3 Reasons Why the Auto Sector is Poised for Rebound

News that Ford surged to the number one spot by sales in February for the first time since 1998 and General Motors posting a sales gain of nearly 12 percent should not come as a surprise.

Toyota's safety crisis may have cleared the way for U.S. automakers, but that is just an aside.

The entire industry is poised for a strong recovery. And here are three reasons why.

1) Product replacement cycle. Just like computers, there is a certain life cycle where sooner or later, equipment is replaced. For vehicles, it is often between four to six years. When you look at dismal sales in the past two years, there is clearly a pent-up demand for automobiles that will emerge as economies recover. We certainly will not see unit movement like we did in 2007, but by the same token we will likely see higher numbers than in 2009.

2) Green cars matter. Despite safety problems related to the Toyota Prius, automakers are pushing forward to deliver cars that can achieve higher mileage and, in some cases, eliminate the need for fossil fuel. Hybrids and alternative energy vehicles are going to drive sales, particularly if oil prices stay high and the range of vehicles is extended.

3) Incentives. Automakers are now able to access cheap funds and are offering incentives to buyers including free financing and low monthly payments. During the credit crisis it was difficult to obtain financing. It is getting easier with automakers such as GM are offering a range of zero-percent financial deals on 2009 and 2010 vehicles. And with automakers seeking to capture as much market share as possible, we are likely see very attractive prices. Cheap financing and lower sticker prices will translate into greater sales.

With economies recovering, consumers will likely feel more confident about opening up their wallets for big ticket items.

Yes, they will be more cautious, but autos and trucks are still an important possession for consumers.

Look for stronger numbers and financial results from automakers worldwide. The pendulum is swinging the other way.


Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top investment 100 advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.