Assessing revenue differences among the top 10 auto manufacturers

Market Realist

An investor's key guide to the global automobile industry (Part 5 of 9)

(Continued from Part 4)

Auto sector revenues

GM, TM, F, and VOW vehicles are the market leaders in terms of the number of vehicles sold, but the price their autos sell at is the other half of the equation that drives revenue. One way to see where industry players are positioned is to view their total revenues over the number of vehicles sold in a period. In 2013, Toyota sold 9 million cars and reported automotive revenue of $246 billion, providing an average selling price (or ASP) of $27,321 per vehicle. On the higher end, Bayerische Motoren Werke AG (BMW) sold 1.9 million vehicles with annual auto sales of $7.4B, providing an ASP of $37,665 in 2013. GM’S ASP, adjusting for joint ventures, was $23,398 per vehicle. Ford’s ASP was $22,017 in 2013. VOW’s ASP was $26,978 in 2013. While there’s a lot of noise in these numbers, they show that BMW makes approximately $15,000 more per vehicle sold than Ford, and Toyota makes nearly $5,000 more than Ford or GM on each vehicle sold globally.

Going back to our business classes, we remember company strategies can focus on mass or class. Pursuing the mass strategy includes having lower selling prices, reducing the manufacturing cost per vehicle by increasing volume. The class strategy includes selling at a higher price point and absorbing higher costs per vehicle manufacturing from less operating leverage. Ford (F), General Motors (GM), Toyota (TM), and Volkswagen (VOW) are pursuing the mass strategy. Toyota is selling vehicles for $14,000 to $80,000 in the U.S. BMW lists the 3 series at $34,000 and the 7 series starts at $74,000. This improves the margin—but on a much lower revenue base, leaving less for capital spending and research and development (R&D).

The automotive market includes both cars and light-duty trucks. Cars are categorized as small, midsize, luxury, or large. Light-duty trucks are categorized as pickup, cross-over, minivan, midsized SUV, large SUV, small SUV, or luxury SUV. The U.S. market is 49% cars and 51% light-duty trucks.

In the U.S., Ford (F) and General Motors (GM) dominate the light-duty truck market. In 2013, GM had 24% of the U.S. light truck market, 14% of the car market, and 18% of the crossover market, with a total 18% share of the U.S. market. F had a 16% overall market share, with an approximate 6% share of the U.S. car market and a 10% share of the light-duty truck market. This is something to reflect on. Over half of GM’s and F’s U.S. sales in their largest market are SUVs and trucks. This trend contrasts with BMW, which generates over 75% of its annual unit sales from cars, including the Mini. Whereas GM sold 8.2 million trucks in the U.S. in 2013, BMW sold approximately 450,000 trucks globally in 2013.

GM and F have taken several measures to correct their dependence on trucks. In the past five years, each introduced small cars that could compete with non-U.S. manufacturers in styling and quality. There’s a lag in consumer perception that will take years change. The number of brands Ford and GM present to the market were pared back. GM maintains the Chevy, GMC, Cadillac, Buick, Opel, Vauxhall, and Holden plus three brands just for China. Ford pared back to two brands, Ford and Lincoln. BMW uses three brands—BMW, Mini, and Rolls Royce. Toyota goes to market with two brands, Toyota and Lexus. Having fewer brands requires less in corporate overhead and advertising expenses to support the brands in the market.

Mass versus class, margins, capital spending, R&D, and matching consumer preferences all impact these companies. The CARZ automobile industry ETF stands to benefit as the industry grows.

Continue to Part 6

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