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Everyone who has been long on Honda Motor Company (HMC) cannot help but be disappointed with the company’s lackluster report on Monday morning. This report is in sharp contrast with the earnings reports from American automobile companies, General Motors (GM) and Ford (F).

While part of Honda’s woes can be attributed to production disruptions due to the Tsunami, the Thai floods and the strong yen, another part should be attributed to company’s failure to upgrade sufficiently its low-end model, the Civic, to keep up with competition—a common problem for another Japanese company, Toyota (TM) is facing with the Camry.

Toyota’s Camry and Honda’s Civic have for years been the best-selling cars for the two companies. This year’s new models, however, are on a shaky start for different reasons. The 2012 Camry LE has been redesigned and graded highly by Consumer Reports, and selling for $2000 less than the current model. But its image has been tarnished by Toyota Motor Company’s poor brand image, in the aftermath of a string of quality problems in the US market that has taken its toll on most of its product lines, including Camry’s. In the first 6 months, Camry’s sales dropped by 7.8 percent to 174,485 from the previous year.

Honda Civic LX 2012 model has been redesigned too, but has a different problem; it didn’t even make to the recommendation list of Consumer Reports—as explained in a bold statement:

The highly anticipated redesigned Honda Civic LX, whose predecessors have often been Consumer Reports’ highest rated small sedans as well as Top Pick in five of the last 10 years, now scores too low to be recommended by the leading automotive testing organization.

Civic’s deficiency could be attributed to the company’s failure to keep up with other small car models coming from Japanese and Korean manufacturers like Toyota’s Corolla and Hyundai’s Elantra—A consequence, perhaps, of the company’s emphasis on upgrading its upscale Acura brand that continues to receive top reviews among consumers. What should investors do?

Stay away from Japanese automobile companies until there is a better visibility over the fundamentals of these companies and the direction of the yen. In the meantime, American automobiles, especially Ford, may be a better investment choice.

Disclosure: I am long F.

Source: Japanese Auto Companies Are Losing Their Competitive Edge