American Automakers "losing" in Profit Margin Comparison

Discussion in 'Other Manufacturers' started by tigerhonaker, Oct 3, 2006.

  1. tigerhonaker

    tigerhonaker Platinum Contributor

    American automakers
    losing in profit
    margin comparison

    Posted Oct 2nd 2006 2:52PM by Michael Fowlkes

    We have talked a lot here about American automakers Ford Motor Company (NYSE: F) and General Motors Corporation (NYSE: GM) and their attempts to regain lost market share to their foreign counterparts. A new study out today from the Harbour Felax Group, an automotive consultant group, put some figures to the question of how American automakers are doing compared to the competition.​
    The results are not pretty. American automakers are not only far behind foreign automakers like Toyota and Honda, but they are actually losing money with each car that leaves the show room floors. This is based largely on three factors: missed design opportunities, heavy discounting and high labor costs, according to the study. Of course, it's not really any big secret, as we all know how much trouble the auto industry has been having lately. The numbers are pretty alarming nonetheless.​
    First let's look at what American makers are up against. According to Harbour Felax, Toyota Motor Corporation (ADR) (NYSE: TM) managed to rake in a profit of $1,715 per vehicle sold last year.
    Honda Motor Co., Ltd. (ADR) (NYSE: HMC) also profited on its vehicles with $1,259 per vehicle being added to the bottom line.
    The most impressive numbers came from Nissan, which booked on average $2,135 in profits on each vehicle that left its lots last year.
    Now let's take a look at domestic automakers.

    General Motors lost an average of $1,271 for vehicles sold in North America last year and Ford lost $451. You have to wonder how long our automakers can continue to compete with foreign competitors at this rate.

    What steps could be taken to close the profit gap? According to Harbour Flax, G.M. is on the right track by starting to cut back on employee discounts and reduce the amount of the company's vehicles sold to rental companies. But that is not going to be enough. There are going to have to be major innovations in the design that allow these automakers to use more of the same parts in multiple vehicles, thus cutting the costs on each one they use. Employee compensation is always going to be a hot topic. Cutting employee costs usually mean simply laying off employees. We have seen a lot of that lately from both Ford and General Motors, and you would have to believe that the end is not in sight for these recent cut backs.

    Michael Fowlkes has worked as a stock trader for 7 years and spent the last 2 years working as an analyst and portfolio manager for an online investment advisory service.

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