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Currency, Supply Issues A Window Of Opportunity For Detroit Automakers?

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2012 Ford Focus

2012 Ford Focus

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2012 Chevrolet Sonic

2012 Chevrolet Sonic

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This spring and summer, General Motors [NYSE: GM] and Ford Motor Co. [NYSE: F] both have an opportunity to learn from the mistakes of the past and bolster their small-car sales.

Concerns regarding gas prices, coupled with currency issues and earthquake-related supply pinches, might altogether help domestic brands elbow ahead a bit.

After the March 11 earthquake and resulting tsunami, it costs Japanese automakers more to build vehicles at home, even if their facilities emerged unscathed. Counterintuitively, the value of the yen increased after the natural disaster, as Japan bought back more of its currency to help bolster reconstruction efforts.

This in turn—at least in the short term, as the yen has since been retreating in value—lowers profit potential for Japanese automakers importing models to the U.S.

Meanwhile, this time around, U.S. automakers (Ford and General Motors, specifically) have a new round of small cars—including the 2011 Chevrolet Cruze, 2012 Ford Focus, and subcompacts including the Ford Fiesta and upcoming Chevrolet Sonic.

While the supply disruptions will also affect some domestic-brand vehicles, too, the affects will likely be most significant for automakers that are still heavily reliant on Japanese production.

Punctuating the level of disruption, the Associated Press this past week cited AutoNation's expectation of a 30- to 50-percent disruption in shipments for some Japanese brands.

That could drive retail prices—and profits—up on small cars.

As Fortune points out, in previous times when oil prices spiked—in 1974 and 1980, for instance, as well as 2008—Japanese automakers were ready with small cars when domestic brands weren't prepared. This time, it might be different.

Currently, Japanese automakers have roughly one-third of the U.S. new-vehicle market and an even larger portion of the small-car segment.

There is, of course, an elephant in the room. Throughout much of the recession, Kia and Hyundai have continued to gain market share. Will this spring and summer give domestic brands a chance to take back market share; or will they only end up ceding more to Korean brands?

[Fortune, via CNN Money]

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Comments (3)
  1. The presumption that it was a"mistake" for U.S. carmakers not to sell more small cars betrays ignorance of the simple reality that they were money losers under the cost structures created by UAW contract prior to the 2007. U.S. makers had little choice but to maximize the sales of their only real profit generators, trucks and suvs. It's irritating to see GM dominate the most profitable segment with Chevrolet's commanding prices comparable with Lincolns and still capturing 80%. It was unfortunate that weakness in this segment hit them hard, but the tables haved been turned now with even GM's smallest product,Soni profitably being produced here in Michigan instead of Korea!
     
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  2. The presumption that it was a"mistake" for U.S. carmakers not to sell more small cars betrays ignorance of the simple reality that they were money losers under the cost structures created by UAW contract prior to the 2007. U.S. makers had little choice but to maximize the sales of their only real profit generators, trucks and suvs. It's irritating to see GM dominate the most profitable segment with Chevrolet's commanding prices comparable with Lincolns and still capturing 80%. It was unfortunate that weakness in this segment hit them hard, but the tables haved been turned now with even GM's smallest product,Soni profitably being produced here in Michigan instead of Korea!
     
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  3. 4/18/11, I'm 63&1/2 and retired. I've seen oil prices fluctuate for many years. Small, tin trap cars are really no bargain at all. I have a 2002 Caddy I bought new; it's got 66K miles on it & paid- for 6 years ago.
    I got a safe, comfortable road car when I want it, insurance is cheaper, & it will last me probably another 9 or 10 years. So, you tell me who's got the better deal.
     
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