Navigating A Stalled European Auto Sector


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By Steven Morrison II

In Europe, things have gotten pretty bleak as governments still struggle with economic unrest. While the European Union (EU) has held strong as a ruling entity – possibly to the surprise of some – there are signs that there is more heartache to come.

Consequently, Europeans are not buying as many new cars as they used to. In fact, the market is at a 20-year low in terms of sales, which is hitting manufacturers and support companies hard.

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Well, not everybody. Volkswagen (VOW, VOW3) is holding up well considering the headwinds thanks to a solid brand with excellent marketing and a desirable product. Where French car maker Renault (RNO) saw a 20% drops in sales last month alone, VW only witnessed a meager 1.8% downturn, according to published figures.

To anyone who has ever driven a Renault, these numbers make perfect sense.

The American Connection

Yes, American auto manufacturers are being affected by all of this, including General Motors (GM) and Ford (F), who each watched as Euro sales fell 13% in December. Ouch.

Ford responded by shuttering one of their plants. Expect others to do the same. It will soon be survival of the fittest, and the weaker companies will not be able to stay alive during an extended sales drought.

Driven Away

Overall, the data says that investors should shy away from any of the European auto brands or their parent companies. That market is tumbleweeds right now, and looks to stay that way for some time.

It is as grim as grim gets.

For auto enthusiast investors, look to the Far East as Hyundai (HYMLF) and Honda (HMC) continue to woo customers with high gas mileage vehicles, quality finishes and reasonable prices. They really are making some great cars and have smartly stepped up their game as Toyota (TM) continues to reel from its deep wounds.

Of course, stock watchers will know that Ford has been a steady incremental climber, with its overall value increasing by approximately a third in six months, going from $9 to $14. Recent investments in the Detroit area totaling more than $700 million also point to Ford being a good bet down the road.

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