For most investors, Toyota (NYSE:TM) is what GM was. It's a company that can do no wrong. Even the earthquake and tsunami could not kill the bullish case, which has a PE of 26 against GM's 5. Yesterday's earnings, a small profit where a large loss was expected, came despite plummeting revenues caused, as noted, by the tsunami. Everything looks good from here, the company said in its earnings release.
So it would seem. Toyota dominates Asian car markets, its new models are already drawing strong reviews, and the company plans to expand its line of hybrids to include a Camry. Toyota has pricing power on its low-mileage trucks, and it is showing other car companies how they can boost sales while simultaneously boosting fleet mileage. That includes turning its Prius hybrid into a stand-alone brand alongside Lexus and Scion.
Toyota is worth a premium to the market; the question is how much. Aren't many of its assembly plants located in the U.S., using the same American workers called “lazy”, “shiftless” and “greedy” when they work for American companies?
The solution for this disparity is usually to hire away the other guy's top people. This is what Ford (NYSE:F) did in 2007, hiring Jim Farley from Toyota's Lexus unit, which he had been running after launching the Scion. Yet Ford, like GM, still gets no love from investors, while Toyota does.
In the near term, I don't see anything stopping Toyota. But the Great Recession, the bailouts, and the complete destruction of the old American car industry have led to the creation of a new one, which is learning the lessons of Toyota's success just as Toyota once learned from us.
In three-to-five years the PE difference between Ford and GM on the one hand and Toyota on the other is going to narrow. There's a lot of money to be made in high-mileage vehicles. The gas savings alone can pick up a significant portion of a new car's tab -- which means auto makers, in general, are under-valued, not over-valued.
By 2015 we'll be talking about a hybrid revolution, and those who take fullest advantage will reap the greatest gains. We know Toyota will be in that number. Will GM and Ford? The government now says they had better be and that's a bullish case, not a bearish one.
Disclosure: I am long F.