A Recession Could Convince Carmakers To Team Up – And You To Buy In

A Recession Could Convince Carmakers To Team Up – And You To Buy In
Theodora Lee Joseph, CFA

over 1 year ago1 min

The US car industry is in a bit of a jam: sales of cars and light trucks (the blue line above) have only been slowing down in the last 50 years, and that trend hasn’t shown any signs of reversing recently. Hardly surprising: the industry has been weighed down by both high costs and more competition from car-sharing services.

But as you can see from the gray sections above, those sales drop off even more dramatically after the US economy falls into a recession. And with so many signs that we’re headed for exactly that, carmakers and suppliers will be forced to drive costs down and get hold of the technologies they need to gain a competitive edge. And that could lead to a flurry of buyouts and mergers, just like we’ve seen in other industries: energy companies, for example, have seen a lot of deal-making in the last few years as the shift to renewables put their bottoms lines under pressure.

Here’s where the opportunity for you comes in: when a company says it’s agreed to sell, its share price tends to jump because the buyer pays over the odds to make the deal worthwhile. So if you’re able to identify those that are most likely to be bought out, you could put yourself in line to benefit. As for how, look for those that are smaller in size (they’re more likely to be scooped up by bigger firms), with more debt on their balance sheet (they’re more likely to agree to sell), and those that boast unique technology a legacy carmaker might want to leverage.

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