Detroit Auto Rebound: Too Far, Too Fast?

Auto stocks have soared on gains in car quality, but drivers may be too happy with last year’s model.

A Tesla Motors Model S charging at a public parking garage.

A Tesla Motors Model S charging at a public parking garage. 

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There is also worry that more people are hanging onto their cars longer than ever, in part because of improved manufacturing quality. Industry researcher R.L. Polk & Co, which tracks car market trends, says the average car on the road is 11.4 years old, the highest ever. This number has remained stubbornly high despite the waning recession, which usually leads to a contraction in average car age. Today's average is well above the 8.5-year norm in the 1990s, and Polk expects it to keep rising.

More bullish analysts see the aging of cars on the road as an indicator that many more owners will be looking to replace their cars. "People are being attracted by new features and new products," Rosen says. But some see buyer reluctance more as a reflection of debt, especially among cash-strapped younger potential buyers worried about college debt. Rosen says there has been a rise in buying by young adults, but it still lags levels from past industry recoveries.

[See: 10 Signs American Families Are Falling Behind.]

That may mean faster growth in other parts of the auto industry. Rosen says her fund is looking for new growth areas, such as parts suppliers that can play a role in meeting safety or pollution rules. She also sees the chance for gains in a global car industry that has lagged the U.S. market. (Fidelity fund managers do not issue forecasts or name individual stock picks.)

"Even though the industry is in good shape, it's harder to get enthused about the car stocks right now," Levy says. "We've given some downgrades recently, but they are based on valuations, not fundamentals."

Levy rates Ford and Toyota as "buys," but GM, Nissan and Honda as "holds." Outside the car-manufacturing sector, he has a "strong buy" rating on parts maker Johnson Controls and "buy" ratings on TRW, Lear and Goodyear.

Companies that make the "content" that goes into autos are the stocks to look for, Rosen says, since traditional quality improvements are less likely to give anyone a meaningful edge in basic car performance.

Now the competitive question is who will create the most impressive (see Tesla) and least-glitchy interactive technologies, Levy says.