The worldwide economic slowdown is affecting the number of cars and trucks being purchased, and the prices at which the manufacturers are able to sell the cars. Sales are projected to be down in Europe and Brazil, and up in the U.S. and China in 2012.
OEMs are expected to lose money in Europe for several years to come, primarily because Europe is in an inevitable socialist financial crisis, and banks don't have money to lend to car buyers. "The problem with socialism is that eventually you run out of other people's money." -- Margaret Thatcher
Brazil is at the end of its profitable heyday in car sales. Demand is slowing due to tighter credit and an extreme increase in manufacturing capacity which is dwarfing the consumers' ability to absorb the excess production.
Sales are expected to be up in China, but the growth will not necessarily be profitable for imports due to higher taxes on some engines, and tariffs on U.S. imports. Significant deflationary pressures are also affecting the prices at which retailers can successfully sell cars.
In the U.S., cars on the road are old, with plenty of mileage, out of warranty, lacking fuel efficiency, and generally obsolete. New model launches are significantly higher in 2012 and 2013 than in recent years, which should add excitement to new car sales, expected to be up 9% this year.
Ford's (F) earnings are expected to drop 17% in 2012, Toyota's (TM) should be down 20%, and General Motors (GM) down 5%. So then who is making money in the auto industry? The companies that provide batteries, systems engineering, driveline products, power technologies, and various parts and services are the companies which will lead the 2012 auto industry in profitability. We'll take a look at some of these companies below:
Johnson Controls (JCI, $31.67) is my top pick today because it holds diverse appeal for four types of investors: growth & income, growth, aggressive growth, and traders. Johnson Controls is not a pure automotive play. The company provides batteries for autos and hybrid vehicles, plus systems engineering, marketing and service. But they also offer products and services to residential and commercial buildings along the lines of energy efficiency, air conditioning, heating, and industrial refrigeration products.