Fitch Downgrades GM and Chrysler
Jun 26th, 2008 | By Charles Delvalle | Category: Featured, Financial NewsWith US gas prices over $4 a gallon, Investor’s Daily Edge’s Charles Delvalle isn’t surprised the auto companies are hurting. Half of their sales still come from pick-ups and SUVs…
The outlook for US auto companies certainly isn’t looking good. Yesterday, Fitch Ratings downgraded GM and Chrysler’s investment ratings to from a B to a B-.
Both companies now have a negative outlook, meaning they could be downgraded further. Ford Motor Co’s rating is being reviewed.
It’s Déjà Vu All Over Again
By Charles Delvalle
Ford (F), General Motors (GM), and Chrysler haven’t been paying much attention to their past. The truth is every single problem they have today could have been avoided if they had just learned from their past. Back in the 1970’s, during the last oil shock, the big three saw sales drop off a cliff.
At the time the big three’s mainstream cars were blazing fast, and had 400 cubic inch engines that produced in excess of 400 horsepower… and drove you about 13 miles on a gallon of gas. Click this link to see the top ten gas guzzlers of the 70’s.
Japanese manufacturers, on the other hand, had fleet averages of 19-21 MPG. As you can imagine, Americans flocked to Japanese built cars in search for fuel economy.
The big three eventually responded by pushing up fuel economy standards. But since the late 80’s, fuel economy in an American car actually moved down.
Did they learn anything at all from the 70s? It doesn’t look like it.
Had they just put what they learned to practice, American manufacturers would have had the technology to make cars more fuel-efficient. But instead, they decided to dedicate over half of their sales to gas guzzling trucks and SUV’s.
Now that gas prices are over $4 a gallon and sales of gas guzzlers have plummeted, American manufacturers will have to scale down in a big way. Expect this transition to take years… not months. And in the meantime you’ll continue to see multi-billion dollar losses.
As Yogi Berra would once said “It’s Déjà vu all over again.”
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Charles Delvalle is a self-taught market-timing professional and value analyst who uses a combination of technical indicators and fundamental research to achieve consistent gains on stocks, commodities and options.
Charles is also a staunch contrarian and takes pride in finding undervalued sectors and discovering great companies on the cheap. He questions government reports and the status quo. In addition to swing trading options, Charles is also Co-Editor of the monthly advisory service - INCOME.
