It's safe to say that the automotive industry in the U.S. is on fire right now -- in a good way. Sales of highly profitable vehicles are pushing the industry toward all-time sales records, and sales of SUVs and trucks are pushing profits higher.
Detroit automakers, well-known for producing popular SUVs and trucks, posted great third-quarter results. Dealership groups also posted strong quarterly results heading into another strong holiday selling season. But despite that, there are companies in the automotive industry that are struggling.
Not everybody can be a winner
Strong SUV sales in the U.S. weren't enough to help Hyundai Motor Co. (NASDAQOTH:HYMLF) overcome its difficulties in China. That's mainly because Hyundai is a sedan-based automaker, and demand for passenger cars has slackened considerably as demand for SUVs and trucks has grown. Hyundai's sales plummeted 18% in China during the third quarter as the country's economic slowdown took its toll on vehicle sales.
Overall, Hyundai's net income dropped to $1 billion for the three-month period ending in September. That marks the seventh consecutive quarter of year-over-year decline in net income. Though investors certainly have a right to remain disappointed by these poor results, Hyundai's CFO Lee Won told investors the company expects sales to turn around in China and fourth-quarter profits to improve -- but that seems optimistic, in my opinion.
Another company that wasn't able to take full advantage of a surging U.S. automotive market was Canadian based supplier Magna International (NYSE:MGA). Though the company generates roughly half of its revenue in North America, and heavily relies on Detroit automakers, it posted a 7% decline in sales during its third quarter, down to $7.7 billion.
The strong U.S. dollar and foreign currency translation reduced Magna's sales by roughly $870 million, compared to last year's third quarter. Magna's earnings per share, before special items, checked in at $0.97 per share, which was $0.12 below analysts' estimates and $0.18 below last year's third quarter.
It was certainly a disappointing third quarter for investors in Magna, but in the grand scheme of things, it's still an intriguing investment. Magna is one of the largest and most diverse auto-parts suppliers on the planet, in terms of its products, and as major automakers -- especially the Detroit automakers -- continue to scale by using more parts across many vehicle platforms, large suppliers such as Magna are well poised to benefit. That said, in the near term, it looks like we'll see more of the same mediocre results after management reduced guidance for its North America EBITDA margins from 10.5% to 10%.
In a somewhat surprising development, Toyota Motors (NYSE:TM) became the only major Japanese automaker to cut its global sales target as demand slowed in nearly all of its key markets. Toyota expects its global wholesale volume to fall from 8.97 million units to 8.75 million units, and reduced its global retail sales forecast from 10.16 million to 10 million flat.
That was a surprise, given that Toyota remains the largest automaker on the planet in terms of sales, and stands to benefit if Volkswagen's sales continue to stall in the wake of its diesel emissions cheating scandal. Furthermore, fellow Japanese automakers Honda and Nissan raised their sales forecasts earlier this week due to surging U.S. sales.
Investors should also put Toyota's operating profit into a broader context. While headlines are suggesting Toyota posted a great fiscal second quarter, with a strong 26% gain in operating profits compared to the prior year, it mostly reaped the benefits of a weaker yen.
If you exclude the effects of the currency tailwind, Toyota's operating profit growth in the second quarter would have amounted to a much more modest 1.2%.
While Detroit automakers and U.S. dealership groups are making flipping profits look as easy as flipping pancakes, these three companies serve as a reminder that not all companies in the automotive industry are benefiting from surging sales in the U.S. market. Investors looking to dive into the automotive industry still need to do their homework to determine which companies are poised to succeed at a time when China's new-vehicle sales may be slowing and SUVs remain hot in the U.S.
Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.