Detroit seems to be suffering from decades of reliance of fuel-guzzling behemoths that fell out of popularity as oil hit historic highs. The champions of green, including big media, now say that if only Detroit could follow in the footsteps of Toyota, Honda and other hybrid pioneers, then American buyers will return to the showrooms in droves.

This is not entirely true.

The issue is not confined to high mileage. The other factor ignored in this green wave of propaganda is quality. After all, what if Detroit did manage to turn around the old battleship in enough time to build green cars – but those cars were just as junky as the cars coming out of Detroit today?

While green is certainly top-of-mind in shell-shocked American consumers, it seems that no one is talking about the lagging quality of American automakers in this new generation of smaller, thrifty vehicles.

After all, don’t Americans buy foreign cars not only for better mileage but for their superior quality?

In looking at the Consumer Reports Most Reliable Cars of 2009, only three American cars made the cut in a grand total of 47 vehicles.

Detroit didn’t even make a decent showing in it’s traditional stronghold of trucks and SUVs. Only the Lincoln MKX ranked in the category of Mid-Size SUVs. The categories of Large SUVs and Pick-up Trucks were a clean sweep by the Japanese.

When the CEOs of the Big Three came hat-in-hand to Congress last week, they talked about payroll reductions, discontinued pensions and plans to build greener cars. They even had the audacity to ask Washington for R&D subsidies for new battery development.

But to the best of our knowledge, they never promised to build better, more reliable vehicles.

Yes, the green flag wavers can climb onto their soap boxes and pontificate about Detroit’s bad karma. While it’s certainly true that Detroit must compete with the Japanese and Koreans on fuel economy, the Big Three also need to make these new smaller cars better than ever before.

If we don’t see Detroit’s new, green vehicles showing up in Consumer Reports Most Reliable Cars of 2011, then Washington and American investors are wasting their money.

This from Today’s Financial News:

If you are a retailer, you are at the mercy of your suppliers. A bad decision by some CEO or marketing manager that you have never met will greatly affect your future profitability. The way a retailer defends his supply-chain inferiority will directly translate into his success.

Wal-Mart (NYSE:WMT) is particularly good at managing its suppliers. In fact, the mega-retailer is so good at it, it does not have to manage its supply chain. It dictates it.

Sam Walton created this power through large-volume ordering, constantly demanding the lowest prices possible and diversifying his product line. If one supplier acts up, Wal-Mart simply replaces them. And because the company sells just about every product man has ever created, Wal-Mart can afford to weather out downturns in a few of its product lines.

In other words, if one of its suppliers goes bankrupt or consumers suddenly refuse to buy a certain brand’s products, Wal-Mart’s profitability does not disappear. The company has a well-diversified product line.

If Wal-Mart and its thousands of products are the best example, car dealerships have to be the absolute worst.

One product, one shot at success

Think about it. Most dealerships sell one, maybe two brands of cars. You go to one dealer for Fords (NYSE:F), one dealer for General Motors (NYSE:GM) and another for Toyota (NYSE:T). Buyers have lots of options and industry competition is huge, but individual dealers are at the utter mercy of countless variables outside their control.

Right now, the downturn in consumer spending, the lack of credit and the notion of bankruptcy in Detroit is driving potential buyers out of showrooms. Most dealerships are in dire financial situations.

Mike Jackson, the CEO of the country’s largest dealership, Auto Nation (NYSE:AN), says at least a thousand dealers will lock their doors this year and just as many, if not more, will follow next year. The only dealers that will escape unscathed are those that were smart enough to diversify their product offerings.

For example, Sonic Automotive (NYSE:SAH), one of the nation’s top dealerships according to sales, sells over 30 different brands in fifteen states. It also owns and operates 34 body shops. If the company is going to make it through this recession, its product diversity will be the only thing that gets it there.

Unfortunately, like so many of its competitors, Sonic has a horrid balance sheet. As of last quarter, it was sitting on well over one billion dollars worth of inventory. With just $7 million in cash, it will be interesting to see how it pays for that inventory.

If the company can find the capital to get itself through this downturn, it will be able to survive. But right now, few investors are willing to take any risks in the auto industry.

When we boil it all down, Sonic Automotive, Auto Nation, and the nation’s 21,000 other dealerships are at the mercy of Detroit, which is in the hands of Washington. A lot of things have to go right before investors should think about going long on the industry.

If you are an investor looking to take advantage of the market’s downturn and snag shares of the nation’s retailers at rock-bottom prices (which is a good strategy), be sure to choose the companies with diversified offerings that are not at the mercy of their suppliers.

Wal-Mart and its index-smashing performance is a great example of the opportunities that lie ahead.

Source: Retail Bottom Fishing: Will Auto Nation(NYSE:AH) or Sonic Automotive (NYSE:SAH) survive?

More than 30 years after Japan’s only airliner program since World War II ended as a commercial failure, the country is making a multi-billion-dollar bet that it can succeed in the jetliner market.

