U.S. Automakers Switch Gears, Rev Up Growth

Henry Truc  |

It seems like only a few years ago that American automakers like General Motors Company (NYSE: GM), Ford Motor Company (NYSE: F) and Chrysler were all in dire straits. The Big Three were all facing what seemed like an inevitable doom to their industry as foreign auto companies were routinely lapping them in both innovation and sales.

In fact, GM was in such poor shape that it needed to enter bankruptcy protection and, like Chrysler, received a bailout from the government. But that's all in the rear view now as GM has become public again, Ford seems as strong as its Model-T years (possible exaggeration), and even Chrysler is in discussions to go public again.

U.S. Automaker Stocks

March sales from the Big Three U.S. automakers were strong. Ford, which had been holding up relatively well during the recession, continued to display its growing strength as it reported a 19 percent growth in sales. GM saw a 9 percent rise, and Chrysler managed an impressive 31 percent increase. Overall, the industry experienced a 13 percent growth in sales, marking its sixth consecutive quarter during this current rebound.

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As consumer confidence and spending continues to increase during the economic recovery, more large-item purchases like automobiles will help to sustain the momentum. But rising fuel prices have always been a thorn in the side of automakers, particularly those in of the U.S. market. But experts believe this won't deter consumers from buying cars, just influence their decisions on which cars to pick. So it really comes down to the ability of U.S. companies to switch gears and make more affordable and fuel-efficient compact cars.

Japanese Automakers Stalled

While GM, Ford and Chrysler are making their way back, Toyota Motor Corp. (NYSE: TM) seems to be going through a prolonged moment of weakness. While other Japanese competitors like Honda Motor Co. (NYSE: HMC) and Nissan Motor Co. (Pink Sheets: NSANY) reported sales growth of over 20 percent in March, Toyota--the largest automaker in the world--reported a 5 percent decline.

But with the recent natural disaster and nuclear crisis, Japanese car makers believe they will experience production problems as the country continues its recovery effort. The challenges of production could cut into profits. Auto sales in Japan plummeted 37 percent last month, according to the Japan Automobile Dealers Association. This is the steepest drop on record.

Big Three Going Small

There's little doubt now that the key to the U.S. auto industry re-establishing its dominance really depends on its ability to create fuel-efficient cars for the next generation. While American gas-guzzlers are iconic, they are far from profitable. Whether or not Ford, GM, Chrysler and even Tesla Motors (NASDAQ: TSLA)--who's looking to establish itself as the fourth wheel--can produce gas-friendly cars that consumers want to drive and afford is the question.

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