: AZO ) , and Advance Auto Parts (NYSE: AAP ) , who then distribute aftermarket parts to independent garages or do-it-yourselfers. These companies give investors a chance to profit on this trend. O'Reilly is my favorite of the three.
The Foolish bottom line
The Ford story really is a great one, and CEO Alan Mulally has become an icon for the turnaround he's spearheaded. However, the greater story is the stubbornly frugal American consumer and car-buying trends that have not gone back to their old ways.
I still believe the best play in the automotive sector is a play on longer-lasting cars, and increasing sales in used cars. This continues to bode well for the automotive parts retailers mentioned above as well as aftermarket parts manufacturers such as Dorman (Nasdaq: DORM ) or a specialty used car retailer like CarMax (NYSE: KMX ) .
Are you still on the Ford bandwagon? Do you think the stock could run to $20 as the Morgan Stanley analyst expects? Let us know in the comments box below.
Andrew Bond owns no shares in the companies listed. Ford Motor is a Motley Fool Stock Advisor selection. CarMax is a former Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days.
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