I just scooped up some Citigroup shares. I’ll be honest: I didn’t dig ultra deep into any filings yet, as I figured the thesis may no longer be applicable by the time I finished reading the massive tome that is a Citigroup annual report. My reasoning was simple — the sprawling firm has some premier properties, trades at what I consider unjustifiably low valuations, sports a strong dividend yield to provide downside risk protection, and has garnered the sponsorship of a few well-respected value guys, namely someone I consider a Graham and Doddsville superinvestor, Eddie Lampert.

Given that I don’t have many extraordinarily knockout ideas right and had some cash that could have been put to work, I felt this was a safe place to park some dough with the added benefit that a catalyst (breakup, anyone?) could send the shares significantly higher. My back of the envelope calculations put a break-up value at somewhere between current prices and a whole lot more. This highly scientific reasoning is coupled with the fact that Citigroup sports solid returns on equity, respectable — albeit modest — growth for a behemoth its size.

Bottom line: potential for outsized upside, downside protection with dividend yield around 80% of Treasury yields, and lots of smart money showing interest in catalyzing an opportunity.

In light of recently seeing the Disney/Pixar flick Cars and, of course, Ford’s (F) huge loss coupled with Toyota (/TM) and Honda’s (HMC) anticipation of larger profits, I thought it appropriate to say some words on the automotive industry and its major players.

First things first. It’s no news that American car manufacturers are suffering and suffering mightily. Stagnant sales coupled with rising costs, stiffer price (and quality) competition from lower cost, more efficient foreign makers, and mounting liabilities make for an extremely difficult hand. Both GM and Ford are in the midst of restructuring processes, looking to cut jobs, close factories, improve efficiency, and shed some legacy costs.

Whether or not these initiatives will be successful is out of my (and probably many an investor’s) circle of competence. What I do know is that the challenge is immense and difficult to understand. Part of the difficulty is due to the off-balance sheet nature of the obligations, and the rest is due to huge uncertainties regarding the future of the companies’ operations.

For instance, let’s consider GM’s pension status and healthcare obligations. While pension plan accounting is quite arcane and sensitive to a number of actuarial estimates (like life expectancy, wage increases, discount rates, etc.), I’ll do my best to keep it simple for demonstration’s sake. Basically, the company made some unfortunate agreements with the UAW years back which were based on a much brighter expectation for GM’s future. As we’ve seen, that has now backfired bigtime. I liken the company’s obligations to the US Social Security problem — it is “underfunded” in the sense that more money in benefits will be paid out than is currently being brought in.

For every current employee, GM is paying benefits to roughly 2.5 retired workers. All said, the “funded status” (that is, pension plan assets minus estimated benefit obligations) of GM’s obligations was around negative $63 billion at the start of 2006. And, again, that is not really reflected on the balance sheet. And as the company tries to shed its workforce to cut costs, this deficit could grow (provided that some other solution is not reached).

This becomes an even bigger problem when contrasted with the fact that companies like Toyota and Honda are sitting relatively pretty. Both of these companies are supporting pension plans with an employee base far larger than their retiree base. GM has cut its workforce over the last 20 years while TM and HMC have done the reverse. Given its financial difficulties, poor capital structure, and competitors’ financial success this, in plain English, ain’t good for GM.

Oh, and Ford? Not too much different: with a funded status of -$43 billion, there’s not much to be gleeful about.

Another terrible obligation bearing down on American manufacturers is, of course, their heavy debt loads. GM is paying around $4.5 billion a quarter in interest expense and Ford is a bit better at around a $2 billion run-rate. Both companies’ liquidity positions are troublesome, and barring some drastic, successful measures, credit ratings will worsen and the situation will continue spiraling downward.

Contrast this, for instance, with Toyota, whose debtload is but a small fraction of its American counterparts’. Furthermore, Toyota enjoys triple A credit ratings and extremely low cost financing.

Furthermore, some argue (perhaps rightly) that American manufacturers, in addition to suffering from a classic case of the lower cost competitor blues, are selling products that offer less value than foreign cars. Despite pretty positive ratings for some Ford and GM models, there does seem to be a perception of generally greater affordability, quality, safety, fuel-efficiency, and durability from Japanese cars especially. Naturally, this doesn’t do much for Ford or GM’s performance, and provides an operating and marketing edge for companies like Toyota and Honda.

So what will come of all this?

Well, like I said, I don’t think I can predict the success of current restructuring efforts. But, for starters, whatever does happen should be interesting. It’s difficult to imagine two American icons with still tremendous market shares going out of business anytime soon. And, realistically, I don’t anticipate that happening with high probability. Granted, GM and Ford have been steadily losing market share to foreign rivals, and that trend could continue. But entirely displacing such big players is difficult to accomplish, and, if there is a death, it’ll be a slow death.

