Why I'd Buy Toyota, The #1 Automaker in the U.S. 23 comments
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Introduction
In Why I'd Avoid Toyota, The #1 Automaker in the U.S, Tom Lindmark sites the Wall Street Journal's report that shrunken down post bankruptcy versions of General Motors (GMGMQ.PK) and Chrysler will leave Toyota (TM) the #1 seller of light vehicles in the U.S.
His essential point was that while Toyota might triumph in the long run, in the short run they must contend with "the most fearsome of competitors-government owned companies."
Fortunately I wasn't drinking anything when I read that line. Spraying liquid through one's nose is so undignified.
Actually, Mr. Lindmark has some justification, saying:
In the short run it (the government takeover) could be formidable as the government does whatever is necessary to prove it didn't make the stupid decision that everyone acknowledges it.
But seriously, folks, let's think about this for a minute.
Reasons To Be Cheerful (for Toyota)
Inexperienced Bureaucrats & Politicians to the Rescue: Right. GM could not compete when run by presumably well paid experienced executives with real budgets at their disposal. How will they compete with the same basic team under inexperienced government bureaucrats with atrophied resources, no matter what high profile wizard they find to run daily operations?
Government Resources Are NOT Unlimited: Given its current commitments bailout commitments, how much more taxpayer cash can the government politically (forget the overheating presses at the mint) afford to throw down another sinkhole as taxes rise and the dollar decomposes? As Treasury Secretary Geithner's meetings with U.S. creditor nations over the past month have shown, our debt holders' patience is not limitless.
U.S. Creditors' Patience is REALLY Not Unlimited: Since when did China, Japan, Russia, the IMF, and Moody's have all feel the need to reaffirm their commitment to the U.S. dollar as the world's reserve currency is indicative that they felt the need to do so. Doubts are growing. They need to protect both the value of their USD reserves, as well as the US consumer's ability to keep buying the world's exports. The Russians and Chinese know what too much socialism brings. The Japanese know all about what happens when you don't let "Zombie" companies expire.
Washington's Stellar Track Record: Even with taxpayer subsidies, when has the US government and its sheltered bureaucrats ever beaten a determined, well capitalized, well run competitor with its own cash on the line?
Package delivery? See Fedex (FDX), UPS, et al.
Public Education? Ask any parent who can afford the alternative.
A Tale of Two Companies – How Each Dealt with Competitive Threats
GM
Having watched both companies since high school days in the early 1970s, two incidents come to mind about how each dealt with competitive threats.
In my days as an MBA student at Cornell, we had an affable GM board member/executive (I forget which, but the difference is irrelevant) as a part time teacher/scholar in residence. He appeared on occasion as a substitute teacher to tell us war stories meant to give us a taste of real corporate life. Burdened with heavy course loads, we avoided his amusing but mostly irrelevant classes whenever we knew he'd appear. However, he left me with one key lesson.
Whenever asked about how GM, THE symbol of American industrial might, planned to counter the clearly more reliable, fuel efficient cars that Toyota et. al were making, he assured us GM cars were just as reliable, overall just as good, and all was well at GM.
I was shocked. We were all a bit amused.
Of course, everyone knew this was nonsense. Even my conservative-buy-American parents, stung by both the bitter fruits of "planned obsolescence" and the fuel crisis of the early 1970s, had recently bought their first non-American made car ever – a Toyota. The differences in reliability and fuel efficiency were clear even to them and their skeptical peers.
Yet this captain of one of America's most important companies didn't get it. As the following years showed, he was indeed a representative sample of GM leadership.
Toyota
A few days ago, Toyota leaders met to discuss their first quarterly loss ever, newly crowned company president Akio Toyota kicked off his tenure by publicly accusing company leadership of imitating the failed habits of GM and vowed to return the company to success by slashing expenses and producing more fuel efficient, affordable cars.
This kind of public table pounding is, ahem, rare in the oh-so polite, face-saving corporate culture of Japan.
Clearly, Akio intends a quick turnaround, not a 30 year slide. Face-saving be damned.
They already have the most fuel efficient car on the road, the Prius. The firm plans to have a fuel cell car by 2015. No resting on laurels here.
Conclusion: So How To Profit?
When the banking crisis is truly over and stocks bottom out (not yet, see my prior posts for more) Toyota might be an investment for those who want to an auto industry play.
Don't worry about Toyota. Save your concern for the auto workers and suppliers stuck with GM.
"Ladies and Gentlemen. In this corner, wearing the World Champion belt, Toyota Motors, led by Akio 'the Ninja' Toyoda. In this corner, wearing nothing but a barrel, G.M, led by Obama Administration and UAW approved, former Postmaster General, Political Hack Extraordinaire…"
Oh well, maybe Obama can get Theo Epstein to take a leave of absence from the Red Sox. Hey, they hadn't won for 80 years.
Disclosure: The author owns a Toyota Prius, and (sigh) some GM bonds.
