The auto industry is deep in the weeds right now, particularly in the United States. American manufacturers are hemorrhaging money -- General Motors (NYSE: GM) alone has lost $30 billion in the last three years -- as high gas prices and an unofficial but very real recession forces consumers to abandon their American-made trucks and SUVs by the millions.Even with the pronounced shift toward smaller and more efficient cars, the overall auto market in the U.S. is shrinking thanks to the poor economy, and most manufacturers are selling fewer vehicles. But one company stands out as an exception to the rule of declining sales: Honda Motor Ltd. (NYSE: HMC). In the first seven months of 2008, Honda increased its sales by over 3%. By comparison, Chrysler lost 22%, GM fell 17%, Ford (NYSE: F) lost 14% and even mighty Toyota (NYSE: TM) saw a decline of 7%.
An interesting quote in The New York Times from Tetsuo Iwamura, the president of Honda's North American operations, sheds light on how Honda has managed this impressive feat. Honda, Iwamura said, "is a philosophy-driven company." And what is Honda's philosophy? According to Iwamura, "we want to make Honda the company that society wants to exist."
From an American perspective, this is an extraordinary statement. American automakers have followed a very different philosophy for many years, one in which fat and easy profits from poorly designed and hopelessly wasteful SUVs take precedence over the long term health of both the auto industry and society as a whole. But Detroit is suffering now for its short-term approach, while Honda is showing both consumers and investors the value of planning for the long run. And at $32 a share and a P/E of 10, Honda looks like a good long-term buy.
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Reader Comments (Page 1 of 1)
8-27-2008 @ 12:03PM
Joe S. said...
Good points. Also factor in with the superior vehicles, but the corporate fundamentals as well. GM has been stuck in a 50's basic business mentality. When in trouble - advertize and keep advertizing till sales accidentally climb. GM runs atleast 3-5 times the # of ads of their competitors (10x during the Olympics) - and the market just isn't buying it - literally.
8-27-2008 @ 2:31PM
jpdr1100 said...
Two year ago everyone was criticizing Honda for not having a V8, and not having a true full sized pickup. Amazing how all those experts are now the ones singing Honda's praise.
8-28-2008 @ 12:03AM
Dave said...
Most people don't realize that Japanese car manufactures get loans from their central banks for 0.10%. Our governments loan rate is 2.00%. So sure capitalist companies have to advertise all the time to make up the difference! And don't get me started on how much Union Retired Pension payments our companies have to pay to people who haven't even worked for GM,Ford or Chrysler for the past 25-35 years! So how do you expect any honest company to compete with these odds? Then have the ignorant American population not know the complications of doing business in this country? If I owned a American car company in America...I'd move to a foreign country as quick as I could!
8-28-2008 @ 2:54PM
jpdr1100 said...
So why don't Mazda (Ford) and Isuzu (GM) ask the Japanese government for low cost loans?