Rodney Johnson | Wednesday, January 30, 2013 >>
Have you read the book Abraham Lincoln, Vampire Hunter? It combines real historical events about Abraham Lincoln with a fictional story of him also being a vampire hunter.
This sort of story, which combines a well-known tale – be it true or fictional – with a fantastic twist, is called a “mashup.” And it’s all the rage. It makes for fun reading and no one will confuse it for a biography.
In the economic world there is another mashup that’s all the rage right now… but it’s not fantasy mixed with fact. This time there are no fictional characters with new traits or dimensions. Instead it’s the all-too-real messy intersection of politics and corporate fortunes.
There will be winners and losers. The trick is spotting them early…
One of the most recent players in the game is not Abe Lincoln but Shinzo Abe, the new Prime Minister of Japan.
He’s out for blood.
Specifically he wants the blood of mid-range car companies.
Abe was re-elected as Prime Minister of Japan on one over-riding issue: the economics of the country are a disaster.
The population is aging, so domestic consumption is subdued, but the yen spent most of the last two years near all-time highs, making their exports very expensive. If your domestic population is not buying, and your exports are too expensive in foreign markets, then your economy has zero chance of sprinting forward.
Something had to give. Since Abe can’t make his population younger, he opted for a campaign to make the currency cheaper.
And General Motors (GM) should be scared to death.
In 2012 auto sales in the U.S. reached 14.5 million units, the highest since 2007. Even with this, the fleet of cars on the road in the U.S. is the oldest it’s ever been. This means replacement of cars should continue, if not increase, in the years ahead.
But most people don’t buy a Mercedes, even if they want to. The gut of the market is mid-size sedans, where Japanese producers shine.
With a cheaper currency and the bottlenecks created by the 2011 tsunami cleared away, Toyota and Honda are on the march.
GM has a boring line up of cars and a recent history of channel-stuffing their vehicles onto dealer lots. So while GM will benefit from the natural trend of car sales – the same as a rising tide lifting all boats – the company will be fighting for market share against a competitor that has better cars and now more competitive pricing.
This will deliver yet another blow to the bailed-out behemoth, which is already suffering from the stalled car market in the euro zone. Car sales in Europe have fallen to seventeen-year lows. Given that GM has a lot of exposure to that market and is now in the midst of negotiating the shutdown of two plants, the last thing it wants to face in its home market of the U.S. is even tougher competition from Japanese automakers.
But that’s the thing about competition, typically you don’t get to choose who, when, where and how much.
One of the funny things about this situation is that many people are calling Japan a currency manipulator, claiming that the country is cheapening its currency simply to make its products cheaper to foreign buyers.
Of course they are!
These calls are funny because, when we look back at the actions of the U.S. government, which bailed out GM to the tune of $50 billion while wiping away its debts to make it more competitive, it’s doing exactly the same thing. The Federal Reserve has been on a march to drive the dollar lower in order to aid U.S. exports in general.
There’s a pot and kettle story in here somewhere.
All of this is to say, stay away from GM stock. There are plenty of opportunities out there to pick from. We’ll continue to bring these to the attention of subscribers.
Ahead of the Curve with Adam O’Dell
As Rodney shows above, GM has an uphill battle to fight against Shinzo Abe’s commitment to putting Japanese exporters, like Toyota, back on top. And just recently Toyota reclaimed the top title of #1 global carmaker, surpassing GM once again.