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I also point out that there would be no internet if AT&T had not been broken up. What great innovation has been stopped due to this miscalculation? We will never know.
John, spreading lies only hurts you and your UAW buddies in the end. Evidence on 9/11 contributions...
www.snopes.com/rumors/...
web.archive.org/web/20...
Also, many GM vehicles sold in the US are actually produced in Mexico, Canada, and soon yes, China. So what really is an American car company anyway???
On Jun 26 01:21 PM John Eickholt wrote:
> Has Toyota help to build a American Hospital? Ford and GM have. What
> did Toyota give after 9/11? But Americans gave them free land and
> tax abatements for years. Toyota still imports almost 50% of what
> they sell here. I say lets hope Americans wake up and support American
> Co's.
> When our Governments lets foreign products in this country cheaper
> than where they were made. Its very sad. The Prius is 100% built
> in Japan and sold for $1000 less here.
On Jun 26 04:37 PM elcopone wrote:
> Great article with fantastic points. I couldn't agree more. As always,
> it all about the product. Something Mr. Toyoda clearly understand.
>
>
> John, spreading lies only hurts you and your UAW buddies in the end.
> Evidence on 9/11 contributions...
>
> www.snopes.com/rumors/...
> web.archive.org/web/20...
>
>
> Also, many GM vehicles sold in the US are actually produced in Mexico,
> Canada, and soon yes, China. So what really is an American car company
> anyway???
>
American car companies build 80% of what they sale in this country...their cars average over 80% of made on USA parts while transplants are @49%.
KEEP PUSHING THE BOGUS QUALITY AND GAS MILEAGE OF THOSE RUST BOXES.
SELF DESTRUCTION OF THE AMERICAN AUTO INDUSTRY IS DUE TO THE NEGATIVITY MEDIA COVERAGE BY THE FAT CATS ON WALL STREET.
KEEP BUYING FOREIGN...KEEP BITING THE HAND THAT FEEDS YOU!!!
On Jun 26 04:59 PM 303820 wrote:
> 80% of what Toyota and other foreigners sale in this country is IMPORTED
> from Japan, Korea or Mexico... if that is good for our country we
> need to stop blaming American union workers for our problem and take
> a good look in the our mirrors!!!!
On Jun 26 04:59 PM 303820 wrote:
> 80% of what Toyota and other foreigners sale in this country is IMPORTED
> from Japan, Korea or Mexico... if that is good for our country we
> need to stop blaming American union workers for our problem and take
> a good look in the our mirrors!!!!
American car companies build 80% of what they sale in this country...their cars average over 80% of made on USA parts while transplants are @49%.
KEEP PUSHING THE BOGUS QUALITY AND GAS MILEAGE OF THOSE RUST BOXES.
SELF DESTRUCTION OF THE AMERICAN AUTO INDUSTRY IS DUE TO THE NEGATIVITY MEDIA COVERAGE BY THE FAT CATS ON WALL STREET.
KEEP BUYING FOREIGN...KEEP BITING THE HAND THAT FEEDS YOU!!!
On Jun 26 04:37 PM elcopone wrote:
> Great article with fantastic points. I couldn't agree more. As always,
> it all about the product. Something Mr. Toyoda clearly understand.
>
>
> John, spreading lies only hurts you and your UAW buddies in the end.
> Evidence on 9/11 contributions...
>
> www.snopes.com/rumors/...
> web.archive.org/web/20...
>
>
> Also, many GM vehicles sold in the US are actually produced in Mexico,
> Canada, and soon yes, China. So what really is an American car company
> anyway???
>
On Jun 26 04:37 PM elcopone wrote:
> Great article with fantastic points. I couldn't agree more. As always,
> it all about the product. Something Mr. Toyoda clearly understand.
>
>
> John, spreading lies only hurts you and your UAW buddies in the end.
> Evidence on 9/11 contributions...
>
> www.snopes.com/rumors/...
> web.archive.org/web/20...
>
>
> Also, many GM vehicles sold in the US are actually produced in Mexico,
> Canada, and soon yes, China. So what really is an American car company
> anyway???
>
Thanks for sharing your knowledge with us.
Good luck and good trading
Dave
On Jun 26 08:46 PM E Nuff Sed wrote:
> Article is rhetoric not facts. After GM comes out of bankruptcy,
> it will be a new company with no debt or legacy costs. So I would
> not count it out.
Since the 70's when the Japanese vehicles showed up on our shores, GM has been struggling, making one short-term and erroneous bet after another. Some of this is due to our quarterly report system, and some of it is due union intransigence, but most is due to very poor and shortsighted upper management at GM.
Generally this type of poor performance is handled by the bankruptcy court. What is unusual is that this bankruptcy has been orchestrated by the US Government.
So let's look at the results with some investment logic:
1. GM evolves from bankruptcy with very little debt.
2. GM's tax loss carryforward, shields them from US income taxes for 10 years. Note that rules were changed to allow this to happen.
