Chrysler, GM Travails Could Be a Boon for Honda

By Sean Hyman

You know lately, the media has been focused on what is going to happen to some of America’s biggest business icons: GM and Chrysler

While there’s nothing wrong with that, my mind always has “the wheels turning” and wondering how I can profit from what’s going on in the media. So many people watch the news for everything from “entertainment to information”. However, I watch it to derive an investing idea out of it.

With the focal point being on a GM/Chrysler bankruptcy, their bleeding and “wheel spinning”, it gives the CEO of Honda and other Asian automakers (and even Korean automakers like Hyundai) an edge at this time.

You see, as the auto industry got hit from the global slow down, GM (GM), Ford (F) and Chrysler took it on the chin the worst. However, Honda (HMC), Toyota (TM) and Mazda (MZDAF.PK) had something haunting them too…it was the strong yen. As the yen rose, it eroded their profits even more.

However, lately the Asian automaker stocks have stabilized. Why? If your main competitors aren’t “breathing down your neck” and they are “licking their wounds” and trying to just stay afloat, that gives you an advantage that you didn’t have before.

If the yen was unusually strong before (USD/JPY) exchange rate was at 87.00 but is now closer to 99.00 on a weaker yen), and it’s much weaker now…then that helps them as well.

So coupling a weaker yen with a potential GM/Chrysler bankruptcy....that equals great advantages for Honda and its shareholders.

Therefore, it doesn’t even matter whether GM and Chrysler go into bankruptcy for Honda to keep that advantage. Either way, it’s going to take them time to regroup and to get back on track. All the time that it takes them to do this (and it will take a while with a new CEO, etc.), will give Honda a great “lead time” over Detroit once again.

As stocks stabilize and turn upward as we come out of the recession (finally) in the upcoming months, the yen will weaken materially. This will give Honda and Toyota a “wind to their back”.

All of this combined will get the Asian automakers a boost in the next 12 to 36 months. Those that realize this now and buy stocks like Honda while its price is still cheap could see gains of 50% or more in that time. See the chart below.

Honda could gain 50% in the next 1-3 years from these levels!

Keep in mind that this is an “investment idea” and so it shouldn’t be a “margined trade”. I say that because it will take “time” for this to occur and margin interest would eat you alive. Also, if the stock did retest its lows in the short run, it would eat up your account balance. If you have bought with cash and plan on holding for years, then this won’t matter.

Bottom line: Detroit’s loss is Asia/South Korea’s gain. The weakening won in Korea and the recently weakening yen in Japan will also work in these automaker’s favor.

An investor can take advantage of this in a couple of ways. They can buy Asian automakers that trade on U.S. exchanges like Honda and Toyota and they can also buy currency pairs in the forex market that take advantage of a weakening yen (like USD/JPY and EUR/JPY).

If buying USD/JPY or EUR/JPY, it might be best to allow them to solidly trade and close above their 200 Simple Moving Averages.

Original article

Comments

[Mad Hedge F...:]

The are going to have to deal with Toyota (TM). The 3G model Prius, which boosts gas mileage from 46 to 50 mpg, carries solar panels on the roof, and offers more elegant styling, will cost around $23,000, stripped down. To date, the Japanese car maker has sold one million of the snub nosed, high backed vehicles, which account for 50% of the global hybrid market. Toyota hopes this 3G model will fight off competition from Honda’s Insight and the Ford Fusion, but it won’t be easy. Hybrid sales fell 31% in 2008, and the US car market is now thought to be running at an 8.8 million run rate, down precipitously from the 19 million peak. This will be the last Prius model before Toyota brings out its plug in version next year, which will run on batteries only for the first 40 miles of every trip. A 3G win would give Toyota’s US traded ADR’s, which have recently plunged from $138 to $58, some much needed life support.

Apr 01 04:38 PM

[Mister Jimmy:]

Do you think that when the Japanese utterly and completely control the U.S. vehicle market they just might use one of those little Priuses to drive up our collective butts?

Apr 01 05:01 PM

[Thadeus Tho...:]

Just for some perspective. .. according to the newly released March sales figures. GM sold almost 17% more light vehicles in March than Toyota. Even Ford was only about 1,700 units behind Toyota. GM sold some 155,00 vehicles in March, which is actually up from February. Well, up is up isn't it? A glimmer anyway.

Apr 01 05:43 PM

[mac.barron:]

Nice headline, I think it's called a "Dog Bites Man" lead.

Apr 02 02:13 AM

[yay:]

What I dont get about you investment people i if you really think that the information out of which you build your great ideas isnt already PRICED IN since the very second (or even before) it became public. The market is a machine that works on information and you can say this information appears at random. All your investing is just guessing, all you do is rationalize this afterwards and make a concept out of it. This is an academical view and markets are sureley not that efficient as these professor dudes say they are, especially with all the gov fuckery around but theyre certainly not that stupid.

