American Autos Don't Get Enough Credit

At least once a week I hear someone hollering that Detroit's vehicles are junk. It makes me realize how far in the past consumer perceptions of Detroit's vehicles remain. I don't think some people realize how far domestic vehicles have come in the past five years. Some only remember when the Big Three made great trucks but lousy, inefficient, poor-quality vehicles -- and refuse to give it another thought. Some of the investing community still describes Ford (NYSE: F  ) and General Motors (NYSE: GM  ) stock in similar distasteful terms.

Times have changed. In looking at the new vehicles rolling out of Detroit, here are a few things for consumers to keep in mind, as well as what they mean for investors. I'll use Ford as my prime example.

Quality
It took years for the American consumer to give up on domestic vehicles, and it will take years to win them back, but the fact remains that the Big Three have been fighting -- and perhaps winning -- the quality battle. In your head, rank Toyota (NYSE: TM  ) , Honda, GM, and Ford one through four, with No. 1 representing the highest total number of recalls over the past three years. Whom do you think comes out on top? The results may surprise you. 

Toyota, previously known for its industry-leading quality, tops all automakers in total recalls. It also has more recalls than the No. 2 and 3 spots combined -- or GM tripled -- in that time period.

I'll take it a step beyond recalls and point out that Ford is winning critics over with its value. Ford was recently a shining star in the U.S News and World Report "Best Car for the Money" awards for 2013. It dominated the competition by taking home six first-place categories, more than any other brand. 

Past and present
When Toyota and Honda first entered the U.S. market, everybody just knew Detroit was invincible. Well, we all know what happens when we get complacent, and sure enough, Detroit fell -- hard.

We find ourselves in a similar situation today with perceptions, except the roles are reversed. Recently it was unthinkable for Detroit to produce a quality and fuel-efficient passenger car to compete with the Japanese. People still struggle to grasp the notion that things have changed. After all, we just know the Toyota Camry and Corolla are unbeatable. The Camry has been America's best-selling car for 11 straight years, after all.

But look at how far the Ford Fusion has come in its short six-year lifespan:

The Fusion is keeping pace so far this year as well, with both vehicles topping 80,000 sales in the U.S. for the first quarter. Camry sales, meanwhile, declined 12% last month, losing some ground to the Fusion, which gained 6%. The factory producing the Fusion is now running over capacity to try to keep cars on the lots.

But this race between the Fusion and Camry isn't the only story making headlines for the competing automakers. Last year, the Ford Focus topped over 1 million in global sales, allowing it to claim the No. 1 selling "nameplate" crown -- a crown that Toyota's Corolla had worn. When global sales for the Corolla sold under different names are included, the Corolla does top the Focus, with 1.16 million sold to 1.02 million -- but that doesn't change the fact that Toyota is probably scratching its head and wondering how Ford has managed to make such a quick turnaround. Ford not only competes in segments it was once laughed out of -- it's beginning to win.

Bottom line
Popular vehicles and better management have provided a consistently profitable bottom line for Ford. The company has also improved operations while growing economies of scale -- giving a boost to its industry-leading margins. It reinstated its dividend, and then soon after doubled it. Loyal investors from the start of Ford's turnaround are enjoying their spoils while waiting for a future that could bring even greater returns.

As consumers begin to give Detroit another chance, it should be a rewarding ride for Ford investors.

Worried about Ford?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.


Read/Post Comments (20) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 20, 2013, at 12:37 PM, Kizashi wrote:

    "It took years for the American consumer to give up on domestic vehicles, and it will take years to win them back."

    There's the entire story and the reason for the problem right there.

  • Report this Comment On April 20, 2013, at 12:44 PM, greyhound44 wrote:

    After 16 BMWs in my immediate family over decades, I bought a 2002 Subaru WRX SPT Wagon new in early June 2001 for US$500.off MSRP.

    My only car with 37,501 mi on the odo and still amazing!

    I would never buy a US/Canadian POS!

    ret expat MD

  • Report this Comment On April 20, 2013, at 12:45 PM, 895Liter wrote:

    Perception is just not reality with cars. People will curse GM 'til the end of time for a lousy Cavalier they had 20 years ago, but I don't hear people swearing off Volkswagen for their marginal quality. And how many people reading this have replaced a transmission in their Honda SUV/minivan or the head gaskets in their Subaru?

    In the 2013 JD Power Vehicle Dependability Survey, the bottom five vehicles were Volkswagen, Jeep, Mitsubishi, Dodge and Land Rover. Subaru, BMW, Audi, Nissan and Hyundai all ranked lower than Ford, Lincoln, Chevrolet, Buick and Cadillac.

