Wednesday, October 25, 2006
Struggling US Automakers
Ford and GM just cant keep up with the foreign automakers. Japanese manufacturers such as Toyota or Honda can produce cars faster and cheaper than here in the US, and consumers just keep buying up these foreign brands.
Ford posted a $5.8 billion quarterly loss on Monday. QUARTERLY! Ford is in deep trouble. At this time, Ford has a market cap of $15B but at this rate that may start dwindling away as the assets do.
Henry Ford who is credited for his revolution with the assembly line in the production of early cars is being beaten by foreign makers who can produce cars faster, cheaper, and just as durable as American models.
Ford started producing higher profit margin SUVs and trucks rather than the family sedan. This, in my opinion, will lead to a further loss as gas prices move upward. SUVs are falling out of favor for middle class families. The SUV was the car of choice for “soccer moms” in the late 90s/early 2000s but when gas is so expensive they just aren’t economical.
Honda and Toyota have it right, each producing their award winning compacts such as the Honda Civic and the Toyota Camry. These cars are known both for their durability and affordability to middle class America. Both are friendly on gas too, and the civics can be purchased as hybrids.
The only way Ford can regain the automotive market in the US is if E85 ethanol is introduced. Ford and GM, both struggling US automakers, make flex fuel cars (cars that can run on both gas or E85 at the owners choosing). These cars are very popular in Brazil where a large percentage of the population has these cars.
The cars allow you to use regular gas or E85. In some situations gas will be cheaper than E85 so the driver can fill up with gas and run it just like any other car. When ethanol is cheaper, it can be filled up on ethanol and driven the same way. Flex fuel allows the consumer to decide what’s best and at what times.
Hopefully the US can realize its foreign oil dependency and start to make E85 the new standard. This would be a fresh breath of air for any US automaker and the consumer tired of paying $3 for a gallon of gasoline. Until this happens though, I would refrain from investing in the US automotive market. The major players are slowly losing everything and all new pipeline cars aren’t expected to hit the markets for another few years.