American Car Companies: Worth Your Investment Dollars?

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By Harriette Halepis

The predictions surrounding American car companies are positive, but should investors place a good deal of hope in these auto manufacturers? First, two very important details should be considered: foreign automobile recovery and a rise in purchases based on necessity.

The recent news that Ford Motor Co. plans to open a research and development operation in Silicon Valley (first reported by Mashable) piqued a good amount of investment interest. Ford has long been interested in automobile technology (MyFordMobile comes to mind), and the company seems to be banking on future technological advancements to move the American auto giant into the next year full speed ahead. Not only is Ford opening up a Silicon Valley research office, but American car sales in general seem to be improving.

According to Bloomberg, “U.S. light-vehicle deliveries climbed 10 percent, or almost 1.19 million, to 12.8 million in 2011.” Further, forecasts are positive for American car companies that were once on the decline.

Chief economist for General Motors, Mustafa Mohatarem, recently told Bloomberg that his “…greatest confidence is about the U.S.” when asked about future automobile sales. Mohatarem isn’t alone in his sentiments, a IHS Automotive (a global economic analysis firm) director, Henner Lehne, was also quoted stating that “…the growth for the U.S. will be solid next year.”

While the U.S. automotive sector looks like a promising investment, there are a few aspects that potential investors should consider prior to investing. The first, largely overlooked, detail is that of Japan. Japan is currently still recovering from the tsunami that shook the country in 2011. Japan (home to Toyota, Nissan, Subaru, and other large automobile brands) is quickly recovering from last year’s natural disaster. Though it might take more time, Japanese automobile manufacturers will likely rise once again to challenge the U.S. car industry.

But U.S. car sales can expect help from one unavoidable factor--time. The other detail is really more of a practical matter. As Mike Jackson (the CEO of AutoNation Inc.) recently told reporters, “the vehicles on the roads in America are just plain old and wearing out…” Jackson predicts that the American automobile industry is “…on a journey back to 15.5 million to 16 million units.” Jackson told press that the U.S. auto industry is likely to reach this number by 2013.

Seemingly, American car companies may be worth an initial, and short-term, investment. Even though automobile sales may climb in 2012 and 2013, once Americans replace those “…old and wearing out…” vehicles and the Japanese economy rebounds, there’s no telling whether or not an American automobile investment will be worth hanging onto.

Investors might do well to invest in American auto companies for the short-term, but a long-term investment may not pan out.