The Economist on the Car Industry

by: The Stalwart

The economist has a great article, free to the public, on the global car industry, writes The Stalwart. It's highly worth reading. Last week we talked about the fact that although it is de regueur for companies to grow via acquisition, the great companies don't need to acquire. Here's a little bit about Toyota (NYSE: TM):

The most sensible of the carmakers has spurned the consolidation game. Toyota is still not the world's largest by number of cars built, but given the speed at which it is growing (output has expanded by 1.5m vehicles in the past five years, half the total growth in world production) and the speed at which GM is shrinking, the day when Toyota becomes the biggest is probably no more than five years away. Investors already recognise it as the leader. Its market capitalisation, at $150 billion, is greater than that of GM, Ford and DaimlerChrysler combined ($90 billion).

This superiority has been achieved by concentrating on organic growth. Apart from scooping up Daihatsu to get small-car engineering and engines years ago, Toyota has concentrated solely on improving its own offering, with a relentless focus on efficiency, cost-cutting and a flood of new variations of successful models brought to market at an increasingly rapid rate.

Toyota's luxury car business, Lexus, was created from scratch, rather than by the purchase of some other firm's famous, but tired, brand. Lexus is now the best-selling prestige brand in America. Encouraged, Toyota is spending lavishly this year on marketing it in Europe and Japan as well.

People scoffed when Toyota announced its plans for creating its own luxury brand rather than paying for some other firm's glorious history. But Lexus has been spared all the tears, toil and sweat associated with a takeover. And it has succeeded by following a policy that many makers seem to find hard to copy: give people cars that don't break and treat customers like royalty.

Here's something else:

Today's controversies over high petrol prices and fuel-guzzling SUVs in the huge American market offer only a partial picture of the future facing the industry as a whole. It may well be fully mature in markets such as North America, Europe and Japan, where over-capacity continues to sap profitability. But globally the industry is set for huge expansion with the motorisation of China and India. Within a few years China will replace Japan as the second-largest national market after America. Some experts predict that over the next 20 years more cars will be made than in the entire 110-year history of the industry.

Read the whole thing now.

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