While much of the world focuses on the global manufacturing war under way, the savvy investor should focus on the next hot spot: the new international design war brewing in the auto, wireless handset, airline and PC industries. Look at the auto industry to see what I mean. After years of lagging behind, General Motors ( GM) has pretty much eliminated the productivity gap between its car factories and the North American plants of the Japanese car makers, according to the 2004 Harbour Report on North American auto factory productivity. But GM makes just a scant $178 profit per vehicle, while Toyota ( TM) rakes in a profit of $1,742 per vehicle and Nissan ( NSANY) is even more profitable at $2,402 per vehicle. The bulk of the difference comes down to rebates: Detroit has to pay consumers twice as much to buy its cars as Japan's automakers do. And that's because Toyota, Nissan and Honda ( HMC), which once far outpaced Detroit in manufacturing efficiency, are now winning the design wars. They are doing a better job of designing cars that customers want and will pay more for.
Too Many Cars, Too Few Buyers
The auto industry's capacity problems, because they are global, may actually dwarf those besetting the airlines. The Big Three auto companies are running at 81% of capacity, according to market research firm Global Insight, even though sales of cars in the U.S. are nearing historic highs. A rule of thumb is that a factory needs to run at 85% of capacity to make a profit. Industry analysts project U.S. sales of 17 million vehicles in 2004, up from 16.5 million in 2003 and on the way to 17.2 million in 2005. That would be just below the record 17.4 million sold in 2000. Overcapacity, even in a commodity industry, doesn't affect all products equally. Even as GM has had to offer big rebates to move Buicks, Chevrolets and Pontiacs, its Cadillac brand has been flying off dealers' lots with much lower rebates. For example, on the Kelley Blue Book Web site , I found rebates for a 2004 Chevy Malibu that began at $2,000 and went up to $4,000. Rebates for the 2004 Cadillac CTS began and ended at $2,000. By comparison, the highest rebate I found on a 2004 Toyota Camry was $1,500.