Ford and GM Still Have Time to Catch Japanese Automakers
America's two largest automakers are having a phenomenal year, reaping profits that haven't been seen in over a decade. Ford and General Motors both have vehicles, such as the Fusion and the Impala, that are competing in segments once completely dominated by Japanese rivals Toyota and Honda . Even with the drastic progress made, some analysts still see a speed bump that could derail Ford and GM's resurgence: consumer satisfaction. I'm not so sure, and here's why.
The American Customer Satisfaction Index shows that overall the industry's satisfaction level dropped 1.2% from last year, but is still up 5.1% since the base-line year, 1994.
The two top-rated spots in the index are luxury brands; the highest rated non-luxury brands listed are Honda and Toyota. The only non-luxury American brand above the industry average is GMC. Ford and Chrysler are on par with the industry average, while Chrysler's other brands, Jeep and Dodge, are among the lowest scores.
Some analysts think that this will eventually lead to a speed bump for Detroit automakers that are currently enjoying a tremendous year in sales and profits.
In an interview with Automotive News, David VanAmburg, director of American Customer Satisfaction Index, had this to say:
Right now, in the U.S. automakers are churning out cars like crazy. There certainly is some risk there that, on the one hand, they could be stuck with a lot of inventory. On the other hand, even if they're not, what is there to build future growth on? Really, the only thing to build future sales growth on is to do a better job of satisfying customers. You've got win over some of those purchasers of Asian brands and European brands.
I think VanAmburg is absolutely correct in the long-term outlook, but that shouldn't scare current Ford and GM investors. Let's keep in perspective that working through pent-up demand will likely still take a few years, at least. Right now, the U.S. market just broke through a seasonally adjusted annual rate of 16 million vehicles for the month of August; that's the first month to top that mark since November 2007. Here's a look at the SAAR since 2012.
Pent-up demand will eventually be worked through, then, as VanAmburg states, competition will increase and it could favor the Japanese yet again. But consider that even after the rise in annual sales the average age of vehicles has actually increased recently, from 11.3 years to 11.4 - an all-time high.
Not only is pent-up demand still a factor for the foreseeable future, consider that as people have held onto their cars years longer than normal, the mileage has increased significantly. That has created a large gap between a used car with low mileage and a new car with zero. As new vehicle sales outpace used vehicle sales it seems as though people are now opting to buy new more often than not - which will keep U.S. sales strong. This trend of buying new instead of used is especially true as tech features rapidly improve and become a major selling point for consumers. In addition, Ford and GM's quality looks to be improving as vehicle recalls are in decline recently.
In addition to all that, another bright spot for investors is that there will be major growth in emerging markets that will bring in incremental profits as U.S. and European markets reach saturation. I believe that these trends will give Ford and GM years to improve customer satisfaction to better compete when pent-up demand is worked through - a big win for those investing in Ford and GM's rebound.
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The article Ford and GM Still Have Time to Catch Japanese Automakers originally appeared on Fool.com.Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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