Four years ago, the U.S. auto industry was on its
General Motors (
were forced into Chapter 11 bankruptcy protection amid rapidly
declining sales in the face of the worst financial crisis since
the Great Depression. Detroit was chastised for churning out bad
cars, prompting U.S. consumers to buy vehicles made by foreign
automakers like never before.
Put simply, the U.S. auto industry was on the brink of
Enter Barack Obama.
In 2009, the newly minted president signed off on an $80
billion bailout package that saved the once-proud American auto
industry from going belly up.
Today, of course, we can debate the merits of President
Obama's auto bailout, particularly now that the U.S. Treasury
estimates that the recovery package will cost taxpayers $3.4
billion more than previously thought. That revelation has
certainly been good fodder for
as he campaigns to supplant Obama in the White House this
Politics aside, it seems now that the U.S. auto industry was
worth being rescued.
August sales at the Big Three significantly outpaced
expectations. Chrysler's sales were up 14% from a year ago.
Ford's sales increased 13%. GM's sales improved by 10%. Each of
those sales figures surpassed economists' estimates.
But it's not just U.S. automakers that are recovering.
were up 60% and 20%, respectively, from last August now that
Japanese factories are fully stocked again after the March 2011
tsunami and earthquake laid waste to entire regions of the
a German automaker, experienced a U.S. sales boom last month,
with a 63% year-over-year increase.
As a whole, U.S. auto sales are expected to reach 14.3 million
this year - 1.5 million more cars sold than a year ago, and 4
million better than the 10.4 million sold in 2009, a 30-year
So far the improved sales have yet to spill into most
Ford shares are down 15% this year and have basically been
slashed in half since the beginning of 2011.
GM's stock has dropped more than 37% since the company went
public in late 2010.
Honda shares have barely budged this year. Toyota's stock is
still trading below its early 2010 levels.
All of those stocks are dirt cheap at the moment when compared
to earnings. The average P/E ratio among those four stocks is
10.3. Ford shares are trading at just 2.1 times trailing earnings
right now. GM shares can be had for 7.6 times earnings.
So there's plenty of room for improvement - especially if U.S.
auto sales continue the way they've been going.
The problem, of course, is overseas - especially in
A $361 million loss in Europe weighed on GM's earnings last
quarter. European losses also dragged down Ford, whose net income
fell 57% in the second quarter despite gains in its North
American auto unit.
Only Chrysler has managed to avoid being dragged down by weak
European sales, even though it's owned by Italian automaker
problems showing no signs of letting up, it might be a while
before automakers' improved U.S. sales translate into sustained
However, with many auto stocks generously priced at the
moment, it might be worth taking a flyer on an industry that's
seemingly back from the dead.
Things look pretty grim in Europe right now. But the auto
industry has survived worse.