OUTSIDE THE BOX: Alternative Technologies Allowing Foreign Car Companies to Move Ahead of U.S.
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January 31, 2007
When it comes to alternative technologies in the auto industry, so far it is the foreign car manufacturers that are ahead, especially when it comes to hybrids. American car companies like Ford Motor Company (F) continue to post record losses as they struggle to restructure their organizations.
Just recently Ford announced that they lost $5.8 billion in the fourth quarter because of slumping sales and very large restructuring costs, which increased the company’s deficit for the year to $12.7 billion, the biggest in its 100-year plus history. Like Time Warner (TWX) and other struggling companies before them, the big automaker could not blame the big losses on accounting rules to explain the huge losses. Unfortunately Ford is forecasting even more losses for both 2007 and 2008.
Many analysts believe that, just like General Motors (GM), Ford has been late to the party when it comes to implementing alternative technologies and having hybrid type vehicles ready for the marketplace, especially when compared to their foreign counterparts, which as a result has contributed to diminished market share.
For instance, just in 2007 alone foreign carmakers will launch more than 50 new models on the marketplace. These include companies like Mercedes-Benz, BMW, Toyota Lexus and Honda, just to name a few. These companies believe the world, as a whole, are ready for hybrid vehicles and are attempting to execute the hybrid strategy as a way to dramatically increase sales revenues. These hybrid autos, which use gasoline and electricity simultaneously, are classified as eco-friendly.
The big question is, can Ford and General Motors catch up and capitalize on this ever growing global trend among consumers for selecting hybrid fuel efficient vehicles? A spokesperson for General Motors at a recent auto show in San Diego asserted there is no doubt they can be a major participant in this growing market. The company just announced that it has begun work on a Saturn Vue plug-in hybrid production vehicle. It’s got a big battery, runs on electricity until the charge gets low, and then a gas engine kicks in. If you recharge it from a wall socket every night, you''d barely ever need to fill up the tank.
That sounds good, but it is important to put the company’s conversion to hybrids and alternative fuels into context. For instance, General Motors lost $10.5 billion last year. At the same time all the Detroit big automakers are falling behind foreign car manufacturers as they continue to produce Hummers and full-size pickups and consumers in general continue to scream for less not more. This really represents a big change in attitude which is long overdue. The company insists even though they might be late to the party if they make terrific products particularly in the hybrid arena consumers will buy their products.
This change in strategy and giving more focus to hybrids for the big automakers is very significant and necessary especially when you consider how much Ford was hurt last year when gas hit $3 per gallon and sales of its truck and sports utility vehicles plummeted. Consumers flocked to more fuel efficient vehicles allowing Toyota to surpass Ford for the number 2 sales spot in July and November. Time will tell if Ford and General Motors can generate profits in this marketplace. On thing is clear though and that is they really have no choice if they are to re-gain market share from their foreign competitors.
Happy Trading.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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