Japan’s Mitsubishi Heavy Industries Ltd. (PINK: MHVYF) has unveiled a plan to develop a “regional” jetliner for use by airlines all around the world. The controversial project gained global credibility in recent weeks after analysts began to speculate that Toyota Motor Corp. (TM) – the world’s No. 1 automaker by sales – would join the development team. Toyota subsequently confirmed its involvement, announcing plans to take a 10% stake in the venture and injecting $67 million to help get the initiative off the ground. The Japanese government is backing the program.

It’s a big gamble for Mitsubishi and its partners: The regional airliner market is right now dominated by Bombardier Inc., of Canada, and Embraer (Empresa Brasileira de Aeronautica SA) (ERJ) of Brazil. And firms in both Russia and China – each with a major U.S. corporation as a partner and co-pilot – already have targeted this market, and have a solid head start on the Mitsubishi team.

Still, the potential payoff is hefty enough to warrant the risk. Such key global trends as rocketing fuel prices, soaring global travel, fast growth in Asia, Latin America and the Middle East, and ongoing problems with major air carriers across the world are stoking worldwide demand for efficient, economic regional jets. And that demand could persist until 2030, many experts predict.

“In terms of the macro picture, demand is there for this type of jet,” Mizuho Investors Securities Co. Ltd. senior analyst Yuichi Ishida told the Reuters news service. “Money-losing regional routes could turn profitable by using them. But the real question is whether there is room left in this market for Mitsubishi Heavy.”

To date, the so-called NAMC YS-11 – a turboprop airliner built by a Japanese consortium – is the only commercial aircraft made in Japan in the post-World War II era. The program was initiated by Japan’s Ministry of International Trade and Industry in 1954. The aircraft was rolled out in 1962 and production ended in 1974 – hardly qualifying it as a “success” from a financial standpoint.

Toyota’s Desire to Fly

Toyota said its motivation was primarily patriotic – the Mitsubishi jet is being backed by the Japanese government, which is searching for ways to for its smallish aerospace business to become more of a global player, especially after losing other industries to South Korea and China.

Toyota – which edged ahead of General Motors Corp. (GM) in the first quarter to become the world’s top-selling automaker – said it also would be looking for ways to adapt the technological know-how developed in its aerospace activities to its core automaking business. That’s not just an empty claim made to justify its diversification into the aerospace sector: The Mitsubishi MRJ70 (70 seat) and MRJ90 (90 seat) jetliners are to be the first regional jets to make extensive use of high-strength/lightweight “composite” materials, such as those found on the new 787 Dreamliner being developed by U.S. aerospace giant, The Boeing Co. (BA).

Although it hasn’t built a commerical aircraft in decades, it is an experienced subcontractor in that area, and is a veteran defense contracting firm. For example, Mitsubishi already is a key manuacturing partner on the long-range Boeing jet. And it has experience building such military aircraft as the F-1 fighter, T-2 trainer – both supersonic jets that the company built on its own – and the F-2 fighter, a Japanese-built version of the U.S. F-16 Fighting Falcon that was produced in partnership with Lockheed Martin Corp. (LMT)., the No. 1 U.S. defense contractor.

Toyota, too, has some experience, and already operates a small aerospace research team. Analysts say that venture could easily take flight and become a major business operation. That’s just what happened with Toyota’s robotics business, which started out as a fairly tiny research operation, but today is one of the company’s better-known businesses outside its core auto operation.

Honda Motor Co. (HMC), Toyota’s chief rival in Japan, already has expanded into the aircraft business; its futuristic seven-seater HondaJet light business jet has garnered heady praise for its advanced design and elegant lines. The company was supposed to start taking orders for the airplane sometime this month.
Toyota’s investment in the Mitsubishi jet is the largest of any company outside the Mitsubishi corporate network, or “keiretsu” of related companies. Other backers include domestic Japanese trading companies and the government-supported Development Bank of Japan. Foreign suppliers also will be involved.

To Market, To Market

Why is Mitsubishi – Japan’s largest producer of machinery – getting into the airliner business? In a word: Opportunity.

Over the next 20 years, Boeing itself is forecasting that air carriers worldwide will need to acquire 28,600 commercial aircraft of all types – with a potential value of $2.8 trillion. The Boeing forecast is generally viewed as the world’s best analysis of the future global market for commercial airliners and cargo aircraft.

The huge revenue potential in the global airliner market – combined with the low number of viable competitors and the high barriers faced by new potential entrants – is a big reason that Money Morning’s investment gurus have repeatedly mentioned Boeing as a promising global investment for years to come.
During that same 20-year stretch addressed by Boeing’s market forecast, China will have to buy 3,400 airliners, a requirement worth $340 billion. That will make China the fastest-growing airliner market in the world, and will also rank it as the biggest market outside the United States for new commercial airliners. In fact, if you average it out, from China alone you’re talking about sales of $17 billion a year for the next two decades.

This staggering shopping list will include the globetrotting tarmac queens being built by Boeing and European rival Airbus SAS.

But global forces also are revving up demand for regional jetliners, like those being dreamed up by Mitsubishi.

According to Mitsubishi, the world’s airlines will order 5,000 regional jets over the next two decades as global carriers seek out fuel-efficient airplanes for shorter routes and developing nations expand their airliner fleets to fuel economic growth.

