Global Autos: Troughed?

With global auto share prices still down 45% from peak levels vs. 30% at worst in previous recessions (and by any measure at record lows), there is opportunity with global demand that is both real and happening.

Production cuts have taken huge supply overhang off of the market, and balance sheets are improving -- Renault just raised money at 6%, not bad for a junk-rated company. Watch global ISMs (supply manager surveys) as PMIs are expected to reach 50 by Q4.

Demand in mature markets is already below replacement levels and so we see little downside to current (unsustainable) levels. Indeed, U.S. car sales per-capita are at 1961 levels, but emerging markets are cruising: China overtook the US as the world's largest auto market in Q1, car sales in April were up 37% y/y, and China's auto penetration is only 3% of their population.

Players to watch: Honda Motor Co (HMC), Toyota Motor Corp (TM), Tata Motors (TTM).

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