Brown: Grand Heft Auto

For investors, 2010 may as well have been called The Year of the Car. It turns out that some of the biggest, greasiest, loudest money was made in the automakers this year, who knew?

Think back to this time last fall: Unemployment was still edging toward 10% with U6 (under-employment) breaching 17%. Foreclosures were continuing to balloon while home prices were still deflating. Other than a rebounding stock market, consumer confidence was almost non-existent.

And so, continuing with its ongoing mission to frustrate the maximum amount of participants possible, the market decided that the automakers would be the grand slam stock sector for 2010.

Of course it did.

Have a peek at the year-to-date returns of the global automaker stocks:


Tesla Motors TSLA 39.81%
Tata Motors TTM 104.40%
Nissan Motor NSANY 10.32%
Toyota Motor TM -6.76%
Ford Motor F 62%
Honda Motor HMC 10.21%

The common thread running through the group’s outperformance was the emerging market “unrecession”. This was the first recession of the modern era where a slowdown hit the G7 nations while emerging economies kept on ticking. The populations of China and India had gotten a taste of gentrification; they certainly weren’t going to let a Florida real estate bust stop them from trading their bikes for cars.

Tata Nano
Tata Nano

The story of India’s Tata Motors is a simple one based on the demographics of southeastern Asia and the manufacturing genius of a company accustomed to doing more with less.

While most people know the $20-billion-a-year Tata Motors for their ultra-compact Nano model, they’ve also successfully integrated two storied British brands, Jaguar and Range Rover, into the fold. The company reported selling about 600,000 cars between April and October this year - a 44% jump over the same period in 2009. No wonder the NYSE-listed ADR shares crushed the field with a 104% return for 2010 so far.

Ford Motor Company is another company that has essentially done everything right this year, coming off a back-from-the-dead 2009 that shocked the world. CEO Alan Mulally has mounted one of the great comebacks of corporate history with a resurgent automaker that wins on product and manufacturing productivity, not on price-cutting. Year-to-date, Ford has sold 1.6 million vehicles around the world, a 21% leap in sales equal to double the industry’s growth rate! Who says 100-year-old companies can’t dance? Ford’s 62% return for shareholders was one of the most notable business stories of 2010.

The public debuts of upstart Tesla Motors and a resurrected General Motors gave us two of the most anticipated IPOs of 2010. In the case of Tesla, the 7-year-old electric car maker has sold 1000 of their Roadster model in 25 countries, a modest beginning for an untested concept. That uncertainty hasn’t stopped investors from doubling the stock’s price from its June lows in the mid-teens. As for General Motors, its initial public offering turned out to be a hot deal. Shares of the pared-down post-bankruptcy giant fetched a record-breaking $63 billion day-one valuation, the largest IPO in history.

Honda and Nissan turned in so-so performances - positive and steady, though nothing to rev our engines about.

The only real negative for global automakers was Toyota, which faced a nightmare this past winter when its reputation for safety and reliability was challenged over faulty accelerators in certain models. Toyota’s CEO launched a global apology offensive, committed to a massive recall, and overhauled manufacturing and safety protocols. It’s too soon to tell if 2011 portends better things for the company but in light of what went on just 10 months ago, a down 6% performance for 2010 is actually not bad.

US auto sales are expected to be around 13 million for 2011, a respectable number for a developed economy and up from an estimated 11.5 million this year. In Beijing, on the other hand, 650,000 new cars are hitting the road every 12 months (74 new cars every hour) as the Chinese bought 13.6 million cars in 2010 alone!

While this was a great year for auto stocks across the board, car companies looking for a repeat performance in 2011 will clearly be looking east.

Joshua Brown is a New York City-based financial advisor at Fusion Analytics and the author of The Reformed Broker blog. The opinions he expresses are his own and do not constitute an invitation to buy or sell any securities.