The Great Toyota Guessing Game

Was it one of those "gaffes" where the speaker erred by telling the truth? Toyota (NYSE: TM  ) spokesman Mike Goss was quoted in a flurry of news reports on Monday saying that a temporary shutdown of all of Toyota's U.S. factories was "inevitable" due to parts shortages resulting from the Japanese crisis.

Toyota HQ quickly responded with a short, tart statement saying that it was still "too early" to tell if shutdowns were going to be necessary or at which exact locations they might occur, but the damage was done:  Toyota's shares dropped sharply, and stayed down through Thursday.

While the stock's price picked up a bit on Friday after the company announced that it would be temporarily re-opening all of its Japanese plants on a limited basis, it's still hard to do more than guess at how bad things are likely to get for Toyota.

But the episode earlier this week was an ominous hint.

Toyota's in trouble. But how much?
The problem, in a nutshell, is this: The large, ongoing disruption in electric power supplies caused by the Japanese earthquake and tsunami has wrought havoc on supply chains in several different industries. It's not just the automakers -- reports on Tuesday suggested that Apple could be facing a shortage of iPad batteries as a result of the quake, and Japanese firms ranging from tiny parts makers to giant Sony (NYSE: SNE  ) are struggling to resume production -- but the industry's unique just-in-time supply structure means that car manufacturers have been especially hard hit.

And Toyota may well be the hardest-hit of all. But so far it's hard to tell: As I said last week, there are good reasons for the automakers to be coy about the problems they anticipate, and it may be a few weeks before the extent of the issues become clear. But as of Friday morning, here's what we do know:

  • Japan restarting -- sort of. Toyota has 18 factories in Japan making cars and components. As of right now, only a couple of those factories are open, and those are running at less than full capacity. All of the rest will re-open on April 18 -- but they'll only be running at 50% capacity, and only until April 27.  What happens then? Toyota hasn't said.
  • North America running -- for now. Toyota's 13 North American factories are all open as of right now, though overtime production has been eliminated to conserve parts.
  • Parts still scarce. The company said on Friday that it is still struggling to obtain key types of parts.  However, the situation improved markedly over the figure initially estimated.
  • Some cars hard to get. Gas prices are up. Want a Prius? Good luck getting one: Although the Japanese plant that makes the popular hybrid was among the first to start running after the disaster, supplies of the car are very short. And they may remain short for a while, at least here: The supplier factory that makes the batteries used in the U.S. version of the car is among the damaged plants.

Of course, Toyota's not alone.

The effects are still spreading
Honda
(NYSE: HMC  ) and Nissan (OTC: NSANY.PK) are both running at about half capacity in Japan, and Honda's president said on Friday that it may be "a few months" before production is back up to speed. Honda's 8 North American plants are running at reduced capacity as well, and U.S. dealers have been told not to order Japan-built models, including the popular Fit.

So is this an opportunity for investors to grab shares of Honda or Toyota? The lack of clarity makes me hesitate to say yes, at least for the moment. Normally, nearly all Japanese firms report their annual results and give forecasts for the coming year in late April. But this year, many (including Toyota and Honda) are expected to delay reporting (and forecasting) because of the disaster. If you're thinking about buying, I'd suggest watching both carefully -- but holding off for a few weeks at least, until the extent of the problems are a little more clear.

But this might be a time to look at competitors who stand to gain ground. For the first time in ages (maybe ever), General Motors (NYSE: GM  ) and Ford (NYSE: F  ) both have very good, up-to-date small cars in their lineups. Global shortages of the Japanese mainstays could work out especially well for Detroit at a moment when gas prices are rising. GM in particular has been a bit overlooked by the market in recent weeks, and while the General's recovery still has a long way to go, its chances of regaining the global sales crown from Toyota are looking pretty good right now.

Fool contributor John Rosevear owns shares of Apple, Ford, and General Motors. General Motors is a Motley Fool Inside Value pick. Apple and Ford are Motley Fool Stock Advisor recommendations. The Fool has written puts on Apple. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple and Ford. You can try any of our Foolish newsletter services free for 30 days, with no obligation.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2011, at 7:14 PM, NobodysFool111 wrote:

    Speaking of Honda, one of their top suppliers of crankshafts, camshafts, and brake hubs, TFO Tech was located in Fukushima. That plant contained 7 iron forging and 5 aluminum forging press lines. I have no knowledge of the damage it may have suffered in the tsunami or whether it is within the nuclear evacuation zone. I do know that TFO employees in the USA have been warned that hours and days are going to be cut due to lack of materials.

  • Report this Comment On April 08, 2011, at 9:04 PM, baldheadeddork wrote:

    Getting some original financial reporting from someone only known as "everybodypoops". Is the internet great or what?

    Before anyone else says it, I'm also disgusted with myself for saying this - but being forced to run well below capacity for a month (or nine..or twelve) couldn't have come at a better time for the Japanese automakers, especially Toyota.

    Toyota was already looking at a brutal 2011 because Japanese market sales were in a free fall after a large (and long running) incentive program ended last fall. Layoffs in Japan are always very difficult politically and culturally, and it would have been especially hard for Toyota in the wake of their quality debacle last year. Yes, I'm a sleazeball for even thinking of it like this, but the quake and aftermath gives Toyota cover to do what they certainly wanted to do.

    Restoring the power capacity lost with Fukushima will take longer than the automakers and suppliers can wait. But this also plays into their long-standing desire to move more production offshore. It won't be any more popular with Japanese politicians or citizens, but the quake gives them a better excuse than their profit margins alone.

  • Report this Comment On April 09, 2011, at 6:46 AM, TMFMarlowe wrote:

    @baldheadeddork: I keep wondering when Toyota is going to decide that it needs NUMMI back.

    John

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