    Admittedly the Big 3 made some crappy cars, but that's sooooooo different know. My wife drives a Taurus wagon with 175,000 miles and I've got a Crown Vic with just about 160,000 trouble-free miles.

  • Report this Comment On April 20, 2013, at 12:49 PM, marxwj wrote:

    Toyota and Honda are making some pretty nice American vehicles. Haven't seen much of note from Ford, Chrysler, or GM, but then again, many of there vehicles aren't made in America.

  • Report this Comment On April 20, 2013, at 1:03 PM, KStulak wrote:

    It is amazing how many people continually run down this country,and every thing it stands for,or is produced here.Meanwhile all of the rest of the world is laughing their ass off at us.

  • Report this Comment On April 20, 2013, at 1:03 PM, gpsboy wrote:

    Motor Trend recently finished a long term test of a 2012 Dodge Charger. After 26,000 miles there were:

    2 Recalls

    4 Warrantee repairs

    5 (!) Bent Wheels

    What were you saying about American cars?

  • Report this Comment On April 20, 2013, at 1:10 PM, luckyagain wrote:

    The quality of all cars has improved greatly in the last 40 years. I remember when cars with 100,000 miles were rare, US or foreign it did not matter. Now go on Craigslist and you will see many cars with more than 100,000 miles on them. These are cars that can be driven for many more miles. Cars have much better bodies that are less likely to rust and motors that can easily go over 200,000 miles without being rebuilt. The quality difference between US and foreign car maker is not significant.

    Peoples perception of cars are usually set in their teens or early twenties and very seldom change. I have owned both US and foreign cars over the years. At one time I owned 4 Chevy Novas which were really Toyota Corollas and were built by Toyota. Two of the four had blown head gaskets at about 100,000 miles. Toyota Corollas were considered to be amongst the best cars at that time but for some reason the head gaskets were weak. I had a Ford Ranger pickup and it was very reliable and would start at -20 F without any problem. By the way the Ranger was really a Mazda pickup.

  • Report this Comment On April 20, 2013, at 1:13 PM, Cyberkedi wrote:

    For years I drove a Honda Accord. Then, when I knew it had a couple wheels in the junkyard, I donated it to charity and bought a Ford Focus. I love the fenders off that car! I have driven it cross-country twice, and so far have needed to give it only routine maintenance. I hope to drive "Connie" at least another 20 years.

    First

    One

    Reviving

    Detroit

  • Report this Comment On April 20, 2013, at 1:21 PM, TMFTwoCoins wrote:

    @Cyberkedi

    Love the acronym.

    @gpsboy

    I have plenty to say about good American cars. I have less to say about Chrysler, and less about the Charger. I guess its easy to pick one bad survey for one bad car and think that holds true for everything -- but that's just bad research.

    I cover the Detroit autos for a living. I drive one every day and have driven tons more for testing and research.

    Fact: The vehicles are better than a decade ago -- much better.

  • Report this Comment On April 20, 2013, at 1:49 PM, reallychilly wrote:

    The article does a disservice by saying Detroit cars have been bad from the 90's thru the 2000's. That's not true. Detroit cars have been bad since the 70's. Who can forget such cars as the Pinto, Gremlin, Pacer and so many more? When I was a struggling young adult in the 80's I bought some of those 70's cars used. None of them would make it to the 100k mark and they were a constant drain on my already thin wallet. Then I discovered Toyota. For a kid who was struggling to make it, I was so thankful that I could own a car that was 10+ years old that remained mostly trouble free well beyond the 100k mark.

    Here's the thing. If Toyota could make cars back in the 70's that had such reliability, I'm sure American automakers could have done the same a long time ago. So, why didn't they do it? Because they were working from a formula: Don't build cars that are too reliable because if they did, fewer people would trade their cars in for a new one. In other words, their motivation was GREED. I remain eternally grateful to Toyota for always putting pride in craftsmanship first from the get go. They have earned my consumer loyalty. If American car makers have finally figured out that build quality and not greed equals success, good for them. They lost me as a customer because it took them until around 2010 to get it right but maybe they can capture some of the younger generation.

  • Report this Comment On April 20, 2013, at 2:07 PM, STB71 wrote:

    I'm considering a FORD, mainly because Bill Ford went almost 7 years without a paycheck to keep his ancestor's company afloat, while Exec's at GM/Chrysler were still taking paychecks & BONUSES with their companies in the RED.

  • Report this Comment On April 20, 2013, at 2:15 PM, TMFTwoCoins wrote:

    @reallychilly

    Very interesting point about potential consumers lost for good from early mistakes. I always think people would give Detroit a second chance once it changed things, but maybe not.

    @STB71

    I think Ford is a great choice to at least try giving Detroit a second chance!

