The Automakers’ Energy Woes

And so it goes with our continuing energy woes. It doesn’t look like the prices of oil and gasoline are going to recede soon. I must admit, I fear for both GM and Ford.

GM, in particular, has a lot of exposure to gas-guzzling SUVs and pickup trucks. I wouldn’t be surprised if consumers decide to move en masse to more fuel efficient vehicles in light of recent events. This isn’t good news for this automaker.

Technology has advanced significantly in the automobile market, but fuel efficiency hasn’t progressed to the same degree. There’s no question that we’re all feeling the pinch at the pump.

There are some great new car designs coming out of Detroit these days, but their success may be short lived if people don’t purchase V8s anymore. This is why the major Wall Street investment firms are negative on GM’s stock in particular.

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Deutsche Bank, a large and reputable German investment bank, recently lowered its rating on GM’s outstanding debt to a sell from a hold. The firm also re-issued a sell rating on the company’s stock, and even went so far as to downgrade its rating on three of GM’s biggest suppliers. The firm cited GM’s high dependence on light trucks as the main reason for its negative rating on the company. With high gas prices, people are much less likely to purchase light trucks and SUVs.

Naturally, the compact segment of the automobile business is booming. This is why you see so many Honda Civics and Toyota Corollas on the road. These two companies keep getting stronger, while Ford and GM struggle.

The domestic automakers have a lot more work to do to get car buyers excited about their products. They’re on the right track and both Ford and GM have made major improvements in design and quality over the past few years.

The only good news for consumers right now is the fact that there are some pretty attractive incentives to purchase a new vehicle in today’s market. Employee pricing is a marketing tool that really works. Expect fuel efficiency to become a hot-button issue over the next several quarters.