Longtime crosstown rivals Ford (NYSE:F) and General Motors (NYSE:GM) trudged through the financial crisis and following recession taking very different paths, but both have returned to a vastly improved business model and strategy. Both have developed a handful of popular and fast-selling vehicles requiring a hiring spree to help match supply with demand. The auto industry accounts for roughly 4%-5% of U.S. GDP; when healthy, it is an important part of our economy. Recent hiring is a great sign, so here are the details why it's important for investors.
Demand brings need for jobs
Ford has added 2,335 hourly jobs and 1,500 salaried jobs in the U.S. just this year, and has reached 75% of its goal to create 12,000 hourly jobs in the U.S. by 2015. Sales of the F-Series, America's best-selling vehicle for 31 years, have increased 22% this year. To meet that surging demand Ford announced yesterday that it will add 900 new jobs.
"Ford F-Series sales are the strongest since 2006, and we are increasing production to meet this demand," said Doug Scott in a Ford press release. "This is an important indicator that our economy is growing again. We are proud that Ford Trucks are helping more and more of our customers get back to work."
It's not just the F-Series having success: Ford plans to increase production capacity by 600,000 units for surging demand across its vehicle lineup. Ford's Fusion, for instance, doesn't have enough supply to meet demand, with plants rumored to be running at max capacity. Inventory levels for the Focus, Fusion, Escape, and Explorer models hit lows in June at 33, 39, 46, and 28 days, respectively – much lower than the desired 50-60 days of inventory.
Ford will continue to add jobs to boost its inventory and a similar story is taking place at GM.
GM announced today that it has increased its spending to $350 million at its Spring Hill assembly plant, and is expected to create or retain about 1,800 jobs. The cash invested will be spent on two midsize vehicle projects in the future. This will likely be a story told multiple times over the next few years as GM undertakes its biggest vehicle lineup refresh in its history – planning to replace, redesign, or refresh 90% of its lineup by 2016. The assembly plant had also taken on the production of the Chevrolet Equinox late last year due to growing consumer demand.
From an investing perspective this is good news for multiple reasons. Firstly, it means that both Ford and GM are more financially stable and have enough confidence in the rebounding automotive market to continue a series of hiring. Secondly, it means that Ford will be able to improve its supply to meet demand and will cease to lose sales from lack of inventory when production ramps up – consider that the Fusion is sitting on dealer lots for just 10 days, which is ridiculously short. Thirdly, it means Ford will have plenty of production capacity in time for its next generation F-150, which is responsible for a majority of Ford's profits and will debut next year. As Ford and GM continue to add jobs, my optimism that both will remain very viable and profitable investments during the automotive industry's rebound continues to grow.