Barron's interviews John Casesa of Casesa Shapiro Group to get his views on the troubled and volatile auto industry. Some key points:
- A GM (GM) / Chrysler merger could happen because both sides are so desperate. But the track record for automotive mergers is poor, and this one is crippled by the fact both are already shedding market share. Cost savings might be easier to implement than figuring out how to combine their revenue streams with compromising their combined pull.
- The industry's challenge now is not funding cash-strapped buyers - it's that it can't even get customers into the showrooms. Adjusted for size, demand is at 50-year lows. Many automotive firms face the prospect of Chapter 11. With the big three, he thinks that "if one of the auto makers goes, they will all go."
- Casesa is alarmed Kirk Kerkorian sold his stake in Ford (F). "He's not one to give up easy. The sale is alarming." Still, he likes Ford over GM (GM) due to its simpler brand portfolio and the fact it owns 100% of its financing arm.
- Honda (HMC) and Toyota (TM) remain in a very advantageous position, particularly Honda with very little light-truck exposure. He calls Honda "probably the best-positioned auto company in the world right now," due in part to its strength in emerging alternative propulsion models.
- European carmakers are better positioned than their U.S. peers, but less so than the Asians - particularly Peugeot (OTCPK:PEUGY), Fiat (OTCPK:FIATY) and Renault (OTC:RNSDF) which stand to benefit from the move to smaller cars.
- Among suppliers, he likes Magna International (MGA) and BorgWarner (BWA) with conservative balance sheets and little debt.
- Johnson Controls (JCI) is very diversified, and its battery business should benefit from the move to electric. Genuine Parts (GPC) will continue to thrive due to its ability to send any auto part to a mechanic anywhere in the U.S. within 24 hours.