Auto Industry Strategy

A Detailed Overview of the Automobile Industry (from INVESTOPEDIA)

Exerpt:
"Automobiles depend heavily on consumer trends and tastes. While car companies do sell a large proportion of vehicles to businesses and car rental companies (fleet sales), consumer sales is the largest source of revenue. For this reason, taking consumer and business confidence into account is for you a higher priority than considering the regular factors like earnings growth, debt load, etc. You can find more information on the Consumer Confidence Survey here.

Another caveat in analyzing an automaker is taking a look at whether or not a company is planning makeovers or complete redesigns. Every year car companies update their cars to the newest version (i.e. 2003 model vs. 2002 model). This is a part of normal operations, but there can be a problem when a company decides to significantly change the design of a car. These changes can cause massive delays and glitches, which result in increased costs and slower revenue growth. While a new design may pay off significantly in the long run, it's always a risky proposition."