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Show Domestic Automakers: Light At Tunnel's End? From the time of the Arab oil embargo in 1973, the energy-intensive energy-intensive automotive industry has suffered from a number of punishing factors which have impeded financial progress, especially the unrelenting cost pressures. IN 1980 the adverse interest-rate interest-rate climate and at times the scarcity of credit helped bring about restricted auto production produc-tion and sales. Follow ing a low point during the spring of 1980, a few signs of re-emerging vitality vit-ality were noticeable. These recovery hopes, however, were dashed in last year"s final quarter by a climb of interest rates to a new all-time all-time peak. The resultant poor reception given Detroit's 1981 models cast a new pall over the industry. WHEN FINAL tally was made for 1980 as a whole, the automobile field was found to have suffered a record loss of some $4 billion. Scanning the future, we expect ex-pect a pickup in auto demand, particularly in the latter part of this year. Also, we do not rule out a sales upturn this spring. ALL IN ALL, the likelihood of a return to profitability vs. the massive 1980 deficits bolsters bols-ters prospects for the industry and, hence, its attraction for investors. While U.S. -built units proved difficult to merchandise merchan-dise last year, autos manufactured manufac-tured overseas found it easy to close the gap. In fact, the percentage per-centage market share of foreign fore-ign autos moved into the high twenties, with the Japanese leading the way. IT SHOULD be noted, though, that sales of Japanese autos for 1981 will doubtless decline since the rise of the yen has pushed up their car prices faster than those of domestic units. Also, U.S. firms plan to introduce in-troduce more competitive products pro-ducts which should begin to come on-stream shortly. In addition, the new cars are designed de-signed for a world market, which should allow huge tooling tool-ing costs to be spread over substantially sub-stantially larger volumes. THIS SHOULD aid the domestics as they rev up their attempts to win back a better market share from the foreign invaders. While the prospects for the intermediate and longer term are relatively bright, there are some temporary and troublesome trouble-some elements in the picture which may linger for some time. FIRST AND foremost is the current exaggerated level of interest in-terest rates. Although some tapering-off has taken place, interest rates thus far are still too high, and a broader recovery recov-ery in the overall automotive field will be able to catch hold only after further expected easing in money rates. Hand in hand with the sagging sag-ging sales are the enormous capital expenditures required by the domestic auto industry. Only through the outlay of huge sums can facilities be set up for bringing to market a broad array of new fuel-efficient fuel-efficient models able to meet stringent emission and safety standards. THIS PROCESS will stretch over the next few years but the difficulties are not insurmountable. The Research Department of Babson's Reports feels that this key cyclical industry can rise above its short-term troubles. trou-bles. In fact, it is possible to make a convincing case for sharply improved auto results, and in any event it would be inappropriate to "write off" the pivotal domestic auto industry. in-dustry. THE GROUNDWORK, in truth, has been laid for a 1981 recovery start. It includes disposal dis-posal of marginal operations and product lines as well as trimming of fat in selected areas. There are, too, the favorable demographic and income factors, fac-tors, together with allowance for the huge present aging fleet of vehicles of limited efficiency efficien-cy that can be kept in service only by steadily more frequent repairs at ever higher costs. FOR INVESTORS interested in-terested in this line, Babson's Reports is presently recommending recom-mending purchase of CM common, com-mon, and retention of Ford. There is no change in the sell position of Chrysler, in effect for some time. |
