Posted by Brian at 2:03 PM
On tiny cars in the US market
The contrarian in me looks at this article on mini cars and the potential US market and says "buy stock in those companies." Why? Because GM thinks it won't work.
GM also is looking at bringing low-cost minicars to the United States, opening up a new segment in the world’s biggest automobile market, but GM executives have shown some hesitancy about the segment.
Because GM executives have done such a bang up job in assessing the market over the last thirty years. It is possible they're right on this, mind you--us Americans have a love affair with Humscalades for some godawful reason--but then I read their further reasoning.
[Group Vice President John] Smith said that the company's long-term internal forecast shows gas at about $2.50 a gallon, a range that he said would not inspire “a seismic shift in consumption habits.”
$2.50 a gallon? I didn't see prices that low before the summer driving season started pushing gas prices up--and he thinks that's the long term price? Sorry. I don't see it. Gas demand is going up. Refinery capacity is holding steady at best, because oil companies aren't bringing new ones online because they don't know if they can get their money's worth out of them before the US switches over to something like ethanol--that means capacity will stay stagnant while demand rises. I'm no economist, but I think when that happens, prices tend to go up.
To GM's credit, they're introducing the cars anyway, even though they claim not to believe in them, and who knows--maybe they won't sell. But if they're basing their belief on the idea that gas prices are going back down, they're nuttier than even I imagined.