Automotive Stocks? Be Careful!

The Automotive industry represents more than just vehicles, particularly for the domestic market. In fact, a larger percentage of the work force somehow touches this important industry than many may think, which explains why the troubled automakers were largely blamed for a big percentage of the job losses that spreads across through country between 2007 and 2009.
The reality is that automotive industry is extremely important to the domestic economy. While this does not necessarily make automotive shares a must-buy investment, it does make a fairly strong case for supporting domestic automotive manufacturers, whether purchasing a domestic brand (or a brand owned or co-owned by a Cars Protection Plus Jobs domestic company) or supporting communities that are host to their operations. (However, a buy local approach neglects strong employers who might actually be foreign manufacturing or assembly plants that employ full towns or cities. In addition, buy local does not force domestic builders to become more competitive).
In the investment world, the automotive industry is normally something one might short (instead of taking a long position). But consider that given the right management team, many of these automotive companies (domestically and abroad) have the potential to generate tremendous amounts of cash. For example General Motors, largely believe to be the worst-off of the Big Three, has been able to repay Billions in foreign government aid within 18 months of receiving the aid in the first place. And this repayment happened years ahead of schedule.
If such cash were not used to repay government funding, what would the company have done? Of course, reducing debt is an important financial objective, particularly for automakers whose goal is to return to full capacity and profitability — eliminating debt allows them to retain more of their cash flow.
But ability to repay debt does not necessarily translate into future profitability. Most industry observers highlight the importance of generating foreign sales, particularly in emerging markets like Brazil, Russia, China and India. Unfortunately, while US automakers struggle among themselves (there are just 3 big automakers), the Chinese industry in contrast is extremely widespread, number nearly into the hundreds when it comes to different manufacturers. Does a company like GM stand a chance when facing such tight competition?
Of course GM is considered the largest automobile vendor in China, but if China were to close its doors on GM, Safest Luxury Cars what impact might that have on GM’s viability as a going concern? Clearly, the company would be crippled.
Looking at all domestic manufacturers including Ford and Chrysler, investors need to consider what type of progressive advancements are being made to enhance the end-consumer’s experience, whether financially in terms of preferred pricing, financing incentives, better driving experience, and so forth. Without these, these automakers do not adequately differentiate themselves from the competition.
And while a “buy local” approach, which completely makes sense when foreign manufacturers like Hyundai are reducing US workforce to bring manufacturing back to their home land, could help the Big 3 in the short-term, it does little to support the “local Hyundai plant,” and takes away from the fact that substandard automakers cause more economic trouble than high quality manufacturers.
In reality, investors should be extremely cautious when considering investments in automakers, particularly domestic automakers.

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