That’s not an arbitrary figure, either: The company spent several years analyzing the market and projecting the potential demand for the jet, and designed the specifications specifically around its findings. The plane will be:

• Small, so it can fly out of regional airports.
• Made of lightweight composites to make it strong and fuel efficient.
• Fast (with cruisng and maximum speeds of between 0.78 and 0.82 times the speed of sound, according to published reports).
• Profitable to operate, carrying 70 to 90 passengers, depending upon the model.
• And with a good range – 920 nautical miles for the base model, although extended-range (1,400 nm) and long-range (1,960 nm) versions will be available.

“Mitsubishi Heavy has always been just a partner of Western aircraft makers,” Mitsubishi Heavy President Kazuo Tsukuda said at a news conference that talked up the company’s pet project. “Now we want to take advantage of changes in the marketplace such as high fuel costs and a greater need for environmentally friendly aircraft.”

To make my point, I’d like to tell you a story.

One of my first cars was a 1996 Hyundai Sonata.

The car was decent, but for having a four-cylinder 148HP engine, my fuel mileage was god- awful. I got 20 miles to the gallon. It didn’t matter if I was on the highway, a city road, or revving my engine past 6,000 RPM while going 110 miles an hour; I always got 20 miles per gallon.

God bless its soul, it tried to get me from point A to point B in good fashion.

But then I had to get the rotors machined. And then the engine started knocking. I got that fixed and of course, the A/C went out. Shortly after that, the transmission started slipping. Let’s not forget about getting the headliner redone, the power windows and door locks replaced, and, well the list goes on.

In the end, the car gave me two and a half trouble free years and then one year of pure hell. So why the heck did I end up buying another Sonata?

Hyundai met my demands as a consumer.

You see, I demanded standard safety features like stability control, a low price, and a great warranty. I was too afraid of paying $356 every month in car payments and then, years down the line, having to spend another $4,000 just to replace the engine.

Hyundai was the only manufacturer offering a 10 year/ 100,000 mile replacement plan. Plus, they were making huge strides in safety and reliability.

So I bought a newly redesigned 2006 Sonata, made at a new factory in Alabama, and with a completely new engine (made in a partnership with Nissan and Chrysler).

And I couldn’t be happier with my purchase.

I have a six cylinder that gives me 29 miles to the gallon on the highway. You barely hear any road noise from the inside. The interior materials are soft to the touch. The seats are more comfortable. And the 235 horses and 226 pounds of torque coming from the engine are good enough to get me to 60 miles an hour in just under 6.5 seconds.

What problems have I had with the car? Not many. In fact, I frequent a forum of Sonata owners and they have very few problems as well. There’s a reason why this car was found to be one of the most dependable.

Now days, Hyundai is announcing record profits and sales across the globe. In fact, they made two completely new cars that are good enough to compete with Toyota, Honda, and GM.

They’re talking turbos, superchargers, double-clutch transmissions, and the list goes on. They were so far from this point just four years ago!

What Hyundai shows is that any manufacturer that can key into what consumer demand and continually make improvements is poised to make a killing.

This brings me to another string of car manufacturers. The Chinese group.

Now, let me get this out in the open.

I would never drive a Chinese car… at least not right now. After numerous crash tests, some of these cars could have caused fatalities at only 20 miles per hour. The engines, interior materials, and designs have usually been enough to cause Henry Ford to rollover in his grave.

Calling some of these companies ‘copycats’ might be too much of a compliment.

So will Chinese cars ever become big? You bet they will. It will just take time.

You see, these are new companies. They don’t have that much experience perfecting their manufacturing process. In fact, some still use forklifts and practically build cars by hand.

Most of these companies have just started R&D departments. Over time, they’ll learn little tricks to enhance their designs and expertise. I have no doubt about that.

Already engines are being sourced from Toyota. Nissan is partnering up with a few. And even Chrysler is offering to show them some tricks.

The inevitability is that these Chinese car manufacturers will do well as long as they continue to improve their cars and meet demand. But I don’t expect every single one to make it out alive.

The companies that fail to come up with inspirational and original designs will be the first to get hurt. Then the companies that fail to bring quality up to where it needs to be will go next.

Just think of Yugo – that cheap car that everyone made jokes about. They didn’t get anywhere because of quality. If China can’t bump up quality, their cars will be a joke too.

All too recently, Toyota (TM ADR: NYSE) headlines were all about its struggle with GM for the top spot in the Stateside market. Now the top Japanese automaker is having an increasingly difficult time pedaling Corollas or TM shares for a profit.

But Toyota isn’t suffering alone. The Bank of Japan’s quarterly Tankan survey has fallen 42% quarter over quarter, indicating deteriorating sentiment among large Japanese manufacturers, and forecasting more downside for same.

What entices so many to love the Japanese yen and hate Japanese shares? It’s that old carry trade again. Incredibly low interest rates encourage borrowing in Japan and investing almost anywhere else.

Unfortunately for the Japanese (and fortunately for Taipan Trader readers who have already locked in 583% on Yen Fund calls), there is virtually nothing the central banks are willing to do about this, as they simply will not raise rates moving into the recession they are sharing with the U.S.

Adam Lass
Editor, Taipan Trader