Will Japan's Recovery Hurt Ford?

Japan's auto giants are finally returning to full production. Meanwhile, strong truck sales continue to drive gains for Detroit.

When automakers release October sales results on Tuesday, we may see strong gains for several of the leading automakers. In fact, those gains may lead to the highest sales rate seen in the U.S. since August of 2009, when the government's "Cash for Clunkers" incentives program was at its peak.

That would be a good sign for a corner of the economy that has slogged along at a rate far below historical norms ever since the economic crisis. But it may come with challenges for Ford (NYS: F) and the other major automakers.

Good news for two long-suffering automakers
Honda's (NYS: HMC) U.S. sales chief, John Mendel, told Bloomberg that the company has seen sales grow in October, a pleasant surprise for the troubled Japanese producer after months of declines in the wake of the March tsunami. According to Mendel, the company lost about 200,000 vehicles' worth of production as a result of tsunami-related production disruptions. With production largely restored and its factories running extra shifts, Honda hopes to make up some of that lost ground -- as much as half of it -- by the end of 2011.

Supplies of Honda's popular Fit subcompact are still short, but inventories of other models have recently increased. Orders taken by dealers over the summer and what Mendel called "pent-up demand" should give the troubled automaker a sizeable boost throughout the fourth quarter, he said.

A similar story is emerging at Toyota (NYS: TM) , with analysts at Edmunds estimating that the recovering giant will see a 1.1% gain in its U.S. market share versus September's numbers. A return to something like normal would be a welcome development for long-suffering Toyota, which has been hammered by natural disasters as well as an exchange-rate disadvantage that costs the company an average of $4,000 on every car sold in the U.S., according to executives.

Toyota and Honda, along with other major Japanese exporters like Sony (NYS: SNE) and Panasonic (NYS: PC) , may see an additional boost from currency-market interventions undertaken by the Japanese government on Monday. Japan is attempting to push its currency down a bit from recent historic highs versus the dollar and euro, following hints by Toyota and others suggesting that ongoing exchange-rate disadvantages could lead the industrial giants to move production out of the country.

Ford and GM continue trucking along
Meanwhile, Detroit -- or at least, its two biggest denizens -- may be benefiting from a strong surge in truck and SUV sales. The fall months typically see a rise in truck sales, a trend likely be exacerbated this year by a construction-industry boost that may encourage contractors to replace aging truck fleets.

Ford executives said last week that the company is expecting a strong selling season for trucks, and a boost in incentives spending on 2011 truck models should drive an increase for General Motors (NYS: GM) as well. Chrysler may not fare as well, as Edmunds is forecasting a market share decline for Detroit's smallest automaker. Chrysler, which has seen surprising sales gains in recent months, may be bearing the brunt of lost sales as the Japanese giants' production returns to normal.

But analysts aren't so sure that this blip will become a trend. Truck sales are seasonal, and continued pressures on consumer spending are likely to hold auto sales rates down for some time. And importantly, increased supplies of Toyotas and Hondas may lead to an increase in incentives spending, which could exacerbate a squeeze on margins that has already led to concerns about Ford's near-term prospects.

Still, there may be reasons for optimism -- both for the near term, and for a better year in 2012.

The outlook: cautious optimism
While Edmunds CEO Jeremy Anwyl sees "a slow building of sales" after three years of suppressed demand, he and other Edmunds analysts are suggesting that this surge in sales could moderate after the end of the year.

That said, Edmunds is forecasting U.S. auto sales to increase by nearly a million units in 2012, to about 13.5 million vehicles versus an anticipated 12.6 million units this year. A shift in consumer focus from smaller cars to larger (and, significantly for the automakers, more profitable) vehicles may also be in the works, and should be helped by a series of new models in the important midsized-sedan segment: New versions of the Toyota Camry, Ford Fusion, and Chevrolet Malibu are all either at dealers or due soon, and all three are expected to be highly competitive entries.

Of course, even a total of 13.5 million vehicles sold in the U.S. for 2012 would be far below the 16-million-plus annual sales rates that were routine in the years before the 2008 economic crisis. All three of the Detroit automakers have recently shown that they can profit in the current subdued sales environment. But as Japan's automakers return to full production, increased competition for sales could benefit consumers -- at the expense of Detroit's margins.

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At the time thisarticle was published Fool contributorJohn Rosevearowns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by@jrosevear. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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