- Market Commentary -

January 12, 2010 (FinancialWire) — With the Detroit auto show in full swing it’s time to focus on the fortunes of U.S. automakers General Motors (Motors Liquidation) (OTC: MTLQQ) and Ford Motor Co. (NYSE: F). We could include Chrysler, but isn’t that an Italian company?

Monday’s big news from the show included a pledge from GM Chairman and CEO Ed Whitacre that U.S. taxpayers can look forward to enjoying a profit on the $50-odd billion that they invested in bailing out the company.

Whitacre faces an uphill climb: while the company has already paid off $1 billion of a $6.7 billion Treasury loan, it will have to close a successful IPO this year. And, of course, sell a lot of cars.

Ford, the company that didn’t need a bailout, did its part to feed the news cycle as well. The company swept the North American Car and Truck Awards at this year’s show, with the Ford Fusion Hybrid taking car of the year honors.

But what to do with an industry that still suffers from overcapacity, and will have to benefit from near-miracles in volume and profit per unit to make up for the historic losses of 2009?

Ford and GM both have some big news on the product front. Ford is unveiling an all-new Focus compact. The Focus has been a big hit in Europe, but that Focus isn’t the one that’s been in sale in N. America. Americans got a tired, older model Focus at a time when other companies were rolling out exciting new compacts.

Ford will also bring the successful Fiesta subcompact to N. America. Both the Focus and Fiesta give the company savvy, sophisticated and fuel-sipping small cars to sell, but at what price? Ford hasn’t formally set the price for the Focus, but industry wags fear it will be north of $15,000. Not exactly a bargain in the recession-ravaged U.S.

The company has already walked the fine-line of middle class unaffordability by pricing the revived Taurus north of $26,000. It’s a great car, sure, but nearly 30 grand for a Taurus?

GM is not shirking its technological responsibilities, either. Great progress has been made to bring the Chevy Volt to market. The EV+onboard generator marvel should best the Toyota Prius in both fuel efficiency and Green bragging rights, but will it really cost $40,000? Yikes.

Meanwhile, Korean carmakers Kia and Hyundai have made great strides in the market by offering vehicles that are class leaders in value. This is a lesson for us all, and not one that will end anytime soon.

Not only will it take many months of good news, (particularly on jobs), to shake consumers of their fear, it will also take looser credit at cheap rates to make them buy more cars.

While the Fed will probably not move the Fed funds rate upward anytime soon, it will definitely be pressured to show some discipline this year. This is already having an impact on open market operations. Curtailing purchases of Treasury paper and MBS could very well send interest rates higher. Oh, look, that’s already happening.

So, while GM and Ford are bringing exciting new products to market, the two companies will still feel the hot breath of price competition in each and every category they’re marketing in, as consumers look to stretch their dollars again this year. Even those who feel good about buying a new car. 

[Go to http://www.financialwire.net/?s=philip+holmes to see more commentaries by Philip Holmes.]

The FirstAlert(tm) Economics Calendar lists International Trade Balance for November (8:30 a.m.), Weekly Chain Store Sales (8:55 a.m.), Treasury auctions 3-year notes (1 p.m.).

The FirstAlert(tm) Events Calendar showcases  ADXS, TDLP, ZIOP at Biotech Showcase 2010; ALC at Stifel, Nicolaus & Company Inc. Conference; BELM, SNX, IKAN, YTEC at Kaufman Brothers Technology Trends Conference; BSX, AET, MDCO, LLY at JPMorgan Healthcare Conference; CMG, THS, URBN, DPZ at Cowen and Company Consumer Conference; DNR, DVN, NGAS, BRY at BMO Capital Markets Unconventional Resource Conference; F at 2010 North America International Auto Show Conference; MON R&D Pipeline Review; OSUR, JASO, EPAY, POWI at Needham & Company 12th Annual Growth Conference; OXY, FTI, NE, NBR at Goldman Sachs Global Energy Conference; TRBN, MEND, SNT, BDSI at OneMedPlace Finance Forum; TSEM at Sidoti & Company Micro Cap Conference; UXG, NG, SA, VGZ at Dahlman Rose & Co. Emerging Miners CEO Conference.

FirstAlert(tm) Website of the Day: http://www.azchords.com/

Quote of the Day: “A portrait is a painting with something wrong with the mouth.” John Singer Sargent

Today is: Zanzibar Revolution Day.

Happy Birthday: Charles Perrault, John Hancock, Jack London, John Singer Sargent, Paul Hermann Müller, Tex Ritter, Ray Price, Glenn Yarborough, Henny Youngman, Kreskin, Joe Frazier, Kirstie Alley, Rush Limbaugh, Howard Stern, Oliver Platt.

Today in History: H. L. Smith took the first x-ray photograph in 1896. A long-distance radio message was sent from the Eiffel Tower for the first time in 1908. The Rocky Mountain National Park was formed by an act of U.S. Congress in 1915. New York Jets upset the Baltimore Colts, 16-7, in Super Bowl III in 1969. Space shuttle Columbia took off with the first Hispanic-American astronaut, Dr. Franklin R. Chang-Diaz, in 1986.

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