I also feel the managements of both Ford and GM are doing a pretty good job considering the awful economics of their businesses. For example, CEO Mulally at Ford is top notch in the restructuring area and I don’t see it impossible that he can repeat his success at Boeing. He has and will probably continue bleeding the company of its ills, and shareholders might well be better off for it.

Obviously, handling the mounting liabilities and inherent institutional cost difficulties is the key concern. But surprisingly, I also believe alot may end up depending on both companies’ willingness to be entrepreneurial. My (admittedly bold) prediction is that an ability to adopt technology like clean, fuel-efficient vehicles and embrace change could not only help them compete, but, if done skillfully (and perhaps with some luck) propel them back to their glory days. Clearly, this is no easy task, but should remain somewhat of a priority in a world of shifting preferences.

This may be controversial, but I find that the average car buyer is more willing to switch brands if given good reason than are consumers in other industries. Today’s Toyota owners might well be tomorrow’s Ford owners if, hypothetically, Ford can develop an image as an innovator on the frontier of clean, cheap fuel technology. How likely that is to happen, I have no idea. Naturally, they’d have to be a step ahead of financially sounder enterprises trying to do the same thing. But on the bright side, a company like Ford has the government subsidiaries and research pipeline that has been proving somewhat successful, and it’s not entirely out of the question that American manufacturers can do what I call “pulling an Apple” and really reinvent themselves and their image.

But, to end sadly on a more dour note, doing any crazy, sexy innovation campaign in the midst of a restructuring effort is probably a HUGELY unlikely one-two punch. As much as I’d love to see American car manufacturers pull off one hefty task, let alone both, the odds are stacked heavily against them. If you’re one for supporting the underdog, so be it. But when it comes to a Ford or a GM from an investing standpoint, the risks are too great and the rewards are not entirely clear. Bottom line: if you absolutely MUST buy an auto stock, consider looking outside the old US of A.

Note: I do not own shares in any companies mentioned in this article.

Harley-Davidson has been one of my favorite companies for several years now. A very “Buffett-esque” company, if you will, Harley-Davidson (HOG) earns consistently high returns on equity, sports very strong margins, reinvests a chunk of earnings profitably to drive growth, boasts a management that has achieved remarkable success over the past few decades, and, of course, enjoys a brand name and competitive position impossible to rival.

When evaluating a company, I always find it good practice to poke holes in its operations, prospects, management, etc. and give as much credence as possible to its competitors. It allows you to avoid getting too giddy about any company, and keeps expectations and risk factors in line with reality. In Harley’s case, this was a very difficult exercise. There’s simply not much to poke. And with around 49% of the heavyweight bike market, there’s no competitor nearly as dominant.

Some have expressed concern that Harley will suffer from shrinking profits as the baby boomer generation retires and stops buying Hogs en masse. That demographic has fueled growth for years, and it may be true that with its maturation comes Harley’s maturation. Indeed, 80% or so of the company’s revenues are still in the US, and the aging baby-boomer generation won’t drive profits domestically in the same way we’ve seen the past decades.

Nonetheless, the company is expanding successfully into new markets, and is seeing fast growth in Europe while also entering into China in the past few years, opening its first dealership in Beijing earlier in 2006. While a relatively small portion of Chinese middle-aged men (middle-aged men being the company’s most important demographic) have the discretionary income to go out an buy a Harley, the number is steadily growing, and if Harleys are successfully marketed to a burgeoning middle and upper class of Chinese, shareholders could see respectable growth for years to come.

Yet, what most people don’t know is that China’s motorcycle industry is already quite competitive, and the country is starting to see some of its own icons emerge. Harley has recognized the growing biker culture in China, and is flexing its muscle to capitalize on it. But call me pessimistic, this is going to be a tough sell. With the top 20% of Chinese only earning around $3700 annually, and given that the cheapest Harley will likely cost almost twice that in China (since the company is not manufacturing there), Harley’s share of any Chinese market is likely to be small (especially at first). But I believe their long-term strategy (which is not capital intensive and will focus on steady and sustainable growth) is sound and can yield dividends in the long-run.

So does that make the company a buy? Well, I virtually salivated over the share price when it hit around $45 about a year and a half ago. I felt, at that time, that the shares were worth at least $65-70. So I bought some near $50 and held for a while, only to sell out this year (stupidly, you might say) around $63. Why I did that is anybody’s guess.

What about the here and now? With shares trading around $70, is it still a bargain? Well that depends how you look at it. Even at $70, you’re getting a great company at a decent price. While it’ll be hard to trounce the market at these levels, steady growth prospects along with the plethora of aforementioned selling points should make for a comfortable and likely market-beating return over the long-run.

That said, I’d estimate the shares to be a bit more fairly valued on a DCF basis today than they were around 18 months ago. I estimate the shares are worth somewhere between $65 and $85, so those seeking huge bargains won’t find it here, but anyone looking for a first-class operation with a wide (and widening) moat should keep riding the HOG.