3. Union contracts have been slashed and their labor cost structure is 1/2 of what it was.
4. The retirement cost structure has been transferred to the UAW.
5. GM's new Chairman of the Board (Whitacre) is a proven turnaround specialist.
So in the intermediate term, GM has it made, and will be a pretty good investment post-bankruptcy. For those who had the foresight to buy GM bonds just before bankruptcy, had made a great bet, because the conversion gives them a breakeven point at 56 cents a share or less.
For those who buy the new stock when it is available, GM will be a money making making machine for 5 years or more. The stock should show lots of upside. Some even worrry about Ford competing because they will not have the advantages of GM.
In the longer term, GM will have to make it on it's own. Their success will be highly dependent upon top management, the UAW and resulting product value and quality. They might or might not make it, but I can't see that far into the future. Ten years from now, the other shoe will have dropped, and a new set of issues will be guiding the success of the automotive industries.
in the House today,219/212. This is devastating
to our industry. Just who is this president any-
how? He and his band of pirates & gangsters
are out to bankrupt you & me. The most we can hope for is that it not pass the senate.
And you thought Clinton was bad; nobody de-
spises Clinton more than I. I'd even take him
(if he could've run), over this BAM dictator.
Young people: entertain the onerous prospe-
ct of leaving your country to follow industry_
permanently! After all, we have no sovereing-
ty left & you're all citizens of this "global eco-
nomy. Careful what you wish for: change can
be bad.
a
GM, F and C always went for the easy money because it was so easy taking money Republicans (as you say, conservatives) and from younger people who thought muscle cars were good cars. Old, fat, rich guys now pay hundreds of thousands for those "classics."
Europe and Japan always made BETTER cars and that was their goal EVERY single year--not different fenders, BETTER cars.
Now GM, shorn of massive debt and without Rick Wagner and his incompetent Board, know what has to be done, will put real car people in place and WILL turn it around.
I remember my Grandfather telling me a story about gas being very expensive when he and his brothers were young. They couldn’t afford to put gas in the car they had so they used kerosene instead until the price of gas came back down. What they didn’t do was buy a small tin can on wheels…just like today.
On Jun 27 05:28 PM JAY BOSLIN wrote:
> You are an accountant, Cliff, remember that. While I can't stand
> GM cars (and I've owned a few) specifically, and american cars generally,
> this time it IS different. Toyota veered right down the same road
> with their own 5+ litre vehicles chasing $ from dumb americans. Toyota
> has problems too.
>
> GM, F and C always went for the easy money because it was so easy
> taking money Republicans (as you say, conservatives) and from younger
> people who thought muscle cars were good cars. Old, fat, rich guys
> now pay hundreds of thousands for those "classics."
>
> Europe and Japan always made BETTER cars and that was their goal
> EVERY single year--not different fenders, BETTER cars.
>
> Now GM, shorn of massive debt and without Rick Wagner and his incompetent
> Board, know what has to be done, will put real car people in place
> and WILL turn it around.
On Jun 27 11:37 PM slowdown wrote:
> Interestingly enough…. my husband and I went to the Sloan Museum’s
> (Flint, Michigan) annual autofest today. This event draws thousands
> of cars/trucks from every era - birth to present. It is absolutely
> amazing to see the progress we have made in the auto industry from
> the turn of the century hand crank starting Model A/T’s to this year’s
> Chevy Camaro and Challenger. We stopped to look at a Nash Metropolitan,
> which is a small car built in the mid 50’s. The placard in front
> of the car said it got 40 mpg. Funny how you all talk about how revolutionary
> the Japanese auto makers have been in developing cars like the Prius
> when the reality is we already had them once…. only a small percentage
> of people wanted them back then just like today. These small cars
> fuel efficient cars will not meet most peoples needs today just like
> they didn’t back then. Like today – it was not profitable (Toyota
> loses money on every Prius it sells) to build them on a small scale.
> Ford, GM and Chrylser lose money on their small cars just Toyota
> does. NOT ENOUGH PEOPLE WANT THEM! There isn’t enough volume to leverage
> lower cost components. The Japanese were able to be profitable by
> manipulating currency and have been unsuccessful in this economy
> so are losing money. As the author pointed out – Toyota was sinking
> money into plants that were going to produce large trucks and SUV’s
> because those are the vehicles of choice in this country. I don’t
> see that changing.
> I remember my Grandfather telling me a story about gas being very
> expensive when he and his brothers were young. They couldn’t afford
> to put gas in the car they had so they used kerosene instead until
> the price of gas came back down. What they didn’t do was buy a small
> tin can on wheels…just like today.
I too was in MBA school in the 80's. I had a writing professor who had spent some time at Ford. Every day she told us how we could never make it at Ford with the kind of writing we were doing. Every time she said that, I pictured the Ford executives standing around in their fancy clothes judging memos while their factories built Pintos. Maybe I couldn't write a great memo, but I knew my friends and I could build a better car in our spare time.