When banners, advertisements, and slogans fail, try pinching consumers' pockets and they'll behave the way you want them to. This has certainly proven to be the case with oil. For several years, environmentalists have tried to popularize the use of alternative sources of energy, but the response has been marginal.
However, the recent hike in oil prices coupled with several other economic factors seem to have got U.S. consumers started on their path to availing sustainable resources. Left with few choices, they are now opting to buy fuel-efficient cars and in bigger and bigger numbers. And fortunately for Detroit, American auto manufacturers are sitting pretty, ready to absorb this revitalized demand.
The impact
With oil constantly trading above $100, consumers -- particularly those looking to buy cars -- are vying for alternatives that aren't too heavy on their wallets. Although that's forced automakers to rework production strategies and turn to compacts, electric cars, and hybrids to boost sales, it has nonetheless translated into higher revenues. For example, these automakers saw their small car sales jump 18% as demand for fuel-efficient vehicles showed an uptrend. A shortage of parts and cars from quake-hit Japan appears to have propelled the sale of fuel-efficient cars even further.
Last month saw General Motors' (NYSE: GM) sales shooting up by 27%. I believe what must have boosted GM's sales -- besides the Japanese giants taking a backseat after the disaster -- is its strategy of selling the same compact car models, like the Chevrolet Cruze, in the U.S. as well as Asia and Europe. Since the concept of seeking efficiency at a reasonable price seems like the norm for auto buyers, cars launched in these regions are excelling. GM's decision to enter into the small car segment is coming to fruition now in this buying environment.
Automakers such as Ford Motors (NYSE: F) and Chrysler Group have also seen remarkable increase in their small car and crossover sales. Chrysler has witnessed a 22.5% rise in sales, whereas Ford sales have risen by 16.3%, thus pushing the U.S. automakers' market share up to 46.5%. Even more in U.S. makers' favor, there's been a void because of a shortage of the hugely popular Prius from Toyota's (NYSE: TM) stable.
Meanwhile, a resurgent U.S. auto industry has indirectly favored the largest manufacturer of aluminum wheels for cars, Superior Industries (NYSE: SUP), thrusting its fourth quarter sales up by 32%. Superior counts the auto biggies among its clients -- reason enough for us to take it to be a good gauge of the rising demand in the industry.
Looking forward
As far as GM is concerned, I feel particularly bullish. Ever since it did more business in China than in the U.S. last year, GM seems to be viewing the Asian giant as a pot of gold at the end of the rainbow. Since China's trying to promote the use of electric vehicles through subsidies and other initiatives, GM has a very high chance of grabbing a fair share of the market there. This might be the ladder that could elevate GM to the pinnacle of the car manufacturing industry, replacing Toyota.
Toyota has been confronted with the fact that its sales are unlikely to improve until the end of this year. A stronger yen and declining dollar are shaving off its profits from U.S. sales even as the company comes to terms with limited production of strategic parts.
Like Toyota, Honda Motor (NYSE: HMC) has taken a severe hit because of the Japan disaster, making its operating income tumble down by more than 50%. Its fourth-quarter earnings reveal that its margins are very much under pressure. Honda seems to be determined to not let the disaster hinder its operations too much, but it is unlikely that it will be very successful in that regard this year, for obvious reasons.
Foolish bottom line
As the once-dominant Japanese auto sector is trying to cope under the weight of pooled adverse situations, U.S. automakers are capitalizing on a near-monopolistic situation and nice tailwinds thanks to surging energy prices. If this trend continues, I believe American automakers might gradually regain control of the U.S. automobile market and continue to expand aggressively in overseas markets.
