Pent-up demand and its potential for U.S.
- Chris Buchbinder
- Portfolio manager/investment analyst
- Based in:
- San Francisco office
- Investment experience:
CHRIS BUCHBINDER: The U.S. auto industry, in particular, I think, is interesting because for many years the U.S. auto industry was burdened with huge post-retirement obligations to their union members, to retired employees — and really, they were uncompetitive. Through the course of the Great Recession, as we know, Chrysler and General Motors went bankrupt; Ford was able to accomplish many of the same things that Chrysler and GM did without going into bankruptcy; but all three companies emerged much stronger, as did much of the supply base.
And I think that’s a really fundamental transformation that makes me sort of interested in the companies, independent of what’s happening with the cycle. But then I overlay the cycle on top of it, and we are now at the point where the U.S. auto fleet is as old as it has ever been. That’s a good starting point, because cars do wear out and they do need to be replaced. Even though sales have recovered significantly off the lows in the 2009 time frame, we’re well below the average level of sales for the prior 10 or 15 years. So we’re certainly not at an extreme in terms of current sales, and I’d say there’s substantial opportunity to improve.
And then when you bring it down to the company level, some of these companies that either went through bankruptcy or came close to it really dramatically revised their cost structure and also revised other business processes, [which] haven’t all been demonstrated yet to the market but, I think, will over the next couple of years.
So I think you’re left with the situation where you had these companies that were globally uncompetitive, that now have great cost structures in what’s now actually quite a good manufacturing environment in the United States, where their home market has depressed demand that’s likely to improve and they’ve got some internal things that haven’t yet manifested — big product cycles, for instance — that are going to come through over the next couple of years, that historically can be big drivers of the stocks.
And so I think it all lines up that there are some really interesting opportunities in the U.S. auto industry. And I think partially because of the experience of 2008 — when we had a crisis, and many companies went bankrupt — the market is shying away from them and views them as riskier than they, in fact, are. So I think that just creates an opportunity.
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