The most recent economic recession left some auto companies floundering. Chrysler and GM, two of the Big Three automakers, faced bankruptcy. The situation was so severe the U.S. government stepped in with a Troubled Asset Relief Program to pull these companies back from the brink of insolvency.
Nowadays, auto stocks are at an all-time low, down 11% from past years. Not only are many people buying used cars instead of new vehicles, but investors are also cautious about throwing their money at an industry with a lot of high costs. Other factors like public transportation and the rise of rideshare companies also put pressure on the car industry.
While GM performed better than expected a few years ago, both GM and Ford stocks fell severely in 2018. Fortunately, experts are still hopeful about the future of auto stocks. Dan Levy, a Credit Suisse analyst, recently explained why he believes car companies will see a large boost in profits.
Why auto stocks are worth buying
Levy doesn’t think investors should be too hasty in turning away from auto stocks. He believes the restructuring of car companies is the key to success. During the recession, even the biggest auto manufacturers must be conservative in order to survive. According to Levy, years of cutting costs have equipped them to better deal with low sales.
GM, Ford, and Chrysler have made a lot of changes over the years to increase sales and maintain success. They had to make some smart marketing moves. Chrysler merged with Fiat in 2009 and started beefing up its vehicle selection with new SUVs and trucks. This proved to be most popular with consumers.
GM eliminated unpopular models like the Saturn and Pontiac, focusing on cars with better fuel economy. Ford sold off vehicles that weren’t succeeding in the U.S., like Volvo and Land Rover, to companies overseas. It also recently announced its phasing out passenger vehicles to focus on trucks and crossovers, including an electric SUV.
Levy is encouraging investors to go after low stocks. He predicts GM, Ford, Aptiv, Dana, American Axle & Manufacturing, and BorgWarner will turn a considerable profit in the near future. He even expects GM and Ford to increase their earnings by up to 30%.
Despite Levy’s optimistic analysis, it’s hard for investors to ignore looming trade wars and decreasing automotive sales. However, both Ford and GM have increased their sales by about 20% this year — a trend Levy says will continue.
There is one caveat to Levy’s analysis: He strongly discourages investors from buying Tesla stock and not just due to Elon Musk’s questionable behavior. He states that Tesla will become a niche automaker, due to the fact that more companies are producing their own electric cars.
Automakers still feel the stress from the recession even years later. However, the fundamental tactics automakers have used to keep their companies afloat will no doubt help them face the challenges of the ever-changing stock market. Despite the pressure faced by car companies, each one continues to stay optimistic and resilient.