over 1 year ago • 1 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.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.