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Sometimes, the American consumer just has too many choices. Although projections call for 16 million vehicles to be sold in the U.S. in this year -- the highest amount since 2006 -- there simply isn't enough demand for all car companies to be winners. Whether from a lack of differentiation or unexciting designs, investors should consider the following three car brands to be on yellow alert. If things don't improve rapidly, they could disappear altogether before 2020.
The good times are rolling -- but not for everyone
Clearly, some automakers have rocketed out of the gate this year. We've seen Ford (NYSE: F ) scream higher thanks to the wide acceptance of its EcoBoost engine, which improves fuel efficiency without sacrificing power.
Even electric-vehicle maker Tesla Motors has joined in the action, proving to consumers that electric-vehicle mass-production is possible. Tesla recently delivered its first one-time charge-adjusted quarterly profit in history, and has now met or surpassed its own production targets in three straight quarters, as consumer demand remains high.
But there's another side to this coin. While total U.S. auto sales are up 9.6% through the first 206 days of the year, the following brands have struggled to woo the U.S. consumer.
The Swedish car company known for its staunch lines and rigid safety standards is nowadays just a distant memory in the minds of American and global consumers.
In recent months, Volvo has found some moderate success in China, where its redesigned models sent sales up by 62% in July.
Ultimately, though, Volvo is no longer a global player. About half of its sales come from Europe, where austerity measures are putting the kibosh on the entire industry, while its sales in the U.S. have been on a more or less steady decline since 2004. In that year, Volvo sold close to 140,000 units in the United States. But through the first eight months of 2013 Volvo has sold just 44,005 units, a 6% decline from the previous year.
Volvo lacks a true identity -- and any sort of swagger whatsoever. Known previously as the "safe" car, Volvo has seen numerous other automakers make its models irrelevant by spending quite a bit of R&D on improving safety in their own cars. Think of it this way: When was the last time you heard anyone excited about the arrival or redesign of a new Volvo?
With no differentiation and a loss of previous its comparative advantage, Volvo's days could be numbered.
Speaking of cars that fail to excite the American consumer, how about Suzuki? Whether or not you realize it (because it's not as if Suzuki cars were all that prevalent on the road in the U.S. to begin with), Suzuki made the decision in November to pull out of the American market after three decades.
Hitting a high of 102,000 vehicles sold in the U.S. in 2007, Suzuki was able to muster only 26,266 units sold in the U.S. in its previous fiscal year.
It isn't hard to understand why Suzuki failed to excite the American consumer: It focused on compact cars with low price points. That's the same area all the majors now focus on, including Ford, GM, Honda, and Toyota (NYSE: TM ) .
Unfortunately, Suzuki offered little to no differentiation on fuel-efficiency or cabin room from similarly priced compact U.S. vehicles. And it stood near the middle of the pack when it came to vehicle dependability ratings from J.D. Power and Associates in 2013, while trailing well behind Honda and Toyota. In other words, there was no reason for the American consumer to ever choose a Suzuki, since better options were almost always available.
In the interim, Suzuki will focus on its core Japanese market, where it and Toyota's Prius dominate. But even in its home market, its market share may not be safe. If Suzuki is to stick around and remain relevant, it'll need to add some pizzazz to its lineup and improve upon its vehicle dependability ratings. Otherwise, it, too, may just vanish.
Jaguar's had a steady ride downhill for roughly the past decade. Since Ford sold it to Tata Motors (NYSE: TTM ) , Jaguar's U.S. sales have declined from the 61,204 units it sold in 2003 to its current pace in 2013 of approximately 16,700 units.
Unlike the previous two automakers, Volvo and Suzuki, differentiation has never been Jaguar's issue. Instead, its vehicles' dependability, and the way the company has typecast them to appeal to a narrow audience, have always held back its sales.
According to the same J.D. Power and Associates vehicle dependability report, Jaguar places sixth from the bottom in dependability ratings, yet is among the priciest car brands on the list. The value-to-dependability ratio for Jaguar has been skewed for a long time, and it'll need to be fixed if the brand has any chance of a global turnaround.
In fairness, Jaguar's new F-Type looks pretty sharp. It's a stark departure from the brand's stoic and almost archaic car lines in the past.
The price point, with an MSRP of $69,000, still speaks to the high-end luxury you'd expect from Jaguar, but the overall design adds uniqueness and style that will appeal to a younger generation -- something the brand has failed to do on numerous occasions in the past. However, if Jaguar doesn't completely reinvigorate its U.S. and global sales with these new redesigns, then I have a suspicion it'll only be a matter of a couple years before the brand potentially disappears.
Ultimately, Tata Motors may find itself at a crossroads, with Land Rover sales surging in recent months and Jaguar sales sputtering for the majority of the past decade. As an investor, I would take Tata's renewed faith in Jaguar with a grain of salt and strongly suggest investors stick to the sidelines until the new Jaguar line proves its worth.
As for Suzuki and Volvo, I consider them both to be in worse shape when it comes to brand survival than Jaguar. With Suzuki now out of the U.S. market and Volvo seeming like it will be just a matter of time before it follows suit, investors should continue to view this as a win for Ford and GM, which are once again connecting with the U.S. consumer on a design, price, and fuel-efficiency basis.
If there is to be a rebound in these three brands, there's good reason to believe that it will come from those with exposure to China's massive and growing population of domestic consumers. And, of course, there are few things that these consumers are likely to purchase with more enthusiasm than cars and trucks. In this brand-new free report, our analysts get out in front of this trend by identifying two automakers that are poised to surge along with China's middle class. If you want to be among the smart investors who get rich from this growing trend, then you'd be well advised to instantly download our free report on the topic by clicking here now.