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Thursday, September 14, 2006

A Funny Thing Happened On the Way To The Gas Pump (GM)(CDX)((F)(XOM)(TM)(HMC)

Japanese auto stocks like Honda and Toyota have rallied sharply in the last day. At the same time, Reuters reports that hybrid cars and diesel vehicles will be in vogue over the next few years, and Japanese car companies are ahead of the Americans and Europeans in producing hybrids.

But, it many not be that simple. The fact that Ford, GM, and Chrysler have not kept pace with new engine technology is only part of the story. The other part is that oil prices are falling and may continue to fall as new reserves appear to be coming online faster than expected, and companies like Exxon are supporting the idea that global oil reserves are larger than previously projected.

Cheaper oil may jump start a fairly flat to down set of sales in North America, the world's largest car market. The could also accelerate sales in China, where most of the US and Japanese car companies have joint ventures.

Because the Japanese are the only car companies with rising share in North America, the markets may believe that this march to victory will be accelerated by a failing gas price environment. The Japanese are still viewed has having cars with fewer defects as well has better fuel efficiency. Hybrids aside, falling gas will help Toyota and Honda. It may help US car companies as well.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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