Since emerging from the financial crisis, American automobile manufacturers have staged a remarkable comeback. Domestic automakers have apparently changed their way of doing business, altering their strategies and delivering better product. But now, signs are beginning to emerge that this revival might be short lived. What does this mean for Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) shareholders?
American car quality has declined
Consumer Reports released their annual auto brand rankings on Tuesday. American cars didn’t fare so well.
Of the overall brands, the bottom five were all American — Ford and its luxury brand Lincoln; Chrysler and its Dodge and Jeep offshoots. And when it came to individual car models, not a single one in the top 10 was American-made, something that hasn’t happened since 2007.
(Chrysler is no longer publicly traded, but investors who want to play the stock could look at shares of its Italian owner Fiat, which trades over-the-counter.)
In an interview on Fox Business, Consumer Reports’ Managing Editor Jon Linkov blamed the poor rankings on the companies trying to do too much. Referring to Ford Motor Company (NYSE:F), Linkov remarked that “they just don’t do everything perfectly…. They are so big that they are spending their money across such a wide range of vehicles.”
Japanese competition stepping up
As much as Consumer Reports doesn’t care for American cars, it strongly favors their Japanese competitors. While its five worst brands were American dominated, its top five best brands were all Japanese: Toyota Motor Corporation (ADR) (NYSE:TM) (and its luxury brand Lexus), Mazda, Subaru and Honda Motor Co Ltd (ADR) (NYSE:HMC)’s luxury brand Acura.
Individual cars, too, were Japanese dominated. The top midsize went to Honda’s Accord; the best sports car went to the Subaru BRZ and Scion FR-S (a joint project between Subaru and Toyota); the top “green” car went to Toyota’s Prius; the best midsized SUV was taken by Toyota’s Highlander; and Honda won best small SUV and best minivan with its CR-V and Odyssey models, respectively.
And while Japanese automakers appear to be leading in terms of quality rankings, they are also receiving currency support. As I noted in a previous article, Japan’s new Prime Minister Shinzo Abe has pushed his country’s central bank to weaken the yen.
The yen has fallen over 10% against the U.S. dollar since mid-December. With a cheaper yen, Japan’s exports — including its automobiles — appear cheaper to non-Japanese consumers.
Hedge funds still like General Motors
As of the last round of 13F filings, several notable hedge fund managers had stakes in General Motors Company (NYSE:GM). By their nature, 13Fs are outdated, as they only reveal the stakes of funds at particular date — in this case Dec. 31.
At any rate, two titans of the investment industry — Warren Buffett and David Einhorn — liked GM back in December. They probably still like it now, particularly Buffett, who has a habit of holding his investments for long periods of time.