How could auto sales be so good and auto stocks so bad?
That was the question Wall Street analyst Stephen Girsky addressed at the Automotive News World Congress last week. He is a managing director at Morgan Stanley Dean Witter in New York.
'There is a sense of frustration out there that the industry is doing so well, but the stock prices are not,' Girsky said.
Here are some of the reasons for the apparent contradiction, according to Girsky:
No room for improvement: 'Everything is great - but that's part of the problem. If you look at a 17 million (total industry sales) market, it's hard to argue it's going to get higher.'
The going gets tougher: 'If the market starts to head flat to down slightly, it becomes a zero-sum game. If one company is going to grow, it has to be at the expense of another.'
Threats to the cash cow: 'The light-truck market is becoming extremely competitive. ... The profit margin for trucks is about three times higher than cars. (But) the industry has added 15 percent more truck capacity. There are 26 new sport-utilities due out in the next couple of years. ... And truck inventories are on the rise.'
Trouble overseas: 'We keep reading about a recovery in Japan, but in the opinion of our team, there is no evidence things there are getting any better. Meanwhile, Europe is doing fabulous volume but at horrible margins. There is no evidence Europe is going to be a significant source of profits this year.'
No room to raise prices: 'If pricing is this bad when sales are this good, what's going to happen when you get back to a more normal (sales) rate? Pricing is going to get even more difficult.'
On the bright side, Girsky said, e-commerce has the potential to be a big moneymaker for the auto industry, including the possibility of in-car shopping via the Internet.
'I may be nuts, but I think there's huge potential there,' Girsky said. 'There's an opportunity there, a captive audience there. When you're in the car, the only choice you have is to drive. If you're a passenger, now you either listen to the driver, or you listen to the radio.
'In my car, they'd rather listen to the radio.'