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SHARE WATCH: Car makers in focus amid VW scandal

Sep 27 2015 14:40
*Kirk Swart

Cape Town - There is a saying that goes: Drink Russian, drive German, wear Italian and kiss French. After the German car manufacturer Volkswagen (VW) got caught cheating on their emission tests, the saying might need to be adjusted.

Overberg Asset Management's Kirk Swart's weekly share watch places focus on shares that are affected by the recent scandal at Volkswagen.

His five shares to watch this week are:

1. Volkswagen [VOW:GR]

VW is in a never-ending battle with Toyota to become the world’s largest car manufacturer in terms of sales. In 2014, VW delivered 10.217 million vehicles, an increase of 5% on 2013’s 9.728 million vehicles. Toyota has delivered 10.23 million vehicles in 2014. In the first half of 2015, VW managed to overtake Toyota in sales as it sold 5.04 million vehicles against Toyota’s 5.02 million.

Ex-CEO, Martin Winterkorn, knew that if VW wanted to establish itself as the world’s leading car manufacturer it must conquer the American market successfully. And it is in the US where VW's latest troubles began.

VW admitted that they installed software on 11 million diesel vehicles worldwide which allowed these vehicles to pass the emission tests in the test centres of California. However, once out on the road the software deactivated and the cars began to produce more NOx emissions than promised.

The news led investors to sell off the stock from €167 to €115. This is a drop of 31.14%. Winterkorn resigned and VW has set aside €6.5bn for any possible fines. VW shareholders will hope that the damage will be limited to a fine only, as a long court case can cause serious reputational damage.

READ: Long, rough ride ahead for new VW boss

The VW group consist of 12 brands namely Volkswagen Passenger Cars, Audi, Porsche, Seat, Skoda, Bentley, Lamborghini, Bugatti, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN.

VW closed at €115.80 on Friday.

2. Toyota [7203:JP]

Toyota has recently lost its title as the world’s largest car manufacturer in terms of sales to VW. However, it may well regain the title quicker than expected as the recent VW scandal can potentially affect VW's sales. Especially in the diesel category which has seen VW make some small inroads into the American market.

Toyota offers less than VW in terms of brand diversification as they produce cars under 5 brands only. These brands are Toyota, Lexus, Ranz, Scion and Hino. Toyota also has a controlling stake in Daihatsu.

For the first half of 2015, Toyota indicated that they sold 5.02 million vehicles worldwide. Toyota has had more success in the US market than VW as their SUV segment has been more popular. Lexus has also sold the most luxury cars in the US in August, competing with BMW.

Following the VW scandal, Toyota's shares have traded flat. On Friday it closed up 1.34% at ¥7915.

3. Bayerische Motoren Werke (BMW) [BMW:GR]

BMW is one of the leading luxury automakers in the world having sold 573 079 cars in the second quarter of 2015 and 1.099 million in the first half of 2015. BMW also owns Mini and is the parent company of Rolls-Royce Motor Cars. Of the 1.099 million vehicle sales, 932 041 were BMWs, 165 938 were Minis, and 1 769 owners bought a Rolls-Royce. The most popular model sold is the BMW 3 series with 219 369 sold, followed by the BMW 5 series with 174 228 units sold in the first half of 2015.

BMW is also a big player in the Motorcycle industry producing under the name BMW Motorrad.

Following the news about the VW scandal, investors have sold off BMW despite BMW assuring investors that it didn’t make use of the “cheating software” VW used. The selloff was on the back of reports surfacing that BMW's X3 models have exceeded the European air pollution limit. BMW's share price has fallen from €88 before the scandal broke to a low of €78. It is a drop of 11.36%.

BMW closed the week at €78.19.

4. Daimler [DAI:GR]

Daimler is another German vehicle manufacturer who owns a number of car brands and has sold 1.356 million vehicles for the first half of 2015. The four big car divisions of Daimler are Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, and Daimler Buses. Mercedes-Benz cars have sold the most units at 960 401 followed by Daimler Trucks at 237 537 units.

The Mercedes-Benz car unit is also the biggest contributor to earnings, contributing over 60%.

The Daimler share price has also dropped in the recent VW emission scandal. It dropped by 14.58% from €75.66 to €64.63 after the scandal broke.

Daimler closed at €65.36 on Friday.

5. Ford Motor Group [F:US]

Ford is rivalling General Motors (GM) and Chrysler to be the biggest car manufacturer in the United States. In 2015, Ford has sold 1.293 million vehicles for the six months ending June 2015. Of that 1.293 million, 1.246 million was sold under the Ford name while the remaining 47 112 was sold under the Lincoln name. If the sales get grouped into type, utilities make up over 30% of all sales. Car sales make up 33% and truck sales make up the remaining 37%.

With the American market being dominated by utility vehicles and trucks, there is no second guessing as to why VW has struggled to take any meaningful market share in America.

The two most successful cars in terms of numbers sold are the Escape and the Explorer. Both of these are SUVs selling well over a 100 000 each, with the smaller Fiesta only selling 35 489 vehicles in the first six months of 2015. This provides evidence into what type of cars the Americans prefer to drive.

The scandal at VW did not have any impact on the share price of Ford. The ended the week at $13.53.

Agree with Kirk's stock picks? Send us yours and why.

* Kirk Swart is an analyst at Overberg Asset Management (OAM), an Authorised Financial Services Provider (No. 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.

Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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