Car and Auto Stock: Prices and Tips

ABOUT THE CAR AND AUTO STOCK MARKET

While historically, the auto market in the U.S. has been the second largest in the world, it’s actually been a pretty rough road for the auto industry these past few years.

• High fuel prices of the world petroleum crisis have left Americans little choice but to purchase smaller cars over larger vehicles.
• In 2009, both General Motors and Chrysler went belly-up. This put the American auto industry back a small $110 billion in bailout funds.
• Two years later, just as the auto market started to regain traction, the European debt crisis happened. GM’s recalls (due to defective car parts resulting in deaths) had certainly salted the auto stock game.
• A serious slowdown in China’s auto sales didn’t help increase global demand either. Economic conditions are picking up, though. Oil prices have collapsed, re-fueling demand for trucks, SUVs etc.

FACTORS AFFECTING AUTO MARKET

Investing in auto stocks isn't easy. The industry has proved that it isn’t going anywhere anytime soon, but there are a bunch of factors that come into effect. Here are a bunch of things to pay attention to when investing in the auto market:

Cyclical Sensitivity

The auto industry is extremely sensitive to the business cycle. This means that during periods of prosperity, lots of cars are being bought. It also means that during economic downturn, the wheels stop turning. Also – Auto-parts companies make most of their money earlier in the year, while automakers are assembling cars for September launches. Many companies will pay a dividend to get investors through the slow times.

Borrowing Rates

Lots of car buyers choose to finance. If the borrowing rates become too high, buyers may spend more money maintaining their existing vehicles rather than buying a new one.

Labor Relations

A lot of the auto industry is unionized. Workers’ demands for higher pay means either cutting back on production costs or upping car prices, both of which can impact sales.

Green Cars

Environmentally friendly cars are growing in popularity. Companies are making a real effort to push battery-operated cars and hybrids, but these efforts don't come cheap. The research and development of these vehicles is likely to cost billions of dollars. It’s worth considering how the company will be able to finance such initiatives and how it would affect future profits.

New Model Line Up

An exciting product line boosts a company’s sales; lacking one hurts its stocks. Aesthetically pleasing new vehicles will surely appeal to consumers and make it a stock worth investing in.