The Future of Dinosaurs

Tony Edwards Energy, Everything Else, My Published Articles

 I really love my brother and very much enjoy his company, it’s just that our outlook on life is so different I marvel sometimes that we were raised under the same roof. You see when I travel on business to Toronto I stay with Colin and his family in their home northwest of the city, where he is kind enough to occasionally share with me the use of his principal vehicle for my work. Now this is not the economical little Honda Civic that I am accustomed to, but an oversized, gas-guzzling, climate-changing beast of an SUV manufactured by General Motors. When I ask him why he needs such an animal, he says, “Bro, if you have an accident on the highways around here, mass wins.” Well, if life is one big demolition derby, it’s hard to argue with that.

I confess to feeling considerable guilt when I get behind the wheel of this machine, so at a recent group presentation I gave on socially responsible investment, I considered it prudent to hide this monster in the furthest corner of the parking lot, and when I thought I may have been noticed emerging from it’s depths, took pains to point out early in my presentation that I had borrowed the beast and was not actually it’s registered owner.

Now I hope all you happy GM drivers will hold off on the hate mail, but it’s no secret that this company is in trouble. They make more money underwriting mortgages and loans than they do selling cars, and whether due to the escalating price of gasoline, angst at living on the wrong side of the environmental equation, or an unwillingness to be implicated in the lives being lost in Iraq, the fact is that sales of king-sized SUVs are plummeting, while other car buyers are waiting in line for delivery of the Prius, made by the acknowledged leader in hybrid vehicles, Toyota Motors.

You know the trend towards producing lighter, more fuel efficient, less polluting vehicles is now well entrenched when a global investment dealer produces a comprehensive report on how one might, from a financial standpoint, reap the benefits of this evolution. Earlier this year, Merrill Lynch produced a 40-page analysis entitled, “Energy Security and Climate Change, Investing in the Clean Car Revolution”. In it, they highlight seven companies that they feel are uniquely positioned to capitalize on the trend towards more economical and ‘cleaner’ cars.

When reviewing the following list, keep in mind that Merrill Lynch may not necessarily be advising that all, or indeed any of these stocks are recommended buys given their current price levels, and that their information is based on forward-looking assumptions that may or may not come to pass. The comments relating to each company are quoted from the published report.

1. BorgWarner Automotive (U.S.) Almost all of BorgWarner’s key products offer the benefits of higher fuel efficiency and/or lower emissions. We estimate that these products account for at least 70% of the company’s 2004 revenues.

2. Denway Motors (China) Denway is an indirect play on stricter regulations in China through its 50% stake in Guangzhou Honda. Guangzhou Honda’s current vehicles are more efficient than most manufacturers in China, which implies that the additional costs to meet new standards will be minimal relative to its competitors.

3. Faurecia (France) Faurecia is a direct play on tightening emissions standards in Europe. It is the European leader for diesel particulate filters, with about 60% market share.

4. Hyundai Motor (Korea) As a major exporter of vehicles Hyundai must focus on R&D efforts to at least keep up with its global peers in complying with Kyoto Protocol and other climate policies. Its aggressive R& D efforts are focused on hybrid electric vehicles, fuel cell vehicles, diesel engines, and other fuel efficiency enhancements.

5. Keihin (Japan) As a major supplier of injection systems and related components, particularly to Honda, Keihin is capitalizing on the shift from carburetion to fuel injection on four-wheel vehicles.

6. Magna International (Canada) Magna’s market-leading high-pressure hydroforming business is a critical technology for creating lighter (as much as 20%), stronger vehicles and thus we believe it will play a key role in the intensifying drive for higher fuel economy.

7. Toyota Motor (Japan) Toyota Motor is the global leader in hybrid technology. The company has about 65% of the small, but rapidly growing hybrid vehicle market in the U.S., which is supported by largely proprietary technology.

Now if you’re more inclined to undermine and overhaul the auto/petro economy than to support it, you may want to consider a practice that would send shivers down the spines of many CEOs if followed on a large scale. There is available in the Comox Valley a shared car that is part of the Cooperative Auto Network based in Vancouver. Use of this vehicle is charged by the hour and the kilometer, and, if you are a member of the cooperative, it may be booked online at www.cooperativeauto.net, or by calling Don Munroe at 338-0187.

Anthony Edwards is an Investment Advisor with First Financial Securities Inc. in Courtenay, BC. He can be reached at 898-9973, by email at tedwards@firstfinancial.bc.ca, or you may visit his website at www.ethicinvest.bc.ca