Apr 02 03:30 AM

[myWealth.com:]

Yeah, I think Toyota will do well too...just from a technical standpoint, buying has come back into Honda much sooner. But I'd not be opposed to owning both. They'll do better than the "big 3" for sure.


On Apr 01 04:38 PM Mad Hedge Fund Trader wrote:

> The are going to have to deal with Toyota (seekingalpha.com/symbo...).
> The 3G model Prius, which boosts gas mileage from 46 to 50 mpg, carries
> solar panels on the roof, and offers more elegant styling, will cost
> around $23,000, stripped down. To date, the Japanese car maker has
> sold one million of the snub nosed, high backed vehicles, which account
> for 50% of the global hybrid market. Toyota hopes this 3G model will
> fight off competition from Honda’s Insight and the Ford Fusion, but
> it won’t be easy. Hybrid sales fell 31% in 2008, and the US car market
> is now thought to be running at an 8.8 million run rate, down precipitously
> from the 19 million peak. This will be the last Prius model before
> Toyota brings out its plug in version next year, which will run on
> batteries only for the first 40 miles of every trip. A 3G win would
> give Toyota’s US traded ADR’s, which have recently plunged from $138
> to $58, some much needed life support.
>

Apr 02 08:47 AM

[myWealth.com:]

haha, not sure...but one thing to remember...they haven't "taken" our market share...we've given it to them. The market share went to the one that wanted it more...they won the recent hands for sure. So that part is our own fault really. I hate to say that as an American...but it's true.

Thanks for posting.


On Apr 01 05:01 PM Mister Jimmy wrote:

> Do you think that when the Japanese utterly and completely control
> the U.S. vehicle market they just might use one of those little Priuses
> to drive up our collective butts?

Apr 02 08:48 AM

[myWealth.com:]

Tell that to those buying up Honda and Toyota stock vs. GM/Ford, which is down in the toilet. Ultimately, people "vote" with their money...and they are "voting" the Asian manufacturers up, and Detroit down.

If the big institutions were convinced that GM was going to outsell Toyota consistently, there would be a ton of GM buying going on...but they are in so much trouble right now financially, that bankruptcy may be in the cards. Even if not, they're still spinning their wheels.

Thanks for posting.


On Apr 01 05:43 PM Thadeus Thornton III wrote:

> Just for some perspective. .. according to the newly released March
> sales figures. GM sold almost 17% more light vehicles in March than
> Toyota. Even Ford was only about 1,700 units behind Toyota. GM sold
> some 155,00 vehicles in March, which is actually up from February.
> Well, up is up isn't it? A glimmer anyway.

Apr 02 08:51 AM

[myWealth.com:]

While it may be true that you won't buy a foreign made vehicle (and nothing wrong with that at all)...market share is gained all the time by the Asian manufacturers because many people are dumping American cars for Asian and Korean ones all the the more, all the time.

Unfortunately, the Asian manufacturers make a better car...goes further and gets better gas mileage...they've also jumped on the "eco" thing much quicker than Detroit. They were still pushing Hummers/SUVs.

Plus Detroit has a much tougher road with the health care costs and union disadvantages. This gives Toyota, Honda, etc. an edge over them.

Thanks for posting.


On Apr 01 06:40 PM ED K wrote:

> Informative article with good points made,probably all the auto manufacturers
> will benefit to some degree including FORD. Perhaps "BUY AMERICAN"
> and being a little bit leary of Gm and Chrysler's future might have
> some impact and there are many of us that just won't by a foreign
> made vehicle.
>

Apr 02 08:54 AM

[myWealth.com:]

Glad you like it. Dog bites man is of some news....Man bites dog, is huge news. haha.


On Apr 02 02:13 AM mac.barron wrote:

> Nice headline, I think it's called a "Dog Bites Man" lead.

Apr 02 08:56 AM

[myWealth.com:]

Well, if I hadn't made so much money out of these methods for the past 16 years, I'd be inclined to agree with that logic. However, when it's worked for that long...I think I'll continue on.

If you have something (a method) that makes you money, stick with it. Go with what you believe in. Mine reaps great rewards for me through the years.


On Apr 02 03:30 AM yay wrote:

> What I dont get about you investment people i if you really think
> that the information out of which you build your great ideas isnt
> already PRICED IN since the very second (or even before) it became
> public. The market is a machine that works on information and you
> can say this information appears at random. All your investing is
> just guessing, all you do is rationalize this afterwards and make
> a concept out of it. This is an academical view and markets are sureley
> not that efficient as these professor dudes say they are, especially
> with all the gov fuckery around but theyre certainly not that stupid.

Apr 02 08:57 AM