Toyota's Crowning Achievement

As a symbolic moment, it's probably significant that General Motors (NYSE: GM  ) lost to Toyota (NYSE: TM  ) the title of world's biggest automaker, at least in terms of cars sold. For the first time in 77 years, Toyota moved more vehicles off the lot than did GM, 8.97 million to 8.35 million. But in reality, that moniker is of little use. It only meant that GM had learned how to lose more money on every car sold than its counterpart did.

Heavy is the head that wears the crown
Between the years 2005 and 2007, General Motors lost more than $51 billion while racking up an additional $21 billion in losses through the first three quarters of 2008. Toyota, on the other hand, earned over $40 billion and nearly $8 billion, respectively, over the same periods, although it is expecting to record its first operating loss in 70 years by the time its fiscal year ends in March.

In fact, titles like that are completely meaningless when you're just struggling for survival. GM has until mid-February to come up with a viability plan to submit to Congress so that it can receive additional funding. However, it's still waiting to receive the check for $5.4 billion that was part of the $13.4 billion loan guarantees that the Treasury Department approved in December. While the check should be arriving shortly, GM says that if they don't get it, they'll run out of money, no question about it.

Paved with good intentions
And survival is all that GM, Chrysler, and Ford (NYSE: F  ) are thinking about these days. U.S. automakers saw sales fall in December anywhere from 31% (for GM) to as much as 53% (for Chrysler). But foreign automakers weren't immune either. Toyota was off 37%, Honda (NYSE: HMC  ) was down 35%, and Nissan (Nasdaq: NSANY  ) was running 31% behind last year's numbers. If it keeps up like this, Toyota's title shot may be transient indeed.

The real winner will be the car company that's the smallest, but profitable. Ford started down that road when it sold both Jaguar and Land Rover to Tata Motors (NYSE: TTM  ) and decided to concentrate on being a maker only of Fords. GM is now looking to reduce its brands to a core of just four nameplates: Cadillac, Chevy, Buick, and GMC.

Taking a different path
Chrysler, however, is going a different way. Earlier this month it announced plans to introduce 24 new models over the next four years. It's also looking to produce several lines of small cars with Italian carmaker Fiat -- so long as the government is willing to shoulder the risk. In exchange for technology and cars (but no cash) that Chrysler would then build and sell in the U.S., Fiat will take a 35% stake in the carmaker. But that's contingent on it snagging another $3 billion in government loans based on the approval of a February 17 long-term viability plan. Fiat last made cars for the U.S. market in the early eighties.

Be satisfied with rubbernecking
Big, small, or somewhere in between, the U.S. car market is going to end up a radically different place. Titles won't mean much if consumers aren't driving cars off the lot, meaning investors would be wise to steer clear of any carmaker until someone can offer clear evidence that they know how to sell cars here again.

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Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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  • Report this Comment On January 23, 2009, at 10:45 AM, catoismymotor wrote:

    GM stopped wearing the crown, IMHO, in the mid 1970s. Since then it has been kept in a box held by the UAW. Thanks to obtuse management, stupid union leaders and a customer base that was tired of buying inferior products Toyota, the "brains" of today's automobile industry, has rightfully taken the lead position as top dog. I like Toyota, we have one in our family. I hope Toyota steers away from wearing that crown. It can cut off circulation to the critical thinking centers of the brain. It can also cause one to stoop because of the weight, it will only slow them down.

    If I were to drop some coin on a car company it would be Ferrari. I do not even know if they are publicly traded. They have already sold out their entire production of the new California model. To be able to do that in a worldwide recession and credit crunch combo impresses the heck out of me.

  • Report this Comment On January 24, 2009, at 12:23 PM, lligruts wrote:

    This crown demonstrates that the American consumer doesn't understand the prosperity of their country depends on a home manufacturing base of well paid empoyees who can afford to buy their own products. Sending profits to Japan and Korea may help those economies but we should have own national interest in mind first. You're free in the end to drive what you want....just as you are free to suffer the econonomic impacts of those decisions. Save a few dollars on a Korean car.....lose a few thousand on your property value as jobs are lost for poor decisions.

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