Zacks Industry Outlook Highlights: Ford Motor, Honda Motor, Nissan Motor and Toyota

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May 30, 2014, 09:40 ET

CHICAGO, May 30, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Automobiles, including Ford Motor Co. (NYSE:F-Free Report), Honda Motor Co. Ltd. (NYSE:HMC-Free Report), Nissan Motor Co. Ltd. (OTC:NSANY-Free Report) and Toyota (NYSE:TM-Free Report).

Industry: Automobiles

Link: http://www.zacks.com/commentary/32770/auto-stocks-driving-northbound

Market share concentration among a few companies makes the automobile sector highly competitive. The top 10 global automakers account for nearly 81% of total vehicles sold, according to marketrealist.com. To outperform competitors, automakers are focusing on designing technologically advanced and economically viable vehicles that cater to consumers in both mature and emerging markets.

Automakers are also concentrating on providing optional features in vehicles in order to attract buyers. The sale of these features provides scope for additional revenue generation from small cars, which have lower profit margins relative to large trucks.

In an attempt to reduce costs, automakers continue to shift production facilities from high-cost regions such as North America and the European Union to low-cost regions such as China, India and South America. Consequently, China is expected to account for 50% of the growth in auto production over the next 7 years, according to the research by IHS Automotive.

Apart from individual company strategies, the governments of different countries and their energy and environmental policies will play a pivotal role in shaping the future of the global auto industry. For instance, in late 2011, 13 major automakers, includingFord Motor Co. (NYSE:F-Free Report), Honda Motor Co. Ltd. (NYSE:HMC-Free Report),Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi,Nissan Motor Co. Ltd. (OTC:NSANY-Free Report) and Toyota (NYSE:TM-Free Report), signed letters of commitment with the U.S. Government to upgrade fuel economy in cars and light-duty trucks to 54.5 miles per gallon (mpg) by 2025. This has significantly affected the design and cost of new automobiles.

Strong U.S. Market

Average age of light vehicles on U.S. roads reached an all-time high of 11.4 years in Aug 2013 and continues to remain close to that level at present. It is expected to rise to 11.5 years by 2018, according to the forecasts made by IHS Automotive.

The high average age is resulting in high replacement demand for cars as well as car parts. Moreover, with the improvement in the general economic situation, banks are offering more car loans with lower interest rates. The availability of car loans plays an important role in increasing car sales in the U.S.

Higher incentives by automakers, pent-up demand due to aging vehicles and easier car financing are boosting automobile sales in the nation. Improving macroeconomic conditions, such as low interest rates, rising employment rates, growing consumer confidence and recovery of the housing market are also contributing to the sales growth.

Auto sales in the U.S. grew 8% to a 6-year high of 15.6 million vehicles in 2013. Although extremely cold weather led to a decline in U.S. auto sales in January and February, sales picked up thereafter. Improvement in the U.S. auto sales in the last two months is expected to continue in the months ahead, backed by a strong outlook for 2014.

Toyota and Ford expect the growth rate to slow down in 2014. Ford expects the U.S. industry volume to range between 16–17 million units in 2014, while Toyota expects it to be about 16 million. Meanwhile, GM expects industry sales in the range of 16–16.5 million in 2014.

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