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Time to Bottom Fish U.S. or Asian Automakers Stocks?

Companies / US Auto's Jan 15, 2009 - 01:34 PM GMT

By: Money_and_Markets

Companies

Best Financial Markets Analysis ArticleTony Sagami writes: The government has spent so much and bailed out so many businesses that the news of the $17.4 billion bailout of General Motors and Chrysler failed to surprise many people.

The only surprise to me was that Ford didn't take any government money because they said they have access to enough credit for the time being. You watch; it won't be long before Ford is looking for a handout, too.


Ford didn't want any bailout money. But I bet they'll be asking for a handout real soon.
Ford didn't want any bailout money. But I bet they'll be asking for a handout real soon.

But do you know how absurd the bailout fiasco is becoming?

Hustler magazine publisher Larry Flynt and Joe Francis of Girls Gone Wild are asking Congress for $5 billion to bail out the ailing adult entertainment industry. According to Flynt and Francis, adult DVD sales and rentals dropped 22% last year.

I'm not sure that those two clowns are serious. But there is no doubt that the auto business is in big trouble.

Bumpy Road Ahead For the Big Three …

Auto sales in the U.S. tumbled 18% last year to 13.2 million vehicles. And the auto industry is expecting 2009 to be even worse.

Ford is forecasting sales to drop to 12.5 million units. General Motors' outlook is bleaker: The nation's number one automaker admitted that sales could nosedive to as low as 10.5 million.

Mike Jackson, the president of AutoNation, summed up the situation pretty clearly: “I have seen a better mood at funerals.”

The slowing economy isn't the only reason that American automakers are drowning in red ink …

They:

  • Made too many promises to their unions,
  • Bet their future on full-size pickups and gas guzzling SUVs
  • And just can't compete against their lower cost Asian competitors!

Yet Even the Asian Automakers Are Struggling …

'But tough market conditions are likely to continue, and they could get worse.' —Toyota President Katsuaki Watanabe
“But tough market conditions are likely to continue, and they could get worse.” —Toyota President Katsuaki Watanabe

Last month, Toyota announced its first operating loss in 70 years … so you know that something is very, very wrong.

Consequently,

arrow_black Is it time to bottom fish U.S. or Asian automakers? Toyota will halt production at all of its plants in Japan for a total of 11 days in February and March because of weak sales. That is on top of a three-day suspension at all of its Japanese factories this month. Overall, Toyota plans to cut production by 950,000 units for the year ending in March.

arrow_black Is it time to bottom fish U.S. or Asian automakers? Toyota is also negotiating to lower wages for its Japanese workers as well as laying off 3,000 of its temporary workers — about half its domestic temporary work force — by the end of March.

Toyota president Katsuaki Watanabe told reporters last month: “But tough market conditions are likely to continue, and they could get worse.”

Business at other Asian automakers isn't so hot either …

Honda sold 1.43 million cars and trucks in 2008. That was an 8.2% decline from the previous year. Richard Colliver, executive vice president of Honda America, said, “If you look at the last 120 days, if that trend continues then we're looking at a significant reduction from 2008.”

Nissan reported a 31% decline in December sales and an 11% decline for 2008.

South Korea's top two automakers, Hyundai Motors and Kia, have slashed 2009 sales forecasts by 12%.

The Question for Investors: Is It Time to Bottom Fish?

Judging from the e-mail I get, a lot of people think that this may be the time to invest in U.S. automaker stocks. After all, Ford and General Motors, for example, are down more than 90% from their peaks.

The quick answer is NO!

Ford is a $2 stock, and GM is under $5. But both of them could lose 50% of their value from here and still be too expensive.

Now, if you really want to put an auto stock in your portfolio, I think Honda (NYSE:HMC) or Toyota (NYSE:TM) have ten times the potential to make you money than the big three American automakers do.

Still, I wouldn't be in a big hurry to own even Honda or Toyota. Until the U.S. economy turns around — and that could be a couple years — none of the Asian automakers are going to return to their glory days.

For right now, I suggest you avoid the stocks of exporters who depend on the U.S. for a significant chunk of their sales.

Instead, take a look at Asian companies who get most of their sales from Asian customers.

Best wishes,

Tony

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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