Weekly international investment round up to November 10, 2009
Mark Lamb
The scrapping of registration tax on commercial vehicles complying with the more environmentally friendly euro 4 and euro 5 specification in this week’s budget may not have grabbed all the headlines but it follows many other nations attempts to stimulate their economies through vehicle buying incentives making the currently unfashionable car sector one to watch for investors.
Businesses need to efficiently transport their goods and services and for most families a car is usually the second largest single purchase they will make after their home therefore, considering Western economies are largely consumer driven the influence this sector exerts is huge.
The decision by General Motors to keep its European operations and not sell them off to the Magna-Sberbank consortium gave new meaning to the ‘car scrappage’ scheme last week while just a day after Toyota said it was to pull out of Formula One in order to save money it announced a return to profits in the last quarter as the car industry overtakes the banks as the latest world economic health gauge.
‘Cash for Clunkers’ schemes have played a vital roll in helping some of the largest economies such as Germany, Japan and America drag themselves out of recession and has for now secured tens of thousands of jobs for those working within the sector. Ford, the only publicly traded American automaker, successfully used the incentive to increase its home market share whilst also making larger inroads into the lucrative Chinese market. Industry figures in America show that although sales within the hybrid car market decreased there by an overall 14 per cent this year Ford has seen its sales increase by 73 per cent. Amazingly, over the last twelve months Ford’s share price has risen by over 320 per cent, now sitting at US $8.18 per share, and imagine for a moment that you are an American fund manager approaching year end with millions at your disposable who wishes to avoid the troublesome foreign markets and diversify into the domestic motor sector, the choices are somewhat limited!
The US $3 billion US government (tax payer) funded program also had a knock-on-effect with used cars prices estimated to be 16per cent higher than they were a year ago. One of schemes rules was that any traded in vehicle would have to be destroyed so with 678,000 less second hand vehicles available in the car market combined with less activity in the car fleet and car rental segment used car prices have increased giving car insurance and finance companies a much needed lift.
The beginning of a new motor world order is emerging from the pre-credit crunch world dominated by the manufacturing giants of Japan, North America and Central Europe with countries such as India and China now entering sparking a truly global ‘car wars’ scenario.
The Capgemini annual study into car buying trends makes interesting reading for all investors considering this exciting sector. Whilst reliability, safety, fuel economy and price remain the top influencing factors among potential purchasers, those car makers which can also match the growing desire for green vehicle technology will no doubt be the most likely to triumph.
Mark Lamb is Head of the Life Dept. at Citadel Insurance plc which is authorised to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email: [email protected] Tel:25579000. Website: www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.
