The automobile industry has become one of the few industrial sectors that had the distinction of formerly being the pride and the shame of the nation. Once the backbone of US manufacturing in the early 1950’s, the American auto manufacturing base began to weaken with the rise of globalization, the development of poor model designs, and the strengthening of labor unions. Faltering under the Great Recession, the “Big Three” of General Motors Corp (GM), Ford (F), and Chrysler would eventually bring their case before congress asking for a bailout in order to help pay rising healthcare costs and the avoidance of future layoffs. Despite eventually reaching a reduced deal, General Motors and Chrysler would still ultimately find themselves filing for chapter 11 bankruptcy just one year later.
The bitter taste of the American auto industry still appears to linger some many years after the bailout request was first heard. The opportunity for smaller competition to gain brand recognition wasn't loss to Hyundai (HYMLF.PK) as their sales continued to gain strength. Ford for the most part, garnered the least amount of scoffing as the sole surviving American elite that didn’t take government money. Yet regardless, the failure of the “Big Three” highlighted the need for change within all of the debt-heavy companies.
Poor foresight was one of the larger contributors to failed product lines. In one example that occurred amidst the high volatility of swinging oil prices, General Motors attempted to sell off its gas-guzzling Hummer line of vehicles only to see the deal fall through prior to completion. Yet the sale attempt itself helped define an awareness for the future demand outlook as consumers continue to become more sensitive to fuel prices.
The need for progressive technologies is likely to be a significant distinguishing factor for the auto industry going forward. This is true especially with a greater desire by the consumer for increased fuel economy. Ongoing regulatory mandates that also require increasing levels of fuel economy will likewise benefit companies with strong balance sheets. This is especially so as research & development will be relied on to pave the way for tomorrow’s efficiency breakthroughs. In this regard, Honda Motor Co (HMC) stands out as a fuel-conscious company, well known for fuel-efficient vehicles and a conservative balance sheet on hand.
More recently, as positive news begins to flow out of the auto industry in light of increasing sales in 2011 has given hope to a more prosperous 2012. Low interest rates have helped the consumer pick up the auto industry, and as consumers look to lock in low borrowing rates on long-term capital expenditures. Investors looking to capitalize on a sustained auto recovery might consider the SPDR S&P International Consumer Discretionary Sector (IPD) as a possible diversified play into the auto manufacturers. Toyota Motors Corp (TM), Honda Motor Co., Daimler Ag (DDAIY.PK), and Hyundai Motor Co. made up 6.51%, 3.35%, 3.02%, and 2.94% of the fund respectively as noted on 12/30/11.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.