Standard & Poor's Equity Research believes American auto companies will struggle as an unfavorable shift in the mix of models combines with heightened competition. These factors, along with an expected drop in demand both this year and next, should lead to restrained profits and limited share price appreciation, according to Efraim Levy, senior automotive equity analyst, and author of the article. Levy also sees the Detroit Three automakers losing ground in 2007 as foreign carmakers take more market share.
"While cost-cutting efforts may boost domestic auto profits, a number of factors including high gasoline prices may counter this and hurt revenues," said Levy. "The competitive landscape is widening and intensifying with new product introductions and buyer incentive programs. In our view, the Big Three's dominance is waning and they're becoming more vulnerable in a number of areas. These include light trucks, which may be hurt by a weakened housing market, as well as the luxury vehicle market, where margins are being squeezed by increased luxury import sales."
