What Do Toyota, GM, Ford & Chrysler Have In Common?
Imploding sales. This past week all reported sales down 10-20% year over year. In an industry with very high fixed costs, significant capital requirements and large debt loads, this is a very serious issue. Of course, we've beat this drum repeatedly so I'm not going to beat it alot more. Should this continue, it will jeopardize the very existence of any of these companies that have serious debt loads. Most specifically, in the U.S. Cerberus Chrysler would likely be the first to go bankrupt. The last few years have likely been the worst economic environment for the auto industry since the 1970s. Yet, to their credit, American auto makers have remained marginally profitable.
One month does not a trend make but we are now seeing Toyota's sales drop significantly. Toyota has now fallen to number three in U.S. sales. As we wrote some time ago, Toyota is very vulnerable because of its aggressive move up market and into sport utility vehicles. Toyota and Nissan have grown to be very reliant on aspirational consumers in the U.S. And, amongst other factors, I'm not sure aspirational consumer tastes can be defined by prior trends to larger vehicles. As an example, do many aspirational consumers still view sport utility vehicles with primary appeal? Possibly not. Society is now recognizing excess has possibly led to an endangered planet. Or has possibly led to increased financial obligations and angst. Product mix for most automakers is still very undesirable in a weak economic environment. One I expect will continue well longer than anticipated.
I still believe Honda remains the best positioned global car company should a significant downturn develop. Yet, I remember some on Wall Street telling us Honda could not survive without a global partner at the time Daimler was buying Chrysler. The premise being Honda did not have the economies of scale to compete with a consolidating auto industry. That argument was completely ridiculous. What a surprise. In a bit of irony, Ford has now sold off all of its premium brands at a time when I believe we could be seeing a major peak in premium auto sales for years to come. Did Ford see this coming or was it simply coincidence?
While everyone was fawning over Toyota in 2006 and early 2007, our view was that Toyota's stock had been priced to perfection. And, the days of taking candy from a baby were over. They were and they are as reflected in the significant drop in Toyota's stock price. American auto companies were in the midst of massive efforts of finally rationalizing their business models and unlocking the economic capital within their organizations. Oh, and as many were pumping Toyota's stock in 2007, car sales in Japan at that time were the worst in thirty years. That's right three zero. No one ever told us that now did they? But, hey, no need to worry. It's all good.
One month does not a trend make but we are now seeing Toyota's sales drop significantly. Toyota has now fallen to number three in U.S. sales. As we wrote some time ago, Toyota is very vulnerable because of its aggressive move up market and into sport utility vehicles. Toyota and Nissan have grown to be very reliant on aspirational consumers in the U.S. And, amongst other factors, I'm not sure aspirational consumer tastes can be defined by prior trends to larger vehicles. As an example, do many aspirational consumers still view sport utility vehicles with primary appeal? Possibly not. Society is now recognizing excess has possibly led to an endangered planet. Or has possibly led to increased financial obligations and angst. Product mix for most automakers is still very undesirable in a weak economic environment. One I expect will continue well longer than anticipated.
I still believe Honda remains the best positioned global car company should a significant downturn develop. Yet, I remember some on Wall Street telling us Honda could not survive without a global partner at the time Daimler was buying Chrysler. The premise being Honda did not have the economies of scale to compete with a consolidating auto industry. That argument was completely ridiculous. What a surprise. In a bit of irony, Ford has now sold off all of its premium brands at a time when I believe we could be seeing a major peak in premium auto sales for years to come. Did Ford see this coming or was it simply coincidence?
While everyone was fawning over Toyota in 2006 and early 2007, our view was that Toyota's stock had been priced to perfection. And, the days of taking candy from a baby were over. They were and they are as reflected in the significant drop in Toyota's stock price. American auto companies were in the midst of massive efforts of finally rationalizing their business models and unlocking the economic capital within their organizations. Oh, and as many were pumping Toyota's stock in 2007, car sales in Japan at that time were the worst in thirty years. That's right three zero. No one ever told us that now did they? But, hey, no need to worry. It's all good.
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