  • Report this Comment On April 20, 2013, at 2:51 PM, kcimos wrote:

    new slogans:

    " FORD: now a lot better then 10 to 50 years ago"

    "GM: we don't suck as bad as we did 10 to 50 years ago"

    "Crysler: yes we did make crap 10 to 50 years ago, but things are different now"

  • Report this Comment On April 20, 2013, at 7:03 PM, bycotgmbuytoyota wrote:

    All of Toyota's recalls were driver error or as in the case of the driver near San Diego a murder/suicide as proven by NASA scientists. Plus Toyotas will last almost forever while your ford will be in the junkyard in five years. Toyota did not steal from the American taxpayer. Also true Americans buy a product based on value not by where the product was made.

  • Report this Comment On April 20, 2013, at 8:20 PM, TMFTwoCoins wrote:

    @bycotgmbuytoyota

    What are you talking about? Toyota's recalls were not all driver error... The pedal issue wasn't, nor was the airbag issue. You have no facts to back up anything, and Ford didn't steal from the American taxpayer either.

    True Americans buy based on value? So then Ford taking U.S. News Report's "Best Car for Your Money" is where we should buy, huh?

    Thanks for dropping by, better luck next time.

  • Report this Comment On April 20, 2013, at 10:36 PM, ZizewitzMB wrote:

    The reasons why people is still buying Foreign, especially Japanese, more especially Toyota cars with similar or better US competition,are strongly due to because of the outrageous failure of the US companies , mainly GM and Ford, to counteract the outrageous propaganda of the alien. combined with the social media and blogs where messages paid by interested parties. with false or invented representations representation or motivating by the extremist right wingers (furious by the success of the bailout), own-country haters and similar.

    Even posts on this block here show this clearly.!!

    The captioned arguments used are between other:

    1) Foreign cars are of better quality!.

    Statistics, as this article indicates, show just the contrary, as long apple with apples are compared. Toyota and Honda has more recalls and repairs compared with GM and Ford. That does not mean that all four are of excellent quality

    2) That alien cars assembled in the US are American products with more national parts as the US brands,

    Aside of the fact that "parts" and assembling are only a far than less of 50% of the value of a car, many of of the these parts are only bought from US companies which merely are assembled here alien components

    Additionally, US brand vehicles are widely exported especially to Canada and Mexico and their assembling plants, whilst the Japanese Cars assembled in the US are only exported in a much lesser degree.

    All in all, alien cars, claimed to be 70-80% a national product, are in a significant quantity totally imported (as the Lexus) and in average, including the assembled here only reach about 25% US content, whilst the equivalent of the US brands is about 50-60%.

    3) That GM and Chrysler must be "punished" because of their past mistakes.

    This, aside being absurd. ignoring that Japanese cars have an indirect enormous subsidy by the Japanese nation, by enforcing a policy which reduce to a trickle the import there any imported vehicle by not-import duty obstacles, but mainly by the complicity of their government with the all-powerful business confederation, which punish any employee who dares to buy an imported car by denying him further promotion or even fire him.

    This allows the car makers to sell the car in Japan to often the 70-80% higher than in the US, the so earned addiional profit being used to compensate the Exports to the US at an artificial low price (a procedure called "Dumping"

    4) It is nearly a open fact that the Japanese companies "induce" many US analysts, reporters and Government supervisors by indirect and often direct means, to achieve, as an example, that a very know analyst company, by comparing cost by mile of the purely electric Nissan Leaf with the GM VOLT, which has a large range extension by means of an auxiliary Gas Motor, compared the total Electric+Gas regime of the Volt with the electric only of the leaf, so showing a huge (but not existing) advantage for the LEAF

  • Report this Comment On April 20, 2013, at 10:41 PM, ZizewitzMB wrote:

    And I add:

    Chrysler didn;t "steal anything from the US taxpayer, repaying all the help including high interests, and GM did so in a very high percentage, As I wrote, Toyota is "stealing" from the Japanese taxpayer 70%+ of all the sales.

  • Report this Comment On April 21, 2013, at 1:53 AM, herky46q wrote:

    Even with the problems, I prefer the import models over the domestics for more than just quality. I prefer the look and materials used.

  • Report this Comment On April 21, 2013, at 1:26 PM, ZizewitzMB wrote:

    I correct

    And I add:

    Chrysler didn;t "steal anything from the US taxpayer, repaying all the help including high interests, and GM did so in a very high percentage,

    As I wrote, Toyota is "stealing" from the Japanese taxpayer approx. 70/170= 41% of all the car related sales in Japan

  • Report this Comment On April 21, 2013, at 1:35 PM, ZizewitzMB wrote:

    I could understand had you specifyieda certain import in front of s similar category domestic

    As you write it, is it a lame and plainly stupid excuse,

    you seem a typical US-hater or simply a paid blogger

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