Sector Monday is my regular (or occasionally regular) post on the investible trends in a timely sector. I’m filling the first of the two weeks while I’m on break in Sicily (it’s nasty work but some has to do it) with a week of Sector Monday posts. Normally these posts run only on JubakAM.com and  never appear anywhere else. But for this vacation week and this Sector Monday Week I’m reposting these to my JugglingWithKnives.com and JubakPicks.com sites.
There’s no doubt that the U.S. auto sector is in chaos. Want some evidence? Ford Motor (F) has announced it will no longer invest in manufacturing and selling traditional Ford sedans for the North American market because of declining consumer demand and lagging profitability for these vehicle types. Over the next few years, Ford will gradually prune its North American portfolio to just to two vehicles – the best-selling Mustang and an all-new Focus Active crossover due next year By 2020 the company’s goal is to have 90% of its North American portfolio be trucks, SUVs, and commercial vehicles.
At the same time Ford will try to stay in the hybrid and electric–and autonomous vehicle–race by adding new propulsion technologies to profitable vehicles such as the F-150 pickup truck, Mustang, Explorer, Escape and Bronco. The company’s battery electric vehicle rollout starts in 2020 and it will bring 16 electric vehicles to market by 2022. History shows, however, that it’s extremely difficult to get back into a market once you’ve abandoned it. Which means that Ford is leaving the North American sedan car market to General Motors and Toyota (TM) and other imports if they want it.
Right now General Motors looks to follow Ford down this road but not as far as “no-more-sedans.” Chevrolet alone still sells 12 car models. According to auto industry analysts by 2022 Chrysler will be 97% non-sedans, Ford will be 90%, and General Motors will be at 84%. Which will give General Motors a considerable long-term advantage in the auto industry’s transition to electric and autonomous vehicles. The company will still have access to the consumer segment most likely to attracted to those new technologies. I think this is part of the logic behind a $2.35 billion investment by the Softbank Vision Fund in General Motor’s self-driving subsidiary, Cruise. For its money Softbank has gained a 19.6% stake in Cruise. General Motors has promised it will put self-driving cars into commercial service in 2019. As Tesla (TSLA) has shown convincingly in the electric car market, getting a product to market is the easy part. Selling in enough volume to make a profit is harder. With Ford’s retreat from the North American sedan market General Motors will have a few years of relative competitive solitude to see if it can solve the puzzle. Timing this one is hard. All things considered I might wait until early 2019 (or later if the deadline for an autonomous vehicle slips) before buying General Motors shares.
