Many casual investors out there can't bring themselves to invest in our domestic automakers. That's understandable because outside of the last couple of years investing in them would have tanked a portfolio. Ford (F 0.66%), General Motors (GM -0.17%) and Chrysler surely were topics of water cooler talk over the years, but for all the wrong reasons. During the recession, when vehicle sales tanked, GM and Chrysler had to take money from Uncle Sam to survive and Ford, which would later survive on its own, was left for dead. It's easy for people to remember the bad and avoid Detroit's Big Three automakers as investments, but that could be a mistake.
Reversing trends
Here's a nasty number for investors: Between 2006 and 2008, Ford was extremely successful at one thing – losing money. It lost $30 billion in that time frame to be exact. In 2006, it managed to lose a staggering $5.8 billion in the fourth quarter alone! To put that in perspective, for all of 2012, Ford's net income was reported at $5.6 billion.
The reason for those huge losses was pretty simple: No one wanted to buy domestic vehicles. To move its vehicles Ford had to dish out massive incentives and was taking an estimated $2,000 loss per vehicle. Fast-forward to today and that is a trend that has completely reversed. CEO Alan Mulally's "One Ford" plan increased operating efficiency, consolidated platforms, and now Ford is much more profitable per vehicle.
In addition to that, we're witnessing transaction prices rise as incentives per vehicle decline – a very healthy situation for automakers.
Information from Automotive News Data Center.
That graph highlights the trend of the industry's rising transaction prices overall as well as the full-size-truck segment, which is increasing even faster. Both trajectories present great news for automakers, especially Detroit's Big Three, which bring in more profits from pickup sales.
"Transaction prices continue to be at record levels as attractive leases and low cost financing options are enabling consumers to afford more expensive vehicles with rich content while keeping their monthly payments at about the same levels," said Jesse Toprak, senior analyst for TrueCar, in a press release. "Automakers are getting better at employing 'smart incentives' that produce better returns vs. the one-size-fits-all programs of the pre-recession days."
The statement above, as good as it is, wouldn't mean anything if vehicles weren't selling at an increasing rate or if Detroit's Big Three automakers were losing market share. Fortunately, for savvy investors who bought in months ago, both of those factors favor Detroit.
For the first time in nearly two decades all three domestic automakers gained market share in the U.S. during the first quarter. Not only that, but we're seeing a strong rebound in overall vehicle sales as pent-up demand continues to drive revenue growth in the U.S. Here's a look at the SAAR numbers recently, with June's estimated amount added in:
Information from Automotive News Data Center.
As our economy gradually improves it will continue to drive growth for Ford, GM, and Chrysler. If you're like many investors out there who can't move past the old stereotypes of Detroit's Big Three – which can be difficult – then you could be missing out on great gains because these automakers still have much room to run.
